Introduction

The implementation, supervision, and enforcement of EU law are left to the Member States in accordance with the so-called national procedural and institutional autonomy. This “procedural competence” of the Member States means that the Member States have to provide remedies and procedures governing actions intended to ensure the enforcement of rights derived from EU law, provided that the principle of equivalence and the principle of effectiveness are observed. (Case 33/76, Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland (Rewe I), [1976] ECR 1989, para 5.) Competence allocation in the European multilevel governance is politically sensitive (Bakardjieva-Engelbrekt 2009; Cafaggi and Micklitz 2009; Van Gerven 2000), and as such, it has been extensively discussed in the literature and in the case law of the European courts (Jans et al. 2007). (Case C-410/92, Johnson [1994] ECR I-5483, para. 21; Case C-394/93;, Unibet (London) Ltd and Unibet (International) Ltd. [2007] ECR I-2271, para 39; Joined Cases C-430/93 and C-431/93 Van Schijndel and van Veen [1995] ECR-i4705; Joined cases C-295/04 to C-298/04 Manfredi v Lloyd Adriatico Assicurazioni SpA and Others [2006] ECR para 62.) This discussion has mainly addressed the competence allocation between the Member States and the EU and the increasing influence of EU law and policy with regard to procedural and remedial autonomy (Delicostopoulos 2003; Kakouris 1997; Lenaerts et al. 2006; Prechal 1998; Trstenjak and Beysen 2011; Reich 2007; Van Gerven 2000). It has, however, not addressed the question to which authorities of the Member States allocate regulatory powers for the enforcement of EU law and how they organize and structure these enforcement agencies in their national administrative law system. (Institutional autonomy is the Member States’ competence to design their own institutional structure and allocate regulatory powers to public administrative agencies that enforce EU law (Verhoeven 2010). In International Fruit Company II, the CJEU has stated that

[A]lthough under Article 5 of the Treaty the Member States are obliged to take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of the Treaty, it is for them to determine which institutions within the national system shall be empowered to adopt the said measures […] when provisions of the Treaty or of Regulations confer power or impose obligations upon the states for the purposes of the implementation of Community law, the question of how the exercise of such powers and the fulfilment of such obligations may be entrusted by Member States to specific national bodies is solely a matter for the constitutional system of each state

Joined cases 51–54/71 International Fruit Company II 15 December 1971: [1971] E.C.R. 1107. paras 3–4.)

While harmonization and convergence of substantive laws are well advanced, a similar convergence and harmonization of the procedural rules and institutional frameworks have not taken place. In the following sections, first the development of EU law concerning law enforcement will be examined, and then a critical look is taken at the EU’s aim to harmonize the national procedural rules when EU law is enforced. First, it will be examined whether legally it is feasible, i.e., what legal basis can be used in order to further harmonize procedural rules. Second, it will be examined whether harmonizing procedural rules would be more efficient than the existing legal diversity. The economics of harmonization will be applied to assess the top-down harmonization by the EU and comparative law, and economics is applied to evaluate the bottom-up voluntary harmonization of the Member States.

Development of EU Law on Law Enforcement

In the EU Member States, highly convergent and harmonized substantive rules are implemented through diverging procedures and different kinds of enforcement bodies. This decentralized enforcement poses a challenge to the coherent and uniform application of EU law. In an enforcement system where Member States apply divergent procedures and may impose a variety of sanctions and remedies administered by various actors, the effectiveness of EU law, effective judicial protection (Articles 6 and 13 of the ECHR, Article 47 of the Charter of fundamental rights of the European Union which has now been reaffirmed in Article 19(1) TEU), and effective law administration may be at risk. In EU competition law, for example, it has been questioned whether consistent policy enforcement and the effective functioning of the European Competition Network require a certain degree of harmonization of procedures, resources, experiences, and independence of the NCAs (Bakardjieva-Engelbrekt 2009; Cengiz 2009; Gauer 2001; Frédéric 2001). Similarly, in consumer law, the Unfair Commercial Practices Directive 2005/29 has allowed the Member States to establish their own specific enforcement systems. The national enforcement regimes are very diverse: some Member States have predominantly private enforcement; others rely predominantly on public bodies. In accordance with the principles of procedural and institutional autonomy, the Member States can entrust public agencies or private organizations with the enforcement of consumer laws, enabling those institutions to decide on the internal organization, regulatory competences, and powers of public agencies (Balogh and Cseres 2013). The variety of national enforcement architectures is remarkable in light of the far-reaching harmonization goal of the Directive. Moreover, the broader institutional framework comprising of locally developed enforcement strategies may further differentiate the Member States’ enforcement models.

The following two sections will first examine which developments have taken place toward harmonization of law enforcement in the EU and then examine the economic rationale of such harmonization.

Europeanizing Law Enforcement

The influence of EU law on Member States’ procedures and remedies of law enforcement has been gradually growing since 1992 (de Moor-van Vugt 2011) and has been intensified when enlargement to the Central and Eastern European countries in 2004 took place (Bakardjieva-Engelbrekt 2009). According to Nicolaides, enforcement became a priority area of EU policy with the process of enlargement due to the fact that, first, the CEECs emerged from many years of communism and they had to build institutions that were accountable to citizens and functioned in very different environments than in the past. Second, EU integration has progressed, and the impediments in the internal market were found in administrative weaknesses and incorrect implementation of EU law. Third, the legal body of the acquis expanded considerably, especially in the area of internal market, and it made proper enforcement key to make the single market work (Nicolaides 2003, pp. 47–48).

De Moor-van Vugt has identified patterns in the Europeanization of law enforcement. She shows that as from the early 1990s, the Commission began to monitor the Member States’ enforcement of EU law due to insufficient implementation of EU law resulting in fraud with EU structural funds (de Moor-van Vugt 2011). As a result, the Commission implemented a stricter policy which limited the Member States’ procedural autonomy and obliged them to comply with the principles of sincere cooperation, nondiscrimination, and effectiveness (de Moor-van Vugt 2011). The CJEU’s judgment in Greek Maize opened the way for the Commission to lay down obligations for the Member States in consequent directives and regulations that concerned subsidies in order to take appropriate measures in case of infringements of EU law. (Since the CJEU’s judgment in C-68/88 Greek Maize the Member States are required by Article 4 (3) TFEU to take all measures necessary to guarantee the application and effectiveness of EU law. While the Member States remain free to choose the appropriate enforcement tools, they must ensure that infringements of EU law are penalized under conditions, both procedural and substantive ones, which are analogous to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate, and dissuasive. Case 68/88 Commission v Hellenic Republic, Judgment of the Court of 21 September 1989, I-2965, paras 23–24.) De Moor-van Vugt demonstrates that the same pattern of Europeanizing national enforcement models has been followed by the EU in several other sectors such as agriculture, environmental law, financial services, and sector regulations such as telecom and energy (de Moor-van Vugt 2011, p. 72).

The process of Europeanizing enforcement was well visible in the modernization of EU competition law from the late 1990s and further since Regulation 1/2003 entered into force in 2004. The improvement of cross-border enforcement laid also at the heart of the Regulation 2006/2004 on consumer protection cooperation. (Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection, O.J. L 364/1, 9.12.2004.) This Regulation has set up an EU-wide network of national enforcement authorities and enabled them to take coordinated action for the enforcement of the laws that protect consumers’ interests and to ensure compliance with those laws.

Similarly, in the liberalized network industries, the EU gradually extended the EU principles of effective, dissuasive, and proportionate sanctions as formulated in the case law of the European courts to a broader set of obligations and criteria for national supervision in EU legislation. The liberalization of state-owned enterprises has been accompanied by the obligation for Member States to create regulatory agencies in order to maintain elements of public control and to provide reassurance of independence from government in creating a level playing field for new entrants (Gorecki 2011; Scott 2000; Thatcher 2002).

Europeanizing market supervision (Ottow 2012) in the liberalized network industries also obliged Member States to establish independent national regulatory agencies with core responsibilities for monitoring markets and safeguarding consumers’ interests (Micklitz 2009). Member States have strengthened the role of regulatory agencies and have empowered them with a growing number and diversity of regulatory competences. In law enforcement, a shift has taken place from the state to individuals and their collectives and also a shift from judicial enforcement to more administrative law enforcement (Cafaggi and Micklitz 2009).

Harmonization of Law Enforcement

The above-described process of Europeanizing law enforcement in the Member States through the harmonization of national procedural rules has been driven by the EU Commission. However, EU harmonization of civil or administrative procedures faces problems of legitimacy (e.g., private enforcement of competition law in fact is a question of national private law rules, contract, tort, and corresponding civil procedural rules. Case C-453/99 Courage v. Crehan ECR [2001] I-6297) because the Commission lacks the competence and a clear legal basis to harmonize procedural rules. In accordance with the so-called national procedural autonomy and the principle of subsidiarity, the Member States have the competence to lay down private law consequences of EU law infringements as well as the administrative procedures. The Member States provide for remedies to effectuate damage actions, and it is for the national courts to hear cases. (The CJEU has consistently held that

[I]n the absence of Community rules governing the matter, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive directly from Community law, provided that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness)

Joined cases C-295/04 to C-298/04 Manfredi v Lloyd Adriatico Assicurazioni SpA and Others [2006] ECR para 62; Case 33/76, Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer fur das Saarland (Rewe I), [1976] ECR 1989, para 5, Case C-261/95 Palmisani [1997] ECR I-4025, para 27, Case C-453/99 Courage and Crehan, par. 29.)

In accordance with Article 5 TEU, the Union is only empowered to act within the competences conferred upon it by the Treaty. With regard to the harmonization of procedural rules, one could turn to Article 114 TFEU, which forms the legal basis for harmonization measures when such measures have as their objective the establishment and the functioning of the internal market. For example, the Public Procurement Remedies Directives were issued on this legal basis. (Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations, and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts [1989] OJ L 395/33; Council Directive 92/13/EEC of 25 February 1992 coordinating the laws, regulations, and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport, and telecommunications sectors [1992] OJ L 76/14.) However, this Article has been strictly interpreted by the EU courts, and it can be applied only when it can be proved that without the harmonization measures, the functioning of the internal market would be endangered and competition distorted. The CJEU, among others, said that the goal of the Commissions’ intervention has to be precisely stated by explaining the actual problems consumers face in the internal market and the actual obstacles to the free movement principles as well as the distortions of competition. In Germany v. Parliament and Council, the ECJ has explicitly said that

a measure adopted on the basis of Article 100a of the Treaty must genuinely have as its object the improvement of the conditions for the establishment and functioning of the internal market. If a mere finding of disparities between national rules and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competition liable to result there from were sufficient to justify the choice of Article 100a as a legal basis, judicial review of compliance with the proper legal basis might be rendered nugatory. (Case C-376/98 Germany v. Parliament and Council [5 October 2000] ECR-I-8419, para 84; Two years later in the ‘Tobacco Labelling’ judgment when applying the same arguments it approved the adoption of the Tobacco Labelling Directive on the basis of Article 95 EC and it thereby reaffirmed its interpretation of Article 95 as a legal basis for measures of harmonization. Case C-491/01 British American Tobacco v The Queen [2002] ECR I-; Directive 2001/37 on Tobacco Labelling OJ 2001 L194/26 paras 60–61)

Accordingly, the Commission has to precisely define the legal problems by providing clear evidence of their nature and magnitude, explaining why they have arisen and identifying the incentives of affected entities and their consequent behavior.

Since the Amsterdam Treaty Article 81 TFEU can be applied as the legal basis for harmonization of civil procedural law, this legal basis can be used with regard to civil matters which have cross-border implications and in so far as common rules are necessary for the functioning of the internal market. It could be argued that even though this legal basis concerns civil procedural measures, it could be applicable also to administrative procedural law (Eliantonio 2009, p. 4).

Both Article 114 and 81 TFEU require a justification for procedural harmonization measures by showing that the functioning of the internal market is at stake, namely, that the direct effect of substantive EU law might be at risk and market competition would not take place on equal terms, unless at least some minimal requirements concerning procedure were upheld in all Member States, then there would be adequate grounds to support the introduction of harmonized remedies in national courts. Accordingly, in order to decide upon the necessity of EU harmonization measures in the field of procedural law, the negative effects of diverging judicial remedies for European integration should be estimated.

Procedural differences in the Member States could be justified by their impact on business actors. Competition would be distorted when business actors have to reduce their business in a certain Member State because of the difficulty that they might encounter in enforcing EU law. Consequently, the benefits of harmonized procedural rules may be transparency and legal certainty which might be appreciated especially from the perspective of economic policy and competition.

It is the next section that will discuss these economic arguments of harmonization and legal diversity.

The Economics of Harmonization

As mentioned above, in EU law, the harmonization process is governed by the principles of subsidiarity and proportionality. These principles have been argued to entail a cost-benefit analysis of legislation and require to minimize transaction costs (Van den Bergh 1994). The economics of harmonization discusses the costs and benefits of legal diversity and harmonization. It addresses the optimal level of intervention by applying the economic theory of federalism as extended to the theory of regulatory competition.

The idea that decentralized decision making may contribute to efficient policy choices in markets for legislation was first formulated by Tiebout in his seminal article on the optimal provision of local public goods (Tiebout 1956). (This economic theory argues that local authorities have an information advantage over central authorities, and, therefore, they are better placed to adjust the provision of public goods to the preferences of citizens. Under certain strict conditions, the diffusion of powers between local and central levels of government favor a bottom-up subsidiarity. The economics of federalism deals with the allocation of functions between different levels of government. Tiebout argued that buyers “vote with their feet” by choosing the jurisdiction which offers the best set of laws that satisfy their preferences. The economics of federalism rests upon a number of assumptions. When the “Tiebout conditions” are fulfilled, competition between legal orders will lead to efficient outcomes. There has to be a sufficiently large number of jurisdictions among which consumers and firms can choose. Consumers and firms enjoy full mobility among jurisdictions at no costs. Last, there are no information asymmetries, which on the one hand means that states have full information as to the preferences of firms and citizens, and on the other, suppliers of production factors must have complete information on the costs and benefits of alternative legal arrangements. Only in the presence of these information requirements will consumers and firms be able to choose the set of laws, which maximizes their utility or profit. Further, no external effects should exist between states and regions. There must be no significant scale economies or transaction savings that require larger jurisdictions.) Tiebout’s model has been extended to legal rules and institutions. The theory of regulatory competition applies the dynamic view of competition to sellers of laws and choice between legal orders offering a number of criteria to judge whether centralization or decentralization is more successful in achieving the objectives of the proposed legislation (Van den Bergh 1994, 1996, 2002). In this section, these criteria will be applied to the Commission’s harmonization proposals in order to consider the likely costs and benefits of top-down rule-making.

One reason to harmonize procedural rules is that these rules differ across countries that they may lead to adverse externalities for other Member States. Such negative spillover effects might be present with regard to different procedures as well. While such negative externalities can be internalized by harmonization, bargaining between the Member States can also solve this problem. According to the Coase theorem, when property rights are well specified, transaction costs are low and information is complete and bargaining can be an efficient solution (Van den Bergh and Camesasca 2001, p. 132).

Another reason in favor of harmonization is that different legal rules carry the risk of destructive competition. Such a “race to the bottom” development has often been linked and criticized as a result of competition among jurisdictions. It has been argued that competition among legal rules drives social, environmental, cultural, and other standards down. This argument has been mainly embraced in international corporate law by making reference to the “Delaware effect.” However, the risk of such declining levels of standards has not yet been proved, and the little empirical evidence is not conclusive enough (Wagner 2005; Josselin and Marciano 2004, pp. 477–520; McCahery and Vermeulen 2005). Furthermore, international trade may even stimulate race to the top (Van den Bergh and Camesasca 2001, pp. 153–154). Gomez also argues that the outcome of such competitive process cannot be examined without taking into account the relative power of the affected groups (Gomez 2008). Such competition might not harm powerful and well-organized groups but could have different effects for small- and medium-sized enterprises and consumers.

A third argument often raised to support harmonization is to achieve scale economies and to reduce transaction costs. Transaction costs can be high when firms and consumers have to search and comply with different sets of national rules. In the case of uniform rules, the search costs of information could be saved, and complying with one set of rules can achieve scale economies. Uniform rules can guarantee more stable and predictable jurisprudence and considerably contribute to transparency and legal certainty.

In particular, it has been argued that business would profit from clear and transparent system in which they would be able to enforce their claims against public authorities all over Europe pursuant to the same procedural rules (Eliantonio 2009, p. 6). This raised the question whether procedural harmonization may be pursued in a “compartmentalized” way for specific policy areas. With regard to the private enforcement of EU competition law, two remarkable suggestions were made. Both concern a separate harmonization of economic torts or in the present case economic administrative procedures. Heinemann proposed that general tort rules of the DCFR could be examined against the backdrop of the special needs of competition law (Möllers and Heinemann 2007, p. 377). Boom proposed a compartmentalized approach to work with the existing modest body of European tort law. By addressing the policy issues involved in each of these torts one by one, the European Union can make harmonized tort law more attainable. He pointed out that a likely candidate for harmonization is the category of economic torts, such as the protection of intellectual property through tort law, liability for infringement of competition rules, and the liability for misleading advertising (Van Boom 2008, pp. 133–149).

However, transaction costs can be especially relevant for large firms operating in interstate commerce, the same might not hold for small- and medium-sized undertakings operating mainly in national markets or for consumers. Therefore, as mentioned above, the impact of such harmonization also has to be analyzed with having regard to the relative power of the affected groups.

Furthermore, while uniform rules help to maintain economies of scale, which is an important argument for centralization, but they can only be advantageous from an ex ante perspective, when neither the Member States nor the Community have as yet adopted certain legislation (Van den Bergh 1998). This is neither the case with regard to administrative or civil procedural rules, which are rooted in old legal traditions and characteristics of the different legal systems.

When all parties in one region have identical preferences, cost efficiency considerations might point to harmonizing through one single instrument that suits all. This is clearly in-line with the preferences of the business community as they are in favor of uniform rules. However, the preferences of consumers and public administration can significantly diverge. In fact, it has been argued that the legal systems of the Member States are built through habits, customs, and practices which dictate how law is going to be interpreted (Legrand 2002, p. 230), and that public law “has particularly deep roots inside a cultural and political framework” (Harlow 2002, p. 208). This is clearly the case with regard to enforcement bodies as these are a wide variety of institutions that enforce EU law in the Member States (Cseres 2013; Balogh and Cseres 2013).

Accordingly, the possibility of achieving a common procedural (administrative or civil) law in Europe is doubtful because the political conditions are missing and because the national legal systems are based on very different conceptions (Eliantonio 2009, p. 8). The same is true for bridging the gaps between the various economic policies and institutional settings. Harmonization of administrative procedures might conflict with legitimate national interests, such as the need to protect fairness and efficiency in the administration of justice (Eliantonio 2009, p. 7). Due to these fundamental differences in national administrative procedures, it would be very difficult to agree on common rules for all 27 jurisdictions, and in fact, it has been argued that “a general codification could be achieved only by reducing the requirements to the level of a common denominator, in which case it would prove as a barrier rather than an asset for an effective and uniform enforcement of Community law” (Schwarze 1996, p. 832). Moreover, some Member States may prefer to implement criminal law procedures for the enforcement of most severe law violations as this is the case already in a significant number of Member States concerning consumer, environmental, or even competition law.

In sum, there are not sufficient economic arguments in favor of harmonization, but there are good economic arguments in supporting legal diversity. One such argument is that a larger set of legislations can satisfy a wider range of preferences which leads to allocative efficiency. The broad range of preferences can easily be seen behind the various different regulations on unilateral conduct, but it also holds for administrative procedures. Another argument is information asymmetries that support decentralization by maintaining the principle of subsidiarity and procedural autonomy. When information at local level is more valuable for rule-making and law enforcement, decentralization is more efficient. Competition between these legal rules has the advantages of a learning process. National laboratories produce different rules that allow for different experiences and that can improve the understanding of alternative legal solutions. (Justice Brandeis’ famous metaphor for states as laboratories of law reform and his plea for decentralization has been laid down in his dissenting opinion in New State ice Corp. v. Liebmann, 285 US 262, 311 (1932).)These advantages are relevant for both the formulation of substantive rules as well as law enforcement. Moreover, legal diversity and competition does not necessarily exclude harmonization. In fact, dynamic competition between legal rules can lead to voluntary harmonization which in turn can be more effective and successful than forced coordination of legislations. Instead of forced harmonization, the Commission could guarantee the conditions for regulatory competition and let this process work up to voluntary harmonization. These conditions could in fact be ensured within the various European networks of national regulatory agencies that were set up in the last decade.

Voluntary Harmonization

This section will analyze the underlying rationales of voluntary convergence by making use of insights from comparative law and economics.

Comparative law and economics compares and evaluates the law of alternative legal systems with the “efficient” model offered by economic theory (Mattei et al. 2000, pp. 506–507) (Mattei 1994). Comparative law and economics deals with “legal transplants” by measuring them with the tool of efficiency, and it offers an economic analysis of institutional alternatives tested in legal history (Komesar 1994). It “deals with the transplants that have been made, why and how they were made, and the lessons to be learned from this.” While it offers comparative lawyers the measuring tools of economics, it, at the same time, places the notion of efficiency in a dynamic perspective by offering a comparative dimension with concrete alternative rules and institutions (Watson 1978).

The insights of comparative law and economics offer a dynamic approach to study legal divergence and convergence and compare that against the benchmark of efficiency offered by economics. In order to explain convergence between different legal systems that depart from different points, it uses economic efficiency to evaluate changes that are so-called legal transplants in a legal system. Convergence between different legal rules toward an efficient model may take place as a result of a legal transplant or as an outcome of a competitive process between different legal formants (Mattei et al. 2000, pp. 508–511). In the first case, legal transplants are implemented because they proved to be efficient in other legal systems. In the second case, convergence toward efficiency is the result of the interaction between different legal formants. So while legal transplants are governed by hierarchy, the second scenario is governed by competition among legal formants (Mattei et al. 2000, pp. 510–511).

In EU competition law, for example, the Member States voluntarily harmonized various elements of their national administrative procedures (European Competition Network 2013). Yet, this convergence exhibits some shortcomings in terms of the benchmark it uses and in terms of the methods to achieve convergence. First, convergence between the different national rules uses Regulation 1/2003 and some accompanying soft-law instruments as its benchmark. Thus, convergence so far took place through legal transplants imposed by the Member States and by in fact implementing similar procedural rules as those of the Commission’s. The underlying reasons might be that once these rules and enforcement methods work effectively and efficiently in the hands of the Commission, they will prove successful in the hands of the NCAs as well. However, the efficiency of these rules and their comparative advantage vis-à-vis other national rules has neither been analyzed nor confirmed. Furthermore, the success of such legal transplants is not guaranteed in the different institutional frameworks of the Member States, where agencies often have to divide resources between several legislative competences. The actual outcome of enforcement depends heavily on the existing institutional framework (Cseres 2014a, b).

The influence of the institutional framework also plays a role in measuring actual law enforcement and in understanding why a certain legal rule proves to be successful or fails in different institutional contexts (Stiglitz 2002; North 1995, p. 13).

Despite the blueprint convergence of procedural rules, the NCAs could not or did not actually enforce these rules due to certain constraints present in their institutional framework. The strengthened enforcement tools have not always delivered the expected results in actual enforcement. This is, for example, the case with regard to the power to investigate private premises (Commission Staff Working Paper, par. 202.). Similar experience has been found with regard to leniency programs which are often praised as the model for procedural convergence in EU competition law and a clear result of the cooperation mechanism within the European Competition Network (Cseres 2014a, b).

Convergence of national laws in EU competition law is also steered from the center by the Commission establishing the EU rules as the benchmark for harmonization (Cseres 2014a, b). While the Commission was seemingly decentralizing enforcement powers, in fact it has retained a central policy-making role but without a control mechanism.