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Regulatory Management Practices in the European Union

This profile of regulatory management approaches in the European Union is one of a series of short papers on regulatory management practices in selected OECD countries, prepared for the Canadian External Advisory Committee on Smart Regulation. In addition to the individual country profiles, the series is completed by a summary document, "International Trends and Innovations in Regulatory Management," based on a review of regulatory management practices in Australia, Finland, the United States, the United Kingdom and the European Union.

Prepared by The Regulatory Consulting Group Inc.
for the External Advisory Committee on Smart Regulation
Ottawa, Canada
June, 2003



The process toward European integration was initiated in May 1950 when France proposed the creation of a European federation of states originally comprising Belgium, Germany, France, Italy, Luxembourg and the Netherlands. Today, there are fifteen member states. Denmark, Ireland and the United Kingdom joined in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Finland and Sweden in 1995. By May 1st 2004, ten new member states1 from the eastern and southern European nations will join the Union while negotiations are currently underway with two additional countries2 of the region for future membership. Today, the EU represents approximately 374 million people. The coming enlargement will add another 105 million people to the total EU's population.

The EU does not represent a new super state. It does not replace existing states, nor is its form likely comparable to other international organizations. Its Member States delegate sovereignty to common institutions representing the interests of the Union as a whole on questions of joint interest. All decisions and procedures are derived from the basic treaties ratified by the Member States. As such, its collective approach to regulatory reform that best accommodates the interests of member states makes this institution an interesting candidate for research as it may provide some clues as to how to approach reform within federative states.


1. Structure of Government

It is important to appreciate the functioning and division of powers among the various institutions of the EU in order to fully comprehend the manner in which regulatory reform is accomplished and decisions are made. The overall objectives of the EU are:

  • To establish European citizenship: by establishing common fundamental rights of membership, freedom of movement, and common civil and political rights;

  • To ensure freedom, security and justice: by ensuring cooperation and harmonization in the areas of justice and homeland affairs;

  • To promote economic and social progress: by creating a single economic market and currency, instituting EU-wide job creation, regional development and environmental protection; and,

  • To assert Europe's role in the world: by fostering common foreign policy and security.

It achieves these objectives through five principal governing institutions: The European Parliament, the Council of the Union, the European Commission, the Court of Justice, and the Court of Auditors. Decision-making proposals are submitted hierarchically from the European Commission to the Council, and then to Parliament for approval.

i) The European Parliament

The European Parliament comprises 626 representatives elected for a five-year term. The signing of the 1992 Maastricht Treaty allowing member state citizens to vote and stand for election regardless of residency, and the 1997 Amsterdam Treaty which, among other things, provided the EU with some oversight responsibilities have transformed the European Parliament from a purely consultative assembly into a legislative parliament, exercising powers similar to those of the national parliaments. Members sit according to membership in one of the seven current political groups or as an "unattached member." An elected President leads the Parliament. Parliament shares legislative power with the Council of the Union through a process of "co-decision," which covers the following areas of European legislation: the free movement of workers, the establishment of the internal market, research and technological development, the environment, consumer protection, education, culture and health. However, Parliament can only submit an opinion in the areas of taxation and the annual farm price review

ii) Council of the Union

The Council of the Union, referred to as the European community's legislative body, is composed of one representative from each member state at the ministerial level who is accountable to the national Parliaments and who is empowered to commit his Government to EU legislation. The Council is responsible for coordinating the general economic policies of member states. In addition, it concludes international treaties and agreements between member states or international organizations and, with the European Parliament, constitutes the budgetary authority of the EU. The Council typically meets two to four times annually, depending on the urgency of issues to be discussed. The Council is led by a President elected on a rotating basis from each member state for a six-month term.

Council's legislative acts may take the form of regulations, directives, decisions, recommendations or opinions, which are prepared by the Permanent Representatives Committee (COREPER). COREPER meets weekly to coordinate the work of approximately 250 committees and working parties comprised of civil servants from member states. The Committee prepares the technical advice to be used by the Council. The Committee consists of the Permanent Representatives of the Member States and their Deputies and operates out of Brussels. The Council is currently undergoing reform to accommodate expansion of membership to the EU.

iii) European Commission

The European Commission is composed of twenty members, including the President and two Vice-Presidents, who are appointed every five years by the European Parliament. It is the public administration arm of the EU, responsible for proposing legislation to the Council and Parliament, administering and implementing Community policies, enforcing Community law jointly with the Court of Justice, and representing the EU in the negotiation of international agreements (mainly in the areas of trade and cooperation). The Commission is administered through a central Secretariat led by a Secretary-General accountable to the Commission. Responsibility centers are headed by Directors-General answerable up-the-line to the relevant Commissioner, much like Cabinet government.

The Commission prepares proposals in the areas of transportation, industry, social policy, agriculture, environment, energy, regional development, trade relations, and development cooperation. It makes policy based on the principle of subsidiarity in areas where Community-level action is regarded as more effective than if taken at national, regional, or local levels.

The Commission is the European Union's executive in all the fields in which the Union acts, but its role is particularly important in certain sectors such as competition policy (i.e., including the monitoring of cartels and mergers, and removing or monitoring discriminatory state aid), agricultural regulations, and technological research and development. The Commission monitors compliance with the Community's competition rules under the supervision of the Court of Justice.

iv) Court of Justice

The Court of Justice is composed of one judge per member state in order to represent the various legal systems. It is aided by eight advocates-general whose role is to present reasoned opinions before the court. The judges and advocates-general are appointed by joint agreement of member states' governments for a renewable term of six years, with partial re-appointment every three years. The Court's role is to ensure the law is observed in a way that complies with the treaties. It, therefore, plays a decisive role in cases of diverging interpretations of Community's legislation.

v) Court of Auditors

The Court of Auditors is composed of 15 members appointed by the European Council for a renewable six-year term and led by a President selected by appointees for a three-year term. It is responsible for monitoring the appropriate implementation of the EU budget, and ensuring the sound financial management and transparency of the Community's financial management system. It role approximates that of Canada's Office of the Auditor-General.

vi) Advisory, Ombudsman and Financial Institutions

In addition to the five governing institutions, five other advisory, ombudsman and financial institutions also contribute to the legislative decision-making process. The recent creation of the advisory bodies is a result of extended negotiation aimed at improving the democratic participation of civil society, business, and other groups into the decision-making process.

The other bodies are:

  • the European Economic and Social Committee, which is an advisory body that expresses the opinions of organized civil society on economic and social issues;

  • the Committee of Regions, also an advisory body, that expresses the opinions of regional and local authorities on regional policy, environment and education;

  • the European Ombudsman, who deals with complaints from citizens concerning improper administration;

  • the European Investment Bank, which contributes to EU objectives by financing public and private long-term investments; and,

  • the European Central Bank which is responsible for monetary policy and foreign exchange operations.

2) Legislative Decision-Making Processes

The following provides a description of legislative decision-making processes that provides an understanding of the relationships among the different bodies. The EU uses three general decision-making processes: co-decision, assent, and consultation. The choice of decision-making procedure depends on the legal basis of the initiative, which is determined by the European Commission based on objective criteria subject to judicial review. Such differentiation is significant for determining the appropriate role of the legislative bodies. For example, Parliament can only give its opinion with respect to a consultative procedure as opposed to acting as a co-legislator with respect to the co-decision procedure.

i) The Co-Decision Procedure

The co-decision procedure was introduced by the Maastricht Treaty 1992 and its terms of usage laid out in the Treaty of Amsterdam (1997). The decision-making process is summarized as follows:

  • The Commission proposes a legislative text;

  • First Reading: Parliament adopts a position based on the findings of the relevant committee and proposes changes where required;

  • Second Reading: Parliament approves, rejects or amends the Council position by an absolute majority of its Members (314 votes) and submits the amended proposal to the Council, which can accept the amendments or modify the proposal, but modifications must be passed unanimously;

  • In the event of disagreement, a conciliation committee comprising members of the Council and a delegation from Parliament meets for a maximum of six weeks to work out a joint text.

  • Third Reading: If no agreement is reached, the Community law proposal is deemed not to have been adopted and is allowed to lapse.

ii) Assent

The assent procedure was introduced by the Single European Act 1986 and requires that the Council obtain the European Parliament's assent before certain decisions are taken. Parliament can accept or reject a proposal, but cannot amend it.

iii) Simple Consultation

Simple consultation requires that the opinion of the European Parliament be sought. Once it has received this opinion, the Commission can amend its proposal accordingly. The proposal is then examined by the Council, which can adopt it as it is or amend itt. However, if the Council decides to reject the Commission proposal, its decision must be unanimous. The areas where this procedure applies are: police and judicial cooperation; revision of treaties; enhances economic cooperation; discrimination; EU citizenship; agriculture; visas, asylum, immigration and other policies associated with the free movement of persons; transportation, especially those policies likely to have an impact on standard of living and employment in certain regions; competition rules; tax arrangements; and, economic policy.

3. Rule-Making Processes

i) Rule-Making Policy Instruments

Legislative decision-making is the product of interaction among the European Parliament, the Council of the European Union and the European Commission. The Court of Auditors, the Economic and Social Committee, the Committee of the Regions, the European Central Bank and the Economic and Financial Committee intervene in specific areas as appropriate. The rules for decision-making are laid out in the Treaties, which specify EU jurisdiction. The European Commission is responsible for the preparation of proposals for consideration, their implementation and enforcement within the specific responsibility centers under the Directorates-General. EU regulatory policy is set out in the Regulatory Policy Guidelines, issued in 1996 by the President of the European Commission, which are applied to new legislation. The aim of the Guidelines is to ensure that all legislative texts are consistent and of proper quality; that the drafting policy is open, planned, and coordinated; and that monitoring and evaluation are thorough. However, there is no legal requirement to conduct regulatory impact analysis.

The European Union uses two principal instruments to regulate: directives, and regulations. If a proposal warrants European Union protection of the public interest and is deemed of supranational importance, the European Council and Parliament may determine that regulation is appropriate. Regulation supersedes Member State laws and must be enforced. Directives also hold the weight of law but prescribe a process and standards to be implemented at the national state level. It is the responsibility of national states to incorporate the directives into state laws and institutions. The use of directives affords Member States the ability to choose the most appropriate means of implementation and the manner in which such laws are to be enforced taking into account their respective national legal and administrative cultures. To fulfill the subsidiarity principle enshrined in the Treaty, directives, which are destined to replace existing national legislation, are the main instrument of choice (they are used for approximately 7 proposals out of 10). Having established rules for an open economic market, the Commission is now issuing substantive regulatory directives, particularly in dealing with the environment.

ii) Hierarchy of Rule-Making

The rule-making process is based on the following hierarchy of legislation:

European Level:
  • Council Regulations
  • Council Directives
  • Commission Regulations
  • Commission Directives
National Level:
  • Transposition of EU Legislation
  • National Laws
  • Government Ordinances
Central Government Agencies:
  • Official Regulations
  • General Recommendations
Subsidiary Legislation:
  • Regional Government Regulations
  • Municipal Government Regulations
  • Collectively Agreed Regulations
  • Local Government Laws and By-Laws
  • Local Government Agency Regulations

In addition to EU legislation, the World Trade Organization and International Labour Organization also impose rules that originate in bilateral and multi-lateral international agreements and that are subsequently transposed into EU's law. Harmonization of diverging national rules remains the main reason for EU's legislation although, according to the Economic and Social Committee, the current priorities focus on simplification of the regulatory environment, quality of regulations, improving the legislative process, decentralization of executive functions to specialized agencies, consultation and regulatory impact analysis.

3. Member State Regulatory Responsibilities

Member states are responsible for implementing the regulatory directives proposed by the European Commission and approved by the Council and the European Parliament. Under its executive functions, the Commission ensures that European legislation is applied appropriately at the Member state level.. The Commission initiates action against those states that do not comply with Community obligations under the treaties. In cases where a mutual settlement cannot be reached, the matter is referred to the Court of Justice whose decisions are binding.

4. European Union Values

As a general rule, the basic principle followed by the European Union legal order is to rely on the application of mutual recognition of member states legislation for as long as national rules do not generate obstacles or distortions to the proper functioning of the internal market. Only when such circumstances occur, will the European Commission take the initiative of proposing Community legislation under the "Community Method" which guides legislative action and decision-making.

This method emphasizes the fair treatment of all Member States, from the largest to the smallest, by providing the means to arbitrate among different interests through two filters: the general Community's interest at the level of the Commission; and the national and democratic representation at the level of the Council and European Parliament. The independent nature of the European Commission ensures that the integrity of the treaties is protected while the Council and European Parliament represent the democratic interests of member states.

A pre-requisite for Community legislative and regulatory action is to ensure compliance with the fundamental principles of proportionality and subsidiarity. Proportionality supports the Community Method of legislative action by considering the fair and proportionate application of impacts, administrative burden and responsibilities among the Member States. Subsidiarity requires that responsibilities for legal action be assigned to the most appropriate level of government which can vary from the highest (Community) to the lowest (closest to the recipient or citizen). These decision-making criteria apply to all EU policy.


1. Background

Regulatory reform has been a priority of the European Union since the 1980s as business and citizens complaints increased regarding the proliferation of national rules impeding competition, the proper functioning of the Internal Market and creating significant administrative burden. A recent survey of business opinion in 2001 estimates that European companies could save at least EUR 50 billion with better quality regulation, which is equivalent to a reduction of 15 percent in the compliance costs incurred by companies. Aside from the costs of regulation on business, additional costs are borne by the public administration of the EU in the form of inefficiencies arising from poor regulation. The European Commission has estimated that the cost to society of poor quality regulation could be of the order of 10 percent of GDP.3

Several reform exercises have been initiated to address the EU's poor performance in the area of competition. In 1992, the Edinburgh European Council identified approaches to simplify and improve the regulatory environment. New and less prescriptive forms of regulation, such as the "New Approach" for establishing product safety standards, Framework Directives, and the use of "Home Country" supervision and Internal Market "passports" in key service sectors were among the initiatives designed to improve the regulatory environment and processes. With respect to assessing impacts of regulation, the "Business Impact Assessment" (BIA) was adopted for new legislation.

In 1995, the Molitor Report set out eighteen general recommendations for improvement in response to the Edinburgh Council, which, according to the European Economic and Social Committee, were "put on the backburner" until 2002 with the preparation of a Better Regulation Action Plan.

In May 1996, the Simpler Legislation for the Internal Market (SLIM) Initiative was launched with the objective of identifying ways in which internal market legislation could be simplified. Its purpose was to determine how best to simplify the regulatory environment, and improve the performance of public administration, at both the national and Community level. It also proposed that all legislation be subject to assessment.

In March 2000, the Lisbon European Council set the task for the EU to become the most competitive and dynamic knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion. This goal was reiterated at the Santa Maria de Feira conference in June 2000, emphasizing the important role that better regulation must play in achieving a more competitive economy. In addition, the European Councils of Stockholm of March 2001, Laeken in December 2001, and Barcelona in March 2002 stressed the need to create a coordinated strategy to simplify the existing regulatory environment at the Community level. On each occasion, the Commission was asked to draft a regulatory action plan. In addition, a declaration attached to the Maastricht Treaty called for the Commission to undertake cost-benefit analysis in its legislative proposals.

Progress involving finding ways to simplify internal market legislation was determined to be limited. According to a recent report on the outcome of the fifth phase of the SLIM Initiative, "Improving and Simplifying the Regulatory Environment," only five member states had taken initiatives to simplify national legislation based on the Community Regulations and Directives reviewed during the fifth phase and, even in these cases, information is limited regarding the cost savings to users. In the opinion of the Economic and Social Committee, the evidence appears clear that there is a need to improve processes aimed at legislative and regulatory simplification.

In accordance with the mandate issued by the European Council at Lisbon and confirmed and extended at Stockholm, Goteborg, Laeken and Barcelona Summits, a review was conducted by the European Commission into simplifying and improving the regulatory environment in 2001. An action plan was drafted in 2002 resulting from recommendations proposed in the SLIM Interim Report of March 2001, the White Paper on European Governance adopted in July 2001 (i.e., particularly the section entitled, "Better Policies, Regulation and Delivery," and a political communication submitted to the Laeken European Council in 2001.

Four essential themes were identified in each of these initiatives: simplifying the regulatory environment, improving the quality of Community legislation, and developing a common legislative culture within the EU, including the transposition and application of Community law. These themes indicate that there has been a shift in focus from improving competitiveness in the EU for business, to improving the architecture and performance of institutions that function within this newly created environment.

2. Simplifying the Legislative and Regulatory Environment

European legislation lies at the hart of the Union's economic and political integration. It has created major rights for citizens and businesses and has opened up markets across Europe. In many areas, it has allowed 15 disparate sets of national laws to be concentrated into a single piece of legislation applying across the Union. Yet, European citizens and businesses often criticize such body of legislation they perceive as being unnecessary, burdensome and overly complex not always distinguishing between Community law as such and Member States' transposition of that law into national legislation. Over the years such perceptions translated into increasing demands for the EU law to be reduced and simplified.

Although relatively modest as compared to the accumulated legislative bodies of each if its 15 Member States, Community law is contained within the so-called "Acquis Communautaire". By the end of 2002 such body amounted to some 97.000 pages of secondary legislation (i.e. European regulations, directives and decisions), with about 2,500 new pages of legislation generated yearly. Owing to its increasing complexity and often overly excessive level of detail in certain basic acts that results from difficult drafting compromises during the legislative approval process, each of the Summits came to the same conclusion-such volume is cumbersome for users considering, in particular, the coming enlargement process and the competitiveness objectives pursued by the Community. A number of initiatives have been undertaken to reduce and simplify the volume of legislation through consolidation, codification, redrafting, and simplification.

Consolidation involves the grouping together in a single, non-binding text the given provisions of a specific regulatory instrument spread among the first legal act and subsequent amending acts. Individual Directorates-General, such as Agriculture, have been consolidating legislation in specific areas since at least 1999 and are expected to continue this task for several years.

With respect to codification, or the adopting of a new legal instrument that brings together a previous instrument and successive amendments in a single text without changes to substance, an inter-institutional agreement on codification was concluded in December 1994. As a result of the agreement, a major codification programme was launched in November 2001 to clarify the law by bringing together in a single new legal act all the provisions of the basic act and its subsequent amendments. Since the founding of the EU, the Acquis Communautaire has never been reviewed for organization, structure or presentation. To date, approximately 40 percent or 35,000 pages has been codified and consolidated. By 2005, it is expected that a completed Acquis will be available for approval by Parliament. The objective is to create a simple, readable and transparent Acquis available in all Community languages. In addition, it is expected that a new database and management system will be prepared to allow Member states to view the Acquis on-line.

With respect to recasting, a single legal act would be adopted that makes the required substantive changes and codifies them with provisions remaining unchanged from the previous act. The Inter-Institutional agreement of April 2002 proposes a more structured use of the recasting technique for legal acts (i.e., Sec(2001) 1364).

Simplification means seeking, with the benefit of hindsight, making the substance of legislation simpler and more appropriate to user requirements. The SLIM programme was expected to simplify legislation. However, results were limited.

The Commission proposed in its Action Plan the twofold objective of simplifying the body of Community law, and reducing its volume. It recommended that a program for simplifying the substance of Community law be defined and implemented and identifies the sectors to be addressed. It further recommended the creation of an ad hoc body assigned to the task of simplification. Furthermore, the codification program should be supported by drafting accelerated adoption procedures at first reading of codified legislative proposals submitted by the Commission.

3. Improving the Quality of Community Legislation

The White Paper on European Governance identified seven areas for improving the quality, effectiveness and simplicity of regulatory acts.

  • First, proposals must be prepared on the basis of an effective analysis of whether it is appropriate to intervene at the EU level.

  • Second, alternatives to regulation should be sought whenever possible including the use of non-binding tools such as recommendations, guidelines, or self-regulation.

  • Third, the right type of instrument should be used whenever legislation is required and recommended greater use of framework directives.

  • Fourth, implementing measures should be prepared within the framework of co-regulation, which combines legislative and regulatory action with actions taken by the actors most affected.

  • Fifth, Community action may be complemented or reinforced by the use of open methods of coordination that encourage the exchange of best practices and agreeing on common targets and guidelines for member states.

  • Sixth, a stronger culture of feedback and evaluation is needed in order to learn from the successes and mistakes of the past.

  • Finally, the Commission should withdraw proposals where inter-institutional bargaining undermines the Treaty principles of subsidiarity, proportionality or the proposal's objectives.

The Commission has supported the adoption of these recommendations and has identified three main areas for action falling under its remit: improving consultation, improving its ex-ante impact analysis process, and making more appropriate use of legislative instruments.

i) Improving Consultation

As part of the Action Plan, the Commission prepared guidelines for improved consultation, "Towards a Reinforced Culture of Consultation and Dialogue-General Principles and Minimum Standards for Consultation of Interested Parties by the Commission." The guidelines rely on four main principles: participation that is inclusive when developing and implementing EU policies; openness and accountability in order to ensure transparency; effectiveness with respect to the appropriate timing of consultations as early in the development of new policy as possible; and, coherence of approach across EU institutions ensuring appropriate mechanisms for evaluation, review and feedback, which is consistent with the Commission's "better law-making" activities.

ii) Improving Impact Analysis

Although provisions have been made for the use of pre-assessment of draft proposals to determine whether action at the EU level is required, detailed impact analysis has not been mandatory, despite being recommended in the Regulatory Policy Guidelines issued by the President of the European Commission in 1996. Given that EU institutions have adopted a number of agreements obligating them to ensure the quality of legislation, greater emphasis has been placed on the mandatory use of RIAs. The Mandelkern Group proposed that measures be adopted at the inter-institutional level or an inter-institutional agreement be drafted that requires proposals during First Reading to undergo an evaluation or impact assessment.

Based on the mandate provided at the Goteburg and Laeken European Councils, the Commission included in its Action Plan the preparation of impact assessment guidelines to be implemented gradually in fiscal year 2003 for all major initiatives, including those presented in the Annual Policy Strategy, or later in the Work Programme of the Commission. The guidelines further present a tool to implement sustainable development and a tool for an integrated sustainable development impact assessment. The approach is intended to replace existing partial mechanisms for impact assessment and focuses on examining whether the impact of major policy proposals is sustainable and conform to the principles of Better Regulation.

iii) Making more Appropriate Use of Legislative Instruments

The Action Plan calls for a more generalized approach to distinguishing the use of regulations and directives. In this regard, it suggests regulation be used principally where uniform action is required in member states, while directives are an instrument that provides a legal framework and sets out objectives for the application of the principles of subsidiarity and proportionality. The Commission proposes that it be delegated more executive powers for selecting the appropriate instrument and preparing proposals for legislative review. In particular, greater emphasis would be placed on alternatives to regulation, including co-regulation and self-regulation.

4. Developing a Common Legislative Culture Within the Union

The 1992 Edinburgh European Council recommendations recognized that regulatory simplification requires change to EU structures and culture of operations, as well as to rules and guidelines. In this regard, the Action Plan identified two principal areas for action: creating a legislative network within EU institutions, and creating a network between the institutions and member states that would improve the transposition and application of Community law.

i) Improving Coordination and Implementation within EU Institutions

The Commission committed to creating an internal network for "better law-making" in an effort to improve consistency in the preparation of proposals and to ensure a coordinated approach to implementing the Action Plan for all EU regulators. Specifically, it will have the mandate to monitor compliance with the principles of subsidiarity and proportionality and the commitments made by the Commission in its Action Plan; to identify and resolve challenges with respect to implementing these principles; and to coordinate the preparation of an annual assessment of the quality of legislation and national reports. An inter-institutional agreement between the Commission, the Council and the European Parliament is currently being finalized on this subject.

ii) Improving Coordination between the EU and Member States

The Action Plan has also made a commitment to improving coordination and the exchange of information between the Commission and national authorities by appointing "transposition and application" correspondents to monitor the transposition of Community law; ensuring the ongoing evaluation of how directives and regulations have been applied in practice. This is intended to improve feedback from Member states and allow for the exchange of good practice on such matters as legislative impact assessments and consultation standards.

5. Regulatory Institutions

The European Commission is divided into 20 Directorates-General, each responsible for specific aspects of the regulatory framework. It organizes its regulatory activities into policy fields, given that various departments have varying degrees of responsibility in a particular field. For example, regulation of the Single Market Initiative involves the participation of those responsible for competition, economic and financial affairs, internal market, enterprise policy, regional policy, taxation, trade, and justice. Although each department operates autonomously, there is an incentive to work horizontally on harmonizing policy, regulations, and approaches to research.


The European Union has proposed important changes in its regulatory management regime and processes. This section focuses on the use of regulatory principles and regulatory impact statements, and public consultation approaches.

1. EU Regulatory Policy

European Union regulatory policy is based on the Regulatory Policy Guidelines issued by the President of the European Commission in 1996 and further specified in the various Commission's communications on Better Regulation. These reflect the 1995 OECD Principles of "Good Regulation." These broad guidelines have not been mandatory. However, increasingly, elements of the policy have been revised and made mandatory to reflect recent aspects of the Regulatory Action Plan, especially in the areas of consultation and impact assessment.

2. Regulatory Impact Analysis (RIA)

The EU's Regulatory Management Policy is not set out in any clear or simple way. It has emerged over time and pursues a range of legal quality objectives alongside initiatives to improve the awareness of the impact of legislative proposals on general policy goals. These general ideas and commitments are consolidated in the Regulatory Policy Guidelines of 1996, which apply to all new legislative proposals. The responsibility for implementing, monitoring and developing the guidelines rests with the Secretary-General's Office. Its tasks include: reviewing all proposals for new legislation to ensure that there is a legal basis for action and the proposals satisfy the principles of subsidiarity and proportionality; maintaining the Regulatory Policy Guidelines; and drafting the annual, "Better Lawmaking Report" for the European Council.

At present, there is no simple legal basis for undertaking RIAs at the EU level nor is there any legal requirement to undertake comprehensive RIAs. Several articles support the conduct of regulatory impact analysis, including Article 6 of the Treaty which requires that the definition and implementation of all Community policies take account of environmental protection with a view to promoting sustainable development, and Article 174 which calls for the EU to take account of the potential costs and benefits of action when drafting policies on the environment. However, there is no general requirement to consistently apply a mandated policy requiring impact analysis.

At present, the Regulatory Policy Guidelines (Explanatory Memorandum) call for proposals to address questions regarding the objective and justification of the measure being pursued; whether the legal basis of proposals have been identified; whether proposals comply with the principles of subsidiarity and proportionality; whether they simplify current legislative and/or administrative frameworks; whether they are simple, concise and clearly worded; whether they are consistent with priorities and actions; whether they are based on rationalized and modernized assessments that provide a genuine evaluation of the common interest; whether they are subject to assessment throughout the decision-making process and period of implementation; and whether they are representative of broader external consultations.

A key weakness of the assessment process is that the guidelines do not specify the methods or technical assumptions to use when evaluating the impact of any proposal. Moreover, the Secretary-General has no authority to refuse to accept proposals that fail to satisfy the basic standards set out in the guidelines. Therefore, each directorate determines how requirements are to be met except with respect to budgetary evaluation, environmental impact and business impact. These particular assessments are subject to central review.

Currently, the Action Plan provides for the creation of an integrated regulatory impact assessment process, based on the mandate of the Edinburgh European Council. The new tool is intended to replace existing requirements for business impact assessment, gender assessment, environmental assessment, small and medium enterprises assessment, and trade impact assessment. It is premised on six conceptual pillars reflecting the OECD guidelines: justification, consultation, analysis, maximizing net benefits, consistency, and accountability. The RIA will be integrated into the Strategic Policy and Programming/Activity-Based Management programming cycle.

The RIA process will comprise two stages. In the first stage, a preliminary assessment will ascertain the nature of the problem, possible options and sectors affected. This assessment will be a condition for inclusion in the Annual Policy Strategy. In the second stage, a proportional and/or an extended impact assessment will be completed. A decision is made as to which proposals require extended analysis under the supervision of on inter-departmental working group chaired by the Secretary General office. The impact assessment is to be conducted according to the principle of proportionate analysis, which means that the depth of analysis is to be proportionate to the significance of likely impacts. A clear system of measures describing "significance" has been proposed. However, those proposals that demonstrate the likelihood of significant distributive effects will receive priority.

Identifying or screening impacts, both direct and indirect, will be expressed in economic, social and environmental terms. The EU has made it a priority to identify relevant impacts under the EU Sustainable Development Strategy. Impacts will be assessed through cost-benefit analysis, cost-effectiveness analysis, compliance cost analysis, multi-criteria analysis, and risk assessment.

3. Consultation and Transparency

The White Paper on Governance identified the improvement of consultation processes as a key element of organizational renewal in the EU. The Commission prepared consultation guidelines to meet the requirements of the White Paper that contribute to the Action Plan for Better Regulation, and the new approach to impact assessment. Although the Commission has traditionally consulted interested parties and incorporates external consultation into the development of proposals in virtually all policy areas, each department employed its own methods and mechanisms for consulting with its respective sectoral interest groups. As such, the White Paper identified the need for a more consistent approach and minimum standards for its consultative activities.

The Commission has designed a new consultation approach in order to encourage greater participation from interested parties; to ensure consistency in approach that also provides enough flexibility to take account of diverse interests; and to generate some best practices in order to improve consultation techniques. Specifically, the Commission wanted to make a clearer procedural link between the use of consultation and its impact assessment procedures.

The guidelines, "Towards a Reinforced Culture of Consultation and Dialogue - General Principles and Minimum Standards for Consultation of Interested Parties by the Commission," provide for five key minimum standards.

  • First, all communications relating to consultation should be clear and concise to ensure that the rationale and content for consultations is appropriate.

  • Second, in order to ensure equitable consultation, consultation target groups should be clearly identified as having a direct or indirect interest in the policy.

  • Third, consultation should be accessible. As such, the Commission will be creating a "single access point" for consultations on the Internet, although traditional methods of publicity will also be maintained.

  • Fourth, strict time limits for consultation should be communicated that allows sufficient preparation by interested parties and for analysis by decision-makers. It was proposed that a minimum of eight weeks should be allotted.

  • Finally, a system of acknowledgement and feedback should be created that recognizes the contributions of groups and individuals and demonstrates that adequate feedback has been provided.

E. Challenges Facing the EU Regulatory Management System

Despite the preparation of various assessment tools, the Economic and Social Committee, among others, have identified some challenges that have yet to be overcome with respect to the RIA regime.

1. Allocating Responsibilities for RIA

Given that individual departments are responsible for the preparation and conduct of the RIA, there is potential that implementation will be inconsistent without political level commitment to ensuring some standard level of compliance. At present, there is no central quality control function ensuring consistent application on par with the U.S. Office of Information and Regulatory Affairs, which is part of the White House Office of Management and Budget. Draft rulemaking proposals must be submitted to this office prior to their submission.

At present, there is no comparable institution with such responsibilities within the EU regulatory framework. Although the Commission has proposed the creation of an internal network for legislative proposals, this has not been acted upon yet. Given that 90 percent of legislation originates with the Member states, a similar body would have to be created in each state.

Alternatively, a Regulatory Assessment Office could be created modeled after the U.S. experience, which would be responsible for establishing the RIA regime and monitoring its application.

2. A Coordinated "Simplification" Process

Despite efforts at simplification of regulatory regimes, including the Acquis Communautaire, the efficacy of such activities could prove to be limited if not replicated at the state level. Central institutional coordination may be required to ensure that the process is implemented appropriately without placing undue burden on Member states. Such a process will require political leadership and a coordinated bureaucratic approach.

3. Train the Regulators

Although ongoing and quality training is required in order to maintain the skills necessary to carry out quality impact statements, there is no general guidance on this issue. The Economic and Social Committee recommended that a central training function be established to assist individual regulators with consistent training approaches.

4. Using Consistent and Flexible Analytical Methods

The Economic and Social Committee has indicated that there is an absence of quantification rules and approaches to adequately determine the significance of impacts. Consultations are currently underway with other OECD member countries to consider various analytic approaches. Although it is not unusual for the information quality to be high, the analysis has proven to be weak. Most proposals provide only limited, descriptive information, and in a number of cases, there is a failure to provide any evidence that impact analyses have been undertaken. Systemic analysis of costs and benefits is rarely carried out. For example, detailed costs were only identified in less than 20 percent of the Explanatory Memoranda and Business Impact Assessments reviewed by the European Policy Centre between 1996 and 2001. At present, there is no single set of administrative procedures and tools for undertaking RIAs , and no mandatory guidelines that specify how and when analyses must be conducted. In addition, there are no detailed quality standards against which the evaluation of overall quality can be evaluated.

5. Ensuring Adequate Consultation

Although the Commission has defined eight weeks as a minimum standard for consultation, this time limit can be extended in cases where European or national organizations require time to consult their memberships, to take account of supra-institutional binding instruments, to accommodate the specific needs and demands outlined in a particular proposal, and to respect various holiday periods. Such guidelines of adequacy should be extended to RIA consultative guidelines specifically.

6. Ex-Post Analysis

As in many jurisdictions, the OECD identified the ex-post analysis of existing regulations to be lacking. Given the volume of existing regulations, it indicated that such analysis could assist in the simplification process.


1. Alternatives to Regulation and Alternative Forms of Regulation

The European Union has traditionally favoured alternative approaches to regulation. However, assessments of alternatives have not been systematic or consistent. The Economic and Social Committee noted that there tends to be a lack of guidance and practical support for considering alternatives at the departmental level despite the experience of some Member states.

At present, the European Union has been experimenting with increasing use of co-regulation and self-regulation or voluntary agreements. Self-regulation or voluntary agreements are based on cooperation between all interested parties that incorporates Community rules governing agreements between the parties. Given the pace of technological change, rapid market change, and globalization of communication and management techniques, self-regulation is being regarded as a viable and cost-effective alternative to more permanent legislation. The Commission generally places strict conditions on the use of self-regulation including:

  • The approach does not replace enforcement;
  • Agreements must conform with the law;
  • Agreements must be founded in a community of interest between business and the public;
  • Agreements must be enforceable, verifiable and auditable; and,
  • Agreements must be effective in the sense that there are clear means of recourse especially across borders.

Co-regulation combines the predictability and binding nature of legislation with the more flexible regime of self-regulation. This approach takes a cooperative approach to governance by limiting public intervention to what is essential, thereby leaving business the widest possible array of choices to meet its obligations. It shares responsibilities between public and private partners. Such a mechanism has been used in such areas as workplace safety, and some consumer and environmental standards-setting exercises. Such processes have been used successfully in the European Single Market Initiative.

The challenge for the EU has been to establish uniform and consistent approaches for the use of such alternatives that maintains transparency, build in feedback and monitoring, and ensure an appropriate degree of accountability to both government and participants to these arrangements.

2. Competition Policy and Consumer Protection

There appears to be a trend toward the harmonization of infrastructure markets, particularly in the areas of telecommunications, rail transportation, and electricity and gas. The EU has been vigilant in ensuring that regulation is used to facilitate higher order principles, such as consumer protection. Directives are framed with this priority in mind. The competition policy is divided into four major areas of competition law: restrictive agreements and abuse of dominant position, merger control, liberalization, and scrutiny of state aid. With respect to market liberalization, it is necessary to take account of regulations that stand in the way of or pose barriers to competition typically in those markets characterized by monopoly infrastructures such as electricity and gas where the infrastructure is publicly owned. The EU's policy is to create competition by separating infrastructure from commercial activities in order to improve the quality of services and maintain control on prices while maintaining public ownership over infrastructure. At present, the EU has introduced directives to initiate the opening up of the following markets: telecommunications, transportation, postal services, gas, and electricity. The most success has been experienced in the telecommunications sector, which has seen a fall in user charges by as much as 35 percent for some types of communication and a general improvement in product and service innovation. In order to facilitate market liberalization, the EU may elect to pass a directive at the EU level to encourage harmonization, or one that Member States can incorporate into their own regulatory framework.

1 Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia

2 Bulgaria and Romania are planned to join by 2007

3 EU, "Opinion of the Economic and Social Committee on the 'Request by the European Commission for the Committee to draw up an exploratory Opinion on the Communication from the Commission - simplifying and improving the regulatory environment',"; Official Journal of the European Communities, 2002, C125/105.

Last Modified:  8/30/2004

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