The Community Legislative Process

As in any single country, legal texts lay down the rules of the game at the European level too. Where national legislation is mostly based on a constitution, supra-national treaties among sovereign nations underpin the European legislation.

The Treaty on European Union which entered into force on 1 May 1999 in a consolidated version after the Amsterdam Treaty, is the latest in a series of treaties among EU Member States. In fact, pending clarification of the Nice Summit of December 2000, the Treaty of Amsterdam of 2 October 1997 constitutes the latest of a series of amendments to the original Treaty of Rome of 25 March 1957, which established the European Economic Community. These texts represent the primary source of Community Legislation.

Other important treaty amendments were the Single European Act of 1986 and the Treaty of Maastricht of 1992. More changes lie before us with the need for institutional reform as a result of the planned enlargement of the Union with new members.

The Tools

In a simplified presentation, the European Community’s secondary legislative system can be divided into two principal layers:

1. Legal Acts, which include:

• Regulations, which have general application, are binding it their entirety and have direct application in all Member States, such as e.g. Regulation N° 89/4064/EC of 21 December 1989 regarding the control of mergers of undertakings.

• Directives, which are binding on Member States in their stated objective or result, but where national legislators have been left the choice of form or method to transpose the EU act into domestic law.
  In the financial services area, the overwhelming majority of legislative acts are directives that aim to approximate existing national legislation (for European investment funds, cf. “EU Laws & Regulations”).

2. Administrative Acts, which are issued either by the Commission or the Council, and include:

• Decisions, which are mostly directed towards a single person, company or Member State and are binding in their entirety, but only for the addressee of such decision.Decisions are most frequent in competition cases where the Commission sanctions infringements of the fair competition rules of the Treaty.

• Recommendations and Opinions, which are mostly directed towards Member States and have no binding force and do not result in normative acts, but they do constitute expressions of the Commission or Council’s interpretation and guidance on specific issues.

A third layer of the legislative process includes “preparatory” acts of the Community institutions, which in practice are very important because they offer interested parties the opportunity to voice their views on future legislation.These acts are:

• Resolutions / Declarations ,which can be issued by the Commission, Council and European Parliament to set out a jointly held views and intentions on the overall process of integration and specific tasks within and outside the Community;

• Action programmes – the programmes are drawn up by the Council and the Commission on their own initiative and serve to put in practice the legislative programmes and general objectives laid down in the Treaties.They are an indication of the Community institutions’ intended actions. An important example of this projected legislative activity is the Financial Services Action Plan of 11 May 1999 (cf. "Documents/Regulatory Issues").

• Green Paper – are communications published by the Commission on a specific policy area. Primarily they are documents addressed to interest parties, organisations and individuals, who are invited to participate in a process of consultation and debate. In some cases they provide an impetus for subsequent legislation;

• White Papers – are documents containing proposals for Community action in a specific area. They often follow a Green Paper published to launch a consultation process at European level. While Green Papers set out a range of ideas presented for public discussion and debate, White Papers contain an official set of proposals in specific policy areas and are used as vehicles for their development.

The Actors

The three principal institutions of the European Union, the Council of Ministers, the Commission and the European Parliament are the key actors in a essentially ‘triangular’ legislative process. Consultative roles have been given to the Economic and Social Committee (a tripartite body made up of representatives of employers, employees and other economic actors) and the more recent Committee of the Regions.

The Process

Legislation in the EU is a very complex process, which has evolved since 1957 through ‘shocks and bounds’, in particular the Single European Act (1986) and the Treaties of Maastricht (1992) and Amsterdam (1997), which all gradually invested more power in the European Parliament (EP).

Today, most legislation is drawn up in a co-decision procedure whereby the Council of Ministers and the European Parliament adopt legislation jointly. This includes the majority of legislative acts of importance to the European investment funds industry (such as the current modernisation of the UCITS Directive of 1985). Other areas of interest for European investment funds that fall under the co-decision procedure are:

-The freedom to establish or provide services within the Community;

-The adoption of measures for the approximation of rules aimed at the establishment and functioning of the internal market;

-The adoption of measures to promote the interests of consumers and to ensure a high level of consumer protection;…

Only a few issues specifically mentioned in the Treaty (e.g. taxation) do not fall under this procedure but follow other rules with less involvement of the EP:

• Consultation procedure (the original procedure of the Treaty of Rome) where the European Parliament is asked for its opinion which the Council may disregard (e.g. on issues of taxation).
• Co-operation procedure (introduced through the Single European Act) where the EP has a greater voice than under the consultation procedure (in particular due to the introduction of a second reading) but where it can still be overruled by the Council of Ministers (e.g. on issues related to the Economic and Monetary Union).

However, there are common characteristics in all three of the above procedures:

• All three European institutions (Parliament, Council, Commission) are involved;
• As a basic principle, the power of initiative lies exclusively with the European Commission;
• The European Commission can also – at any moment – withdraw any proposal it made so long as the Council has not acted in fine;
• The European Parliament must always be heard;
• Other European institutions such as the Economic and social Committee and Committee of the Regions may be heard;
• The adoption of legislation without the agreement of the Council is not possible