Notes on the special meeting on Comitology
held at the European Parliament, Brussels
Graham Bishop set the stage for the Graham Bishop.com Special Meeting on Comitology by pointing out that the comitology technique has become more prominent because of the Lamfalussy Process (LP) for legislating in the financial services area, even though it has been well established in the EU for years.
Powers to devise secondary, implementing legislation are delegated by the co-legislators (Council and Parliament) to the Commission. The Commission may adopt measures if a qualified majority of the Member States agree. If they do not, these proposals can be rejected by Council – acting by a “qualified majority” against the Commission proposal. But the key issue, which is now being addressed as part of an effort to reform the comitology process during the Austrian Presidency, is whether Parliament should have the same rights of objection as the Council to implementing legislation proposed by the Commission. This is not clear under the existing Treaty.
Apparent clarification was provided under the proposed new Constitutional Treaty (Articles 1-36 and 1-37) as these were drafted to give the Parliament equal rights. But they may not come into effect for many years, if ever, due to the problems of ratifying the Treaty.
He stressed that, in order to create an integrated financial services industry across the European Union, you needed a fairly harmonised regulatory system to ensure stability of the financial system. A process for updating laws and regulations quickly to keep up with the rapid pace of change in financial markets was also necessary and the LP was designed to meet both these requirements.
Finally, he pointed out that the LP, which aimed to provide a fast track process for secondary financial services legislation, is now under threat (see Appendix) because of the so-called “sunset clauses” which the Parliament insisted on to protect its democratic prerogatives. These terminate the power of the Level 2 committees to agree new implementing legislation if the “sunset clauses” are not renewed.
The first “sunset clause” related to the Market Abuse directive becomes operative in April 2007. The Markets in Financial Instruments Directive (MIFID) proposes many delegations. Without a solution to the dispute between the Commission, Parliament and the Council over how comitology is to operate in future, markets may be thrown into confusion by the absence of the agreed secondary legislation which is necessary to start writing the computer programmes to make MiFID operational in 2007.
Andrew Duff MEP, who sat on the Constitutional Convention and acted as Rapporteur for Parliament’s Report on the future of the Constitutional Treaty, said that he would not wish to underestimate the importance of resolving the issue of comitology, across the spectrum ofEU policies and lawmaking, not just in relation to the financial services sector. He believes that there is still muddle and confusion concerning the scope of the Lamfalussy process. Several sectoral committees of the Parliament have sought to seize on the enhanced procedures of scrutiny that the Parliament enjoys under the LP. They are seeking, in a spasmodic and pragmatic way, to extend to their own fields the process developed for the Financial Services Action Plan. “We have to get legal certainty and the only way to achieve that is to have a clearer distinction between, on the one hand, the decisions of the institutions which involve serious political choices about the direction of policy, and on the other, implementing measures.”
There is, he stressed, naturally a desire in the Parliament to be put on an equal footing with Council, so that if either objects to a piece of Commission decision on an implementing measure, the Commission will be obliged to (i) withdraw it (ii) to modify it or (iii) to decide to go the full route of the classical co-decision procedure that involves Parliament fully. “There is a need to secure a durable and coherent strategy across the board which will consolidate the executive powers of the Commission but respect the democratic rights of the Parliament. This is essential and it is pressing,” he added.
But, with the failure to approve the Constitution there has been stalemate. In trying to find a way out of the impasse, Parliament has indicated its hostility to “cherry picking”: putting into effect particular elements of the Constitution. This would row back from the Constitution. It would tend to destroy the consensus achieved between Member States and it would destroy the consensus on the re-ordering of the balance of power between the institutions - in which Parliament was the main beneficiary.
However, the European Parliament says explicitly, in the Resolution on the future of the Constitutional Treaty (which Parliament approved), that we favour measures that can be introduced under the existing treaty which would improve the efficacy of the EU. Of course, that includes improvement to the comitology procedure. We think that progress can be made by changes in the rules of procedure of the institutions, or by an Inter-Institutional Agreement (IIA). It is precisely that process which is now afoot in the discussion which the Austrian Presidency is embarking on in its Friends of the Presidency context.
Pervenche Beres MEP,Chair of the Economic and Monetary Affairs Committee, said that she first wanted to highlight contradictory positions sometimes being taken by the financial services industry. It complains that legislation is moving too slowly when the Parliament is defending its (call back) rights, but wants (time consuming) transparent, open debate when it sees a problem with the secrecy of the Council.
Secondly, she stressed that the Lamfalussy Process in financial services might inspire better regulation in other fields, so it is very important now to get the right conclusion on how it works. The whole process was launched because it was so difficult to have full harmonisation and was intended to help an acceleration of the legislative process.
Now the only part of the process that is actually accelerating is the Parliamentary part. “I still have my doubts,” she said, “when it comes to Level 3 and Level 4 of the Lamfalussy process, how fast is integration working at these levels? We need to make an effort to ensure that the Level 1 and Level 2 focus does not blind us to how Level 3 and Level 4 are developing.
Ms. Beres underlined Mr. Duff’s point that an urgent solution is needed. But she added that “cherry picking” of the Constitution is already taking place, for example, in the appointment of the President of the Eurogroup – though for only two years, rather than the two and a half years foreseen in the Constitution. Moreover when it comes to comitology, we have to move because otherwise the relationship between the Parliament and the Council and the Commission will be polluted, she said.
The ECON Committee is even now in the process of scrutinising its first important Level 2 measure: the implementing rules for MiFID. This will be the first very important case where the Parliament will pass a resolution in plenary. The calendar points to an adoption of the measure in May, so it is important to have progress on comitology during the Austrian Presidency.
She added that the ECON Committee has been discussing whether weshould be cherry picking the Constitution; whether we should ask for implementation of the Constitution’s articles 1-36 and 1-37; or should just insist on the narrower objective of finding a solution for the Lamfalussy Process. But she warned that any proposal which comes out of the Austrian Presidency which does not meet Parliament’s concerns will cause tumult. “Isupport fully the Parliament, and those in the Parliament, that believe it is not enough only to have a solution covering secondary legislation dealing with financial sector legislation.”
“We should use this situation today to have a complete solution for the whole comitology procedure,” she said. “I see in the conference of committee chairs that this is what Parliament wants. And when I have seen the Parliament take a strong institutional position, I have never seen it having difficulty reaching agreement amongst the different political groups,” she added.
“So my strong message this morning is that any solution put on the table not taking into account the consequences for the Lamfalussy Process would be a nonsense. We need a complete global solution,” she concluded.
Wolf Klinz, MEP and ECON member, supported this view strongly.
Gregor Schusterschitz,for the Austrian Presidency, said that the Brussels’ institutions are at a decisive moment, with discussions now starting at the political level between the Parliament and the Presidency on reforming the comitology process. “We are now really entering into a negotiating phase with Parliament,” he said.
There has now been a Council Legal Services opinion that reforms are possible under Article 202 of the existing Treaty. He stressed that the Council is not undertaking this reform effort because of pressure from Parliament. It is necessary because of the changes in the co- decision process in 1999 and the increased role of Parliament in the legislative process. He added that a case-by-case solution would not be optimal; sunset clauses are not optimal; and there is a need for more legislative flexibility beyond just the financial services field.
“We want,” he added “a limited reform of comitology focused on the rights of Parliament. It will be restricted to quasi-legislative measures…these are measures which could have been taken by the legislators themselves, but at implementing level so as to increase flexibility.” [This concept was clarified during discussions to mean an act where there is political choice involved even in the implementing measures, together with the need for legal certainty. So this concept should cover most of the Lamfalussy Process level 2 measures in a manner which does not risk a legal test at the ECJ. One difficulty seems to be that the precise text of Article I-36 cannot be re-used as that would pre-judge progress on Treaty ratification. But Parliament feels it has already compromised sufficiently in agreeing that text. So the task seems to be to find acceptable solutions within the current Treaty.]
“We also want”, he continued, “to include generally Lamfalussy measures. With the reform we are considering the Commission will not be able to adopt implementing measures if the Council or Parliament object, and we aim to put Parliament on an equal footing with the Council. The Presidency has prepared different options which are now under active discussion.”
David Wright, Director of Financial Markets at the Commission, said he intended to offer a personal view from a financial services perspective. The Lamfalussy Process, set up with the co-operation of Parliament, has moved financial integration forward in quite a dramatic way, strengthening the EU economy and its financial markets.
Essential political elements should be agreed in co-decision at Level 1, and non-essential, technical details would be completed in the Level 2 comitology process. This is vital because financial markets move fast and legislators should not be too far behind markets in making technical adjustments to rules. [However, some participants pointed out that even technical matters can become highly political - the key reason why Parliament wants co-decision powers at level 2]
It is quite correct to say this legislative process has accelerated. ECON is now considering the MiFID implementation measures - 110 pages of them. If we did not have the Lamfalussy Process, we would actually be starting a complex and protracted co-decision Level 1 process with those 110 pages.
There is also much greater transparency in the legislative process. The Commission is working more openly and listening and consulting in a deeper way. On MiFID, there have been around 11 consultations (including both CESR and the Commission) in drawing up these implementing measures. With regard to former Commission President Romano Prodi’s declaration in 2002 that the Commission would take the utmost account of Parliamentary concerns in the adoption of implementing measures, this has been the case, he insisted, because all technical measures adopted so far under the Lamfalussy process has been with the Parliament's consent.
But it has always been clear that there has been, at the heart of the Lamfalussy Process, an institutional democratic disequilibrium. “How can it be right that the Parliament and the Council decide on Level 1 legislation, but it is only effectively the Member States, that are working through the Securities Committee, in my case, who can block a measure in Level 2?” he asked.
He said that the Commission favoured equality of rights and equal footing in control of Level 2 implementing legislation. But the details are important. What type of control are we talking about here? Are we talking about measure-by-measure, line-by-line control? Are we simply talking about an overall vote on the result of the Securities Committee? Are we talking about the right to control the actual delegation powers (as in Article 1-36 of the Constitution), or the right to call back the delegation of powers? What happens to the “sunset clauses” in the future? Will the EP give them up if there is satisfaction on call back provisions?
[In the discussion, a view was expressed that the Parliament can explain why it chose to vote down a particular measure, implicitly specifying what needs to be amended. That has the practical effect of a detailed call-back, even if there is just a single, up or down vote on a measure. In the event of a suitable IIA there was hesitation whether Parliament might commit to immediate removal of all the sunset clauses since it might well want to build up experience of how the IIA worked in practice. If it works well, then the need for sunset clauses should drop away naturally.]
He raised, however, one point of principle on which the Commission and the Parliament are at odds, the desire for members of parliamentary committees to sit (as observers) on comitology committees andon all the expert groups. He explained that the Commission’s formal view consistent over the last 50 years, is that that each institution has a clear institutional role under the Treaties; the Commission is accountable to the Parliament and the Council and that it is important not to mix up these competences. The right way forward is to be fully open, fully transparent to the EP, and to those other Committees in Parliament, but not to mix up institutional responsibilities. This Commission is fully open with the European Parliament at all stages. [Some expressed sympathy with the Parliament’s view as it would be more efficient than Parliament re-running the same discussion later. Moreover, it was pointed out that the ECON always has Commission staff present and they may speak. However the EP also has many meetings where the Commission is not present.]
Parliament is currently blocking funds for the comitology committees and this is making it increasingly difficult for them to function. So he requested that these funds be un-blocked as he assured the Parliamentarians that it would make no difference to the eventual outcome.
“In this negotiation, I hope our colleagues from the Council will put forward a balanced set of proposals which will take us forward to a period of institutional peace because this uncertainty does nobody any good. It creates friction and does not help good policymaking.” This sentiment was shared by the Parliamentarians.
The meeting closed with Council, Commission and Parliament expressing a mood of optimism following this frank discussion.
Appendix
Extract from Inter-Institutional Monitoring Group – Third report of October 2004
Implications of the new Constitutional Treaty.
If the Treaty is eventually ratified, the Institutions will need to work out how the Lamfalussy Process will operate under the new provisions. A new Inter‑Institutional Agreement will probably be needed. A Declaration on Article I-36 has been annexed to the Treaty, which indicates “the Commission’s intention to continue to consult experts appointed by the Member States in the preparation of draft delegated European regulations in the financial services area, in accordance with its established practice.” It is too early to predict the position that each Institution would adopt in that regard. In order to take away doubts as to the future of the Lamfalussy Process, the Group believes that such operational details need to be clarified formally and as soon as practicable.
The first “sunset clauses” in the existing legislation – the Market Abuse Directive on 12 April 2007 – fall due only a short time after the intended ratification date of Treaty, which is 1 November 2006. Should the Treaty not be ratified by then and/or if there is no inter‑institutional clarification on how the Lamfalussy process will be applied in the context of the Treaty, there is a risk that one or more of the sunset clauses would be invoked, that is to say that delegated powers would be revoked. This could, possibly, be avoided by a new Inter-Institutional Agreement anticipating the use of Article I‑36 – as if it were in force. If not, the sunset clauses might become a serious bottleneck.
© Graham Bishop