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CIAO DATE: 6/00
Compliance in Different Political Settings: Is Law Really Better Observed in Classical National Settings than in Transnational Governance?
Dieter Wolf
Techincal University Munich
March 2000
International Studies Association Annual Meeting
Panel: Foreign Policy of Trade Organizations
Abstract
One of the seemingly unquestionable eternal verities of international relations theory since the turn of the century is the argument that national law is more effective than international agreements and treaties because it is backed by the hierarchical sanctioning power of the na-tion-state. The basic idea behind this argument is the premise that since the introduction of the classic nation-state in the aftermath of the Westphalian Peace Treaty of 1648 the state power has developed in serveral directions. The most important in the realm of security and power can be described as twofold: On the one hand, the nation-states accepted each other as sover-eign entities prepared to defend their territories and interests with their armed forces. On the other hand, the same nation-states aquired the legal and practical monopoly of force vis-a-vis their societies. Because of exactly this development international law is seen in a totally differ-ent perspective. Sovereign states with no hierarchical central power above them have to deal with an anarchical international environment in which they are forced to defend their auton-omy and their interests. They enter international agreements only if they fit into their strate-gies and they are prepared to break them as soon as their preferences have changed. In this environment treaties are at the mercy of their masters, that is the effectiveness of international law depends on the voluntaristic compliance of the states.
This, however, leaves us with the question of whether this seemingly eternal law is empiri-cally justified. Is it really the case that national regulations exhibit a remarkably better pattern of compliance than international agreements or treaties? The paper is an attempt to caution the reader against the unquestioned acceptance of this seemingly eternal law of international politics. It offers an important example of market-making politics in which the comparison of the national and the European level reveals a strikingly different result: The degree of compliance on European level is much higher than on national level. In order to present this stimulating example the paper proceeds in four steps. First, it offers some conceptional clarifications about the notion of compliance and explains the choice of the analyzed policy field. The second and third steps provide the case studies for the national (German) and European Level respectively. And the fourth step summarizes the comparative results and offers a theoretically informed explanation.
One of the seemingly unquestionable eternal verities of international relations theory since the turn of the century is the argument that national law is more effective than international agreements and treaties because it is backed by the hierarchical sanctioning power of the na-tion-state (Austin 1885; Kelsen 1966). 1 The basic idea behind this argument is the premise that since the introduction of the classic nation-state in the aftermath of the Westphalian Peace Treaty of 1648 the state power has developed in serveral directions. The most important in the realm of security and power can be described as twofold: On the one hand, the nation-states accepted each other as sovereign entities prepared to defend their territories and interests with their armed forces. On the other hand, the same nation-states aquired the legal and practical monopoly of force vis-a-vis their societies (Zürn 1998a). During the following years the subnational actors — like the nobility, the church or the cities — lost their rights and their means not only to wage war against foreign countries (or their subnational actors) but also to unilaterally seek and enforce their rights with respect to their citizens. Rather, the central authories harmonized the national legal system, provided for arbitration, mediation and jurisdiction and offered their armed forces to enforce the laws of the land and the decisions of the courts. In this respect the classic modern welfare state is — in theoretical perspective — not fundamentally different from the absolutist monarchy of Louis XIV's France in the 17th century.
Because of exactly this development international law is seen in a totally different perspective. Sovereign states with no hierarchical central power above them have to deal with an anarchical international environment in which they are forced to defend their autonomy and their interests (Waltz 1979). They enter international agreements only if they fit into their strategies and they are prepared to break them as soon as their preferences have changed. In this environment treaties are at the mercy of their masters, that is the effectiveness of international law depends on the voluntaristic compliance of the states (Schachter 1991). If this compliance does not come forward there are only few chances to elicit it. Some authors point to hegemonic power and sanctions (Downs/Rocke/Barsoom 1996), some argue that financial support and transfer of know how — that is some sort of continuous compliance management — is the only way to improve the performance of international law (Chayes/Chayses 1995). But whatever the merits of each of these arguments are, they readily acknowledge the basic divergence between national and international law: The former is effective because of hierarchical state powers, the latter is open to defection because of the lack of a credible guardian with sanctioning powers.
Especially in the ongoing debate about globalization and denationalization this perspective leads a lot of scholars to an extremely pessimistical point of view concerning successful gov-ernance beyond the nation-state. Denationalized markets — so the argument — massively im-pede the ability of the national welfare states to autonomously solve their social and economic problems according to their national choice of political strategy. International cooperation is only marginally able to offer an alternative, since it is neither democratically legitimized nor safe against unilateral defection. Thus, these authors propose to limit international law and to strengthen the autonomous political manoeuverabilty of the nation-states (Streeck 1995, Scharpf 1996). Although this line of argument is heavily criticized by several scholars (Zürn 1998b, Beck 1997, Pierson/Leibfried 1995) this debate seems also to subscribe to one of the eternal verities of international politics: compliance to national law is high because it is backed by the state monopoly of sanctioning power; international law has to emulate this via some-times complex and even disguised mechanisms (Weiler 1993; Burley/Mattli 1993; Alter 1998).
This, however, leaves us with the question of whether this seemingly eternal law is empiri-cally justified. Is it really the case that national regulations exhibit a remarkably better pattern of compliance than international agreements or treaties? Is international cooperation still less effective with respect to its problem-solving capacity simply because there is no Leviathan to enforce it?
The paper is an attempt to caution the reader against the unquestioned acceptance of this seemingly eternal law of international politics. It offers an important example of market-making politics in which the comparison of the national and the European level reveals a strikingly different result: The degree of compliance on European level is much higher than on national level. In order to present this stimulating example the paper proceeds in four steps. First, it offers some conceptional clarifications about the the notion of compliance and ex-plains the choice of the analyzed policy field. The second and third steps provide the case studies for the national (German) and European Level respectively. And the fourth step sum-marizes the comparative results and offers a theoretically informed explanation.
To ask about the compliance of actors with any kind of national or international regulations is part of the political scientific research on effects of regulations and policies. This research on effects of political decisions is neither new nor restricted to one coherent research agenda. Rather it is possible to distinguish at least three strands of political scientific perspectives on the question of policy effects:
Compliance or non-compliance are in itself not a question of yes or no but rather of different degrees. Basically it is possible to distinguish a spectrum of at least five different steps be-tween complete compliance with and the definitive breach of given regulations (Chayes/Chayes 1995; Weiler 1993; Downs/Rocke/Barsoom 1996). These steps are:
In order to choose the appropriate policy areas for the case studies it is necessary to fulfil several conditions. These conditions are:
One policy area which readily fulfils all these requirements is competition policy and espe-cially subsidies control. Subsidies are an important instrument of states to influence markets and to correct market failures. They play a major role in supporting economically less devel-oped regions, in inducing economic growth in new technologies, in fostering environmental protection and in fighting unemployment. On the other hand, economic theory considers over-abundant subsidies to be a major aspect of protectionism, market distortion and misallocation of ressources. Since governments continuously are targets of demands from businesses for protectionism and since they tend to give in to these demands on grounds of electoral success there is an equally continuous necessity to control state aids. Furthermore, regulatory instru-ments in this policy field tend in no way to be self-executing, because though it might be in the interest of all state actors to avoid a "subsidies race" in competition for investment and em-ployment there is still every incentive for each of these actors to behave as free-riders to these regulations to limit state aids to businesses. Every state actor certainly wishes to prevent its neigbors from subsidizing its firms while using any chance to strengthen the competitiveness of its own firms. Thus, subsidies control tends to constitute a problematic social situation (mixed-motive game) of the type "Prisoners' Dilemma". This type of problematic social situa-tion is open to cooperative solutions but is certainly not self-executing (Zürn 1992; Scharpf 1997). And finally, subsidies control focuses on state actors: the Länder in the context of German federalism and the member states in the case of European Community state aids con-trol. Hence, the empirical cases avoid the question of transforming state regulatory instru-ments into societal compliance. In these cases state actors themselves are addressees of the regulations.
The question of state aids control heavily depends on the definition of the term "subsidy" (or "state aids"). This is not an easy task since governments tend to become extremely inventive in exploring new methods to support their businesses and to strengthen the competitiveness of their economy. A very broad definition of subsidies includes all direct and indirect benefits offered by state actors to businesses and firms: direct financial transfers, credits, support for research and development or export incentives, but also indirect support like infrastructure improvements, tax exemptions, low credit rates, export securities or the cancelling of debt claims (for example in a composition with creditors). This broad definition shows the variety of financial and regulatory instruments used by governments to support firms in order to solve sectoral or regional economic crises, to improve or stabilize economic growth and to reduce unemployment. However, this broad definition evades any meaningful comparative analysis especially with respect to the comparison of different levels of political decision-making, since there is no possibility to gather the necessary data. Thus, the paper restricts its scope on the direct financial support of businesses by state actors, that is on financial transfers (and tax exemptions) by which the state does not acquire any marketable goods (company shares, products) or services in exchange for its aid.
2.1. Subsidies control in a national political setting: the case of the German Länder
According to Article 30 of the German federal constitution ("Grundgesetz") the 16 German regional entities — Bundesländer — possess state quality that is they are in command of autonomous regulatory competences, autonomous rights to levy taxes and an independent state budget. Article 74 No. 11 gives the federal level the right to legislation in the realm of economic policy, which in the past 40 years the federal government has used extensively to introduce a coherent framework of economic law. However, the Länder still retained enough room for manoeuver in order to implement autonomous economic, financial and structural measures. Taken together, the Länder budgets roughly equal the federal budget (some 500 billion deutschmarks each year) and, thus, are an important source of economic interventions. During the last 50 years the economic situation in and the economic development of the Länder exhibited quite different patters: Whereas in the first 25 years the Northern states con-stituted the economic power-house of the Federal Republic and the South was in need of fed-eral and inter-Länder support in order to be able to meet its expenses, the South — especially Bavaria and Baden—Württemberg — developed during the following quarter of a century into a prosperous, economically successful area centered around automobile, machinery and com-puter industries. Hence, individually at least some states always had the incentive to subsidize their businesses in order to strengthen their competitiveness in the German market vis-à-vis the firms of other German states. This resulted in a steady increase of direct Länder subsidies from 13,4 billion deutschmarks in 1970 to 47,1 billion deutschmarks in 1998.
The state governments certainly recognized this budgetarily ruinous and economically waste-ful highly competitive race for more and better investment. But it took them until the early 80s to introduce two intergovernmental (inter-Länder) codices on the limitation of state aids, which — together with the federal law on the "Joint Task for the Improvement of the Regional Economic Structure" — constitute the regulatory instruments for subsidies control in Germany. The first of these codices, the "Codex on Länder subsidies", was signed by the ministers for economic affairs of the state as well as the federal governments on July 7th, 1982. The codex reaffirms the belief that the management of structural economic change was the primary task of businesses and not of the state. The state has to introduce and maintain a political framework, which on the long run secures the competitiveness of the German economy without continuous financial support from public funds. Only in limited cases of severe economic or social consequences of this structural adjustment state aid was allowed to be used if less interventionist alternatives failed to reach their intended goals. Additionally, the codex formulates six major requirements which these restricted cases of state aid have to meet:
Additionally, on May 30th, 1983 the ministers of economic affairs signed a second intergov-ernmental (inter-Länder) codex, the "Codex on Subsidies for Single Enterprises", in order to amend and specify the provisions of the first codex with respect to single firms (as opposed to the financial support for whole sectors or regional focal points). In this second codex the ministers of economic affairs reaffirmed the basic principles of the first codex and emphasized that the rescue of failing firms basically cannot be the task of state actors, since any financial aid given to such companies would unfavorably change the market situation for their competi-tors, would create unwanted precedents for future cases and would very likely create incen-tives for a subsidies race between competing state actors. Thus, the codex laid down that state aids should only be used in exceptional situations, if the possibilities for self-help by the company (shareholders, creditors, owners) are already exhausted and the expected negative consequences of the insolvency for the regional economy warrant this state interference with market forces. In any case such aids should only be given for a limited amount of time and even in exceptional cases subsidies should be avoided if they directly or indirectly hurt com-petitors. Furthermore, subsidies should only be given to a company if the respective govern-ment received the last three annual statements of accounts, a detailed strategic concept for the restructuring of the firm and several independent expert opinions on the viability of this con-cept. And finally, the codex explicitly prohibits the takeover of the firm by the state as a measure to support the restructuring.
The federal law on the "Joint Task for the Improvement of the Regional Economic Structure" which was introduced in 1969 originally aimed at the cooperation between the federal and the Länder governments in the realm of structural and regional policy. However, in the context of the limitation of state aids some politicians as well as law scholars interpreted the 5 No. 4 of this federal law as the provision for blocking any autonomous, independent Länder measure beyond the framework offered by the "Joint Task". In their — heavily disputed — perspective the Länder governments would have been prohibited by this federal law from subsidizing any company outside the agreed regional focus of the "Joint Task" (or at least the amount of state aid had to be considerable smaller than in areas included in the "Joint Task"), prohibited to increase the amount of aid beyond the agreed limit and prohibited to subsidize economic or social goals not included in the list of the federal law. 2
A second important aspect of this law with respect to subsidies control is included in § 11 para. 2, which enables the federal government to reclaim federal money spent in the context of the "Joint Task" if the conditions laid down in the federal law are wholly or partially not met by the Länder or the companies receiving the money. If the offer of federal financial support can be seen as the ‘carrot’ of this law, § 11 certainly contains the potential ‘stick’ in the hands of the federal government to punish any illegitimate use of these funds.
All three legal instruments are — as far as they deal with subsidies control — regulatory instru-ments to restrain and control (re-)distributive programs of the Länder governments. The regulations formulate guidelines according to which the regional governments are allowed to use state aids in support of their businesses. The addressees of these provisions clearly are the subnational state actors in Germany. The central aim is to prevent them from engaging in a budgetarily and economically desastrous subsidies race.
How do the Länder governments comply with these regulations? The empirical evidence al-lows only one conclusion: With few exceptions these provisions were readily ignored by the German Länder governments.
Table 1: Annual total amount of state aid in Germany
| 70 | 75 | 80 | 85 | 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | |
| Fed. | 15,1 | 21,1 | 27,3 | 30,5 | 32,7 | 33,5 | 35,2 | 48,1 | 48,6 | 46,3 | 45,9 | 47,7 | 53,0 | 54,6 | 54,3 | to old Län | 31,8 | 28,9 | 25,5 | 25,6 | 25,9 | 34,2 | 36,4 | 36,7 |
| Län | 13,4 | 20,0 | 27,3 | 31,5 | 32,6 | 33,7 | 34,2 | 43,7 | 41,4 | 45,6 | 46,2 | 46,2 | 47,2 | 48,6 | 47,1 | share of old Län | 32,4 | 29,2 | 30,6 | 30,2 | 28,8 | 28,7 | 30,8 | 30,4 |
Annual state aids in Germany in billion deutschmarks
Sources: Deutscher Bundestag, Drucksachen, 13/8420, 13/2230, 12/5580, 12/1525, 14/1500
The early years of the "Joint Task" witnessed considerable confrontations between the federal government and some Länder governments over the legitimacy of additional Länder programs to subsidize their firms. Especially Bavaria attempted both to elicit federal support and to resist being restrained by federal conditions for these funds. Since the 80s, however, these quarrels became extremely rare. Although most of the Länder governments unofficially de-plored the subsidies race between the subnational governments in order to attract more in-vestment and to improve the regional employment situation the few attempts to strengthen the regulatory instruments proved to be unsuccessful. The most important of these attempts was the initiative of the government of Lower Saxony to sponsor a federal subsidies control law. But this initiative did not even manage to elicit a majority in the House of Länder Repre-sentatives (Bundesrat) and, hence, was aborted before it reached the decision-making process on federal level (Bleckmann 1984).
Although the confrontations between the state governments over financial aspects reached new heights after the unification and the accession of five new Länder (N&aumml;gele 1996: 282-290) they did not result in renewed efforts to limit state aids but rather culminated 1998 in law suits of three Southern governments (of Bavaria, Baden-Württemberg and Hesse) before the Federal Supreme Court against the inter-Länder financial compensation and transfer system, which they perceived as unfair against the economically strong states financing the scheme. Thus, the plaintiffs characteristically aimed at the revenues of the economically weaker part-ners and not at their expenditures, which would have been the case if they had pursued the question of subsidies control.
A similar picture can be drawn with respect to the federal government (Nägele 1996: 140). According to the records of the federal administrative court no law suit ever was based on § 11 para. 2 of the "Joint Task" law. The conclusion of this record is obvious: In 30 years of joint federal structural and regional policy the federal government never seriously attempted to re-claim funds from Länder governments, which had misallocated them against the provisions of the "Joint Task". In contrast to this silence the record is full of law suits based on § 11 para. 3 of the same federal law. This provision gives the Länder governments the power to reclaim funds from companies, which did not comply with the terms under which the funds were allo-cated to them. This, however, is a completely different story.
The central aim of the original treaty on the European Economic Community — and now on the European Community as major part of the Treaty on European Union — was to establish a common European market in which goods, services and capital could be traded and persons could move freely without controls at the national frontiers of the member states. From the early beginnings of this endeavor the ‘masters of the treaty’, the member governments, in-sisted on the necessity to institutionalize a common competition policy and readily were pre-pared to transfer major policy competences in this realm to the supranational level (Rosen-stock 1995: 79-86). Hence, the European Commission got only in a few other policy areas as much administrative power as in the area of subsidies control (Bleckmann 1997: Rz 2071-2072). This strong position is best illustrated by the
The central provisions of the subsidies control regulation on European level consist of Article 87 EC-Treaty, a set of important case rulings of the European Court of Justice and a number of policy frameworks and guidelines published by the Commission. 4 Article 87 para. 1 EC-Treaty is rather blunt in its prohibition of state aids: Any form of financial state aid to specific companies or business sectors is incompatible with the Common Market, if this aid distorts competition and imperils trade between the member states. Thus, the European Commission is able to deny any financial support of the member states if it is likely to
Para. 2 of Article 87 EC-Treaty lists the exemptions from this general rule. State subsidies are basically allowed, if they are
Additional exemptions from the general EC rule to prohibit state aids can be found in the treaty provisions on Common Agricultural Policy (Article 36 EC-Treaty), on transportation policy (Article 73 EC-Treaty) and on military procurement and its related industry.
Finally, para. 3 of Article 87 EC-Treaty defines reasons under which the Commission is em-powered to allow certain state aids if they do not exceedingly interfere with market forces. Under these provisions state subsidies might be compatible with the Common Market, if they are
The standard procedure of the EU for the examination and eventual permission of subsidies is equally clear cut and straightforward: Any member state which wishes to subsidize one of its companies or one of its business sectors has to submit a detailed proposal of this measure to the European Commission. 5 The Commission is then obliged to review this proposal and to determine whether the envisaged financial support seems to be concurrent with the Common Market or whether it entails provisions perceived to be dangerous to the market forces or the well-functioning of the Single Market. During the time of the examination the member govern-ment is barred from implementing the program. After this first informal routine examination the Commission regularly approves proposals, which obviously concur with the three exemp-tions laid down in para. 2 of Article 87 EC-Treaty (Bleckmann 1997: Rz 2076-2082).
If however the Commissioners detect questionable aspects or problematic elements of the member state proposal they usually resort to a more thorough formal scrutinization of the financial support scheme. In the context of this procedure Brussels not only calls on the mem-ber government applying for consent to answer questions, explain controversial aspects or revise certain parts, but it also opens the process to other interested parties, for example other member governments, competitors of prospective beneficiaries of the aid or interest groups. On the basis of these hearings the Commission reaches a decision, which — especially in case of refusal — has to be published in the Official Journal. Against this decision both the appli-cant (member state) as well as interested third parties (for example competitors of the pro-spective beneficiary) are able to bring law suits before the European Court of Justice (Bleck-mann 1997: Rz 2082). In the event the member government does not comply with the decision the Commission is empowered by Article 88 para. 2 to bring the case before the European Court of Justice in order to seek a ruling confirming the decision.
What does the compliance record of this European procedure to limit the subsidies race look like? Is there any sign of influence on the amount of state aids given to companies in the mem-ber states?
Table 2: Annual total amount of state aids in the EU
| 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | |
| EU 12 | 43,9 | 33,6 | 44,2 | 39,8 | 39,1 | 44,1 | 41,2 | 37,4 | 35,4 | 34,4 |
| EU 15 | 38,6 | 36,6 | 35,8 | |||||||
| % GDP | 4,1 | 3,2 | 4,0 | 3,6 | 3,2 | 3,8 | 3,4 | 2,9 | 2,7 | 2,6 |
in billion Euro
Sources: COM (98) 417 fin.; COM (97) 170 fin.; COM (95) 365 fin.; COM (99) 148 fin.
The figures reveal a clear-cut picture. Even if one considers the overall amount of subsidies recorded in the statistics of the Commission to crossly underestimating the real extent of the financial support by state actors in the Community the trend nevertheless seems to be obvi-ous: In 1996 the 15 member states of the expanded community did spend less on financial aid than the 12 members in 1992 before the introduction of the Single Market and considerably less than the 12 member states in the year of the official introduction of the Single Market in 1993. The reduction amounts to almost 25 per cent.
This picture corresponds to the observations of economists and law scholars dealing with the question of European subsidies control. Although the provisions of Article 87 EC-Treaty re-mained basically unchanged since the introduction of the Treaty on the European Economic Community in 1958, until the 1980s the member governments only sporadically and inade-quately notified the Commission on their subsidy programs. Furthermore, during the first 15 years the Commission reached a positive decision in virtually all of these few notified cases (Rosenstock 1995: 82-86). In the context of the introduction of the Single European Act and the renewed efforts to establish the Common Market this behavior changed drastically (Cas-pari 1987: 87). On the one hand, the Commission — with the support of the European Court of Justice — rigidly enforced the notification requirement. On the other hand, it rigorously employed the powers invested by the treaty and started to scrutinize the applications of the member states.
To begin with, this resulted in an increasing number of turned down applications. This not only led to complains by the member governments that the Community overdrafted its pow-ers and interfered with the legitimate budgetary prerogatives of the member governments. It also forced the administrations to readjust their drafting processes to the requirements of the Commission (Nägele 1996: 139). In order to support this adjustment process the Commis-sioners developed a set of informal frameworks and guidelines to instruct the national appli-cants about the prospective chances of their state aid plans (Rawlinson 1993; Cananea 1993).
With the formal completion of the Single Market in 1993 the Commission made clear that it considered the limitation and subsequent reduction of the subsidies to be one of the most im-portant goals of achieving a truly common market. Although the Commission was harshly criticized for some of its decisions it nevertheless acquired during the 1990s considerable authority in questions of competition policy; so much so that some Länder governments in Germany complained about the perceived loss of any budgetary autonomy in the realm of structural policy beyond the strict framework of the Community. 6
The comparison between the two cases reveals an interesting and — at least in the context of the usual debate — quite surprising pattern: The compliance with regulations to limit state sub-sidies is considerably higher on European level than on national German level. It seems even safe to argue that subsidies control on federal German level only improved when the European Commission introduced serious measures on European level. This result evades common po-litical scientific wisdom and challenges one of the eternal verities of the debate about globaliza-tion and denationalization. Such a finding inevitably leads to the question of how to explain this surprising empirical evidence.
From theoretical point of view there are (at least) four perspectives, which deal with the ques-tion of compliance:
Which one of these theoretical perspectives explains best the empirical evidence? It is obvious that realism is a poor basis for explaining the compliance record of state aid control. One could argue that the German Länder do not comply with the codices because of the missing unilat-eral threats to sanction non-compliance. However, on European level such threats and sanc-tions between the member states are explicitly prohibited. A similarly poor explanatory record has to be attributed to the reflexive "managed compliance" perspective. On German level on certainly can detect some kind of subsidies management, but it works against limiting state aids. Rather, the ministers and administrators form some kind of advocacy coalition against their finance and budget ministers in order to secure as much funds as possible and to allocate them according to their preferences. On European level, such coalitions are not observable. Rather, it is solid bargaining, which determines the outcome of the process.
The rational institutionalist perspective offers a far better explanatory record. In the German case the codices refrain from any institutionalization of a mechanism to control and sanction non-compliance. Furthermore, the Federal level even refuses to use its few prerogatives to control and sanction the state aid policy of the Länder governments. Thus, one should not be surprised about the low degree of compliance. On the contrary, the European Commission is invested with far reaching competences not only to control but also to sanction non-compliant behavior of the member governments. The comparatively high degree of compliance is the ex-pected result. However, this theoretical perspective offers no explanation, why the Commis-sion could not elicit such compliant behavior until the late 1980s although it is invested with the competences since the introduction of the Treaty on the European Economic Community in 1958.
Equally strong is the explanatory record of the perspective on law and law quality. In the German case the codices never were considered to have any law quality whatsoever. Nor were they challenged in any court. On European level the substantive elements of the regulation is part of the Treaty that is part of the constitution of the European Union. And up to introduc-tion of the Council Regulation on the application of Article 88 most of the procedural re-quirements were laid down in Commission decisions or rulings of the European Court of Jus-tice. However, this quality of European law had to be developed by the Commission and the Court during the first 30 years of its existence. It was the Court, which introduced the princi-ple of supremacy of European law over national law or the equal standing of third parties in the formal process of scrutinizing applications for state aid schemes.
The best explanation can be drawn from a combination of the theoretical perspectives. In the German case it is obvious that since the introduction of the regulation both the degree of insti-tutionalisation and the quality of the law have been rather very low. This resulted in a poor compliance record. On European level the first years were characterized by a high degree of institutionalization but a very low quality of the law. Not surprisingly, only few and very inconsistent cases reached the Commission and it approved virtually all of them. But with the massive increase in law quality over the past 20 years the high degree of institutionalization (the Commission commands unprecedented competences in the area of competition policy) inevitably led to a massive improvement of the compliance record.
Table 3: Combined explanation for the state aid cases|
degree of institutionalization quality of law |
high
|
low
|
| high | compliance | ambiguity of the regulation |
| low | arbitrary action of the common institution | non-compliance |
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Note 1: This paper presents some results of a research project funded by the German Research Foundation (Deutsche Forschungsgemeinschaft), chaired by Michael Zürn and Christian Joerges and carried through by Jürgen Neyer and the author of this paper. It greatly benefited from the discussions and critical comments in the context of this project. Furthermore, I am very grateful for very valuable critical remarks on an earlier version to Tanja Börzel, Jeffrey Checkel, Nicolai Dose, Burkard Eberlein, Rainer Eising, Volker Fürst, Edgar Grande, Andrea Lenschow, Robert Kaiser, Christoph Knill, Heiko Prange, Thomas Risse and Bernhard Zangl. Back.
Note 2: On this debate see for example Goroncy 1970a; 1970b; 1971; Tiemann 1970; 1971. Back.
Note 3: See the Transparency Guideline: Guideline 80/723/EEC of the Commission of June 25th, 1980, OJ L 195/80, p. 195. Back.
Note 4: Only most recently these rulings, guidelines, and policy frameworks were consolidated in the form of a Council Regulation on the detailed rules for the application of Article 88 EC-Treaty. (See Council Regulation No. 659/99 of 22 March 1999, OJ L 83/99, p. 1). Back.
Note 5: The only exception to this rule is the so called de minimis rule, which exempts member governments from the reporting requirement if the sum allocated to an enterprise does not exceed 300 000 Euro in three years. Back.
Note 6: An interesting opinion of an official of the government of Rhineland-Palatina on this matter can be found in Harden 1993: 81-82. Back.
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