EU INSTITUTIONS 2ND YEAR TRANSLATION STUDIES

AUTUMN TERM, 2013-2014

ROXANA-CRISTINA PETCU, PhD
Lecture V LAW-MAKING IN TH EU
The powers and responsibilities of the EU (its competences) are defined in the Treaty of Roma and in the
subsequent amendments. From the very beginning, the Community had responsibility for the common policies,
most importantly covering agriculture, fisheries and international trade. There are other matters added to these
traditional responsibilities, such as transport, environmental protection, consumer protection and public health,
research and development, the promotion of economic and social cohesion and cooperation with developing
countries.
Thus, the competences of the Community result
from the Treaty of Rome (although some of them could not be exercised because of various political
problems stemming from the national interests of the MS)
from each formal step in integration which added new competences
or, in some cases, the Union simply found itself in the situation to exercise in practice powers that it has
always enjoyed in theory
DIFFERENT SORTS OF LAW
EU law takes different forms. There are binding and non-binding legal instruments.
1. Binding instruments
Directives
sets out a policy objective but requires national legislation to implement or transpose. This gives a
certain amount of leeway to the MS and allows for differing conditions
A directive is a legislative act of the European Union, which requires MS to achieve a particular result
without dictating the means of achieving that result. It can be distinguished from regulations which are
self-executing and do not require any implementing measures. Directives normally leave member states
with a certain amount of leeway as to the exact rules to be adopted. Directives can be adopted by means of
a variety of legislative procedures depending on their subject matter.
they are binding. The legal basis for the enactment of directives is article 249 of the Treaty establishing the
European Community and, as such, directives only apply within the European Community pillar of the
European Union.
Article 249
In order to carry out their task and in accordance with the provisions of this Treaty, the European
Parliament acting jointly with the Council, the Council and the Commission shall make regulations and
issue directives, take decisions, make recommendations or deliver opinions. A regulation shall have
general application. It shall be binding in its entirety and directly applicable in all Member States. A
directive shall be binding, as to the result to be achieved, upon each Member State to which it is
addressed, but shall leave to the national authorities the choice of form and methods. A decision shall be
binding in its entirety upon those to whom it is addressed. Recommendations and opinions shall have no
binding force.

The Council can delegate legislative authority to the Commission and, depending on the area and the
appropriate legislative procedure, both institutions can make laws. There are Council regulations and
Commission regulations. Article 249 does not clearly distinguish between legislative acts and
administrative acts, as is normally done in national legal systems
a time limit (2 years or less) is usually laid down for the transposition of a directive (often breached).

in case of breach or in case the Commission is not convinced that the national implementing legislation is
adequate, the ECJ has the final word
Notwithstanding the fact that directives were not originally thought to be binding before they were
implemented by member states, the European Court of Justice developed the doctrine of direct effect
where unimplemented or badly implemented directives can actually have direct legal force. The court
found that member states could be liable to pay damages to individuals and companies who had been
adversely affected by the non-implementation of a directive .

Regulations
apply immediately throughout the territory of the EU, without requirement for legislation at national level.
A regulation is a legislative act of the European Union which becomes immediately enforceable as law in
all member states simultaneously. Regulations can be distinguished from directives, at least in principle,
need to be transposed into national law. Regulations can be adopted by means of a variety of legislative
procedures depending on their subject matter.
are binding. The legal basis for the enactment of regulations is article 249 of the Treaty establishing the
European Community and, as such, regulations only apply within the European Community pillar of the
European Union.
The Council can delegate legislative authority to the Commission and, depending on the area and the
appropriate legislative procedure, both institutions can make laws. There are Council regulations and
Commission regulations. Article 249 does not clearly distinguish between legislative acts and
administrative acts, as is normally done in national legal systems.
Regulations are in some sense equivalent to "Acts of Parliament", in the sense that what they say is law,
and do not need to be mediated into national law by means of implementing measures. As such,
regulations constitute one of the most powerful forms of European Union law and a great deal of care is
required in their drafting and formulation.
When a regulation comes into force it overrides all national laws dealing with the same subject matter and
subsequent national legislation must be consistent with and made in the light of the regulation. While
member states are prohibited from obscuring the direct effect of regulations, it is common practice to pass
legislation dealing with consequential matters arising from the coming into force of a regulation.
Decisions
are binding, but apply only to the body or bodies to which they are addressed, which may be a MS, a legal
person (usually a corporation) or a natural person
A Decision (defined in Article 249/EC) is one of the three binding instruments provided by secondary EU
legislation. A decision is binding on the person or entity to which it is addressed. Decisions may be
addressed to member states or individuals. The Council of the European Union can delegate power to
make decisions to the European Commission.
The legislative procedure for adoption of a decision varies depending on its subject matter. The co-decision
procedure requires agreement of and allows amendments by both the European Parliament and the
Council of the European Union. The Assent procedure requires agreement of both Parliament and Council,
but the Parliament can only agree or disagree to the text as a whole - it cannot propose amendments. The
Consultation procedure requires agreement of the Council alone, the Parliament merely being consulted on
the text. In some areas, such as competition policy, the Commission may itself issue decisions.
Common uses of decisions involve the Commission ruling on proposed mergers, and day-to-day
agricultural matters (e.g. setting standard prices for vegetables).
On the basis of case law, decisions may have direct effect, that is to say they may be invoked by individuals
before national courts
The EU institutions may have a certain amount of leeway in deciding which sort of law is appropriate in which
case, but in reality this is usually dictated by the Treaties.
2. Non-binding instruments

Recommendations
used by the Commission or the Council, but does not bind the MS.
A recommendation in the European Union (introduced in Article 249/EC) is one of two kinds of nonbinding acts cited in the Treaty of Rome.
Recommendations are without legal force but are negotiated and voted on according to the appropriate
procedure. Recommendations differ from regulations, directives and decisions, in that they are not binding
for Member States. Though without legal force, they do have a political weight. The recommendation is an
instrument of indirect action aiming at preparation of legislation in Member States, differing from the
Directive only by the absence of obligatory power.
According to the terms of the Treaty on the European Union "In order to ensure the proper functioning
and development of the common market, the Commission () formulate recommendations or deliver
opinions on matters dealt with in this Treaty, if it expressively so provides or if the Commission considers
it necessary."
Concretely, recommendations can be used by the Commission to raze barriers of competition caused by the
establishment or the modification of internal norms of a Member State. If a country does not conform to a
recommendation, the Commission cannot propose the adoption of a Directive aimed at other Member
Countries, in order to elide this distortion
Opinions
It requires little explanation
For instance, the Economic and Social Committee or the Committee of the Regions may issue opinions on
the various legislative proposals tabled by the Commission. These committees may also issue own opinions
on a variety of matters they consider relevant or important at a specific given time.
Communications
Issued by the Commission; a document in which the Commission states its views on a specific issue
Declarations
Issued by the Council
Resolutions
Issued by the PE
Deal with issues over which it has no real power, but where it hopes to exercise influence
Every session, the PE passes resolutions on human rights or crises which are beyond its reach
The PE has entire committees which deal with no legislative proposals at all, except through the
consultation procedure, simply because it does not have competence in those areas.
Each of the major EU institutions has a role to play in the creation and implementation of the EU law. Their role is
determined by the type of law being made and the policy area it covers. For every proposed law their must be a
legal base to be found in the treaty. In other words, when the Commission makes a legislative proposal, it must be
able to cite an article in the Treaty which gives the EU the authority to make laws in that specific area of policy.
The treaty base can be challenged before the Court of Justice, which has the final say as to whether or not it is
legitimate. The choice of the treaty base is crucial, because on it will depend which of the various legislative
procedures is used, and thus the extent of influence on the EP and whether the Council, in approving, rejecting or
amending the proposal, must do so by unanimity or by Qualified Majority Voting (OMV).
QMV means that laws which are opposed by a sovereign states government and may be abhorrent to its people
can be imposed upon them. There may be defenses to this, but practicality simply will not do. Majority voting has
been extended to new areas at every amendment of the Treaty since the Single European Act. Up to now, only the
most politically sensitive issues have been left to unanimity, namely defense operations, most tax matters as well
as cultural policy amongst MS.
THE LEGISLATIVE PROCEDURES
Decision-making at European Union level involves various European institutions, in particular

the European Commission,

the European Parliament (EP),

the Council of the European Union.

In general, it is the European Commission that proposes new legislation, but it is the Council and Parliament that
pass the laws. In some cases, the Council can act alone. Other institutions also have roles to play.
The main forms of EU law are directives and regulations. The rules and procedures for EU decision-making are
laid down in the treaties. Every proposal for a new European law is based on a specific treaty article, referred to as
the legal basis of the proposal. This determines which legislative procedure must be followed. The three main
procedures are consultation, assent and co-decision.

1. Co-decision
This is the procedure now used for most EU law-making. In the co-decision procedure, Parliament does not
merely give its opinion: it shares legislative power equally with the Council. If Council and Parliament cannot
agree on a piece of proposed legislation, it is put before a conciliation committee, composed of equal numbers
of Council and Parliament representatives. Once this committee has reached an agreement, the text is sent once
again to Parliament and the Council so that they can finally adopt it as law. Conciliation is becoming increasingly
rare. Most laws passed in co-decision are, in fact, adopted either at the first or second reading as a result of good
cooperation between the three institutions.
Having been established by the Maastricht Treaty, and extended and adapted by the Treaty of Amsterdam to make
it more effective, the co-decision procedure now covers 43 areas under the first pillar (based on the Treaty
establishing the European Community) following the entry into force of the Treaty of Nice.As defined in Article
251 of the EC Treaty, the co-decision procedure is the legislative procedure which is central to the Community's
decision-making system. It is based on the principle of parity and means that neither institution (European
Parliament or Council) may adopt legislation without the other's assent. Since the entry into force of the
Amsterdam Treaty until 30 June 2007, 635 co-decision procedures have been successfully completed (apart from
two cases). This site contains references to the provisions of the Treaty and to the legal bases of the procedure. In
this regard, it is important to bear in mind the existence of the Joint Declaration on practical arrangements for the
new co-decision procedure, which was adopted by the three institutions when the Amsterdam Treaty came into
force. It serves as a practical reference framework for each institution as regards the role it has to play at the
various stages of the procedure. Declaration n34 annexed to the Treaty of Amsterdam calls on the institutions to
make every effort to ensure that the co-decision procedure operates as expeditiously as possible and in particular
that in no case should the actual period between the second reading by the European Parliament and the outcome
of the Conciliation Committee exceed nine months.
Attention should also be drawn to the interinstitutional agreement on "better lawmaking", which was signed by
the European Parliament, the Council and the Commission on 16 December 2003. The agreement sets out best
practice and lays down new objectives and commitments, including:

the improvement of interinstitutional coordination and transparency ;

the establishment of a sound framework for "alternative instruments" ;
the increased used of impact analyses in the Community decision-making process ;
the desire to establish a mandatory time limit for transposing directives into national law.

CO-DECISION IN DETAIL
1. COMMISSION PROPOSAL
1. The Commission has a monopoly of legislative initiative in all the areas which are subject to the codecision
procedure. In accordance with the Treaty establishing the European Community (EC Treaty), only the

Commission may put forward legislative proposals. It may also itself alter any such proposal (Article 250(2) EC
Treaty). The legal basis adopted by the Commission will determine the legislative procedure.The Commissions
proposal is the result of an extensive consultation process, which may be conducted in various ways (impact
assessment, reports by experts, consultation of national experts, international organisations and/or nongovernmental organisations, consultation via Green and White Papers, etc.). A consultation process is also
launched among the different Commission departments in order to ensure that all aspects of the matter in
question are taken into account (Interservice Consultation).The Commissions proposal is adopted by the College
of Commissioners on the basis of either a written procedure (no discussion among Commissioners) or an oral
procedure (the dossier is discussed by the College of Commissioners), and is published in the Official Journal of
the European Union (C Series).The proposal is forwarded simultaneously to the European Parliament and to the
Council.As far as the legislative process is concerned, relations between the European Parliament and the
Commission are governed generally by the Framework Agreement on relations between the European Parliament
and the Commission drawn up in 2005.
1a Opinions of the Committee of the Regions and the Economic and Social Committee
The Economic and Social Committee and the Committee of the Regions respectively consist of representatives of
the various economic and social components of organised civil society and representatives of regional and
local bodies . The provisions governing the Economic and Social Committee and the Committee of the Regions
are contained in Articles 257 to 265 of the EC Treaty. These Committees must be consulted by the Commission
and the Council where the Treaty so provides or in cases in which the latter consider it appropriate. The Council or
the Commission can set a time limit for the submission of opinions (Article 262 and 265 of the EC Treaty). The
European Parliament (EP) also has the option of consulting the two Committees. In addition, the Economic and
Social Committee and the Committee of the Regions may issue opinions in cases considered by them to be
appropriate.
2. European Parliament (EP) First reading
The European Parliament delivers an opinion at first reading. This opinion, prepared by a rapporteur, is discussed
and amended within the relevant parliamentary committee, then debated in plenary session, where it is adopted
by a simple majority.Legal basis: Article 251(2) EC Treaty and Rules 34 - 40 and 38 - 53 of the EPs Rules of
Procedure.Upon receiving the Commissions proposal, the European Parliament gets ready to prepare and adopt
its opinion. The Treaty does not set any time limit for the European Parliament to give its opinion. In practice, this
phase lasts for eight months on average. It may, however, be much longer, depending on the technical or political
complexity of the dossiers.If the parliamentary committee responsible for the dossier does not propose any
amendments, the European Parliament tends to use the simplified fast-track procedures (see Rules 131 and 43 of
the EPs Rules of Procedure).
Work in parliamentary committee:
The parliamentary committee responsible is named, along with any other committees which are asked for an
opinion (Rule 40 of the EP's Rules of Procedure). The legal basis and financial aspects may be evaluated by the
parliamentary committees responsible for legal affairs and budgetary issues (Rules 35 and 36 of the EPs Rules of
Procedure). Within the parliamentary committee responsible, coordinators (representing political groups) entrust
the drafting of the report to a rapporteur (see Rule 42 of the EPs Rules of Procedure) chosen by a weighting
system representative of the political groupings within the committee.Other political groups may also appoint a
shadow rapporteur, who will be responsible for preparing the groups position and monitoring the work of the
rapporteur.The parliamentary committee meets several times to study the draft report prepared by the rapporteur.
The rapporteur and the members or substitutes of both the parliamentary committee responsible and any other
EP committee may propose amendments to the Commissions proposal. These amendments, together with those
proposed by the parliamentary committees asked for an opinion, are put to the vote in the parliamentary
committee responsible, on the basis of a simple majority. Voting on a report is concluded by a vote on the
Commissions proposal as amended and on a legislative resolution (see Rules 46 and 185 of the EPs Rules of
Procedure).
Adoption in plenary

Once the report is adopted in the parliamentary committee, it is placed on the agenda of the plenary
session.Additional amendments to the report, including amendments adopted in parliamentary committee, may
be tabled by political groups or at least 37 Members (Rule 150 of the EPs Rules of Procedure) and put to the
plenarys vote. As a general rule, the deadline for tabling new amendments in plenary is noon on the Thursday of
the week preceding the session.In the course of the plenary debate ahead of the vote, the Commissioner
announces and explains the Commissions position on the amendments tabled. The Commissions position on the
EPs amendments is prepared by the Directorate-General in charge of the dossier and approved by the College of
Commissioners. In practice, the Colleges decision is prepared by the Inter-institutional relations group
(comprising members of the Commission cabinets responsible for inter-institutional relations), and subsequently
ratified by the College.A simple majority is required for adopting amendments, the Commission's proposal as
amended and the legislative resolution (see Rule 51 of the EPs Rules of Procedure).If the legislative resolution
accompanying the report has been adopted in parliamentary committee virtually unanimously (with fewer than
10% of votes against), the report may be adopted by the plenary without further amendment or debate (Rule 131 of
the EPs Rules of Procedure).Although the Treaty does not explicitly allow the European Parliament to reject the
Commissions proposal at first reading, Rule 52 of the EPs Rules of Procedure foresees the situation in which the
Commissions proposal, as amended, fails to secure a majority of the final votes cast. In this case, the President of
the European Parliament will suspend the vote on the legislative resolution (normally taken following the final
vote on the proposal as amended) and will request the Commission to withdraw its proposal. If the Commission
does so, the legislative procedure is stopped. If the Commission refuses to withdraw its proposal, the matter is
referred back to the parliamentary committee. However, there is nothing to prevent the European Parliament
from adopting an opinion containing amendments which completely nullify the Commissions proposal. Such a
step will not necessarily stop the legislative procedure and the Commission can always submit an amended
proposal, while the Council can adopt a common position.
3. Amended Commission proposal
Article 250(2) of the EC Treaty authorises the Commission to alter its legislative proposal, enabling it to
incorporate European Parliament amendments which, in its view, improve the initial proposal and/or are likely to
facilitate an agreement.Legal basis: Article 250(2) of the EC Treaty.In accordance with 13 of the Joint
Declaration on practical arrangements for the new codecision procedure, the Commission must exercise its right
of initiative in a constructive manner with a view to making it easier to reconcile the positions of the Council and
the European Parliament. To this end, the Commission may incorporate into its amended proposal the European
Parliament amendments which it supports, either unaltered or suitably reworded.As far as internal procedures are
concerned, the amended proposal is prepared by the Commissions Directorate-General in charge of the dossier,
on the basis of the mandate obtained from the College of Commissioners before the plenary. The Legal Service and
the Secretariat-General are consulted, and the amended proposal is adopted by the College and published in the
Official Journal.
4. Council first reading
The Council makes its position known after preparatory work has taken place within working parties made up of
experts from the Member States and chaired by the Member State holding the six-monthly Presidency of the
Council. This preparatory work runs concurrently with the European Parliaments activity (cf. 6 of the Joint
Declaration). The Council finalises its position on the basis of the Commissions proposal, amended where
necessary, in the light of the European Parliaments first reading and resultant amendments.
There are three possible scenarios:
the Council accepts without alteration the Commissions proposal, which the European Parliament has not
amended, and the act can be adopted ;
the Council accepts all the European Parliaments amendments which the Commission has incorporated
into its amended proposal, and the act can be adopted ;
in all other cases, the Council adopts a common position.
Legal basis: Article 251(2) EC Treaty.

Preparation of the Councils position

The Councils decisions are prepared within specific working parties made up of representatives of the Member
States and chaired by the representative of the Member State holding the six-monthly Presidency, assisted by the
General Secretariat of the Council of Ministers. The Commission has a role to play in providing expertise.The
working parties report to the Committee of Permanent Representatives (Coreper, Part I or II), which prepares
every Council decision taken at Ministerial level.

Adoption of the decision by the Council

Decisions prepared by Coreper are adopted by the Council of Ministers either without debate, when an agreement
has been found at the preparatory stage ("A" item), or with debate ( B item). In both cases, the deliberations are
in the public domain. In accordance with Article 250(1) of the EC Treaty, the Council will act by a qualified
majority with the agreement of the Commission. However, if its position differs from that of the Commission,
unanimity will be required.
5. The Council approves all the EP amendments
If the Council approves the Commissions proposal as amended by the European Parliament, the act is deemed to
have been adopted.Legal basis: Article 251(2), first and second indents, of the EC Treaty.When the European
Parliament has introduced amendments, adoption of the act is dependent on the Council approving all the
amendments by a qualified majority if the Commission has incorporated them into its amended proposal, or by
unanimity if this has not been done.When the co-legislators are seeking to conclude an agreement at first reading,
it is often the case that they organise, in accordance with paragraphs 7, 8 and 9 of the Joint Declaration on
practical arrangements for the new codecision procedure, informal tripartite meetings attended by representatives
of the European Parliament (rapporteur and, where appropriate, shadow rapporteurs), the Council (chair of the
working party and/or Coreper), and the Commission (department responsible for the dossier and the
Commissions Secretariat-General).The aim is to ensure that the Parliament amendments adopted in plenary are
wholly acceptable to the Council. The Commission frequently plays a mediating and editing role in respect of these
compromise texts.
6. The Council can adopt the act as amended
The legislative act is submitted directly for the signature of the Presidents and Secretaries-General of the
European Parliament and of the Council, and is published in the Official Journal.The procedure is ended.
7. The EP has approved the proposal without amendment
If the European Parliament has not adopted any amendments, and if the Council does not wish to alter the
Commissions proposal, it can adopt the act on that basis by a qualified majority (with exceptions).Legal basis:
Article 251(2), second indent, of the EC Treaty.
8. The Council can adopt the Act
The legislative act is submitted directly for the signature of the Presidents and Secretaries-General of the
European Parliament and of the Council, and is published in the Official Journal.The procedure is ended.
9. Council common position
When the Council does not share the views expressed by Parliament, it adopts a common position, which is
forwarded to the European Parliament together with a statement of reasons. Where the European Parliament has
approved the Commissions proposal without amendment, but the Council wishes to make changes to it, the
Council will again adopt a common position. Legal basis: Article 251(2), third indent, of the EC Treaty.

Preparation of the common position:

The decision is prepared by the working parties and Coreper. In the next stage of this preparatory work, the
Council will establish or negotiate a political agreement laying down the broad outlines of the proposed

common position. The details of this agreement are subsequently finalised by the working party, verified by
lawyer-linguists and formally adopted as a Common Position by the Council of Ministers at a subsequent meeting.
The Council may, on occasion, reach an agreement in principle before the European Parliament delivers its
opinion, commonly termed a general approach . The Commission does not take a definitive position at this
stage, since it needs to be able first of all to react to any amendments of the European Parliament. The Council
moves from the general approach to a political agreement, then to a common position after examining the EPs
opinion, unless the EP amendments coincide with the general approach, allowing the act in question to be
adopted. Wherever possible, informal contacts may be established in the period between the political agreement
and the formal notification of the common position, with a view to facilitating an agreement at second reading.

Adoption of the common position:

Adoption may take place without debate (A item on the agenda) or with debate (B item) or, in exceptional
cases, by written procedure. In the first two instances, the deliberations are in the public domain. The Councils
decision requires a qualified majority (see Article 205 EC Treaty), except in the fields of culture, free movement of
citizens, social security and coordination of rules governing professions, for which unanimity is required (link to
scope).The European Parliament is generally notified of the common position at the plenary session following its
formal adoption. The time limits laid down by the Treaty for the subsequent stages of the procedure start to run
when Parliament receives the common position.The statement of reasons is accompanied by any statements made
by the Council and/or the Commission for the Council minutes, as well as unilateral statements by delegations.No
time limit is laid down in the Treaty for the adoption of a common position by the Council. In the past, this phase
has lasted for an average of 15 months from the start of the procedure, depending on the complexity of the
dossiers. The adoption of certain politically sensitive common positions has sometimes taken several years.
10. Commission communication on the common position
In this document, which is forwarded to the European Parliament in tandem with the common position, the
Commission explains why it has decided to support or oppose the common position. The Commission also
comments on the Councils reaction to the EP amendments which it had supported in plenary at the first reading.
Legal basis: Article 251(2), third indent, of the EC Treaty.
11. EP second reading
A three-month time limit is laid down by the Treaty (this period may be extended by a month) for the European
Parliament to take action on the basis of the Councils common position.The adoption procedure is broadly similar
to that at first reading. As a general rule, the amendments must: include amendments adopted at first reading and
not accepted by the Council; or be concerned with a part of the common position which did not appear in, or is
substantially different from, the Commissions initial proposal; or introduce a compromise between the positions
of the co-legislators.
The President of the European Parliament makes an announcement, in plenary session, acknowledging receipt of
the Councils common position and the Commissions communication thereon, duly translated into all the official
languages. The three-month time limit starts to run on the day following receipt (see Rule 57 of the EP's Rules of
Procedure).

Work in parliamentary committee:

The procedure for second reading in parliamentary committee generally follows the rules and practice of the first
reading, with the difference that the text to be amended is the Councils common position and not the
Commissions proposal. The parliamentary committees which were asked for an opinion at first reading are not
consulted anew, except in specific cases. The amendments adopted in parliamentary committee constitute the
recommendation for second reading, which is normally defended by the same rapporteur as at first reading. It
includes proposed amendments, where appropriate. Amendments may also be tabled personally by other
Members of the European Parliament. Pursuant to Rule 62 of the EP's Rules of Procedure, the amendments must
either include amendments adopted at first reading and not accepted by the Council, or be concerned with a part
of the common position that did not appear in, or is substantially different from, the Commissions initial

proposal, or introduce a compromise between the positions of the co-legislators. If new European elections have
taken place, the rules for first reading will apply (Rule 62(3) of the EP's Rules of Procedure).The proposed
amendments are put to the vote in the parliamentary committee responsible, which takes a decision by simple
majority.

Adoption in plenary session :

The plenary makes its position known on the basis of the amendments included in the recommendation adopted
by the parliamentary committee and any amendments tabled in plenary by political groups or by a minimum of 37
Members. The rules on the admissibility of amendments applying to the parliamentary committee are also
applicable for amendments tabled at the plenary stage. The plenary adopts amendments by absolute majority. The
European Parliament may extend the three-month time limit by a further month (Article 251(7) of the EC Treaty
and Rule 58 of the EP's Rules of Procedure).
12. EP approves the common position or does not take a decision
If the European Parliament endorses the common position as it stands, fails to adopt amendments as a result of
not obtaining an absolute majority of its Members (393 votes) or does not take a decision within the stipulated
time limit, the President of Parliament will declare that the common position is approved and the act is adopted in
accordance with the common position.Legal basis: Article 251(2)(a) of the EC Treaty, Rule 67 of the EP's Rules of
Procedure
13. Act deemed to have been adopted
The legislative act is submitted directly for the signature of the Presidents and SecretariesGeneral of the
European Parliament and of the Council, and is published in the Official Journal.The procedure is ended.
14. EP rejects the common position
Rejection of the common position requires the votes of an absolute majority of the component Members of the
European Parliament The act is deemed not to have been adopted. Legal basis: Article 251(2)(b) of the EC
Treaty; Rule 61 of the EPs Rules of Procedure.
In contrast to the first reading, the Treaty explicitly confers on the European Parliament the right to reject the
Councils common position. Up till now, the European Parliament has never exercised this prerogative.
15. Act deemed not to have been adopted
The procedure is ended.
16. EP proposes amendments to the common position
The European Parliament may propose amendments to the common position, by an absolute majority of its
component Members (393 votes ) and the text thus amended is forwarded to the Council and the Commission.
Legal basis: Article 251(2)(c) of the EC Treaty; Rule 62 of the EP's Rules of Procedure.
Once adopted in parliamentary committee, the recommendation for second reading is placed on the agenda of the
plenary session. As with the first reading, at this stage, any new amendment must be tabled by a political group or
by at least 37 Members of Parliament. Voting is based on an absolute majority of the component Members of the
European Parliament (393 votes).During the plenary debate preceding the vote, the Commissioner announces and
explains the Commissions position on the amendments tabled. The Commissions position on the European
Parliaments amendments is prepared by the Directorate-General in charge of the dossier and approved by the
College of Commissioners. In practice, the Colleges decision is prepared by the Inter-institutional relations group
(comprising members of the Commission cabinets responsible for inter-institutional relations), and subsequently
ratified by the College.

17. Commission opinion on EP amendments

The Treaty specifically requires the Commission to deliver an opinion on the European Parliaments amendments.
The Commissions position on the European Parliaments amendments will determine the type of vote necessary
in the Council: if the Commission has given a negative opinion on at least one amendment, the Council will have to
act unanimously as regards acceptance of the European Parliaments position overall. Legal basis: Article 251(2)(c)
and (3) of the EC Treaty.
In practice, the Commissions opinion is a written reflection of the position expressed by the Commissioner in
plenary on the amendments adopted by the European Parliament, accompanied where necessary by texts
reformulating the EP amendments accepted partially, in principle or subject to redrafting by the Commission.
18. Council second reading
The Council has a period of three months (which may be extended by a further month), following receipt of the
European Parliaments amendments, in which to approve them by a qualified majority or unanimously if the
Commission has delivered a negative opinion.
The Council may extend the three-month time limit by a further month. The time limit starts to run from the
official receipt of the amendments resulting from the European Parliaments second reading, in all the official
languages.The Councils internal workings are broadly similar to the preparation of the common position: the
competent working party prepares a position which is submitted to Coreper and adopted by the Council.
19. The Council approves the amended common position
If the Council agrees to accept all the amendments of the European Parliament, the act will be deemed to have
been adopted in the form of the common position thus amended.Legal basis: Article 251(3) EC Treaty.
Seeking an agreement at second reading: informal proceedings
In accordance with the Joint Declaration on practical arrangements for the new codecision procedure (in
particular, paragraphs 19 to 23), where an agreement at second reading appears to be attainable, informal contacts
are established between the co-legislators in order to reconcile their positions. Such contacts may take the form of
bilateral meetings between representatives of the European Parliament and the Presidency or, as is more often the
case, informal tripartite meetings in the presence of the Commission. Owing to the ad-hoc nature of such contacts,
no standard format of representation has been laid down but, as a general rule, they involve the rapporteur
(accompanied where necessary by shadow rapporteurs from other political groups), the chairperson of the
relevant Council working party assisted by the General Secretariat of the Council and representatives of the
Commission (usually the expert in charge of the dossier and his or her direct superior assisted by the
Commissions Secretariat-General and Legal Service). The purpose of these contacts is to get agreement on a
package of amendments acceptable to the Council and the European Parliament. The Commissions endorsement
is particularly important, in view of the fact that, if it opposes an amendment which the European Parliament
wants to adopt, the Council will have to act unanimously to accept that amendment. If these contacts prove
fruitful, the Coreper chair will send a letter to the chair of the parliamentary committee responsible, whereby the
Council undertakes to approve the European Parliaments amendments if they are in line with the compromise
identified jointly. The compromise amendments are then tabled either in parliamentary committee (if they are
identified at an early stage) or, more frequently, just before the plenary session. They are co-signed for their
groups by the rapporteur and the principal shadow rapporteurs, thereby guaranteeing an adequate majority. The
political groups within the European Parliament coordinate their votes in order to adopt the amendments
negotiated with the Council. If those amendments are adopted in accordance with the agreement reached, the
Council will adopt the act and the procedure will be concluded.
20. Act adopted as amended
The legislative act is submitted directly for the signature of the Presidents and Secretaries-General of the
European Parliament and of the Council, and is published in the Official Journal.The procedure is ended.

21. The Council does not approve the amendments to the common position
If, within a three-month period (may be extended by one month), the Council does not approve all the
amendments of the European Parliament, the President of the Council, in agreement with the President of the
European Parliament, will convene a meeting of the Conciliation Committee within six weeks (may be extended by
two weeks). Legal basis: Article 251(3) of the EC Treaty.
Should the Council fail to approve all the amendments adopted by the European Parliament, then the conciliation
procedure will be set in motion. The Commissions opinion on the European Parliaments amendments is
therefore particularly important, since the Council will have to act unanimously in order to adopt a parliamentary
amendment on which the Commission has given a negative opinion.
22. Convening of the Conciliation Committee
The Committee has to be convened within six or, if extended, eight weeks from the time of the Councils formal
decision. It is deemed to have been convened when its first meeting takes place.The period between the end of the
Councils second reading and the convening of the Conciliation Committee is used to prepare the work of the
latter, through informal meetings between the three institutions. These informal trialogues bring together small
teams of negotiators for each co-legislator, with participation by the Commission. Each team reports to their
delegation within the Conciliation Committee.This intervening period also gives the European Parliament the
opportunity to appoint its delegation to the Conciliation Committee and give a mandate to its negotiators, in many
cases even before the Councils position at second reading has been formally concluded.
23. The conciliation procedure
Composition: the Conciliation Committee brings together members of the Council or their representatives and
an equal number of representatives of the European Parliament, as well as the Commissioner responsible.
Modus operandi: in most cases, negotiations are conducted during informal trialogues involving small teams of
negotiators for each institution, with the Commission playing a mediating role. The participants in these
trialogues report to their respective delegations. The compromise (joint text) resulting from the informal
trialogues, which often takes the form of a package, is submitted to the delegations for approval.
Decision-making: each delegation to the Conciliation Committee must approve the joint text in accordance with
its own rules: qualified majority for the Councils delegation (unanimity in cases where the Treaty specifies an
exception to the qualified majority rule) and simple majority for the European Parliaments delegation.
The Commissions role: Given that it is the originator of the legislative proposal and can attend meetings of the
delegations of both the EP and the Council, the Commission plays a mediating role and frequently proposes
compromises. Its main aim is to reconcile the positions of the two co-legislators while defending, as far as
possible, the general interest and the requirements of the Treaty in line with its proposal. It is important to note
that, at this stage of the procedure, the Commission can no longer prevent the Council from acting by a qualified
majority without its agreement.
Elements for negotiation: negotiations focus on all the amendments adopted by the European Parliament at
second reading on the basis of the Council's common position.
Time limits: the Treaty stipulates a time limit of six weeks (which may be extended by two weeks) for approving
a joint text. The first meeting of the Conciliation Committee signals the start of that period.
Legal basis: Article 251(4) of the EC Treaty.
Time limits: The Treaty is crystal clear on the question of time limits: after the Councils second reading, the
President of the Council, in agreement with the President of the European Parliament, has 6 (8) weeks to open the
conciliation procedure. The Conciliation Committee itself has 6 (8) weeks to reach agreement on a joint text.In
practice, these periods of time are often too short to allow negotiations to be conducted, since the matters at issue

may be extremely complex and involve a large number of interested parties. As a result, contacts frequently take
place even before the formal conclusion of the Councils second reading, when it becomes clear that the Council
will not accept all the amendments of the European Parliament. Since the Council has 3 (4) months in which to
complete its second reading, the time thereby made available to the negotiators may be used to develop contacts,
especially through informal trialogues. In theory, the duration of work after the second European Parliament
reading may extend over 10 months, although the declaration annexed to the Treaty of Amsterdam (Declaration
No 34 on respect for time limits under the codecision procedure) states that the period in question should not
exceed 9 months.
Informal trialogue: the true negotiating forum
The briefness of the periods laid down by the Treaty for reaching an agreement, combined with the complexity of
dossiers and the constricted timetable make it necessary to organise work on an informal basis upstream of
conciliation. Thus, the negotiators frequently meet well in advance of the opening of formal conciliation. These
meetings, mostly on a trilateral basis, constitute informal trialogues at technical or political levels, with a limited
number of participants in the interest of effectiveness. For the European Parliament, the participants are the
chairperson of the delegation, the chair of the parliamentary committee and the rapporteur, assisted by members
of the European Parliament's conciliations secretariat and, if necessary, a member of the European Parliament's
legal service. For the Council, the permanent representative of the Member State holding the Council Presidency is
assisted by members of the Council's secretariat, including its legal service.
Lastly, the Commission is represented in the trialogues by the Director-General of the department in charge of the
dossier, assisted by experts, its legal service and Secretariat-General. The participants in the trialogues operate on
the basis of negotiating mandates given to them by their respective delegations. They explore possible avenues of
compromise in an informal manner and report to their delegations. Informal technical trialogues may also be
organised, attended for the most part by the three institutions experts and secretariats.
Composition of delegations to the Conciliation Committee
Council: Generally speaking, the Councils delegation brings together the Member States representatives within
Coreper. The Councils delegation is chaired by the Minister presiding over the Council in charge of the dossier. It
acts by a qualified majority independently of the Commissions opinion (except for dossiers in respect of which the
Treaty requires unanimity).
EP: A European Parliament delegation is appointed for each dossier going to conciliation. It is composed of 27
Members of Parliament and 27 substitutes. Three Vice-Presidents of the European Parliament are permanent
members of the Conciliation Committee, co-chairing it by turns. The other EP delegation members are appointed
by the political groups, in proportion to the size of each group within the European Parliament. As a general rule,
they belong to the parliamentary committee responsible for the dossier. The delegation's decisions are taken by a
majority of its component members (i.e. 14 votes).
Conduct of negotiations
The work of the Conciliation Committee is prepared in the course of trialogues where teams of negotiators from
the three institutions attempt to draw up a compromise (joint text), often on the basis of a general package
aimed at striking an overall balance.
Attempts are often made to conclude the conciliation procedure at the first meeting of the Conciliation Committee,
sometimes through a straightforward statement of agreement. In some cases, several meetings of the Conciliation
Committee will be necessary to ensure that the members of the delegations are fully aware of the position and the
determination of their counterparts. These meetings may be preceded by trialogues and technical sessions.
Proceedings of the Conciliation Committee
The Conciliation Committee brings together the delegations of the European Parliament and the Council, and the
Commissioner in charge of the dossier. The Conciliation Committee is chaired jointly by the chairpersons of the
delegations from the two co-legislator institutions (a Vice-President of the European Parliament or a Minister of
the Member State holding the Presidency). Under the terms of 32 of the Joint Declaration on practical

arrangements for the new codecision procedure, the Conciliation Committee meets alternately at the premises of
the European Parliament and of the Council.
Immediately prior to the meeting of the Conciliation Committee, the two co-chairs and the Commissioner
normally get together to prepare the ground. As a general rule, this trialogue is preceded by a preparatory meeting
of each delegation.
Documents available to the Conciliation Committee: the Commissions proposal, the Councils common position,
amendments proposed by the European Parliament, the Commissions opinion thereon, and a joint working
document from the European Parliament and Council delegations. In practice, this document tends to take the
form of a synoptic table in four columns, containing
(1) the Councils common position
(2) the EPs amendments at second reading
(3) the Councils position on the EP amendments (mostly in the form of compromise suggestions)
(4) the EP delegations position on the Councils proposals
Any compromise suggestions made by the Commission tend to take the form of footnotes.
For the most important dossiers, the meeting of the Conciliation Committee is followed by a press conference
making the outcome of the negotiations known to the media.
24. The Conciliation Committee produces a joint text
Once the negotiators have arrived at a compromise, the Conciliation Committee must give approval in the form of
a joint text. The Council's delegation acts by a qualified majority (unanimity in cases stipulated by the Treaty)
while the European Parliaments delegation acts by a simple majority of its component members (14 votes
minimum).
Legal basis: Article 251(4) of the EC Treaty.
25. Parliament and the Council adopt the act in accordance with the joint text
The European Parliament (by a majority of the votes cast; no amendment may be tabled) and the Council (by a
qualified majority with certain exceptions) must adopt the act within six (or eight) weeks, in line with the joint
text.
Legal basis: Article 251(5) of the EC Treaty.
26. Act adopted
The legislative act is submitted directly for the signature of the Presidents and Secretaries-General of the
European Parliament and of the Council, and is published in the Official Journal.
The procedure is ended.
27. Parliament and the Council do not approve the joint text
Should either of the institutions fail to give approval within the stipulated time limit, the act is deemed not to have
been adopted and the procedure is ended. Legal basis: Article 251(5) of the EC Treaty.In practice, approval of the
joint text by the Council (27 Member States) does not pose a problem, since the Councils delegation within the
Conciliation Committee is made up of one representative per Member State (often the same representative as in
Coreper). On the European Parliaments side, approval may be more problematic, since the European

Parliaments delegation to the Conciliation Committee (27 members) is not automatically representative of the
785 Members of the European Parliament.
28. Act not adopted
The procedure is ended.
29. The Conciliation Committee does not produce a joint text
The act is deemed not to have been adopted and the procedure is ended. Legal basis: Article 251(6) of the EC
Treaty.
30. Act not adopted
The procedure is ended.
2. Assent
The assent procedure means that the Council has to obtain the European Parliament's assent before certain very
important decisions are taken. The procedure is the same as in the case of consultation, except that Parliament
cannot amend a proposal: it must either accept or reject it. Acceptance (assent) requires an absolute majority of
the vote cast. The assent procedure is mostly used for agreements with other countries, including the agreements
allowing new countries to join the EU.
3. Consultation
The consultation procedure is used in areas such as agriculture, taxation and competition. Based on a proposal
from the Commission, the Council consults Parliament, the European Economic and Social Committee and the
Committee of the Regions.
Parliament can:

approve the Commission proposal,

reject it,

or ask for amendments.

If Parliament asks for amendments, the Commission will consider all the changes Parliament suggests. If it
accepts any of these suggestions it will send the Council an amended proposal. The Council examines the amended
proposal and either adopts it or amends it further. In this procedure, as in all others, if the Council amends a
Commission proposal it must do so unanimously.

THE BUDGET
The Budget is dealt with under a special procedure. The EU has four sources of revenue, called own resources:

import tariffs 75% goes direct to the EU, while MS retain the rest in respect to administrative costs
levies on agricultural imports (including a special levy on sugar). Again the EU gets 75% of the proceeds
VAT-based contributions until 2003, 0.75% of VAT receipts was paid to the EU. In 2004, it was reduced
to 0.5%.
Contributions based on GNP (Gross National Product) open to constant negotiations, but was set at
1.02% for 2003.

Spending those resources is governed by a complex bureaucratic procedure. Before the Treaty of Lisbon came into
force, spending was divided into (i) compulsory expenditure (CAP spending, spending under the European
Agricultural Guarantee and Guidance Fund and some structural spending) and (ii) non-compulsory spending.

The Budgetary procedure

The EP and the Council form what is known as the budgetary authority, yet the budget itself begins life as a
Commission proposal, called Preliminary Draft Budget, which is first sent to the Council, where it
must arrive at the latest by 1 September so that it may be implemented from 1 January the following year.
The Council, acting by qualified majority, considers the Commissions proposal and adopts a modified
version of it, known as the draft budget.
The draft budget must be forwarded to the EP by 5 October
The EP has 45 days to adopt the budget or demand amendments
If, in that time, the EP fails to state a position, the budget is deemed approved
If the EP proposes changes, it sends the draft budget back to Council and requests amendments
If the requested changes refer to the compulsory expenditure, a majority of votes cast is necessary
If the changes required affect the non-compulsory expenditure, they must be adopted under an absolute
majority of all members
When the Council receives the EPs proposals, it has 15 days for the second reading
If it accepts all the EPs proposals, the budget is adopted
If not, what happens depends on the nature of the amendments
If the EP proposal requires an increase in overall EU expenditure, the Council must adopt it by QMV; if no
QMV is found, the proposal falls
If the Council wants to adopt an EP proposal only modified, it sends it back to the EP, which within 15
days, must conduct its own second reading
If the EP misses this deadline, the Council proposal is integrated within the budget and the budget is
adopted
The EP has the possibility, based on the double majority, to reject the whole budget, and so, the whole
process starts all over again based on a new proposal from the Commission
If the budget is not voted for by 1 January, the UE must finance its activities through a system known as
provisional twelfths.
It is an idea borrowed from the USA, which means that an appropriation is made each month which the
equivalent of one twelfth of the previous years budget.

EU INSTITUTIONS 2ND YEAR TRANSLATION STUDIES

AUTUMN TERM, 2013-2014
ROXANA-CRISTINA PETCU, PhD
Lectures VI-VII

POLICIES OF THE EU

THE MONETARY POLICY

Monetary Union
After an initial stage lasting from 1 July 1990 to 31 December 1993, during which stage the single market would be
completed and economic coordination reinforced, a second stage, from 1 January 1994 to 31 December 1998, saw
the establishment of the European Monetary Institute to assist MS in co-ordinating policies, to prepare the final
stage of monetary union, including the establishment of the European System of Central banks (ESCB) and to
oversee the development of the European Currency Unit (ECU), the notional currency which preceded the euro. It
also obliged MS to:

1.
2.
3.
4.
5.

Render their central banks independent of the political authorities

Discontinue their overdraft facilities with their central banks and their privileged access to financial
institutions
Endeavour to fulfill the following five convergence criteria:
an average rate of inflation that does not exceed by more than 1.5 percentage points that of the three best
performing MS during the year preceding the third stage
a budgetary deficit not exceeding 3% of GDP, or close to that level, provided that it has declined
continuously
government debt not exceeding 60% of GDP, or close to that level owing to a sharply diminishing trend
a long-term interest arte that does not exceed by more than 2% the average of the three best performing
MS in terms of price stability
maintenance of the national currency within normal fluctuation margins of the European Monetary
System for at least two years, without devaluation

The third and final stage was fixed by the European Council, which decided that it would begin on 1 January 1999
and that the initial participating nations would be Austria, Belgium, Germany, Luxembourg, the Netherlands,
Spain, Portugal, Italy, Ireland, France and Finland.
Third stage (1January 1999 1 July 202)

the establishment of the European System of Central banks and the European Central Bank
introduction of the euro

On 1 January 1999

the parities of the participating countries and their rates of conversion into euro irrevocably fixed; the
amounts in national currencies in contracts converted into euro
the euro became a currency in its own right (but no coins or notes issued until 1 January 2002)
MS monetary policy and exchange rate policy carries out and new public sector debt instruments issued,
in euro
The ESCB and national and Community public authorities to oversee and assist with changeover

On 1 January 2002 at the latest, euro banknotes and coins were put into circulation alongside national
currency notes and coins, which were quickly withdrawn, though the exact pace of this withdrawal was left
to the MS, provided it was achieved by July 2002

Coordinating economic policies under the euro follows the system presented below:

The Council of Ministers lays down the broad guidelines of the economic policies of the MS and of the
Community after reporting to the European Council and taking account of its conclusins
The Council ensures compliance with these broad guidelines and monitors economic developments in the
MS
It monitors excessive public deficits, and, after the Commission has issued its Opinion, the Council of
Ministers decides whether a MS has such a deficit and recommends measures to be taken by the MS with
a view to eliminating it within a specified time-limit
If the MS fails to adopt such measures, the Council may decide to impose sanctions

The Stability and Growth Pact

The Stability and Growth Pact (SGP) is an agreement by European Union member states related to their conduct
of fiscal policy, to facilitate and maintain Economic and Monetary Union of the European Union. It is based on
Articles 99 and 104 of the Treaty Establishing the European Community (with the amendments adopted in 1993 in
Maastricht), and related decisions. It consists of fiscal monitoring of members by the European Commission and
the Council and, after multiples warnings, sanctions against offending members. The pact was adopted in 1997, so
that fiscal discipline would be maintained and enforced in the EMU. Member states adopting the euro have to
meet the Maastricht convergence criteria, and the SGP ensures that they continue to observe them. The SGP was
initially proposed by German finance minister Theo Waigel in the mid 1990s. Germany had long maintained a
low-inflation policy, which had been an important part of the German strong economy's performance since the
1950s; the German government hoped to ensure the continuation of that policy through the SGP which would
limit the ability of governments to exert inflationary pressures on the European economy. In March 2005, the EU
Council under the pressure of France and Germany relaxed the rules; the EC said it was to respond to criticisms of
insufficient flexibility and to make the pact more enforceable. The Ecofin agreed on a reform of the SGP. The
ceilings of 3% for budget deficit and 60% for public debt were maintained, but the decision to declare a country in
excessive deficit can now rely on certain parameters: the behaviour of the cyclically adjusted budget, the level of
debt, the duration of the slow growth period and the possibility that the deficit is related to productivityenhancing procedures. The pact is part of a set of Council Regulations, decided upon the European Council
Summit 22-23 March 2005. The SGP maintains budgetary discipline indefinitely:

By requiring the MS to participate in monetary union to draw up and submit stability programmes to
maintain medium-term budgetary equilibrium
By laying down the timetable for implementation and sanctions under the excessive deficits procedure

The European Central Bank

Was established in July 1998

Directed by an Executive Board comprising a President, a Vice-President and two to four other members,
all appointed by the EMU member state governments for a non-renewable period of 8 years. The Executive
Board is responsible for the daily management of the ECB and for the implementation of monetary policy
on the basis of the decisions of the Governing Council
The Governing Council consist of the President and the Vice-President of the Executive Board and the
governors of the Central Banks of the EMU MS. It defines monetary policy and establishes the necessary
guidelines for its implementation. It is thus the ECBs supreme decision-making body
A General Council consisting of the President and Vice-President of the ECB and the governors of the
Central banks of all the MS of the EU. It prepares for the possible accession of EU MS not already members
of the euro-zone
Tasks of the ECB
1. to administer the European System of Central banks

2. to address an annual report on the activities of the ESCB and the monetary policy of both the previous and
the current year to the Council, the Parliament and the Commission
The European System of Central Banks

1.
2.
3.
4.
5.
6.

was established on 1 July 1998

consists of the ECB and the national central banks
governed by the decision-making bodies of the ECB
its fundamental responsibility is to maintain price stability
its main tasks are:
to define and implement the single monetary policy
to conduct foreign-exchange operations arising from the exchange-rate policy established by the Council
to hold and manage the foreign reserves of the participating MS
to ensure the smooth operations of payment systems in the euro-area
to contribute to the smooth conduct of policies relating to the stability of the financial system
to authorize the issue of banknotes in the euro area

The Economic and Financial Committee

The Maastricht Treaty provides for an economic and financial committee to be set up at the start of the third stage
of EMU, which began on 1 January 1999.
Composition and tasks of the EFC
The Council is to adopt detailed provisions concerning the composition of the EFC, bearing in mind that the
Member States, the Commission and the European Central Bank (ECB), are each to appoint two members of the
EFC. They may also appoint two alternate members. Under Article 114 (2) and (4) of the Treaty establishing the
European Community (EC Treaty), the Committee's tasks are:

to keep under review the economic and financial situation of the Member States and the Community and
to report regularly to the Council and the Commission on this subject, in particular on financial relations
with third countries and international institutions;
to contribute to the preparation of the work of the Council, particularly as regards recommendations
required as part of multilateral surveillance (Article 99) and decisions required as part of the excessive
deficit procedure (Article 101).

The EFC may also prepare the Council's reviews of the exchange rate of the euro ( Article 207). It may be consulted
in the procedure leading to decisions relating to the exchange-rate mechanism of the third stage of the EMU, and
may provide the framework for the dialogue between the Council and the ECB at the level of senior officials from
ministries, national central banks, the Commission and the ECB.Given the importance of those tasks, it is essential
that members of the EFC and alternate members be selected from among experts possessing outstanding
competence in the economic and financial field. The two members appointed by each Member State must be
selected from among senior officials from the administration (ministerial level) and the national central bank.
Adapting the EFC in the light of EU enlargement
With a view to the enlargement of the EU on 1 May 2004, the statutes of the EFC were amended in 2003. A new
Article 4 was inserted, which provides for the EFC to meet in two different configurations:

either with the members selected from the administrations, the national central banks, the Commission
and the ECB;
or with the members from administrations, the Commission and the ECB.

The ECF in its full composition will regularly review the list of the issues on which the national central bank
members are expected to attend the meetings. This measure is necessary in order to ensure that the expertise and

analytical insight of the national central banks are available to the ECF without its work being hampered by too
many participants.
Taking decisions on a majority basis
If a vote is requested, decisions are to be adopted by a majority of the members but, in the case of questions on
which the "Economic and Financial Affairs" Council (Ecofin Council) may subsequently take a decision, members
from national central banks and the Commission will not participate in the vote. The EFC will also report on
minority or dissenting views expressed in the course of the discussion. A member who is unable to attend a
meeting of the EFC may delegate his/her right to vote to one of the alternates or another member. The EFC has a
President elected by a majority of its members. The two-year term of office is renewable. The President represents
the EFC, including in its relations with the European Parliament. The President's voting right is delegated to
his/her alternate and, if indisposed, the President is replaced by the Vice-President of the EFC. Where alternates
replace members, they have the right to vote. As a general rule, alternate members may attend committee
meetings, but do not vote or participate in discussions. The EFC may decide to amend this. The EFC is convened
at the initiative of the President, or at the request of the Commission, the Council or four of its members. EFC
deliberations are confidential. The EFC may entrust the study of specific questions to its alternate members, to
subcommittees or to working parties. It is also assisted by a secretariat.
THE INTERNAL MARKET
The internal market is one of the key concepts of the EU. The aim is to remove barriers to the free movement of
goods, persons, services and capital between the EU Member States, thereby establishing an internal market in
the EU in which traditional barriers to exchanges of services and persons between the EU countries are absent. In
addition to the basic principle of freedom of movement for goods, persons, services and capital, the internal
market is supplemented by principles and rules ensuring that competition within the internal market is not
distorted and that the rules of the Member States are brought into line to the extent necessary for the functioning
of the internal market. In addition, the so-called back-up policies including protection of the environment and
social and labour market policy play an important role in the operation of the internal market.
The EEC Treaty (also known as the Treaty of Rome) had already stated that a common market should be set up,
but without any precise indication of what the common market entailed. However, the establishment of a customs
union between EC countries was one of the cornerstones of the common market. The customs union came into
force on 1 July 1968 and the remaining customs duties on trade within the EC were abolished. The customs union
also meant that the national customs duties of the EC countries on trade with countries outside the EC should be
replaced by a common customs tariff and that a common trade policy should be introduced. The actual framework
for the internal market was first laid down with the adoption of the Single European Act, which came into force on
1 July 1987. This determined that an internal market should be set up with freedom of movement for goods,
persons, services and capital, and a range of provisions set the framework and resources to achieve this objective.
In the European Council there was agreement in several instances at the beginning of the 1980s on the need to
strengthen the EC internal market as a means of strengthening the economy of the EC countries. At its summit in
March 1985 the European Council therefore called on the Commission to work out a detailed programme with a
concrete timetable for the creation of a single large market within the EC by 1992. Under the leadership of its
President, Jacques Delors, the Commission later in 1985 published a White Paper on the completion of the
internal market. The White Paper was very detailed and contained 279 legislative initiatives aimed at removing
barriers to trade between the EU countries. The White Paper proposed 31 December 1992 as the deadline for the
completion of the internal market. The Treaty amendment in the form of the Single European Act followed up the
Commission White Paper on the completion of the internal market. In order to make it possible to establish the
internal market by 31 December 1992, a new provision was introduced into the EC Treaty (Art. 95 TEC) according
to which the Council could adopt rules for the establishment of the internal market by a qualified majority. The
provision was intended to ensure that the EU decision-making process was not blocked by decisions which
required unanimity in order to be adopted. All the decisions had not been taken or implemented by 1 January
1993, however.
The four freedoms

1. The principle of free movement of people dates back to the creation of the European Community. This
principle was initially introduced to open Europes labour markets to migrant workers and their families. Over the
years, this right was extended to cover all categories of citizens. Today, with the lifting of most internal border
controls, we can move as freely around Europe as we can within a Member State. If we so choose, we can decide to
study, work, or retire in another EU country. These freedoms embody the distinct advantages conferred by
European citizenship.If the right to cross-border mobility has become a reality, we must now remove the
uncertainties that could hinder the exercise of this freedom. On the one hand, we must make sure that this right
can be enjoyed in conditions of security and justice accessible to all, so as to prevent criminals from taking
advantage of a European space without frontiers. On the other hand, we must remove the remaining legal and
practical obstacles that deter people from benefiting from the freedom of movement and right to reside in another
Member State. The European policy on the mutual recognition of professional qualifications is an example of
action undertaken by the Commission in this respect.Most European policies regarding the free movement of
people are in the sphere of justice and home affairs. Specific policies on the free movement of workers relate to the
area of employment and social affairs. You can find detailed information on the recognition of professional
qualifications and on freedom of establishment on our site. For information on other policies, please consult the
sites on Freedom, Security and Justice and Employment and Social Affairs.
2. One of the 'four freedoms' of the Single Market is the free movement of goods. Member States may restrict
the free movement of goods only in exceptional cases, for example when there is a risk resulting from issues such
as public health, environment, or consumer protection.The risks vary by product sector. Pharmaceuticals and
construction products obviously present higher risks than office equipment or pasta for example. In order to
minimise risks and ensure legal certainty across Member States, EU legislation harmonising technical regulations
has been introduced in particular in the higher-risk product sectors.Lower-risk sectors have not in general been
the subject of legislation on a European level. Trade in this non-harmonised sector relies on the 'mutual
recognition' principle, under which products legally manufactured or marketed in one Member State should in
principle be able to move freely throughout the EU.Approximately half of the trade in goods within the EU is
covered by harmonised regulations, while the other half is accounted for by the non-harmonised sector, which is
either regulated by national technical regulations or not specifically regulated at all.
3. Services are crucial to the European Internal Market. They are everywhere, accounting for between 60 and
70% of economic activity in the European Union of 25 Member States, and a similar (and rising) proportion of
overall employment. This underlines the economic importance of services in the European Union.The central
principles governing the internal market for services are set out in the EC Treaty. This guarantees to EU
companies the freedom to establish themselves in other Member States, and the freedom to provide services on
the territory of another EU Member State other than the one in which they are established. The principles of
freedom of establishment and free movement of services are two of the so-called "fundamental freedoms" which
are central to the EU internal market. Overall, the Internal Market has resulted in real benefits. For instance, in
the 10 years since the completion of the first Single Market programme in 1993, at least 2.5 million extra jobs have
been created as a result of the removal of barriers. The increase in wealth attributable to the Internal Market in
those 10 years is nearly 900 billion; on average about 6000 per family in the EU. Competition has increased as
companies find new markets abroad. Prices have converged (in many cased downwards) and the range and quality
of products available to consumers have increased. The principles of freedom of establishment and free movement
of services have been clarified and developed over the years through the case law of the European Court of Justice.
In addition, important developments and progress in the field of services have been brought about through
specific legislation in fields such as financial services, telecommunications, broadcasting and the recognition of
professional qualificationsHowever, despite progress in some specific service sectors, the overall Internal Market
for services is not yet working as well as it should. Most of the benefits seen so far from the Internal Market have
occurred in goods markets, and the need to make a serious effort to improve the functioning of the Internal
Market in services has been clear for some time. Most notably, the Lisbon summit of EU leaders in March 2000
asked for a strategy to remove cross-border barriers to services. As the reasons why services are not frequently
traded between Member States were complex and not well documented, the Commission spent some time on the
legal and economic analysis of the issues including a consultation with Member States, other European
institutions and stakeholders. This resulted in the publication of a Report on the State of the Internal Market for
Services in July 2002. This report set out, in detail, the legal, administrative and practical obstacles to the free
movement of services across borders in the EU. It concluded that there was still a huge gap between the vision of
an integrated EU economy and the reality as experienced by European citizens and European service providers. It
is clear from the work done by the Commission that these barriers have a serious negative effect on the cost and

quality of the final service to users of services whether they are other service providers, manufacturers or
consumers. Barriers to trade in services penalise in particular small and medium sized enterprises (SMEs), which
are disproportionately affected by complex administrative and legal requirements and therefore more likely than
larger firms to turn down cross-border opportunities because of them. Given the predominance of SMEs in service
operations, this has clearly acted as a considerable hindrance the development of the Internal Market for
Services.Following the report, the reactions of stakeholders to it and further legal analysis, in January 2004 the
Commission made a proposal for a Directive on services in the Internal Market. The Services Directive was finally
adopted by the European Parliament and the Council in December 2006 and will have to be transposed by the
Member States by the end of 2009. This directive is aimed at eliminating obstacles to trade in services, thus
allowing the development of cross-border operations. It is intended to improve the competitiveness not just of
service enterprises, but also of European industry as a whole. It will remove discriminatory barriers, cut red tape,
modernise and simplify the legal and administrative framework - also by use of information technology and
make Member State administrations co-operate much more systematically. It will also strengthen the rights of
users of services.
4. Not so long ago, Europeans were in principle obliged to manage and invest their money predominantly in their
home country. Now, further to the liberalisation of capital movements and payments which has accompanied
the consolidation of the Single Market, EU citizens can conduct most operations abroad, as diverse as opening
bank accounts, buying shares in non-domestic companies, or purchasing real estate. However, the rules
concerning some of these rights remain governed by national provisions which vary from one Member State to
another.Free movement of capital is an essential condition for the proper functioning of the Single Market. It
enables a better allocation of resources within the EU, facilitates trade across borders, favours workers mobility,
and makes it easier for businesses to raise the money they need to start and grow.Free movement of capital is also
an essential condition for the cross-border activities of financial services companies. Indeed, the effectiveness of
EU initiatives in the financial services sector would be compromised if capital movements within the EU were
subject to restrictions.In 2005 the Commission completed the legislative phase of an action plan aimed at
developing a true European-wide market in financial services and is now implementing a new strategy to deepen
financial integration and deliver further benefits to industry and consumers alike. A more developed Single
Market in financial services will provide consumers with a wider choice of financial products such as loans,
insurances, saving plans and pensions which they will be able to buy from anywhere in Europe. It will also make
it easier and cheaper for companies to borrow money, bringing down the cost of capital, goods and services for
everybody.
THE COMMON AGRICULTURAL POLICY
The (CAP) is a system of European Union agricultural subsidies programmes. It represents 48% of the EU's
budget, 49.8 billion in 2006 (up from 48.5 billion in 2005). [The CAP combines a direct subsidy payment for
crops and land which may be cultivated with price support mechanisms, including guaranteed minimum prices,
import tariffs and quotas on certain goods from outside the EU. Reforms of the system are currently underway
reducing import controls and transferring subsidy to land stewardship rather than specific crop production
(phased from 2004 to 2012). Detailed implementation of the scheme varies in different member countries of the
EU. Until 1992 the agriculture expenditure of the European Union represented nearly 49% of the EU's budget. By
2013, the share of traditional CAP spending is projected to decrease significantly to 32%, following a decrease in
real terms in the current financing period. In contrast, the amounts for the EU's Regional Policy represented 17%
of the EU budget in 1988. They will more than double to reach almost 36% in 2013. [2]
The aim of the (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food
at fair prices and to preserve rural heritage. However, there has been considerable criticism of CAP.
The creation of a CAP was proposed by the European Commission. It followed the signing of the Treaty of Rome in
1957, which established the Common Market member states individually strongly intervened in their agricultural
sectors, in particular with regard to what was produced, maintaining prices for goods and how farming was
organised. This intervention posed an obstacle to free trade in goods while the rules continued to differ from state
to state, since freedom of trade would interfere with the intervention policies. Some Member States, in particular
France, and all farming professional organisations wanted to maintain strong state intervention in agriculture.
This could therefore only be achieved if policies were harmonised and transferred to the European Community
level. By 1962, three major principles had been established to guide the CAP: market unity, community preference

and financial solidarity. Since then, the CAP has been a central element in the European institutional system.The
CAP is often explained as the result of a political compromise between France and Germany: German industry
would have access to the French market; in exchange, Germany would help pay for France's farmers. Germany is
still the largest net contributor into the EU budget; however, as of 2005 France is also a net contributor and the
poorer and more agriculture-focused Spain, Greece and Portugal are the biggest beneficiaries. Transitional rules
apply to the newly admitted member states which limit the subsidies which they currently receive.
Objectives of CAP
The coverage of products in the external trade regime is more extensive than the coverage of the CAP regime. This
is to limit competition between EU products and alternative external goods. The initial objectives were set out in
Article 39 of the Treaty of Rome:
1. to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of
production, in particular labour;
2. to ensure a fair standard of living for the agricultural Community;
3. to stabilise markets;
4. to secure availability of supplies;
5. to provide consumers with food at reasonable prices.
The CAP recognised the need to take account of the social structure of agriculture and of the structural and
natural disparities between the various agricultural regions and to effect the appropriate adjustments by
degrees.
CAP is an integrated system of measures which works by maintaining commodity price levels within the EU and
by subsidising production. There are a number of mechanisms:

Import levies are applied to specified goods imported into the EU. These are set at a level to raise the
World market price up to the EU target price. The target price is chosen as the maximum desirable price
for those goods within the EU.
Import quotas are used as a means of restricting the amount of food being imported into the EU. Some non
member countries have negotiated quotas which allow them to sell particular goods within the EU without
tariffs. This notably applies to countries which had a traditional trade link with a member country.
An internal intervention price is set. If the internal market price falls below the intervention level then the
EU will buy up goods to raise the price to the intervention level. The intervention price is set lower than the
target price. The internal market price can only vary in the range between the intervention price and target
price.
Direct subsidies are paid to farmers. This was originally intended to encourage farmers to choose to grow
those crops attracting subsidies and maintain home-grown supplies. Subsidies were generally paid on the
area of land growing a particular crop, rather than on the total amount of crop produced. Reforms
implemented from 2005 are phasing out specific subsidies in favour of flat-rate payments based only on
the area of land in cultivation, and for adopting environmentally beneficial farming methods. The change is
intended to give farmers more freedom to choose for themselves those crops most in demand and reduce
the economic incentive to overproduce.
Production quotas and 'set-aside' payments were introduced in an effort to prevent overproduction of
some foods (for example, milk, grain, wine) that attracted subsidies well in excess of market prices. The
need to store and dispose of excess produce was wasteful of resources and brought the CAP into disrepute.
A secondary market evolved, especially in the sale of milk quotas, whilst some farmers made imaginative
use of 'set-aside', for example, setting aside land which was difficult to farm. Currently set-aside has been
suspended, subject to further decision about its future, following rising prices for some commodities and
increasing interest in growing biofuels

The change in subsidies is intended to be completed by 2011, but individual governments have some freedom to
decide how the new scheme will be introduced. The UK government has decided to run a dual system of subsidies,
each year transferring a larger proportion of the total payment to the new scheme. Payments under the old scheme
were frozen at their levels averaged over 2002-2003 and reduce each subsequent year. This allows farmers a

period where their income is maintained, but which they can use to change farm practices to accord with the new
regime. Other governments have chosen to wait, and change the system in one go at the latest possible time.
Governments also have limited discretion to continue to direct a small proportion of the total subsidy to support
specific crops. Alterations to the qualifying rules meant that many small landowners became eligible to apply for
grants and the Rural Payments Agency in the UK received double the previous number of applications
(110,000).The CAP also aims to promote legislative harmonisation within the Community. Differing laws in
member countries can create problems for anyone seeking to trade between countries. Examples are regulations
on permitted preservatives or food coloring, labelling regulations, use of hormones or other drugs in livestock
intended for human consumption and disease control (e.g. during the foot and mouth disease outbreak in the
United Kingdom, Ireland and the Netherlands), animal welfare regulations. The process of removing all hidden
legislative barriers to trade is still incomplete.
The CAP is funded by the European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU. CAP reform
has steadily lowered its share of the EU budget but it still accounts for nearly half EU expenditure. In recent years
France has benefited the most from these subsidies. The new accession countries which joined the EU in 2004
have large farm sectors and would have overtaken France as chief beneficiary, but for transitional regulations
limiting the subsidies which they receive. The continuing problem of how subsidies for these countries will be paid
when they become eligible has already led to French concessions on reform of the CAP. Further concessions will
inevitably be necessary to balance the budget.
History of the CAP
The CAP was born in the late 1950s and early 1960s when the founding members of the EC had just emerged from
over a decade of severe food shortages during and after the Second World War. As part of building a common
market, tariffs on agricultural products would have to be removed. However, due to the political clout of farmers,
and the sensitivity of the issue, it would take many years before the CAP was fully implemented.
Beginnings of the CAP
The Treaty of Rome defined the general objectives of a CAP. The principles of the CAP were set out at the Stresa
Conference in July 1958. In 1960, the CAP mechanisms were adopted by the six founding Member States and two
years later, in 1962, the CAP came into force. The creation of a CAP was proposed in 1960 by the European
Commission. It followed the signing of the Treaty of Rome in 1957, which established the Common Market The six
member states individually strongly intervened in their agricultural sectors, in particular with regard to what was
produced, maintaining prices for goods and how farming was organised. This intervention posed an obstacle to
free trade in goods while the rules continued to differ from state to state, since freedom of trade would interfere
with the intervention policies. Some Member States, in particular France, and all farming professional
organisations wanted to maintain strong state intervention in agriculture. This could therefore only be achieved if
policies were harmonised and transferred to the European Community level.By 1962, three principles had been
established to guide the CAP: market unity, community preference and financial solidarity. Since then, the CAP
has been a central element in the European institutional system.
Evolution and reform
The CAP has always been a difficult area of EU policy to reform; this is a problem that began in the 1960s and one
that continues to the present day, albeit less severely.The Agricultural Council is the main decision-making body
for CAP affairs. Above all, however, unanimity is needed for most serious CAP reform votes, resulting in rare and
gradual change. Outside Brussels proper, the farming lobby's power has been a factor determining EU agricultural
policy since the earliest days of integration. This lobby's power has decreased markedly since the 1980s.In recent
times change has been more forthcoming, due to external trade demands and intrusion in CAP affairs by other
parts of the EU policy framework, such as consumer advocate working groups and the environmental departments
of the Union. In addition Euroscepticism in states such as the UK and Denmark is fed in part by the CAP, which
Eurosceptics consider detrimental to their economies.Keeping the CAP intact, though, is an important aim of EU
policy. Farming is regarded as "special", a part of Europe's shared heritage encompassing food production and
even fine dining. All of these are used as rationales for keeping the CAP strong. It is not simply just another
industry, hence its massive presence in the EU psyche (and the EU budget.) Finally, the aim of self-sufficiency and

a "shared larder" in Europe, a particularly salient concern in the post-war years, lingers to this day. It is claimed
that the CAP is an exceptional economic sector as protects the "rural way of life", although it is recognised that this
has an impact on world poverty.
Early attempts at reforms
The Mansholt Plan
The Mansholt Plan was a 1960s idea that sought to remove small farmers from the land and to consolidate
farming into a larger, more efficient industry. Farming's special status, and above all the extremely powerful
farming lobbies across the Continent saw the Plan disappear from the Union's objectives.On 21 December 1968,
Sicco Mansholt (European Commissioner for Agriculture), sent a memorandum to the Council of Ministers
concerning agricultural reform in the European Community. [5] This long-term plan, also known as the 1980
Agricultural Programme or the Report of the Gaichel Group, named after the village in Luxembourg where it had
been prepared, laid the foundations for a new social and structural policy for European agriculture.The Mansholt
Plan noted the limits to a policy of price and market support. It predicted the imbalance that would occur in
certain markets unless the Community undertook to reduce its land under cultivation by at least 5 million
hectares. The former Netherlands Minister of Agriculture also noted that the standard of living of farmers had not
improved since the implementation of the CAP, despite an increase in production and permanent increases in
Community expenditure. He therefore suggested that production methods should be reformed and modernised
and that small farms, which were bound to disappear sooner or later, according to Community experts, should be
increased in size. The aim of the Plan was to encourage nearly five million farmers to give up farming. That would
make it possible to redistribute their land and increase the size of the remaining family farms. Farms were
considered viable if they could guarantee for their owners an average annual income comparable to that of all the
other workers in the region. In addition to vocational training measures, Mansholt also provided for welfare
programmes to cover retraining and early retirement. Finally, he called on the Member States to limit direct aid to
unprofitable farms.Faced with the increasingly angry reaction of the agricultural community, Sicco Mansholt was
soon forced to reduce the scope of some of his proposals. Ultimately, the Mansholt Plan was reduced to just three
European directives which, in 1972, concerned the modernisation of agricultural holdings, the abandonment of
farming and the training of farmers.
Between Mansholt and MacSharry
Hurt by the failure of Mansholt, would-be reformers were mostly absent throughout the 1970s, and reform
proposals were few and far between. A system called "Agrimoney" was introduced as part of the fledgling EMU
project, but was deemed a failure and did not stimulate further reforms.The 1980s was the decade that saw the
first true reforms of the CAP, foreshadowing further development from 1992 onwards. The influence of the
farming bloc declined, and with it, reformers were emboldened. Environmentalists garnered great support in
reforming the CAP, but it was financial matters that ultimately tipped the balance: due to huge overproduction the
CAP was becoming expensive and wasteful These factors combined saw the introduction of a quota on dairy
production in 1984, and finally, in 1988, a ceiling on EU expenditure to farmers. [citation needed] However, the basis of
the CAP remained in place, and not until 1992 did CAP reformers begin to work in earnest.
1992
In 1992, the MacSharry reforms (named after the European Commissioner for Agriculture, Ray MacSharry) were
created to limit rising production, while at the same time adjusting to the trend toward a more free agricultural
market. The reforms reduced levels of support by 29% for cereals and 15% for beef. They also created 'set-aside'
payments to withdraw land from production, payments to limit stocking levels, and introduced measures to
encourage retirement and forestation.Since the MacSharry reforms, cereal prices have been closer to the
equilibrium level, there is greater transparency in costs of agricultural support and the 'de-coupling' of income
support from production support has begun. However, the administrative complexity involved invites fraud, and
the associated problems of the CAP are far from being corrected.It is worth noting that one of the factors behind
the 1992 reforms was the need to reach agreement with the EU's external trade partners at the Uruguay round of
the General Agreement on Tariffs and Trade (GATT) talks with regards to agricultural subsidies.

Modern reforms
The current areas that are issues of reform in EU agriculture are: lowering prices, ensuring food safety and quality,
and guaranteeing stability of farmers' incomes. Other issues are environmental pollution, animal welfare, and
finding alternative income opportunities for farmers. Some of these issues are the responsibility of the member
states.
1999
The 'Agenda 2000' reforms divided the CAP into two 'Pillars': production support and rural development. Several
rural development measures were introduced including diversification, setting up producer groups and support
for young farmers. Agri-environment schemes became compulsory for every Member State. The market support
prices for cereals, milk and milk products and beef and veal were step-wise reduced while direct coupled payments
to farmers were increased. Payments for major arable crops as cereals and oilseeds were harmonized.
European Commission Report (2003)
A 2003 report, commissioned by the European Commission, by a group of experts led by Belgian economist Andr
Sapir stated that the budget structure was a historical relic.The report suggested a reconsideration of EU policy,
redirecting expenditure towards measures intended to increase wealth creation and cohesion of the EU. As a
significant proportion of the budget is currently spent on agriculture, and there is little prospect of the budget
being increased, this would necessitate reducing CAP expenditure. The report largely concerned itself discussing
alternative measures more useful to the EU, rather than discussing the CAP, but it did also suggest that farm aid
would be administered more effectively by member countries on an individual basis.The report's findings were
largely ignored. Instead, CAP spending was kept within the remit of the EU - and France led an effort to agree a
fixed arrangement for CAP spending that would not be changed until 2012. This was made possible by advance
agreement to this approach with Germany. It is this agreement that the UK currently wishes to see re-opened,
both in their efforts to defend the UK position on the UK rebate and also given that the UK is in favour of lowering
barriers to entry for third world agricultural exporters.
Decoupling (2003)
On 26 June 2003, EU farm ministers adopted a fundamental reform of the CAP, based on "decoupling" subsidies
from particular crops. (Though Member States may choose to maintain a limited amount of specific subsidy.) The
new "single farm payments" are subject to 'cross-compliance' conditions relating to environmental, food safety
and animal welfare standards ('cross-compliance'). Many of these were already either good practice
recommendations or separate legal requirements regulating farm activities. The aim is to make more money
available for environmental quality or animal welfare programmes.Details of the UK scheme were still being
decided at its introductory date of May 2005. Details of the scheme in each member country may be varied subject
to outlines issued by the EU. In England the single payment scheme provides a single flat rate payment of around
230 per hectare for maintaining land in cultivatable condition. In Scotland payments are based on a historical
basis and can vary widely. The new scheme allows for much wider non-production use of land which may still
receive the environmental element of the support. Additional payments are available if land is managed in a
prescribed environmental manner.The overall EU and national budgets for subsidy have been capped. This will
prevent a situation where the EU is required to spend more on the CAP than its limited budget has.The reforms
enter into force in 2004-2005. (Member States may apply for a transitional period delaying the reform in their
country to 2007 and phasing in reforms up to 2012) [9]
Sugar regime reform (2005-2006)
One of the crops subsidised by the CAP is sugar produced from sugar beet; the EU is by far the largest sugar beet
producer in the world, with annual production at 17 million metric tons. This compares to levels produced by
Brazil and India, the two largest producers of sugar from sugar cane.Sugar was not included in the 1992
MacSherry reform, or in the 1999 Agenda 2000 decisions; sugar was also subject to a phase-in (to 2009) under the
Everything But Arms trade deal giving market access to least developed countries. In 2005 European Union
agriculture ministers announced plans to cut the minimum beet price by 39% from 2006, over four years. [11] Under

the Sugar Protocol to the Lome Convention, nineteen ACP countries export sugar to the EU,[12] and will be affected
by price reductions on the EU market.These proposals followed the WTO appellate body largely upholding on 28
April 2005 the initial decision against the EU sugar regime.As of 21 February 2006, the EU has decided on some
reforms of sugar subsidies. The guaranteed price of sugar is to be cut by 36%, with European production projected
to fall sharply as a result of this. According to the EU, this is the first serious reform of sugar under the CAP for 40
years.An aim of this policy change is to allow easier and more profitable access to European markets for emerging
economies. Critics, such as "EUPolitix", contend that this is not an altruistic move nor an idealistic shift from the
EU, who are instead acting only in accordance with the wishes of the WTO, who supported challenges on sugar
dumping by the EU from Australia, Thailand and Brazil. Another point of contention is that those countries who
currently receive preferential treatment from EU member states - often due to colonial ties - as part of the ACP
group may stand to lose out.
Proposed direct subsidy limits (2007)
In the autumn of 2007 the European Commission was reported to be considering a proposal to limit subsidies to
ind ould have be affected in the UK, as there are over 20 farms/estates which receive 500,000 or more from the
EU.[Similar attempts have been unsuccessful in the past and were opposed in the UK by two strong lobbying
organizations the Country Land and Business Association and the National Farmers Union. Germany, which has
large collective farms still in operation in what was East Germany also vigorously opposed changes which were
marketed as "reforms". The proposal was reportedly submitted for consultation with EU member states on
November 20, 2007.
Post-2013 CAP
The next CAP reform will coincide with a new EU budget. The current EU long-term budget runs from 2007 to
2013. The next long-term budget (also called 'financial perspectives'), starting in 2014, is currently under
negotiation. Main issues include reductions in the size of the future CAP budget, the phase-out or reform of the
Single Farm Payment (for direct income support to farmers) and the strengthening of targeted payments for
public goods (rewarding farmers e.g. for environmental stewardship services). An initial step in the debate has
been the Budget Review conference, organized by the European Commission, in November 2008. [19] Another
milestone has been the publication, in November 2009, of an declaration by leading agricultural economists from
all over Europe advocating A CAP for European Public Goods. [20] The declaration proposes to remove all blanket
subsidies that stimulate production and support farm incomes. Instead, subsidies should be focused exclusively on
the provision of public goods, notably to fight climate change, preserve biodiversity and manage water resources.
Criticism of the CAP
The CAP has been roundly criticised by many diverse interests since its inception. Criticism has been wideranging, and even the European Commission has long been persuaded of the numerous defects of the policy. In
May 2007, Sweden became the first EU country to take the position that all EU farm subsidies should be abolished
(except those related to environmental protection.
Anti-development
Criticism of the CAP has united some supporters of globalisation with the anti-globalisation movement in that it is
argued that these subsidies, like those of the USA and other Western states, add to the problem of what is
sometimes called Fortress Europe; the West spends high amounts on agricultural subsidies every year, which
amounts to unfair competition. The Organisation for Economic Co-operation and Development countries' total
agricultural subsidies amount to more than the official development assistance from OECD countries to
developing countries. Support to farmers in OECD countries totals 280 billion USD annually. By contrast, official
development assistance amounted to 80 billion USD in 2004. OECD analysts estimate that cutting agricultural
tariffs and subsidies by 50% would add an extra 26 billion USD to annual world income, equivalent to just over
four dollars a year for every person on the globe.
Oversupply and its redistribution

To perpetuate the viability of European agriculture in its current state, the CAP-mandated demand for certain
farm products is set at a high level compared with demand in the free market (see CAP as a form of State
intervention). This leads to the European Union purchasing millions of tonnes of surplus output every year at the
stated guaranteed market price, and storing this produce in large quantities (leading to what critics have called
'butter mountains' and 'milk lakes'), before selling the produce wholesale to developing nations. [23] In 2007 in
response to a parliamentary written question the UK government revealed that over the preceding year the EU
Public Stock had amassed "13,476,812 tonnes of cereal, rice, sugar and milk products and 3,529,002 hectolitres of
alcohol/wine, although the EU has claimed this level of oversupply is unlikely to be repeated. In January 2009
the EU had a current store of 717,810 tonnes of cereals, 41,422 tonnes of sugar and a 2.3 million hectolitre 'wine
lake'. The EU will also purchase and further subsidise the export of 30,000 tonnes of butter and 109,000 tonnes of
powdered milk to the third world.By adding import tariffs to agricultural goods exported by farmers in developing
countries, whilst at the same time undercutting them in their domestic market where European oversupply is
"dumped" uninhibited by import levies, it is argued the CAP is throttling agricultural business within these
countries whether national or global and forcing them back into an economically stunted subsistence lifestyle.
According to the 2003 Human Development Report the average dairy cow in the year 2000 under the European
Union received $913 in subsidies annually, whilst an average of $8 per human being was sent in aid to SubSaharan Africa. The 2005 HDR described the CAP as "extravagant ... wreaking havoc in global sugar markets".
The report also states "The basic problem to be addressed in the WTO negotiations on agriculture can be
summarized in three words: rich country subsidies. In the last round of world trade negotiations rich countries
promised to cut agricultural subsidies. Since then, they have increased them" an outcome hinted at in HDR 2003.
ividual landowners and factory farms to around 300,000. Some factory farms and estates of rich people w
Artificially high food prices
CAP price intervention has been criticised for creating artificially high food prices throughout the EU. ] The recent
moves away from intervention buying, subsidies for specific crops, reductions in export subsidies, have changed
the situation somewhat. Although the new decoupled payments were aimed at environmental measures, many
farmers have found that without these payments their businesses would not be able to survive. With food prices
dropping over the past thirty years in real terms, many products have been making less than their cost of
production when sold at the farm gate.On the other hand, high import tariffs (estimated at 18-28%) have the effect
of keeping prices high by restricting competition by non-EU producers. It is estimated that public support for
farmers in OECD countries costs a family of four on average nearly 1,000 USD per year in higher prices and taxes.
Hurting smaller farms
Although most policy makers in Europe agree that they want to promote "family farms" and smaller scale
production, the CAP in fact rewards larger producers. Because the CAP has traditionally rewarded farmers who
produce more, larger farms have benefited much more from subsidies than smaller farms. For example, a farm
with 1000 hectares, earning one hundred extra euro per hectare will make 100,000 extra euro, while a 10 hectare
farm will only make an extra 1000 euro, disregarding economies of scale. As a result most CAP subsidies have
made their way to large scale farmers. Since the 2003 reforms subsidies have been linked to the size of farms, so
this is not so true any more. So while subsidies allow small farms to exist, they funnel most profits to larger scale
operations.
Environmental problems
A common view is that the CAP has traditionally promoted a large expansion in agricultural production. At the
same time it has allowed farmers to employ unecological ways of increasing production, such as the indiscriminate
use of fertilizers and pesticides, with serious environmental consequences. However a total re-focusing of the
payment scheme in 2004 now puts the environment at the centre of farming policy. This forces strict limits on the
amount of nitrogenous fertilisers which can be used in vulnerable areas. Strict environmental requirements must
also be observed to maintain any subsidy payments.
Equity among member states

Some countries in the EU have larger agricultural sectors than others, notably France, Spain, and Portugal, and
consequently receive more money under the CAP. Other countries receive more benefit from different areas of the
EU budget. Overall, certain countries make net contributions, notably Germany (the largest contribution overall)
and the Netherlands (the biggest contribution per person), but also the UK and France. The largest per capita
beneficiaries are Greece and Ireland.France has a slightly lower GDP than the UK, and its higher population
means that it earns slightly less per person compared to the UK. Germany has a GDP approximately 25% higher
than either France or the UK, but per capita income is comparable to the other two countries. France now makes a
net payment into the EU budget, so it can not be said that it receives a subsidy from any other country. However,
France remains the #1 beneficiary of the CAP, while the new member states receive only small financial aid.
UK rebate and the CAP
The UK would have been contributing more money to the EU than any other EU member state, except that
Margaret Thatcher's government negotiated a special annual UK rebate in 1984. Without the rebate the UK was
the largest contributor. Due to the way the rebate is funded, France pays the largest share of the rebate (31%),
followed by Italy (24%) and Spain (14%).The discrepancy in CAP funding is a cause of some consternation in the
UK. As of 2004, France received 13% of total CAP funds more than the UK (see diagram). This is a net benefit to
France of 6.37 billion, compared to the UK. This is largely a reflection of the fact that France has more than
double the land area of the UK. In comparison, the UK budget rebate for 2005 is scheduled to be approx 5.5
billion. The popular view in the UK (as, for example, set forth in the tabloid press) is that if the UK rebate were
reduced with no change to the CAP, then the UK would be paying money to keep an inefficient French farming
sector in business - to many people in the UK, this would be seen as "grossly unfair". French motives for
generating arguments about "solidarity" and "selfishness" are therefore seen as extremely self-serving.If the rebate
were removed without changes to the CAP then the UK would pay a net contribution of 14 times that of the French
(In 2005 EU budget terms). The UK would make a net contribution of 8.25 billion compared to the current
contribution of 2.75 billion, versus a current French net contribution of 0.59 billion.In December 2005 the UK
agreed to give up approximately 20% of the rebate for the period 2007-2013, on condition that the funds did not
contribute to CAP payments, were matched by other countries' contributions and were only for the new member
states. Spending on the CAP remained fixed, as had previously been agreed. Overall, this reduced the proportion
of the budget spent on the CAP. It was agreed that the European Commission should conduct a full review of all
EU spending.
CAP as a form of State intervention
Some major critics of the CAP reject the idea of protectionism, either in theory, practice or both. Free market
advocates are among those who disagree with any type of government intervention because, they say, a free
market without interference will allocate resources more efficiently. The setting of 'artificial' prices inevitably leads
to distortions in production, with over-production being the usual result. The creation of Grain Mountains, where
huge stores of unwanted grain were bought directly from farmers at prices set by the CAP well in excess of the
market is one example. Subsidies allowed many small, outdated, or inefficient farms to continue to operate which
would not otherwise be viable. A straightforward economic model would suggest that it would be better to allow
the market to find its own price levels, and for uneconomic farming to cease.Resources used in farming would
then be switched to a myriad of more productive operations, such as infrastructure, education or healthcare.
Economic sustainability
Many economists believe that the CAP is unsustainable in the enlarged EU. The inclusion of ten additional
countries on May 1, 2004 has obliged the EU to take measure to limit CAP expenditure. Poland is the largest new
member and has two million smallhold farmers. It is significantly larger than any of the other new members, but
taken together the new states represent a significant increase in recipients under the CAP. Even before expansion,
the CAP consumed a very large proportion of the EU's budget. Considering that a small proportion of the
population, and relatively small proportion of the GDP comes from farms, many considered this expense
excessive.
How many people benefit?

Critics argue that too few Europeans benefit. Only 5% of EU's population works on farms, and the farming sector is
responsible for less than 3% of the GDP of the EU. The number of European farmers is decreasing every year by
2%. Additionally, most Europeans live in cities, not rural areas. However, their opponents argue that the subsidies
are crucial to preserve the rural environment, and that some EU member states would have aided their farmers,
anyway.The 2007-2008 world food price crisis has renewed calls for farm subsidies to be removed in light of
evidence that farm subsidies contribute to rocketing food prices, which has a particularly detrimental impact on
developing countries.