The recent Free Enterprise Fund v. Public Company Accounting Oversight Board decision of the United States Supreme Court (see an earlier blog post on this case available here) gives a wonderful occasion to show a major difference between this country and Europe (Germany excepted but maybe not for long) on the question of the amount of independence a legislator (whether at the European or domestic level) can give to an administrative body. We will first review the French constitutional case law and afterwards the European one to show how things are different on the other side of the Atlantic.

It is curious to see first how constitutional provisions are close in France and the US. The US Constitution provides that the President “shall take Care that the Laws be faithfully executed”. The French one is even clearer although the control over the administration is not vested in the President but in the Government. On the one hand, Article 20 of the French Constitution says that the Government “shall have at its disposal the civil service”, this provision could be interpreted as requiring a power of removal. And on the other hand, article 21 provides that the Prime Minister “shall ensure the implementation of legislation”. The last provision is very close to the American one.

However, the case law on the independence of regulatory authorities is very different. The Constitutional Court has not prevented Parliament from insulating these authorities from the power of ministers. Consequently members of regulatory authorities are not removable at all and ministers cannot give them directions. In this respect the independence per se is not a constitutional problem in France, as it is in the US or in Germany. The only barrier Parliament cannot cross is about the amount of regulatory power it gives them. The Court has held that as the regulatory power is vested in the government, Parliament can only give a residual regulatory power to independent authorities.

Having this in mind, the ECJ case law is completely different. The ECJ has, in fact, not prevented but on the contrary required member states to create independent bodies in some circumstances. Competition law is at the very heart of the Court’s solutions. The seminal case in this respect is Italian Republic v Commission of the European Communities (20 March, 1985, Case 41/83). In this case, the ECJ held that it was an abuse of a dominant position for British Telecom to use regulatory powers in order to close a market: “1. the management, by an undertaking having the status of a nationalized industry, of public telecommunication equipment and its placing of such equipment at the disposal of users on payment of a fee amounts to a business activity which as such is subject to the obligations imposed by article 86 of the treaty. Comprised within that activity, and therefore subject to review in the light of article 86 of the treaty, is the autonomous exercise of rule-making powers strictly limited to the fixing of tariffs and the conditions under which services are provided for users”. Then the Court concludes that “an undertaking holding a statutory monopoly on the management of telecommunications networks infringes article 86 of the treaty when it prohibits the activities of private message-forwarding agencies handling international telecommunication traffic”.

The case is the foundation in EC law of the independence of regulatory authorities in network industries. In countries where States still owned public utilities, the opening of the market required member States to create autonomous bodies, insulated from the State so that the regulation can be unbiased. Conversely, countries where States did not own incumbent companies did not have to give the regulatory powers to an independent body. This is the spirit of the directives liberalizing network industries. The idea was to make the regulation impartial and it was competition law that generated this change.

Recent case law in other fields can also show the amount of independence EC law requires as well as the tensions EC law creates in member States. In European Commission v Federal Republic of Germany (9 March 2010, Case C-518/07), the ECJ held that by “making the authorities responsible for monitoring the processing of personal data outside the public sector in the different Länder subject to State oversight, and by thus incorrectly transposing the requirement of ‘complete independence’ of the supervisory authorities responsible for ensuring the protection of that data, the Federal Republic of Germany has failed to fulfil its obligations under the second subparagraph of Article 28(1) of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data” (see also an earlier blog post on this case available here).

Germany pleaded that State scrutiny could be allowed according to the principle of democracy enshrined not only in the German basic law but also in Article 6(1) EU. The ECJ notes that this principle is “one of the foundations of the European Union”. Consequently “As one of the principles common to the Member States, it must be taken into consideration when interpreting acts of secondary law such as Article 28 of Directive 95/46”.

Nonetheless, the ECJ gives this principle a completely different meaning. It is interesting to follow very closely its demonstration. What the Court says in essence is that the principle of democracy is respected by the fact that these authorities have to abide by the law established (democratically) by Parliament: “The existence and conditions of operation of such authorities are, in the Member States, regulated by the law or even, in certain States, by the Constitution and those authorities are required to comply with the law subject to the review of the competent courts”. The Court accepts that there should be parliamentary influence through the various rules of appointment or accountability (a member State may impose an obligation to report to Parliament) but it seems that the principle of democracy is complied with by the fact that the decisions of these bodies are subject to review.

In conclusion, the ECJ has a completely different understanding of the notion of democracy. Whereas in Germany this notion implies direct control from the State, to the ECJ, this principle is complied with mainly thanks to judicial review. Therefore it is the legal process of judicial review that makes these bodies democratic and not the hierarchical control of the Government.

One last evolution of EC law should be mentioned. In the last directives, both in the field of electronic communications and energy, the Commission shows a will to change the requirement of independence. Whereas, as we said, this requirement meant only regulatory impartiality in circumstances when the State was both an undertaking and a regulator, now the directives impose this independence irrespective of the fact that the State is or is not operating on the market.

What conclusion can we draw from these developments? First, the amount of independence of regulatory authorities in Europe seems much more important. EC law requires independence whereas American constitutional law seems to hinder Congress’ will to give independence to these bodies. Also, the tension in Europe between the German and the European conceptions of democracy seems very strong and could maybe hinder the implementation of future directives in this country. It is also possible to say that community law, through these cases, develops a completely new conception of democratic legitimacy, where judicial review seems more important than governmental accountability.

Thomas Perroud