Legislative Competence of the EU
1. Mission and competence
The constitutions of federal entities generally contain provisions which attribute the legislative competence for specific areas of the law either to the federal legislator or to single component entities. In German-speaking countries, for example, the legislative competence for private law lies with the federal states, see for Germany Art 74 no 1 of the Basic Law, for Switzerland Art 122(1) of the Federal Constitution and for Austria Art 10(1) no 6 of the Federal Constitutional Act. While these provisions simply confer the authority to legislate on the respective central entities, making use of those powers lies within the legislator’s discretion. The Treaty of Rome has conceptualized the European Community in a different way. It has laid down certain objectives of the Community, eg the establishment of a common market or the adoption of a common transport policy. For the single policy areas, the institutions of the Community have been charged with the implementation of measures in pursuance of those objectives. This mission includes the competence to act and legislate accordingly. The treaty does not grant the European Commission any political discretion in the performance of its obligations, although such discretion is inevitable when it comes to the progressive adoption of measures in pursuance of the treaty goals. In its discussions with Member States, the Commission could thus always invoke treaty provisions which not only established a right, but also an obligation to attain the objectives of the treaty.
The Community soon turned out to rival the Member States in respect of legislative competence. This led to the specification of the subsidiarity principle in Art 5(2) EC (Art 5(3) EU) by the Treaty of Maastricht. For the first time, this provision explicitly referred to an exclusive competence of the Community without, however, identifying the areas subject to it. This clarification is put into effect by the Treaty of Lisbon; Arts 3 and 4 TFEU contain lists of exclusive Union competences and of shared competences of the Union and the Member States. The exclusive competences of the Union for the establishing of the competition rules necessary for the functioning of the internal market and for the monetary policy for the euro zone (currency; European Central Bank) are of particular relevance for private law, see Art 3(1)(b) and (c) TFEU. Moreover, the exclusive treaty-making power of the Union under Art 3(2) TFEU may gain particular significance for the conclusion of international uniform law conventions by the Union. Among the shared competences listed in Art 4, those for the European internal market, social policy, the environment, consumer protection (consumers and consumer protection), transport and the area of freedom, security and justice have a particular significance for private law. In these fields, Member States shall only ‘exercise their competence to the extent that the Union has not exercised its competence’. The rules on competences of the Union differ from the aforementioned distribution of powers in federal entities in yet another respect: the latter refer in general to whole areas of the law as they emerge from the traditional systematization, eg private law and administrative law, while the treaty deals with Union policies which may be pursued by measures of a very different legal nature. For instance, the protection of consumers against dangerous products may be furthered by a licensing system, ie by means of administrative law, but also by the strict liability of the manufacturer that provides appropriate incentives for a more careful and cautious production. Under the Member State constitutions cited above, administrative measures of the former type would not be covered by the federal competence for private law. By contrast, the Union competence for consumer protection under Arts 169, 114 TFEU/153, 95 EC does not make this distinction: these provisions empower the Union to enact both public law and private law measures. This explains the very unclear delimitation of public law and private law in the Union; a great number of Acts contain provisions from both areas of the law.
2. The significance of Union competences
In accordance with the principle of conferral, Art 5(1) EC/Art 5(1) EU, the Union shall act within the limits of the powers conferred upon it by the treaty. Therefore, the identification of the legislative basis is necessary before the adoption of an Act of the Union. It is, moreover, indispensable because the single legislative bases of the treaty provide for specific legislative procedures concerning the involvement of the European Parliament and the majority required in the Council. In respect of most policy areas, Art 294 TFEU/251 EC provides for the approval of Union Acts by a qualified majority in the Council and by their adoption by both the Council and the Parliament. By comparison, the Parliament is only entitled to be consulted in competition matters under Art 103 TFEU/83 EC. The consultation of the Parliament which is equally prescribed in the area of anti-discrimination policy under Art 13 EC and for subsidiary measures in accordance with Art 308 EC is replaced, in the Lisbon Treaty, by a right of consent, see Arts 19 and 352 TFEU; in both areas the Council still has to take its decisions by unanimity. The significance of the legislative basis for the procedure to be followed is reflected by the requirement of its precise designation in the proposal of the Act in accordance with Art 296 TFEU/253 EC, see ECJ Case 45/85 – Commission v Council  ECR 1493 paras 8 ff; ECJ Case C-300/89 – Commission v Council, ‘titanium dioxide’  ECR I-2867 paras 10 ff.
The exact selection and designation of the legislative basis is, furthermore, required because of the type of enactment permitted. Thus, Art 50(1) TFEU/44(1) EC only allows for the adoption of directives for the implementation of the freedom of establishment, eg by the approximation of company law, while in other areas the establishment of the internal market can be pursued by ‘measures’ including regulations, see Art 114 TFEU/95 EC.
Finally, the choice of the legislative basis has an organizational aspect and a political dimension. Since the treaty primarily lays down instructions for the advancement of integration, the institution charged with their implementation, ie the Commission is organized in a corresponding manner. The Directorates General are entrusted with the implementation of a sectoral policy. Therefore, the identification of the appropriate legislative basis amounts to the attribution of the respective topic to a unit within the Commission which will therefore be the main addressee for stakeholders.
3. Significant legislative competences for private law
Because of the policy-oriented distribution of competences under the Treaty, very different legislative bases may be available for the adoption of Acts in the field of private law. This can be shown, for instance, in labour law. Some enactments, such as the directive on collective redundancies (98/59), are based upon the internal market competence under Arts 114 and 115 TFEU/94 and 95 EC. Others, like the directive on the protection of pregnant workers and workers who have recently given birth or are breastfeeding (92/85) refer to the specific competence in employment matters under Art 153(2) TFEU/ 137(2) EC. The protection against discrimination in employment afforded by Directives 2000/78 and 2006/54 is supported by Art 19 TFEU/13 EC in the former case and by Art 157 TFEU/141 EC in the latter. The Directive on posted workers has been conceived in the framework of the freedom to provide services under Arts 53, 62 TFEU/47, 55 EC.
The great number of legislative bases is partly due to the amendments of the founding treaties since 1957. While the European Court of Justice (ECJ) has insisted on objective criteria for the designation of the legislative basis for an enactment, this is difficult to put into effect. The legislative bases which are most significant for private law are contained in Art 50 TFEU/44 EC for company law, in Art 81 TFEU/65 EC for private international law, in Art 114 TFEU/95 EC for the establishment of the internal market, in Art 169 TFEU/153 EC for consumer protection and—as a subsidiary basis—in Art 352 TFEU/308 EC. In respect of unitary intellectual property rights Art 118 TFEU provides for a new legislative basis which takes precedence over Art 352 TFEU/308 EC.
b) Article 50(2)(g) TFEU/44(2)(g) EC: company law
Article 50(2)(g) TFEU/44(2)(g) EC empowers the Union to coordinate the national provisions enacted in the interests of shareholders and third parties with a view to making such safeguards equivalent throughout the Union. This authorization acknowledges, for instance, the risk that a company subject to low-level publicity requirements under its own law may have difficulty carrying on its business activities in another Member State requiring a higher degree of publicity. The approximation of national laws may counteract and reduce that risk. The only tool available under Art 50(1) TFEU/44(1)EC is the directive, and a dozen company law directives gives evidence of the significance of this treaty provision. It is, however, limited; it does not pertain to the functioning of the capital markets. But there is no consistent delimitation. Thus, the accounting Directive (Dir 78/660) is based on Art 50 TFEU/44 EC, while the Community chose the internal market competence under Art 114 TFEU/95 EC for issuing Reg 1606/2002 on the application of international accounting standards. Another borderline of Art 50(2)(g) TFEU/ 44(2)(g) EC is the one with Art 352 TFEU/308 EC which has served as the basis for new types of corporate entities, in particular the European company (SE), see below.
c) Article 81 TFEU/65 EC: private international law
Article 81 TFEU/65 EC adopted by the Treaty of Amsterdam in 1997 has created independent Community powers for judicial cooperation in civil matters with cross-border implications. Already prior to 1997 the Community had enacted isolated provisions on private international law based on other provisions. However, it was only after the Treaty of Amsterdam that the Community institutions adopted a comprehensive action plan in this area (OJ 1999 C 19/1 para 40 ff). Since the Community is entitled to adopt ‘measures’ in this area, it may also issue regulations and has already made use of this capability on several occasions. After the Treaty of Lisbon clarifying the significance of such measures upon the internal market is no longer a precondition for their enactment. The provisions may deal with international civil procedure (European civil procedure), but also with the compatibility of conflict rules in the Member States; thus, they cover private international law including international civil procedure to a very broad extent.
d) Articles 114, 115 TFEU/94, 95 EC: internal market
Articles 114 and 115 TFEU/94 and 95 EC have a central significance as legislative bases for private law acts related to the internal market. Initially, the harmonization of laws for the purposes of the common market was limited to what is now Art 115 TFEU/94 EC; of particular note, the Council had to decide by unanimity under that provision. It was only the adoption of the Single European Act which allowed the approximation of laws by qualified majority for the establishment of the internal market in Art 114 TFEU/95 EC. However, tax matters, the free movement of persons and employment law were excepted and are still subject to the requirement of unanimity. While Art 114 TFEU/95 EC allows for the adoption of ‘measures’ including regulations, a protocol declaration attached to the Single European Act gives priority to the adoption of directives.
The extent of this legislative basis in private law is under dispute. In its first judgment on the tobacco advertising directive the Court of Justice pointed out that Art 114 TFEU/95 EC is ‘intended to improve the conditions for the establishment and functioning of the internal market. To construe that Article as meaning that it vests in the Community legislature a general power to regulate the internal market would not only be contrary to the express wording …, but would also be incompatible with the principle embodied in Art 3 b of the EC Treaty (now Art 5 EC) that the powers of the Community are limited to those specifically conferred on it’, see ECJ Case C-376/98 – Germany v Parliament and Council  ECR I-8419 para 83. It is unclear whether the significance of this statement reaches beyond the facts of the case, ie the prohibition of tobacco advertising on posters, parasols and other stationary means, and whether it has any significance for a comprehensive regulation of private law by the Union.
e) Article 169 TFEU/153 EC: consumer protection
Article 169 TFEU/153 EC confers legislative powers on the Union in the area of consumer protection (consumers and consumer protection). To the extent that this provision simply refers to the internal market competence, it does not extend the powers of the Union but simply acknowledges that consumer markets are part of the internal market. For the rest, Art 169 TFEU/ 153 EC enables the Union to adopt measures which support, supplement or monitor the policy pursued by the Member States. This part of the provision does not create a competence of the Union for the harmonization of laws either. Member States keep the lead; the Union is limited to a supportive, supplementary and monitoring function. The great number of directives on consumer protection in private law have generally been enacted on the basis of Art 114 TFEU/95 EC which puts the institutions of the Union under an obligation to attain a high level of consumer protection.
f) Article 352 TFEU/308 EC: subsidiary basis
Article 352 TFEU/308 EC not only provides for a subsidiary legislative basis when Union action proves necessary to attain one of its objectives, but also where the Treaty fails to otherwise provide the powers needed for such measures. This provision is of remarkable practical significance for the legislation of the Union in private law matters, especially in the areas of company law and intellectual property. The Union has created, alongside the institutions of national origin, similar Union institutions which the market actors may opt for as alternatives to national law. This concerns in particular the European company (SE) according to Reg 2157/2001 and the Community trade mark created by Reg 40/ 94 and now laid down in Reg 207/2009. These institutions have not emerged from an approximation of national laws which otherwise could only have been based on Art 114 TFEU/95 EC. They are new and therefore can be created on the basis of Art 352 TFEU/308 EC. Since the Lisbon Treaty deletes the linkage of measures adopted under Art 352 TFEU with the common market, an optional instrument on European private law may be based on that legislative basis even in respect of provisions which have no significance for the internal market, but rather for other objectives of the Union such as the creation of an area of justice. On the other hand, the Treaty of Lisbon has reduced the significance of Art 308 EC by the stipulation of specific powers for the creation of unitary intellectual property rights, see Art 118 TFEU which prevails over Art 352 TFEU.
See the commentaries on the individual provisions of the EC Treaty, in particular in von der Groeben and Schwarze (eds), Vertrag über die Europäische Union und Vertrag zur Gründung der Europäischen Gemeinschaft, vols 1–4 (6th edn, 2003); furthermore see Jürgen Basedow, ‘A Common Contract Law for the Common Market’ (1996) 33 CMLR 1169; Hans-W Micklitz and Norbert Reich, ‘Verbraucherschutz im Vertrag über die Europäische Union—Perspektiven für 1993’  Europäische Zeitschrift für Wirtschaftsrecht 593, 597 ff; Ivo Schwartz, ‘Perspektiven der Angleichung des Privatrechts in der Europäischen Gemeinschaft’ (1994) 2 ZEuP 559; Walter van Gerven, ‘Coherence of Community and National Laws. Is there a Legal Basis for a European Civil Code?’  ERPL 465; Ivo Schwartz, ‘Zuständigkeit der EG-Mitgliedstaaten zu völkerrechtlicher Verwirklichung von der Gemeinschaft gesetzten Zielen’ in Festschrift Ulrich Drobnig (1998) 163; Christian Kohler, ‘Interrogation sur les sources du droit international privé européen après le traité d’Amsterdam’ (1999) Rev crit dr int priv 1; Jürgen Basedow, ‘The Communitarization of the Conflict of Laws Under the Treaty of Amsterdam’ (2000) 37 CMLR 687; Stefan Leible, ‘Die Mitteilung der Kommission zum europäischen Vertragsrecht—Startschuss für ein Europäisches Vertragsgesetzbuch?’  Europäisches Wirtschafts- und Steuerrecht 471; Jürgen Basedow, ‘The Case for a European Contract Act’ in Stefan Grundmann and Jules Stuyck (eds), An Academic Green Paper on European Contract Law (2002) 147, 154 ff.