When reading about the EU Single Market and about EU law in general, the term “harmonisation” often comes up. But what is harmonisation? How can we achieve harmonisation? Why is harmonisation important? This Opinion tries to respond to these three questions and concludes with a practical example explaining how in certain cases harmonisation is essential for a small country like Luxembourg.
What is harmonisation?
At the time of writing this Opinion, 9 May 2023, we celebrate Europe Day, the annual celebration commemorating the historic Schuman Declaration of 9 May 1950. That day, Robert Schuman, who was then the French Foreign Minister, said “L’Europe ne se fera pas d’un coup, ni dans une construction d’ensemble : elle se fera par des réalisations concrètes créant d’abord une solidarité de fait”. With these powerful words, one of the founding fathers of the Union proposed the creation of a European Coal and Steel Community, with the aim of promoting peace and prosperity in Europe, through the breakdown of the economic barriers that had contributed to the conflicts of the past, and to promote cooperation and integration among the EU Member States.
The harmonisation of EU law can be seen as a key aspect of this vision, as it aims to create a unified legal framework across the EU, reducing barriers to trade and promoting a level playing field for businesses and economic operators. By ensuring that laws and regulations are consistent across the Member States, harmonisation helps to promote competition and innovation, as well as improving consumer protection and safety standards.
We thus understand that the term harmonisation refers to the process whereby the European Union seeks to eliminate divergences between national laws in order to create a uniform legal framework across the internal market. This involves adopting common rules, or minimum standards, that apply to all Member States and that have to be transposed into national law by the Member States (Craig & de Burca’s « EU Law: Text, Cases, and Materials »).
How can we achieve harmonisation?
EU law knows different techniques through which EU law can be harmonised, this Opinion focuses on three important ones.
Direct effects
This technique involves making EU law directly applicable in national courts without the need for national legislation. This is achieved through the recognition of certain EU provisions as having direct effect, which means they can be relied on by individuals and businesses before national courts.
As far as regulations and directives, the level of harmonisation stemming from the direct effects can vary. While regulations are directly applicable in the Member States and have in principle direct effect, directives only have direct effect when certain conditions are ensured.
Regulations are thus the best way to harmonise EU law in Member States when it comes to their effects, as they are designed to ensure the uniform application of Union law in all the Member States.
Transposition
Transposition is the process of incorporating EU directives into the national laws of EU Member States. Directives, in contrast to regulations, become directly applicable only when transposed into national law – subject to exceptions – and their rules (that is of the national implementing measures) become applicable to all legal subjects (citizens, companies, etc.).
Directives can be minimum harmonisation or maximum harmonisation. A minimum harmonisation directive contains semi-mandatory rules directed to the Member States. They need to implement the minimum standard of protection required by the directive. However, they may also introduce or maintain a higher level of protection than those prescribed by the transposed directive, provided they are compatible with the EU Treaties, and they do not infringe the fundamental freedoms of the internal market.
In contrast, a maximum harmonisation directive must be implemented by the Member State without any modifications. This makes maximum harmonisation directives similar to regulations. The second best way to ensure maximum harmonisation – after a regulation – is the insertion of a Single Market Clause, or clause of full harmonisation. This is a legislative technique that prevents Member States from deviating from the text of a directive when transposing it into their national law. In this way, harmonisation guarantees that one uniform set of rules applies in the whole EU territory. The Single Market Clause can in certain cases significantly help companies with implementation and compliance of the rules of directives. The Single Market Clause typically is an article in the beginning of a directive saying roughly that Member States “shall not maintain or introduce, in their national law, provisions diverging from those laid down in this Directive, including more, or less, stringent provisions, unless otherwise provided for in the Directive” 1.
Mutual recognition
This technique involves recognising the validity of products, services, and other legal acts that are lawfully produced or provided in another Member State. Mutual recognition is based on the principle that Member States should trust each other’s regulatory systems and rely on each other’s standards, rather than imposing their own.
Why is harmonisation important?
Overall, the benefits for the Single Market of harmonised rules can be summarised as follows:
- Greater certainty: harmonised EU legislation provides businesses with greater legal certainty as they only have to comply with one set of regulations when operating across the EU, instead of navigating a patchwork of different national regulations.
- Increased market access: harmonisation of EU legislation helps to create a Single Market in the EU, which allows businesses to operate in all Member States without facing additional barriers to trade.
- Cost savings: by harmonising regulations, businesses can achieve economies of scale by producing goods and services that comply with a single set of rules for the entire EU market, rather than having to produce different versions for each Member State.
- Streamlined compliance: with harmonised EU legislation, businesses and economic operators only need to comply with one set of regulations when operating across the EU. This reduces the regulatory burden on businesses, which can be especially beneficial for small and medium-sized enterprises (SMEs) that may not have the resources to navigate different regulations across multiple Member States.
- Enhanced competitiveness: harmonisation can create a level playing field for businesses within the EU, as they all have to comply with the same set of rules. This can promote fair competition and help smaller businesses to compete with larger ones.
Conclusion
In conclusion, harmonisation of EU rules can be essential for creating a functioning Single Market that benefits all Member States. By aligning national laws and regulations with EU standards, businesses can operate more easily and efficiently across borders, reducing costs and promoting competition. Harmonisation also helps to ensure a level playing field for all market participants and protects consumer and environmental rights.
For small countries like Luxembourg, harmonisation is particularly important as it enables them to participate fully in the Single Market and take advantage of its benefits. By eliminating trade barriers and promoting cross-border trade, harmonisation helps to promote economic growth and create job opportunities.
On the contrary, when rules in Member States are different, companies operating across borders need to adapt to the legal requirements in the national markets. If Luxembourg has legal requirements which are hasher and stricter (or simply very different) from other Member States’ legal frameworks, there is the risk that companies in other Member States would simply disengage from doing business with Luxembourg companies and choose to do business with companies based in other Member States with less strict (or simply less in number or more convenient) legal requirements.
A good example can be found in all ESG legislation imposing requirements and reporting obligations to businesses. Among these, the EU Commission’s Proposal on Corporate Sustainability Due Diligence (CSDD). This proposal includes no provisions that limit the ability of a Member State to legislate beyond the provisions of the proposal, because it is a minimum (standards) harmonisation directive. This would not deliver a level playing field and would increase the legal fragmentation at the expenses of EU fundamental freedoms, above all the right of establishment, fair competition and ultimately to stimulate sustainable investment.
Imagine now the hypothetical situation where Luxembourg law transposing the CSDD imposes 25 different requirements and reporting obligations while the Netherlands’ law only 10. Imagine that German law’s requirements and obligations are very different from those prescribed by Luxembourg’s law but very similar to those laid down by Dutch law. What would big companies from Germany do? We can expect that they would just replace their Luxembourgish business partners with the Dutch ones, given that they have easier, less harsh or more similar rules to follow. Imagine this happens for all the different legislations that have an impact on trade. Imagine how catastrophic that could be for Luxembourg’s companies – and its economy – if Luxembourg’s companies start losing business partners in the Single Market and trade in our country starts dropping. The consequences for the economy could be terrible.
Once again, harmonisation is a crucial element for the success of the EU internal market, and both EU and national legislators should remain mindful of this fact as they work towards a more integrated and prosperous Europe.