Bid to force industry to keep its promises

Date: 21/09/00

By Renée Cordes

THE voluntary pledges made by European, Korean and Japanese car manufacturers to cut carbon dioxide emissions and improve fuel efficiency are crucial to the success of the Commission's entire strategy for combating climate change.

If the carmakers do not keep their promises - formalised in pacts with the Commission - over the next decade, the Union risks falling short of the emission reduction targets promised at the 1997 Kyoto conference.

When these industry accords were signed, EU policy-makers reserved the right to come forward with proposals for new legislation should the car companies fail to achieve the targets or not make "sufficient progress" towards meeting the agreed objectives.

But until and unless binding laws are put in place, the only potential negative fallout for the industry if it fails to achieve these goals will be measured in damage to its public image. Moreover, legal experts warn that the voluntary agreements themselves are suspect and claim the Commission risks having all three pacts invalidated if they are ever challenged in the European Court of Justice. "All of the agreements are totally illegal," warns one. "If they are ever attacked in court, then we will be in real trouble."

Commission officials working in several policy areas are currently looking at ways of making such accords more effective, with environment chief Margot Wallström's staff leading the charge. They are currently finalising plans for a framework which would provide greater legal certainty for industry-driven agreements, which are seen as an increasingly vital component of EU environment policy.

Their proposal, due to be adopted by the full Commission later this autumn, will seek to ensure that the European Parliament is involved in drafting and monitoring future accords. It would also give policy-makers the right to impose penalties in cases of non-compliance, as well as the ability to come forward automatically with proposals for binding legislation should industry fail to keep its end of the bargain.

Commission officials are, however, determined to maintain the voluntary nature and flexibility of this increasingly used policy tool. Ten such agreements are in place in the environment field alone, of which six have been signed in the past four years.

The Commission's attempts to make such industry accords and other alternatives to traditional legislation more effective are not confined to environmental issues.

Last autumn, member states invited the Commission to explore the possibility of using what is being dubbed "the new approach" for all legislative proposals, particularly in areas such as consumer protection, electronic commerce and communications. Consumer and internal market officials are carrying out separate studies into the issue, which will feed into the Commission's White Paper on good governance, due out next June. This will examine how best to share out power in the EU and involve citizens' more closely in decision-making.

Policy-makers are increasingly relying on industries to set and enforce their own standards of conduct. Such self-regulation dates back to the arts and crafts guilds of the Middle Ages, with modern-day examples including codes of conduct adopted by various industries and non-binding guidelines on business practices provided by the Commission or member states.

Voluntary agreements are a form of self-regulation, but generally involve the participation of stakeholders or public authorities in drafting and endorsing the accords. These include regulatory agreements negotiated between consumer and industry groups, such as the planned mortgage code of conduct now being finalised for the banking sector.

Champions of self-regulation argue that it saves taxpayers money because it is more efficient than legislation, which can often take much longer to implement. They also claim that voluntary measures are more effective than binding ones because they are based on industry's practical expertise. In some cases, self-regulation can pave the way for what one Commission official described as "light and unbureaucratic legislation". The Auto-Oil programme, now codified in EU law, originated with pledges from car makers aimed at reducing air pollution.

Self-regulation is often confused with soft law, another non-binding legislative tool used to set regulatory standards. Examples of soft law include comfort letters sent to individual firms suggesting steps which should be taken to avoid breaching Union law and guidance notes such as those accompanying the EU's 1997 postal services directive which informally urged member states to liberalise the sector at a faster pace than provided for in the legislation.

Critics contend that self-regulation and other similar informal arrangements merely give industry the chance to avoid legislation and are not therefore in the public's best interest, especially when it comes to environmental law.

"The problem with voluntary agreements is that they are normally just negotiated between the decision-maker and the industry involved," says Axel Singhofen, EU toxics adviser at Greenpeace International. "The public or other players which would benefit or suffer the most from the overall result are not included."

Singhofen claims past experience has shown that industry will often push for a voluntary agreement as a delaying tactic, to buy extra time before new, binding legislation is adopted. Just a few days before the Commission was due to vote on an emergency ban on some toys softened with PVC, for example, the Toy Industries of Europe group offered to implement the measure on a voluntary basis. (The gambit did not work, however, and the Commission ultimately approved the embargo.)

In the fast-moving world of information technology and telecoms, industry's involvement in setting standards is crucial. But Enterprise Commissioner Erkki Liikanen is sceptical about the merits of self-regulation, warning that it may actually create barriers to the free movement of goods and services and arguing that in order to be effective, it must backed by law.

"Self-regulation is not a panacea," he said in a speech earlier this year. "It must be in conformity with, and backed by, law. It must be enforceable, verifiable, auditable. It must also be effective, with clear means of recourse, particularly across borders."

To ensure that this is the case, he is proposing a model which would go beyond self-regulation by introducing mechanisms for monitoring and enforcing what have until now been seen as purely voluntary rules, and imposing sanctions where necessary to punish non-compliance. All these principles would be enshrined in a legal framework, similar to the one which Wallström's officials are drawing up for agreements in the environmental field.

This approach, dubbed co-regulation, is fast becoming a buzzword of the new economy. "We are finally taking better regulation seriously," said a top aide to Liikanen. "Self-regulation works in many fields, but we have to apply common sense and safeguard consumer confidence."

However, the Enterprise Commissioner faces a difficult challenge to convince industry that co-regulation is a better alternative to self-regulation. The American Chamber of Commerce in Belgium, which favours the latter approach, is cautious about signing up to Liikanen's idea until there is a clearer definition of co-regulation.

"The key issue for us is transparency," said one Brussels-based lawyer. "All the principles that govern the adoption of legislation - prior consultation, business impact assessments, Parliament's participation - must apply in any circumstances to co-regulation."

Major feature about the European Commission's attempts to make industry accords and other alternatives to traditional legislation more effective.