The New Regulation on the Rule of Law Conditionality: a Controversial Tool with Some Potential

Antonia Baraggia

University of Milan

Introduction

 On 11 December 2020, the European Council (EUCO) issued its conclusions on the draft Regulation of the European Parliament and Council on a general regime of conditionality for the protection of the Union Budget. The conclusions postpone the enforcement of the rule of law mechanism until the Court of Justice has issued judgment on the validity of the Regulation. This came as a major disappointment to those who placed their final hopes in the introduction of rule of law conditionality to deal with democratic backsliding in Poland and Hungary.

Given that all the E.U. measures adopted thus far have ultimately failed or proven ineffective, the swift introduction of conditionality seems to be Europe’s last chance to change the course of Hungarian and Polish events. This is all the more import because of the historical moment facing the Union, with the approval of the Multiannual Financial Framework and the Recovery Fund.

Both legal and political commentators have harshly criticized the deal reached by EUCO. The literature has focused primarily on the legality of EUCO’s conclusions, on their possible implications for the institutional balance in the E.U. (as EUCO impinged on the prerogatives of the European Commission) and on their negative impact on the rule of law regulation (Scheppele, Pech, Platon, 2020; Uitz 2020, Alemanno and Chamon, 2020).

Without downplaying the importance of recent developments in rule of law conditionality, the focus in this piece will be on the new Regulation on Rule of law conditionality (approved by the European Parliament on 14 December). I will analyze EUCO’s conclusions through a different lens, namely the general instrument of conditionality, and will consider the political and constitutional challenges it poses for the E.U.

Constitutional Challenges of Conditionality

Conditionality is certainly not a new tool in the field of public law, having already been used at international, supranational and national level. Although different forms of conditionality exist, it can be defined as a way for a subject to exercise power not purely through coercion, but through building consent or obedience via the control of resources. As such, conditionality is a mechanism to bring about policy reforms or impose a given behaviour the beneficiary country/institutions would not voluntarily choose (Morrissey 2005). This occurs by “granting financial resources with policy conditions attached, under the threat of funding withdrawal in case of failure to comply with the said conditions” (Vita, 2017). This approach is typically adopted instead of coercion, as an enforcement and compliance mechanism, or, instead of the enactment of legal norms, as a regulatory mechanism.

Together with other emerging regulatory devices – e.g. nudging and soft law – conditionality marks a departure from the classical ‘command and control’ paradigm of public regulation. It would seem to provide a valid alternative form of public regulation in situations of limited authority, in those spheres where a regulatory entity does not possess the power to make and enforce decisions over another subject authoritatively. In this sense, the shift towards the use of conditionality might be an exemplary case of the need to think about new forms of governance in a context characterized by the metamorphosis of state sovereignty and the growing influence of international and supranational actors within the constitutional domains of States. At the same time, conditionality creates new tensions and challenges core values of public law, including, among many, the principle of sovereignty, the separation of powers and democratic accountability.

Focusing on conditionality in the E.U., it seems to place strain on two core E.U. law principles: the principle of equality of Member States and the principle of conferred powers. Concerning the latter, conditionality in the E.U. is seen as a governance tool used to promote and advance E.U. values and policies in areas where the E.U. itself lacks explicit powers. Nevertheless, the E.U. has a legitimate reason to act as there is a common E.U. interest. However, it is not always straightforward to draw the line between legitimate intervention by the E.U. in domestic affairs and an excessive intrusion into areas reserved to the Member States. This prompts “important questions from the democratic perspective both under domestic constitutions and under E.U. law” (Bogdandy and Ioannidis, 2014).

Regarding the principle of equality of Member States, conditionality is not a “neutral” tool of governance as it aims to influence the recipient actors, asking them to adopt particular conduct or to achieve a given goal. Conditionality thus implies a relational but not equal position: the subject who poses the conditions exercise power over the recipient. There is a sort of “vertical” asymmetry between the two main subjects of the conditionality regime (at E.U. level, E.U. institutions and Member States). However, asymmetry can also affect the relationship among Member States (we can call this horizontal asymmetry).

Horizontal asymmetry is apparent in instances of economic conditionality where “it is the creditor states that call the shots, leaving the debtors the simple choice of compliance or exit.” (Crum 2013).

Even rule of law conditionality prompts questions related to the equality of Member States, despite being of a different “genus” to macro-economic conditionality. Although the new conditionality regulation would indeed apply to all Member States, the ‘threat’ of funding suspension would be much more significant for those States that receive larger percentages of E.U. structural funding.  In other words, the impact of the Regulation would be different across the Union, exacerbating, rather than addressing, the divisions between Member States and even jeopardizing the perceived legitimacy of rule of law conditionality.

Conditionality in Federal States

These tensions are well-known in federal systems, like the U.S., where the use of conditions by the federal government finds its base in Article I, Section 8 of the U.S. Constitution and the “general welfare” spending power of the federal government. Even in federal theory, conditionality is not exempt from criticism: the literature is highly polarised on the constitutional status and legitimacy of this tool of governance. 

The use by the federal government of conditionality mechanisms is still an open issue in the federal relations between the central government and the States, as the recent cases of NFIB v. Sebelius, 567 U.S. 519 (2012) and the Sanctuary Cities Litigation clearly shows.

The leading case on conditional spending is South Dakota v. Dole, 483 U.S. 203 (1987). In this case, the Court established a four-part test for assessing the constitutionality of spending conditions:

1. The federal spending must be in the “general welfare.” This is because Congress has authority under Article I, Section 8, to spend for the “general welfare” and not to impinge on the States’ legislative competences.

2. The condition must be clear and unambiguous so that States can “exercise their choice knowingly cognizant of the consequences of their participation.”

3. The condition must be related to the purpose of the federal spending programme.

4. The condition cannot violate some other provision in the Constitution. For federalism purposes, the condition cannot violate federalism principles that the Court has read into the Tenth Amendment. In particular, “the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’” At this point, the programme goes too far, and it is unconstitutional.

U.S. conditionality is clearly not identical to rule of law conditionality in the E.U. Additionally, the doctrine of unconstitutional spending conditions is quite controversial in the U.S.  Nevertheless, in general terms, the federal experience provides an interesting perspective for understanding the new rule of law conditionality mechanism. 

Rule of Law Conditionality

Unlike the European Commission’s original proposal, the rule of law mechanism designed by the Regulation seems to carefully take into consideration the possible challenges posed by conditionality in general and by its implementation. The scope of the approved Regulation is narrower than the Commission’s proposal as the Regulation now circumscribes the areas in which the mechanism can be triggered, with all acceptable cases having a strong connection to protecting E.U. financial interests. This can be seen as a defeat for the introduction of a robust mechanism for dealing with the rule of law and human rights violations by Members States. However, as the literature on conditionality and the federal experience has shown, to be effective, the conditions must be clear, precise, formally codified and operational (Blauberger, van Hüllen 2020). Paradoxically, while the link to the management of E.U. budget might narrow the scope of application of rule of law conditionality, it is actually a provision that may strengthen the legitimacy of the conditionality regime, without impinging on Member State sovereignty or the principle of conferral.

Let us now look briefly at EUCO’s conclusions. The most interesting provision, for this discussion, is the role of the CJEU in the trigger procedure of the mechanism. EUCO’s non-binding conclusions postpone the application of the mechanism until after the CJEU will rule in an annulment procedure on the validity of the Regulation. Moreover, EUCO refers to the Commission drafting guidelines to implement rule of law conditionality, including a methodology for its assessment.

EUCO’s actions might appear inappropriate when examined through the lens of E.U. institutional balance. However, EUCO’s conclusions do highlight important steps for the effective implementation of the rule of law mechanism, as the CJEU could rule on the validity of the Regulation and also draw up general criteria for the use of conditionality. Moreover, the Commission’s guidelines are needed to set up clear, transparent procedures and to design precise, unambiguous mechanisms. The definition of a clear standard and assessment procedure and a ruling by the CJEU could help reduce the discretionary power of the Commission, related to the procedure, and enhance the perceived legitimacy of rule of law conditionality.

The path towards implementation of rule of law conditionality will undoubtedly be long and bumpy, with many challenges along the way. In this light, the delay in the application of the procedure could cause deep concerns given the current rule of law crises affecting Hungary and Poland. However, in the long run, the detailed, clear definition of the rule of law conditionality procedure by the Commission could finally give the E.U. an effective, robust tool to protect and enforce its fundamental values.

Antonia Baraggia is Assistant Professor of Comparative Law, University of Milan

Suggested citation: Antonia Baraggia, ‘The New Regulation on the Rule of Law Conditionality: a Controversial Tool with Some Potential’ IACL-AIDC Blog (22 December 2020) https://blog-iacl-aidc.org/2020-posts/2020/12/22/the-new-regulation-on-the-rule-of-law-conditionality-a-controversial-tool-with-some-potential