Regulatory Federalism in the European Community

In this paper, the issue of the most efficient allocation of regulatory responsibilities among the subnational, national, and European Community (EC) levels of government is addressed. The most obvious impact of EC regulations on national and subnational policies is a transfer of legislative competences to the EC, as the principle of supremacy of EC law bars member states from passing laws inconsistent with the relevant EC legislation. There are less obvious but no less important ways in which EC regulations influence the political process in the member states. Thus, the process of implementation of EC regulations at the national level has led to an increase in the rule-making powers of the member states' executives and a corresponding weakening of the role of the national parliaments. Also, the relationship between central and subnational governments is significantly affected, especially in countries with a federal or regional structure. It is argued that, despite the theoretical and political appeal of decentralization in a community of nations as varied as in the EC, many regulatory powers will have to be surrendered by the national governments after completion of the internal market. The dilemma of regulatory federalism is that, although local governments are more attuned to individual tastes, they are also unlikely to make a clean separation between the provision of public goods for their citizens and engaging in policies designed to the advantage of the locality at the expense of its neighbours. Because the integrated European market is such a new creation, the threat posed by the strategic use of regulation to the advantage of one jurisdiction at the expense of other jurisdictions is probably more serious than the danger of excessive and inefficient uniformity. It is also important to keep in mind that the optimal assignment of regulatory responsibilities between different levels of government does not have to coincide with existing national boundaries. There may be significant externalities and a need for coordination between some, but not all, regions within a country or group of countries. A model which deserves particular attention in this context is that of consortia or ‘compacts’ among several states, or regions within different states, sharing similar problems.