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J O I N T C E N T E R AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES

The Swing of the Regulatory Pendulum in Europe: From Precautionary Principle to (Regulatory) Impact Analysis

Ragnar E Löfstedt

Working Paper 04-07 March 2004

The author is Ragnar E. Löfstedt of the King's Centre for Risk Management. The author can be contacted at: King's Centre for Risk Management, International Policy Institute, King's College London, London WC2R 2LS, UK. Please direct comments to: ragnar.Löfstedt@kcl.ac.uk. The research leading to this article was partially supported by a grant from the Swedish Research Council via the Centre for Public Sector Studies (CEFOS), University of Göteborg, where the author is a visiting professor. Earlier versions of this paper were presented both as a keynote speech at the annual meeting of the Society for Risk Analysis 2002-December 9-11 New Orleans as well at an internal seminar on the 4th December 2002 at the Department of Engineering and Public Policy, Carnegie Mellon University. The author is grateful to the following individuals who have either provided him with background information or who have commented on earlier drafts of this paper: Bruce Ballantine, Frederick Bouder, Natalie Donald, Scott Jacobs, Peter Ladegaard, Kip Viscusi, David Vogel, Jonathan Wiener, representatives of the European Commission and two anonymous referees.

J O I N T C E N T E R AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES

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ROGER G. NOLL Stanford University

GILBERT S. OMENN University of Michigan

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CASS R. SUNSTEIN University of Chicago

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Executive Summary

Regulation in Europe is currently driven by three distinct, yet not entirely unrelated factors. These are competitiveness, sustainable development and governance. Increasingly these factors influence both the need for, and concepts of, what the European Commission (the Commission) refers to as “better regulation”. To ensure better regulation, two regulatory philosophies have been put forward, namely the precautionary principle and impact assessment.12 In this paper, I first briefly describe the current drivers of better regulation. Then I examine the use of these two regulatory philosophies in helping to achieve better regulation. In the final section I offer some speculations on the future development of European Union (EU) regulation. Will elements of the Commission and the EU member states operate in an even more precautionary environment, or will the implementation of the precautionary principle be seen as too costly, forcing regulators to resort to an even greater use of impact analysis?

1 It should be noted that the Göteborg European Council in June 2001 also called for the Commission to establish a sustainable impact assessment (SIA). This, along with regulatory impact assessment (RIA), has been incorporated in the recent European Commission Communication on Impact Assessment (IA). However, to avoid any confusion regarding definitions I use IA and RIA interchangeably in this article. 2 In this paper I use the term regulatory philosophy to describe (R)IA and the precautionary principle. Arguably I could have labeled these as policy design criteria or something similar. However, as the precautionary principle is in many cases more than just a policy design criterion I decided to stick with the “philosophy” label.

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The Swing of the Regulatory Pendulum in Europe: From Precautionary Principle to (Regulatory) Impact Analysis

Ragnar E Löfstedt 1. Introduction

The regulatory field in Europe is evolving as the European Commission (the

Commission) is increasingly concerned about the present state of regulatory affairs. The issue of

regulatory simplification has been raised as a prerequisite for the achievement of a European

Union (EU)-wide single market at both the member state and European level numerous times

since 1985 (Mandelkern Group 2001). Since the December 1992 Edinburgh Council, the issue of

better regulation has been a priority area within the EU (European Commission 2001g). At that

time it was decided that future Commission regulatory decisions should be assessed for

conformity with principles of subsidiarity and proportionality, with cost effectiveness assessment

being advocated (Mandelkern Group 2001). In addition a protocol on the topic was annexed to

the Treaty of Amsterdam in 1997 setting out principles for subsidiarity and proportionality.1 The

results to date have not been that impressive due to both the complexities associated with the

issue at hand, and the lack of political support to carry the process through (European

Commission 2001g). However, the situation appears to be changing following the passage of the

so-called “better regulation” package in June 2002 (European Commission 2002b, c, d, and e).2

With regard to regulation, two areas in particular stand out. Firstly, the Commission

recognises a need for improvements in preparing the community’s regulatory actions, arguing

that the “preparatory phase is often regarded as insufficient, particularly as regards analysis of

the impact the proposed will have on economic operators and other interested parties” (European

Commission 2001d, p.3). The preparatory phase involves making the action in question as

rigorous as possible, abiding by minimum standards of public consultation, putting forward

1 In this paper the term subsidiarity refers to the principle that EU institutions should only be in charge of those policy matters that are best dealt with at the European level, leaving other policy matters for national and local governments. Proportionality refers to the principle that regulatory measures taken must make it possible to achieve appropriate levels of protection. 2 The term “Better regulation package” specifically refers to four so-called communications put forward by the Commission in the summer 2002. One of the primary aims of the Communications was for the Commission itself to show how it was responding to the challenges for improving regulation discussed in its White Paper on governance (European Commission 2001f).

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guidelines on how to draw on expertise, and ensuring coherence and transparency through the

use of impact assessment. This is particularly important in light of the Commission’s approach to

the precautionary principle where there is a “continuing need for the provision of expertise so

that policies can be updated in light of scientific and technical developments permitting a fuller

risk assessment” (European Commission 2002k p.6). Secondly, the Commission wants to ensure

that the regulation in question is properly implemented. The Commission is aware that it is not

good enough to make and put forward regulation in Brussels without seeing it implemented in

the member state countries (Baldwin and Cave 1999; Collins and Earnshaw 1993; European

Commission 1996; Jordan 1999). Of particular concern for the European Commission is

environmental regulation. In 1999, for example, of the 14 penalties that the European Court of

Justice put forward that year for non-compliance, 9 related to environmental regulations

(McCormick 2001).

The issue of how regulations can both be improved and implemented go to the centre of

the Commission’s present day regulatory thinking. As the Commission itself writes:

“The aim of simplifying and improving the regulatory environment is to ensure,

in the interests of the public, that Community legislation is more attuned to the

problems posed, to the challenge of enlargement, and to technical and local

conditions. The aim is also to ensure a high level of legal certainty across the EU

and enable economic and social operators to be more dynamic and thus help

strengthen the Community’s credibility.” (European Commission 2002g).

In addition, the issue of both improving and implementing regulations are closely linked

to the three main drivers of EU regulatory concerns: competitiveness, good governance and

sustainable development. For example, if regulations are not improved, not only will European

competitiveness be adversely affected, but also the criteria for good governance will not be met.

Similarly, if environmental and health regulations are not properly implemented how can the EU

state that it is taking sustainable development seriously? These three drivers are discussed in

further detail below.

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The Role of Competitiveness

The role of competitiveness goes to the heart of the European project. Indeed the Single

European Act, which was set to establish a Europe without borders or tariffs was put in place to

make the European trading block more competitive compared to its American and Japanese

counterparts (Golub 1998; Weale et al 2000, p.43). It was first put on the agenda in 1990 when

the Commission argued that it was necessary for enterprises to improve their competitiveness

(European Commission 1990). However, it came to the forefront of the European agenda in

June 1993 when the Copenhagen European Council showed concern about the weakness of the

European member state economies. At that time growth rates within the Union were projected to

fall from 4 to 2.5 per cent per annum. Because of the Council’s concern, it asked the

Commission to prepare a White Paper on what was needed to promote growth in the medium-

term.

The White Paper, published later the same year, came forward with a number of

recommendations of which one had a strong regulatory focus, namely that of greater flexibility

(European Commission 1993b): According to the White Paper, there was a need to introduce

greater flexibility into the workplace to reduce labour costs, and thereby increase industry’s

competitiveness vis-à-vis its US counterparts where such flexibility had already been introduced.

To aid this drive for greater flexibility, the regulatory environment needed to become more

business friendly.

This recommendation was further supported by the influential yet controversial3 Molitor

report which suggested that competitiveness and thereby growth would be better served by a

more flexible European Union approach to regulation (European Commission 1995):

“Over regulation stifles growth, reduces competitiveness and costs Europe

jobs…it hampers innovation and deters both domestic and inward investment.”

(European Commission 1995, p.1)

The report, sponsored by Germany and the UK, was welcomed, and in the following

year, the Commission passed the Integrated Pollution Prevention and Control (IPPC) Directive

3 The word controversial is used here as some environmental bodies, most notably the European Environment Bureau, argued that this group was making a clear neo-liberal critique of the present environmental agenda (Weale et al 2000, p.101).

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(European Council 1996). This directive is regarded as a direct outcome of the Molitor report as

it allowed for national and regional regulatory discretion (Breyer and Haevert 2000). For

examples the Directive states “emission limit values may be supplemented or replaced by

equivalent parameters or technical measures” (Breyer and Haevert 2000, p.336-337). The

Commission’s concern regarding the Union’s competitiveness continued. In 1994 it published a

further communication on competitiveness focusing on the importance of industrial co-operation

(European Commission 1994) and in 1999 it put forward a new communication examining the

effects of globalisation on competitiveness (European Commission 1999).

However, it was at the 2000 Lisbon European Council that competitiveness came to the

forefront of European thinking. It was there that an EU strategic goal of becoming the most

competitive and dynamic knowledge-based economy in the world by the year 2010 was set out.

To attain this goal, the Lisbon European Council asked the various EU departments including the

Commission to “set out by 2001 a strategy for further co-ordinated action to simplify the

regulatory environment, including the performance of public administration, at both national and

Community levels” (Mandelkern Group on Better Regulation 2001, p. 8).

Ever since then, officials have been discussing how to best achieve the Lisbon goal of

increasing competitiveness (European Commission 2001b, 2002a and l, 2003b and c). For

example, the Communication delivered at the Stockholm European Council meetings points out:

“Individuals and businesses, and small and medium-sized businesses in particular,

need a clear, effective and practical regulatory environment…This is essential if

the European Union is to become the most competitive and dynamic knowledge-

based economy in the world” (European Commission 2001b, p.3).

The Issue of Good Governance

It is widely held that the regulatory process in the EU is currently in a state of flux

(Löfstedt and Vogel 2001). As Majone and Everson argue, the consensual style of regulation is

no longer operational in the EU, due to a series of factors, the primary one being a lack of

credibility (Majone and Everson 2001). Fundamental changes have to be made to ensure that

European regulators can be trusted again. These include the establishment of agencies (Dehousse

1997; European Commission 2002m; Vos 2002), staffed with competent individuals sourced

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from similar agencies in the member states, and consideration of the establishment of an

executive office of accountability, similar to the US Office of Management and Budget

(European Policy Centre 2001; Majone and Everson 2001, Pantelouri and Binns 2001).4

The European Commission has also long been aware that regulatory mechanisms need to

enhance both their credibility and competence. In 1993, for example, an attempt was made to

reduce the so-called democratic deficit by giving wider policy-making power to the European

Parliament, ensuring greater democratic credibility. However, the issue took on increased

urgency following a series of EU food scandals including dioxin in Belgian chicken feed and

mad cow disease (BSE). In addition, blatant cronyism associated with the Santer Commission in

January 1999 led to the resignation of the College of Ministers. Due to these scandals, which led

to increased public and stakeholder distrust toward the Commission itself and to the European

project as a whole (Lebessis and Paterson 2001; Löfstedt and Vogel 2001; Majone and Everson

2001), the Commission decided early in 2000 that a reform of European governance should be

one of its four core strategic objectives (De Schutter et al 2001; European Commission 2000b

and 2000c; European Commission 2001f; Löfstedt and Vogel 2001). It argued that:

“The object of the reform strategy is to make changes which will ensure that

efficiency, accountability, responsibility and service are applied as working

conventions everywhere in this unique multinational public administration”

(European Commission 2000b, p.1).

To initiate the reform process, the European Commission published a White Paper on the topic in

July 2001 (European Commission 2001f). Its recommendations included:

• Opening up the policy-making process to get more people and organisations involved in

shaping and delivering EU policy;

4 It is not clear exactly what functions the European version of the Office of Management and Budget would have, or how similar it would be to the US version. The European Policy Centre, for example, argues that some form of regulatory assessment office should be established within the Secretary-General’s office within the European Commission (EPC 2001). Pantelouri and Binns, writing on behalf of the Commission, take the view that a central supporting cell for better regulation is needed within the Commission (Pantelouri and Binns 2001). Majone and Everson, on the other hand, take the view that a European regulatory office should be modelled on the US version, with full executive accountability (Majone and Everson 2001). As (R)IA evolves within the Commission, it will be interesting to see if the Commission does indeed develop an internal office for regulatory accountability.

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• Simplification of further existing EU law;

• Defining the criteria for the creation of new regulatory agencies and the framework in

which they should operate; and

• Improving dialogue with governmental and non-governmental organisations and

countries outside the EU when developing policy proposals with an international

dimension. (European Commission 2001f, p.3-6)

In December 2002, the Commission followed up with a further communication on the topic,

summarising the responses to the Governance White Paper (European Commission 2002j).

The Role of Sustainable Development5

Today sustainable development is the official guiding principle of European Union’s

environmental policy. Its interest in this area comes from two sources:

• The 1992 Rio Declaration which called for the signatories (including the European

Union) to draw up strategies for sustainable development in time for the 2002 summit in

Johannesburg; and

• The 1993 Environment Action Programme, which was strongly influenced by the

Bruntland Report, the 1989 Dutch National Environmental Plan as well as the Canadian,

French, and Swedish environmental plans. The Action Programme called for measures to

promote greater sustainability rather than just environmental improvement. It was a clear

shift away from previous EU environmental action plans and in effect was the start of a

new era (Weale et al. 2000). Indeed sustainable development became an EU catchword

throughout the 1990s.

5 An important issue is how the Commission uses the term sustainable development. According to the European Commission, the term sustainable “is intended to reflect a policy and strategy for continued economic and social development without detriment to the environment and the natural resources on the quality of which continued human activity and further development depend” (European Commission 1993ap.12). In addition the European Commission uses the Report of the World Commission on Environment and Development (WCED) (Brundtland) definition of sustainable development in a number of their communications. In this report sustainable development is defined as follows: “Development which meets the needs of the present without compromising the ability of future generations to meet their own needs.” (WCED 1987 p.8)

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In order to deliver on the EU “Rio promise” of developing a sustainable development

strategy, the European Council at the December 1999 meeting in Helsinki, asked the

Commission:

“To prepare a proposal for a long-term strategy dovetailing policies for

economically, socially and ecologically sustainable development to be presented

to the European Council in June 2001” (European Commission 2001e, p.2).

In this work the Commission took the view that sustainable development should continue to be a

key objective for all policies considered by the Commission and that therefore careful

assessments would be needed to lay out both good and adverse effects of policies on sustainable

development (European Commission 2001a,e p.6). Indeed at the Göteborg European Council

meeting it was concluded that:

“The Commission will include in its action plan for better regulation to be

presented to the Laeken European Council mechanisms to ensure that all major

policy proposals include a sustainable impact assessment covering their potential

economic, social and environmental consequences.” (European Commission

2001g, p. 3)

The Compatibility of the Three Drivers

The three drivers (competitiveness, sustainable development and governance) are,

according to the Commission, closely interrelated and compatible. The Commission has long

held the view that there is no actual conflict between environmental protection and

competitiveness. It stated in the 1993 5th Environmental Action programme that:

“The perceived conflict between environmental protection and economic

competitiveness stems from a narrow view of the sources of prosperity and static

view of competition. Rather than reduce competitive advantage, stringent

environmental requirements can actually enhance it by triggering upgrading and

innovation.” (European Commission 1993a, quote taken from Williams et al.,

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2002, p. 287).6

Similarly in its 1993 White Paper on Competitiveness, the Commission argued that it was

necessary to promote sustainable development as it would lead to the so-called “first mover”

advantage, thereby strengthening the competitiveness of industry as a whole. Indeed, in the same

White Paper, the Commission argued that there was significant room for the ecological industry

to expand, and that efforts should be taken, via EU support, to promote cleaner technology as

well as energy efficiency and products that required less raw materials (European Commission

1993b). Throughout the 1990s it virtually became a dogma that sustainable development was

compatible with economic growth. This allowed the use of the term to serve as an agent for

legitimising the EU goals of strengthening the single market as well as promoting stricter

environmental standards (Weale 1992 and 1993; Weale et al 2000).

Similarly, at the time of the 2001 Stockholm Council, it was decided that in the long term

“economic growth, social cohesion and environmental protection must go hand in hand.”

(European Commission 2001e, p. 2). This was reiterated in 2002 when the Commission argued

that “The competitiveness of manufacturing industry is a cornerstone of the European Union’s

sustainable development strategy” (European Commission 2002l) and again in 2003 when the

Commission argued that “in an increasingly competitive world environmental performance can

also be a factor giving companies or their products a competitive edge (European Commission

2003d, p.6; see also European Commission 2000c).7 In short, the Commission endorsed the so-

called Porter hypothesis. This states that first, companies that develop green products gain early-

mover and front-runner advantages, and second, by reducing pollution governments can improve

the business environment, which in turn encourages foreign investment (Fischer and Schot 1993;

Porter 1998; Porter and van der Linde 1995).8

Similarly there is a strong connection between the goals of governance and sustainable

development. On another occasion the Commission took the view that:

6 However, empirical evidence from the Office of Economic Co-operation and Development (OECD) countries shows that there is a tendency to neglect the environment when the economy is not doing well (OECD 2002). 7 Indeed, the whole document from which this quote is taken from, a Commission communication on Integrated Product Policy, is based in some shape or form on “first-mover advantage.” 8 This can also be referred to “ecological modernisation”, in which environmental protection and economic development become mutually reinforcing (Hajer 1995; Weale 1992, 1993).

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“Opening the review to stakeholders will increase its credibility and value. The

Union's efforts to achieve sustainable development ultimately depend on

widespread ownership of the strategy by individuals and businesses, as well as

civil society and local and regional authorities." (European Commission 2001

n.264, p.15).

In this case the Commission followed the theories and ideas originally postulated by Schelling in

the 1980s and implemented by Renn and colleagues in the late 1980s and early 1990s (Renn et al

1985; Schelling 1960).

On the whole, outside observers share the view that the Commission needs to reform

regulation and that the three drivers are admirable (in particular governance). However, research

by political scientists, most notably Majone (Majone 1996; Majone 2002; Majone and Everson

2001) points to the following areas, which still need attention:

• So far, parliament has on the whole played a minimal role, particularly with regard to the

making of regulation;

• Directives, the Commission’s favourite regulatory tool, are often loosely worded and

contentious. They offer a large measure of discretion as to the implementation through

member state legal channels rather than providing a precise mandate; This is reinforced

by the Better Regulation Action Plan which states that Directives should increasingly be

limited to the essential aspects of legislation, making technical details a matter for

executive measures;

• National parliaments have little or no impact in the development of the Commission’s

regulatory proposals. Indeed some academics argue that the development of regulation in

Europe has not moved from national parliament to European parliament, but to

bureaucratic development, leading to problems of transparency;

• The European Court of Justice, the judicial arm of regulation in the EU, only has limited

resources and is unable to oversee implementation; and

• Variations in the legal systems and enforcement processes of the member states lead to

difficulties in measuring member state implementation rates.

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2. Regulatory Philosophies

As the regulatory environment in the European Union has evolved, so has the need to

find appropriate environmental regulatory philosophies. The two philosophies that have received

the most attention recently are the precautionary principle and (regulatory) impact analysis

(RIA). The precautionary principle, for example, has been seen as being particular useful with

regard to promoting EU-wide sustainable development (although recently IA has also been

advocated for this.) RIA has been seen as a philosophy to promote greater transparency in the

regulatory process, something widely advocated by the call for better governance. These two

regulatory philosophies have both evolved over time and are hard to define. For example, there

are no less than 19 definitions of the precautionary principle (Sandin 1999) and with regard to its

use in Europe, it has evolved from being associated with a “better safe than sorry” perspective to

being associated with “reversed burden of proof”(e.g. European Commission 2001c; for a

detailed theoretical analysis of the precautionary principle see also Gollier and Treich 2003).

Similarly, RIA has evolved from being associated with a strict cost benefit analysis to an

analytical philosophy also able to incorporate social and environmental concerns. To understand

the use of these regulatory philosophies and how they evolved over time to the present day, the

following describes their respective histories and present day uses.

History of the European Use of the Precautionary Principle

One of the main philosophies recently used by European regulators both at member state

and Commission level is that of the precautionary principle, which has its roots in German and

Swedish law (for summaries see Löfstedt et al 2002; Löfstedt 2003; O'Riordan and Cameron

1994).

Sweden

The first legal use of the concept was the 1969 Swedish Environmental Protection Act

(Sand, 1999). This introduced the reversed burden of proof with regard to environmentally

hazardous activities (Swedish Government, 1969; Westerlund, 1975; 1981). Specifically,

industry was required to demonstrate the safety of its products to regulators, rather than

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regulators having to prove harm, as was the case in existing regulatory regimes. In effect the

whole act is based on the burden of proof concept. As Westerlund 1981 writes:

The idea is that the authorities do not have to demonstrate that a certain impact

will occur. Instead, the mere risk (if not too remote) is to be deemed enough to

warrant protective measures or a ban on the activity. Coupled with this is a rule in

the Act stating that anyone applying for a license must demonstrate the effects of

the activity (Westerlund 1981, p. 231).

The purpose of the Act was in effect to protect public interests, both environmental and

public health. The concept was not really called “precautionary principle” at this stage, but the

core element, that is reversal of proof, was put to legal use.

West Germany

At about the same time, the German government began to develop a less radical version,

Vorsorgungsprinzip, or “cautionary principle”. This variant emerged from the Social Democrat-

Liberal Democrat election victory in 1969, won partially on an environmental platform, as well

as a promise to promote a fairer society. The use of the term precautionary principle was a way

to address both issues, as its implementation led to a move away from economic criteria and all

the legal implications associated with this approach (Wey 1993). With regard to the

environment, the term "Vorsorge" was first applied to environmental legislation in 1970 when

the first draft of the new clean air act stated “dem Enstehen schadlicher Umwelteinwirkungen

vorzubeugen” translated into English as "to prevent the development of harmful effects" (Wey

1993). Interest in the environment was driven not by public pressure but by political reasons.

Researchers argue that Liberal Democrat Hans Dietrich Genscher attempted to seize an

opportunity and establish the party’s environmental credentials (Weidner 1991 p.14). The

government centralised environmental affairs as a federal responsibility and moved it from the

Department of Health to the more powerful Ministry of Interior (BMI), headed by Mr. Genscher

(Boehmer-Christiansen 1994).

Over time, German industry, as well as the conservative political parties, the Christian

Socialist Union (CSU) and Christian Democratic Union (CDU), became more receptive to the

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precautionary principle. One reason for this was that both parties had their power bases in the

prosperous southern regions of Bavaria and Baden-Wurttemberg. These regions had both most of

the country’s forest cover and most of its car manufacturing and nuclear power plants. The link

between Waldsterben (Forest death) and auto emissions created an apparent conflict between the

environment and economic growth. Promoting nuclear power, as an alternative to fossil fuel

power plants, provided a way to reduce pressure on the auto industry.

Ironically, this invocation of the precautionary principle endorsed a technology

surrounded by greater uncertainty than the one it was intended to replace. Nonetheless, it

reflected a conceptual change, advancing a more holistic perspective to investment and R&D

strategies. The new incentives were intended to encourage "ecological modernisation," in which

environmental protection and economic development became mutually reinforcing (Hajer, 1995;

Weale 1992, 1993). They were also designed to stimulate applied industrial research and open

export markets for German environmental technology.

Europe

The precautionary principle was discussed internationally as early as 1982, at the World

Charter for Nature (Sand 2000). However, the first significant use of the concept was in relation

to protecting the North Sea (Fairbrother & Bennett, 1999; Hey, 1991; McIntyre & Mosedale,

1997). As a result, most discussion regarding the precautionary principle has focused on the

marine environment.

Germany played a central role in these deliberations, leading the emerging standard to

reflect its concept of the precautionary principle. At the same time as the precautionary principle

was being implemented in marine policy, Germany was lobbying the European Union to have

the principle adopted as its standard for environmental policy as well. This was part of a drive to

“Germanise” European environmental policy by means of political initiatives at the EU level and

in other international organisations (Boehmer-Christensen and Skea 1991; Sbragia 1996) This

strategy aimed at minimising administrative adjustment costs which were expected to follow

from future European regulations, especially following the passage of the Single European Act

(Heritier et al 1996; Zito 1994). In addition there were competitive, as well as environmental,

concerns (Weale et al 2000). Over time, the German version of the precautionary principle was

increasingly used in European environmental legislation (Jordan, 1998), culminating in its

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inclusion in the 1992 Fifth Environmental Action Program and the 1992 Maastricht Treaty under

Article 174 (Jordan & O'Riordan, 1999).

History of the European Use of Regulatory Impact Analysis

Unlike the precautionary principle, regulatory impact analysis (RIA) came much later to

the EU member states and the EU itself. The European Commission did not establish its

Business Impact Assessment system until 1986, and in the UK although there was some cost

benefit analysis of regulations in the 1980s, termed Compliance Cost Assessments (CCAs) these

were not always consistent or comprehensive. It was not until 1992 that the UK promoted CCAs

as a way to improve regulatory reform. These CCAs were part of the original Deregulation Unit

(later the Better Regulation Unit) within the Cabinet Office and, over time, the system developed

to take into account extensive quantifications, as well as guidance and examinations of possible

options (Deregulation Unit 1996; Better Regulation Unit 1997). In other European member

states, RIA was not made official government policy until the mid 1990s, following the

publication of the Sweden's National Audit Office's Section 14-Impact Assessment Second Draft

(Swedish National Audit Office 1995) and the Dutch Business Effects Test Checklist and Notes

in September 1995 (Dutch Ministry of Economic Affairs 1995). However, RIA gained wider

circulation through the publication of the highly influential 1997 (OECD) report, Regulatory

Impact Analysis: Best Practice in OECD Nations, which put forward the message that RIA was a

useful regulatory philosophy to more accurately measure the costs and benefits of regulation

worldwide. Indeed the editors of the report argued, "RIA encompasses a range of methods aimed

at systematically assessing the negative and positive impacts of proposed and existing

regulations" (OECD 1997 page 7).

Present Use of the Precautionary Principle

The precautionary principle has, to date, been used at both member state and EU level

with mixed results. At member state level, for example, Sweden has been one of its most active

proponents. There, industry has been operating under a strict reversed burden of proof,

“substitution principle” and needs-based regulatory environment since 1969, ensuring that the

country's regulations are on the whole more stringent than those of other European nations

(Löfstedt 2003b). Examples of such legislation include the banning of antifouling paints for

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pleasure boat owners (for a discussion see Löfstedt 2001), the banning of the domestic use of

glysphophosphates (a common weed killer sold under the trade name “Round Up”) and the

proposed banning of all brominated flame retardants (Swedish Department of Environment

2002). Present trends indicate that the use of elements of the precautionary principle will

continue, particularly as the country is proposing to put into place a toxic free environment by

the year 2020, by which time all concentrations of “artificial” chemicals should be at natural

background levels (Löfstedt 2003b; Swedish Government Bill 1998).

At EU level, following its adoption into the Maastricht Treaty (Treaty of the European

Union) under Article 130, and into Article 174 of the Amsterdam Treaty, the precautionary

principle has increasingly been used as a philosophy for regulation. For example, in the period

from 1994 to 1999 the term precautionary principle was referred to in 27 European Parliament

resolutions (Vogel 2002). The most public European use of the precautionary principle has been

associated with high level EU-US trade disputes ranging from European bans on hormones in

beef to genetically modified organisms (Lynch and Vogel 2001; Vogel 1995; 1997; 2002; 2003;

Wiener 2002; Wiener 2003; Wiener and Rogers 2002). These disputes led US business interests

to take the view that elements within the EU were using the precautionary principle for

protectionist purposes. Indeed, the contentiousness of this issue led the DG Environment

Commissioner, Margot Wallström, to state in a recent Washington speech that: "We do not

spend our days in Brussels, as some might think, in Machiavellian plotting to apply precaution to

the detriment of US businesses." (Wallström 2002,p.3)

Partially as a result of the transatlantic trade controversies, the European Commission

saw a need to put forward a so-called communication (an official clarification) on the role of the

precautionary principle in present regulatory policy (European Commission 2000a). This

Communication, highly regarded within European Commission circles, places the precautionary

principle within the existing framework of risk analysis to the displeasure of many

environmental non-governmental organisations (NGOs) including Greenpeace. Indeed according

to the Commission:

“Application of the precautionary principle is part of risk management, where

scientific uncertainty precludes a full assessment of the risk and when decision

makers consider that the chosen level of environmental protection of human,

15

animal and plant health may be in jeopardy” (European Commission 2000a p.13).

The Commission puts forward (European Commission 2000a p.18-20) the following general

principles, which most analysts agree with (e.g.Graham and Hsia 2002) for measures (primarily

prohibitions) applying the precautionary principle:

• Proportionality: "Measures must make it possible to achieve appropriate levels of

protection";

• Non-discrimination: "Comparable situations should not be treated differently and.

different situations should not be treated in the same way";

• Consistency;

• Examination of benefits and costs: "A comparison must be made between the most likely

positive and negative consequences of the envisaged action and those of inaction in terms

of the overall costs to the community;"

• Examination of scientific developments: "Measures should be maintained as long as the

scientific data are inadequate, imprecise, and inconclusive, and as long as the risk is

considered too high to be imposed on society."

Within the document the term "high level of protection" is used repeatedly (see Graham

and Hsia 2002 for a discussion), with the Commission arguing that this is one of the most

important EU-wide policy objectives. Since the publication of this Communication, members in

the Commission and in the Parliament have frequently referred to it when discussing the EU

view on the precautionary principle. For example, Wallström referred to Commission's 2000

communication in the April 2002 speech in Washington when she stated that:

“Our aim (of the communication) was to promote transparency in light of public

concerns stemming from the BSE and dioxin crises and to present broader

understanding of the EU's position on the subject. The Communication establishes

guidelines for the application of the precautionary principle” (Wallström 2002,

p.3).

16

The justification of the use of the precautionary principle has also been highlighted in a

well-publicised report produced by the European Environment Agency entitled Late Lessons

from Early Warnings. The report shows via fourteen case studies that inactions by regulators had

costly and unforeseen consequences for the environment and human health and that, therefore,

neglect and misuse of the precautionary principle should be avoided (EEA 2001). This report,

however, moves away from the Commission's Communication stance concluding that regulators

should:

• Ensure use of "lay" and local knowledge, as well as relevant specialist expertise in the

appraisal;

• Ensure that real world conditions are adequately accounted for in the regulatory

appraisal;

• Take full account of the assumptions and values of different social groups;

• Avoid "paralysis by analysis" by acting to reduce potential harm when there are

reasonable grounds for concern." EEA 2001, p.168-169).

Following the publication of this document, policy makers have frequently referred to it as

justifying the EU use of the precautionary principle (e.g. Schörling 2003).

The question, however, remains whether more recent EU rulings actually abide by EU's

communication. For example, both the EU Chemical White Paper and the recent European

Commission Consultation Document on Chemical Regulation calls for substances that are

persistent, bio-accumulative or known endocrine disrupters to be subject to authorisation, in

effect leading to a general ban on substances deemed very high concern (European Commission

2001f; European Commission 2003e). Similarly, in September 2002, two important legal rulings

by the Court of First Instance (part of the European Court of Justice system) reaffirmed that the

precautionary principle can be justified even without backing from appropriate scientific

committees. The two cases which arose from a 1999 EU regulation banning antibiotic additives

in animal feed (Edqvist and Pedersen 2001), on the basis that bacterial resistance to antibiotics

might be transferred to humans were challenged by Pfizer Animal Health and Alpharma stating

that the ban was based on zero risk and not on a thorough risk assessment. In it’s ruling against

Pfizer, the Court argued that:

17

“When the precautionary principle is applied, the fact that there is scientific

uncertainty and that it is impossible to carry out a full risk assessment in the time

available does not prevent the competent public authority from taking preventive

protective measures if such measures appear essential, regard being had to the

level of risk to human health which the public authority has decided is the critical

threshold above which it is necessary to take preventive measures in respect of the

product.” (European Court of First Instance 2002, p.11)

The court went on to say:

“The Court held above that the Community institutions were not required, for the

purpose of taking preventive action, to wait for the risk to become a reality and

for any adverse effects to materialise.... If the Community institutions were unable

to take any preventive protective measures until such research was completed, the

precautionary principle, the aim of which is to prevent occurrence of any such

adverse effects, would be rendered devoid of purpose” (European Court of First

Instance 2002, p.11).

In addition the Court, invoking the strict reversed burden of proof, argues in its case

against Pfizer that the company is unable to prove conclusively that "there is no link between the

use of virginiamycin as an additive in food stuffs and the development of streptogramin

resistance in humans." (European Court of First Instance 2002, p.11).

In these court rulings the precautionary principle became in effect a law unto itself,

showing that the Commission's earlier 2000 Communication had no necessary bearing on actual

Commission policy. The reason for this was that firstly the use of the precautionary principle in

this case was arguably not part of a risk assessment as such, and secondly, it approved the rulings

even though there was no reputable scientific evidence that there was a transfer of antibiotic

resistance to humans as a result of the use of the antibiotic in animal feed.

18

Present Use of Regulatory Impact Analysis

The present use of RIA grew out of a need for better regulation in the EU and was

addressed in the 2001 Governance White paper, as well as in a communication on sustainable

development (European Commission 2001e,f).9 The use of some form of impact assessment was

also agreed at the Göteborg and Laeken European Councils in 2001 as a necessary step to ensure

both transparency of the regulatory process itself, as well as to help measure the indirect and

direct impacts of the proposed regulation in question (see also EPC 2001; Mandelkern Group on

Better Regulation 2001).

At EU level, the Commission has carried out business impact assessments, as well as put

forward separate impact assessments on environmental effects, health and gender impacts. For

example, impact assessments are used with regard to explanatory memorandums of proposed

regulations that need to be accompanied by a full or partial RIA. These impact analyses appear

as a separate form and are attached to the Explanatory Memorandum itself (European

Commission 2002f). Now the Commission envisions a gradual phasing-in of a revised impact

analysis tool from 2003, and in so doing wants to integrate and replace the previous impact

assessments to broaden the scope of them to include also social and environmental dimensions.

In other words the new impact assessment system integrates and replaces the previous

assessments. And to reflect the sustainable development agenda it puts emphasis on economic,

environmental and social impacts. For example, at the end of October 2002, there was a call for

proposals from DG Enterprise to put forward targeted economic and industrial analyses using in

particular, cost benefit analysis of proposed measures on environmental policy at Community,

national and international levels. The focus of the analysis is the potential impacts of a series of

regulatory or proposed regulatory measures, ranging from climate change policy, recycling and

waste policy, and sustainable development policy on enterprises operating in the EU. In addition

in 2003, the Commission proposes that over 40 proposals will undergo an extended impact

assessment before they are adopted (European Commission 2002h). Because of the growing

interest in regulatory reform and RIA, a number of consulting firms have been established to

cope with increased RIA demand from the Commission. 9 The need for better regulation was primarily driven by past regulatory scandals such as BSE, which was viewed by the European Commissioner for Agriculture, Franz Fischler, at the time as “the biggest crisis the European Union had ever had.” (Southey 1996). Other drivers include the need for European-wide regulatory predictability, in light

19

The EU Better Regulation Package

The biggest development within EU regulation in the past five years was arguably the

multiple communications on Better Regulation made public in June 2002. The communications

that make up the regulation package are as follows:

• COM 275: Communication from the Commission. European Governance: Better

Lawmaking;

• COM 276: Communication from the Commission on Impact Assessment;

• COM 277: Communication from the Commission. Consultation Document: Towards a

reinforced culture of consultation and dialogue-proposal for general principles and

minimum standards for consultation of interested parties by the Commission;

• COM 278: Communication from the Commission: Action Plan “Simplifying and

improving the regulatory environment”.

This package is widely regarded as the Commission’s first major step toward regulatory

simplification, something that is sorely needed in advance of the enlargement of the European

Union (Young and Wallace 2000). Of the communications in question, the one on impact

assessment is, in the view of one Commission official, the “jewel in the crown” of the proposed

EU Better Regulation package (Pedersen 2002).

Following the publication of these communications, some 80 interested parties sent in

their comments (particularly COM 277) and the reaction was on the whole favourable (European

Commission 2002h). For example, the Swedish Government took the view:

The proposal is an important step towards a more open and efficient dialogue with

civil society organisations. Principles and minimum standards can lead to

increased confidence in the EU decision-making process and institutions

(Sweden’s Ministry of Foreign Affairs 2002 page 1).

of regulatory implementation failures (Jordan 1999), and a need to create a single market and remain competitive (e.g. European Commission 2001b, 2002l, 2003a).

20

The EU Committee of the American Chamber of Commerce in Belgium commended "the

commitment of the Commission to ensuring consistency and transparency in the way its

departments operate in their consultation processes." (EU Committee of American Chamber of

Commerce 2002 page 1).

Employers’ organisation UNICE saw the better regulation package as business friendly,

arguing that "the EU must deliver a business-friendly environment in which companies can

operate and compete and adapt to the increasing challenges that globalisation brings." (UNICE

2002 page 1)

Even the European Environmental Bureau, regarded as a champion of the precautionary

principle, saw some positive aspects in the Better Regulation package, particularly with regard to

consultation, taking the view that it should be started as early as possible (EEB 2002, p.2).

The greatest enthusiasm for the Better Regulation package, however, came from the US

Government. It developed an eighteen-page response commending the contents of it, albeit

arguing that the Commission could learn considerably from the work that the Office of

Management and Budget has been doing with regard to regulatory accountability (US

Government 2002), something that G.Majone concurs with (Majone and Everson 2001).

Publicly the Americans have been active in supporting the package as well. Rockwell

Schnabel, the US ambassador to the European Union, for example, has written an opinion

editorial in Wall Street Journal Europe on the benefits of better regulation (Schnabel 2002a) and

has argued publicly that one of his priorities as the Ambassador to the European Union is

regulatory reform (Schnabel 2002b). In addition, Professor John Graham, the Administrator at

the Office of Information and Regulatory Affairs at the Office of Management and Budget, has

also promoted regulatory impact analyses, and in November 2002 participated in a dialogue on

better regulation with five European nations over five days (e.g. Graham 2002).

Criticism of the package has been rather mute. Green politicians and most NGOs are

waiting to see what will occur in the implementation stage, but some politicians such as Inger

Schörling (Green MEP, Sweden) are highly suspicious, seeing it as a threat to the precautionary

principle (Schörling 2002).

21

3. Speculations on the Future of European Regulation

Although the European use of the precautionary principle has clearly dominated both the

political regulatory and academic debate recently (Morris 2000; O'Riordan et al 2001; Sunnstein

2003; Wiener 2003; Wiener and Rogers 2002) it is likely that the use of the principle for the

basis of regulation has peaked. Signs within the Commission indicate that there is little

consensus to further use of the precautionary principle in its strictest form, that is reversed

burden of proof and regulating based on harm rather than on risk. Costs on those regulated (e.g.

industry) may simply be too high. For example, a recent communication from the Commission

argues:

Europe must also develop its entrepreneurial capacity to take risks and grow new and

bigger businesses. Europeans seem too reluctant to bear entrepreneurial risk, too readily

satisfied with limited growth businesses and too reluctant to acknowledge and reward the social

contribution of risk-takers.” (European Commission 2002,l, p.2). Arguably this development is

not plausible if one is operating in a precautionary environment (see Sunnstein 2003 for a

discussion).

Over the past year there has been a split in the Commission between DG Environment

and DG Enterprise regarding how many chemicals should be exempt from the proposed

chemical legislation that is now out for public consultation (Dombey 2002). This legislation,

which is based on reversed burden of proof criteria, as well as on regulating for harm rather than

risk, has been rather problematic as DG Enterprise wants more exemptions and DG Environment

wants less (Dombey 2002). This split is amplified further by the ongoing debate regarding the

legislation between green groups, arguing that in effect the proposed chemical regulations will

yield health benefits that far exceed their costs, while the chemical industry associations remain

concerned about the excessive regulatory burdens for their industrial sector (Firn and Houlder

2003). Such splits with the Commission itself will only further undermine public and stakeholder

credibility in the regulatory process.

However, it should be noted that the precautionary principle is now written into European

law, making it difficult to simply ignore. This is something that some EU observers deeply regret

(Crossick 2002). At the same time, as we saw in section 3.3, the European Justice system is now

22

making rulings on the basis of the principle and there are, and have been, a series of trade

disputes caused by it, both inside and outside the European Union.

However, despite its legal status, there is a marked decrease in the use and mention of the

precautionary principle. The work of the Weinberg group for the European Policy Centre, for

example, shows that in the year 2002, there was a notable decline in the phrase being used in

European documents (Weinberg Group 2003), and in the Better Regulation package itself, the

term precautionary principle was not once used. This latter point is rather interesting considering

the fact that, in the communication on sustainable development in 2001, the precautionary

principle was regarded as an important regulatory philosophy for helping to achieve a sustainable

environment in Europe (European Commission 2001e).

From a governance perspective, this should not be seen as surprising. The precautionary

principle as a regulatory philosophy has been used in effect to help build up public and

stakeholder trust in the regulators. The most obvious example of this was the French Food

Authority’s decision to continue with the British beef ban following the EU decision to lift it.

The French decision, taken just as the embryonic French Food Agency had been formed, led the

agency to go from neutral, or zero, public trust to high public trust virtually over night, as the

public took the view that the agency had the public’s best interest at heart and not industry’s. It

was, in other words, a sure way to gain public trust, important in France as a result of the

continued ramifications of the tainted blood scandal (Vogel 2002). Similarly, the EU’s

precautionary actions ranging from banning hormones in beef, to not introducing genetically

modified crops on a commercial scale in Europe, to imposing hazard rather than risk criteria with

regard to the forthcoming chemical legislation have a great deal to do with credibility. By

showing themselves to be tough in all of these circumstances, the Commission and the other

regulators want to be seen as acting in the best interest of the general public. In so doing they

may be perceived as fair, one of the three components of trust (Renn and Levine 1991), and

thereby ultimately these agencies will, if all goes to plan, regain the public’s trust that they have

lost over the past 10 years.

This strategy is not particularly new. Arguably the US underwent the same crisis of

legitimacy with the same form of strategies in the early 1970s. At that time, the general public

did not trust several of the Federal agencies, most notably the Environmental Protection Agency

(EPA). To counteract this public distrust, the EPA became more transparent by mandating

23

Environmental Impact Analyses, and its newly appointed Administrator, William Ruckelshaus,

put forward a series of stringent measures including tougher fines on industry (Landy et al 1994).

Also most interestingly, the US adopted some precautionary approaches such as passing the

Clean Air and the Clean Water Acts (for a discussion see Löfstedt 2003; Wiener and Rogers

2002).

Arguably, the European Union is undergoing a similar change, albeit 30 years later. To

address this issue of public distrust, European regulators have put forward the precautionary

principle (specifically reversed burden of proof) as one of the main regulatory philosophies.

Once trust is restored, and once regulators see that the costs of precautionary legislation

outweigh the benefits of it (as occurred in the United States) then the popularity of the use of the

precautionary principle in European circles will decline and a more US based model will appear.

The question is, of course, when will this occur? How much precautionary principle legislation

needs to be enacted before regulators, as in the United States, see that the costs of regulation

outweigh the benefits of it? There are already signs that the EU is considering going in this

direction. The recently proposed Better Regulation package is similar to what the US Office of

Management already has in place, and the impact assessment put forward is similar to the US

regulatory impact analysis, albeit with the EU model also incorporating social, gender and

environmental values. Some EU observers take the view that the Commission has already

realised that the regulatory pendulum had swung too far in the precautionary direction and hence

there is a need to adjust it. If that is the case, what will the future of European regulation look

like? It is too early to tell, but the trends are that it will not be much different from the US

model, without the strict adversarial legalistic component (Kagan 1991). Based on that

speculation, it is no wonder that American interests are so enthusiastic about the better regulation

package, as they see it as an opportunity to do away with the irrational and non-scientific

precautionary principle and replace it with a rational, more quantitative risk based approach.

4. Conclusions

In this paper I have reviewed and examined the present state of European regulatory

affairs and offered some speculations on how the future will look. In conclusion one can make

the following observations:

24

The three drivers of present day European regulation, according to the European

Commission, are competitiveness, sustainable development and governance. They were initially

selected as they address Europe’s three primary concerns, namely how to remain competitive in

an increasingly globalised world, how to ensure sustained economic growth, and how to regain

public credibility in the wake of a number of regulatory scandals. They are not necessarily

mutually exclusive and in the Commission’s internal deliberations the three drivers often

converge.

The two primary regulatory philosophies used are the precautionary principle and impact

analysis. To date most of the academic attention has been focused on the precautionary principle,

but I think greater attention needs now to be paid to impact analysis, as the European regulatory

pendulum has begun to shift from the precautionary principle towards regulatory impact

analysis;

One of the primary factors influencing European-wide regulation is public distrust. As

long as there is public distrust in regulatory authorities, strict forms of precautionary-type

legislation may be seen as justified by regulators. However, arguably the regulatory pendulum

may now have shifted too far in the precautionary direction, and, as a result, the Commission, via

its Better Regulation package, has begun to shift the pendulum in the direction of rational risk

management via impact analysis.

25

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