GOOD GOVERNANCE AND ADMINISTRATIVE DISCRETION Constantine Stephanou Jean Monnet Professor of European Institutions, Department of International &

European Studies Panteion University, Athens Outline Overview: Policies for ensuring good governance 1. Ensuring effective governance 1.1.Ensuring effective policy making 1.2.Ensuring effective policy implementation 2. Ensuring fair governance and respect for the general principles of law 2.1. Principle of legality 2.2. Principle of adequate reasoning 2.3. Principle of equality 2.4. Principle of proportionality 2.5. Principles of legal certainty and protection of legitimate expectations 3. Strengthening the means of redress of grievances 4. Entrusting administrative tasks to independent agencies Concluding remarks ***** Overview: Policies for ensuring good governance The exercise of discretionary power by the administration when it performs regulatory or implementation tasks may be necessary, and sometimes politically expedient. It may, however, undermine business confidence and, more generally, citizens allegiance to the political system. It is not therefore surprising that many governments are implementing policies for reducing or

eliminating administrative discretion. These policies are briefly examined in the present paper. They may be summarised as follows: Ensuring effective governance; Ensuring fair governance and respect for the general principles of law; Strengthening the means of redress of grievances; Entrusting regulatory tasks to independent agencies.

1. Ensuring effective governance 1.1. Ensuring effective policy making The OECD Council has adopted in 1995 a Recommendation on Improving the Quality of Government Regulation ; see also, OECD (1997), Regulatory Impact Analysis: Best Practices in OECD Countries and OECD (1997), Regulatory Quality and Public Sector Reform. In the aforementioned recommendation the OECD calls upon its member states to conduct regulatory impact analyses in order to make sure that proposed regulations are suitable for achieving the stated policy goals. Among the questions included in the OECD checklist, the most central is whether regulation is the best form of government action. The compatibility of regulation with the operation of markets is a hotly debated issue. It has been correctly pointed out that regulation, at the very least, must serve the ends, not only of limiting monopoly power, but also of creating and policing the conditions for effective competition - to regulate markets into existence, so to speak (Lewis, 2001, p. 151). In the UK, assessment of compliance costs to business of new regulatory initiatives has been common practice in the administration, although it was heralded as an important element of administrative reform in the 1990s

(Dunsire & Hood 2000, pp. 80-81). Interestingly, the UK conservative government invoked very large compliance costs for business in order to opt out of EU social policy. On the other hand, Dunsire & Hood (2000, p. 91) argue that it may be desirable to use the potent market mechanism to further non-economic policies. Thus, taxation of commodities and services not to raise revenue but to alter costs (and so prices) differentially and affect consumption patterns (high taxes on tobacco, low taxes on diesel fuel, carbon tax for environmental ends - are examples of social engineering via the market place. Alternative forms of government action, such as incentives, are increasingly considered as appropriate means for achieving public policy goals. Thus for example, eligible for government procurement contracts are firms which comply not only with technical and financial criteria but also with standards of environmental performance. Furthermore, the doctrine of subsidiarity of the State provides the philosophical underpinning for entrusting responsibilities to stakeholders. The classical example relates to the regulation of the labour market by the social partners, with or without State involvement. In the EU, the Commission may initiate legislation following the failure of the social partners to reach an agreement. Moreover, social partners may be involved in the implementation stage. In other areas of market regulation the current trend towards associative or participatory democracy requires the administration to explore alternatives such as self-regulation, co-regulation, bargained administration. Self-regulation: Most examples stem from British practice. Nevertheless, in the area of financial services self-regulation has been replaced by coregulation since the entry into force of the Financial Services Act.

Co-regulation: The regulator sets mandatory rules and stakeholders set professional standards and rules by means of codes of conduct. Bargained administration: Prices of pharmaceuticals are usually negotiated between the national health or social insurance bodies and the pharmaceutical industry. The aforementioned examples of stakeholder involvement tend to

demonstrate that the traditional model of representative democracy is not any more perceived as the unique mode of governance by the people and that forms of associative democracy involving the participation of stakeholders are being increasingly experimented with in European countries.

1.2. Ensuring effective policy implementation Effective policy implementation is impossible without institutions and mechanisms ensuring fairness and openness. Moreover, one of the main causes of maladministration is the complexity of the regulatory environment and the inconsistency of regulations. In order to avoid problems at the implementation stage, regulators should clarify to what extent preexisting legislation is repealed by new legislation and should include transitional arrangements for pending administrative procedures. The EU and most member States have undertaken efforts aimed at the simplification and codification of substantive rules, as well as procedures for granting approvals, permits etc.

2. Ensuring fair governance and respect for the general principles of law 2.1. Principle of legality The principle of legality requires the administration to act on the basis of parliamentary / statutory authority. The application of this principle differs

among European states. In Germany and other European countries, if there is no statutory basis the administration may not take decisions which affect human rights and freedoms or impose burdens. In France and the UK there are exceptions to the principle: In France the administration holds an autonomous regulatory power in some areas and in the UK a similar power stems from the royal prerogative. Nevertheless, both countries now accept the direct application and supremacy of the European Convention on Human Rights and the additional protocols in their domestic legal order.

2.2. Principle of adequate reasoning Adequate reasoning by the administration is a prerequisite for the legality of administrative acts. In EU law the requirement is limited as regards acts of regulatory nature and extensive as regards acts addressed to individuals (Molinier, 2000, pp. 88-89).

2.3. Principle of equality Seen in positive terms, the principle of equality requires that comparable situations must me treated in the same manner, unless there are objective grounds which justify a difference in treatment. In the field of economic law comparability between firms exists when their competitive positions in the relevant market are comparable. The principle of equality is related to the principle of adequate reasoning. Indeed, seen in negative terms, the principle of equality requires the administration to justify differential treatment. Thus, in case C-167/88 (Association of wheat producers etc. ) the Court established that the power conferred on the Commission to adopt differential intervention measures for market support, on the basis of prevailing market conditions in the various Community regions, did not discriminate between producers. The Council had used an objective criterion for allowing differential treatment.

Under continental legal systems the administration has to demonstrate a substantive justification for differential treatment, whereas under English law the decision must be one which a reasonable authority might take. In the aforementioned case of the Wheat producers association, the Court also found that in the exercise of its discretionary power, the Commission had not committed a manifest error of appreciation. The test of manifest error of appreciation stemming from French administrative law is applied in many systems of administrative law, including the EU system.

2.4. Principle of proportionality The principle of proportionality requires that action undertaken by the administration must be proportionate to its objectives. Whether administrative action is suitable and necessary is primarily a matter of policy rather than a question of law. Thus, when Courts are confronted with regulations involving economic policy choices, they defer to the expertise of the administration, exercising only marginal review (Tridimas, 1999, p. 95). Typical of this approach is the way in which the principle of proportionality is applied by the European Court of Justice. In the Fedesa case (C-331/88) the Court held that the lawfulness of the prohibition of an economic activity is subject to the condition that the prohibitory measures are appropriate and necessary in order to achieve the objectives legitimately pursued by the legislation. Where there is a choice between several appropriate measures, recourse must be had to the least onerous and the disadvantages caused must not be disproportionate to the aim pursued. In the same case, however, the Court established what is known as the manifestly inappropriate test, stating inter alia that in matters concerning the common agricultural policy the Community legislature has a discretionary power which corresponds to the political responsibilities given to it by Article

40 (now 34) and 43 (now 37) of the Treaty. Consequently, the legality of a measure adopted in that sphere can be affected only if the measure is manifestly inappropriate having regard to the objective which the competent institution is seeking to pursue The test of manifest inappropriateness was also applied in cases C-296/87 (Schrader) and C-8/89 (Zardi) regarding the validity of measures imposing financial burdens on market operators. Moreover, the Court of First Instance and the Court of Justice respectively admitted that in the realm of common trade policy the Community regulator was bestowed with discretionary power which corresponded to its political responsibilities. The Courts confirmed that the relevant measures, i.e. antidumping duties (case T-162/94, NMB / Commission) and quotas on imported goods (case C-150/94, UK / Council), could be repealed if it was proven that they were manifestly inappropriate for achieving the respective goals. Finally, it should be noted that the test of manifest inappropriateness stems from the French administrative law doctrine of misuse of power (dtournement du pouvoir). Actually, article 230 of the EC Treaty includes the misuse of powers among the grounds for judicial review. 2.5. Principles of legal certainty and protection of legitimate

expectations As pointed out by Tridimas (2000, pp. 162-3), respect for legitimate expectations as a principle of law is particularly developed in French and German jurisprudence - and the jurisprudence of the European Court of Justice, whereas English courts are reluctant to accept legitimate expectations as an independent ground of review. The principle imposes strict limitations on the retroactive application of public law, including an absolute prohibition on retroactive taxation.

3. Strengthening the means of redress of grievances

European countries have established administrative courts for hearing actions for annulment of administrative acts. Moreover, some European countries have established Constitutional Courts for hearing actions for annulment of parliamentary statutes. In the area of European Community Law, article 230 4 th indent of the EC Treaty provides that any natural or legal person may, under the same conditions, institute proceedings against a decision addressed to that person or against a decision which, although in the form of a regulation or a decision addressed to another person, is of direct and individual concern to the former. In 1988 the Court of First Instance was entrusted with individual appeals against Community institutions. The Court has been a very active defender of the rule of law. It has sometimes, however, been accused of substituting itself to the Community administration by blurring the distinction between legality and expediency of administrative acts (for a review of case law and doctrine see Molinier, 2000, pp. 94-98). Of increasing importance to the citizen are the non-judicial means of redress of grievances. In most European countries citizens can appeal to the Minister in charge of the relevant Department or the Board of the State entity concerned. Many countries appoint inspectors or commissioners for combating maladministration. In the UK a Parliamentary Commissioner for Administration is appointed from outside the civil service. In recent times, however, most European countries have established independent Ombudsmen who intervene to redress maladministration on behalf of affected citizens. The institution is increasingly popular and often fragmented. Thus, at the latest count there were 25 ombudsmen in the UK. Moreover, a European Ombudsman has been established in accordance with article 195 EC Treaty, with the task of dealing with instances of maladministration in the activity of Community institutions or bodies, with the exception of the Court of Justice and the Court of First Instance acting in their judicial role.

Finally, many countries have adopted citizens charters setting out standards of conduct for the administration and means of redress for the citizens. The UK Citizens Charter adopted by the conservative government in 1991, has served as a model for similar charters adopted in other countries. Typical provisions of citizens charters are: - Commitments to prompt action, expressed in target response dates for correspondence, target maximum waiting time or delivery time; - Information as to what channels of complaint and redress of grievances were available; - Information as to what forms of compensation would be payable when published targets were not met. Dunsire & Hood (2000, p. 84) have pointed out that the use of the word citizen is a misnomer: the charters are for the customer, not the citizen. The view seems correct in the case of firms entrusted with the provision of services of general economic interest (utilities).

4. Entrusting administrative tasks to independent agencies The current trend towards the delegation of regulatory tasks to independent agencies is mainly related to the lack of technical expertise in the administrations. The prominent cases are those of competition authorities and agencies involved in consumer safety - in areas such as food and drugs (pharmaceuticals). Apart from technical expertise, independence from political authorities has been a determining factor in setting up various national authorities entrusted with the licensing and supervision of service providers. Thus, the independence of the regulator is deemed to be a condition for ensuring competition and pluralism in the provision of audiovisual services. Similarly, the independence of the European System of Central Banks is critical for achieving the goal of price stability. As pointed out by Majone & Everson (2000, p. 133), the point of isolating regulators from the political process is to enhance the credibility of the

regulatory commitments. The head of an independent agency will, normally, attach more importance to the agencys statutory objectives than the government, parliament or average voter. In designing an agency, the following institutional choices have to be made (See Horn, 1995): 1. The extent to which decisions are delegated to the agency rather than taken by the principals themselves. Thus, for example, EU policy-makers were confronted with this dilemma when they established the European Agency for the Evaluation of Medicinal Products. They decided that the European Commission would approve the products in the framework of the regulatory committee involving representatives of member states, subject to an expert opinion from the aforementioned agency. 2. The degree of independence of agency directors from their principals. Thus for example, the members of the Executive Committee of the European Central Bank are appointed for eight years and their mandate is not renewable. In some European countries agency directors are appointed by parliamentary committees deciding by unanimity or qualified majority.

3. The degree of participation of stakeholders. To what extent should, for example, universities and business interests be represented in a science foundation or a research council ? 4. The extent of parliamentary or judicial oversight. In the case, for example, of the European Central Bank, oversight by the European Parliament is extremely limited.

Concluding remarks Good governance is not antithetical by definition to administrative discretion. There are various means for achieving public policy goals, while also ensuring fair governance. There are situations, however, where requirements of technical expertise and political credibility justify the establishment of independent regulatory agencies.

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Molinier, J. (2000), Le contrle juridictionnel et ses limites: A propos du pouvoir discrtionnaire des institutions communautaires , in Rideau J. (dir.) De la Communaut de droit l Union de droit. Continuits et avatars europens, Paris, LGDJ (coll. IDPD, Nice), pp. 77-98. Tridimas, T. (1999), The general principles of EC law, Oxford, Oxford U.P.