Mutual Recognition as a New Mode of Governance

Susanne Schmidt

• Publisher: Taylor & Francis
• Year: 2013
• Print ISBN: 9780415418539
• eBook ISBN: 9781317969761
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Mutual recognition is generally forgotten in debates about new modes of governance, even though it is a particular powerful example. Its invention was crucial for the completion of the European Union's single market, and in the late 1990s it was transferred to the field of Justice and Home Affairs. Outside of the EU, mutual recognition is also gaining in importance.

This book discusses mutual recognition in the context of the debate on new modes of governance and analyzes its potential to solve governance problems, focusing on the preconditions it needs for its functioning (e.g. trust of the Member states), the positive implications of achieving coordination through it, as well as its negative side effects (e.g. the danger of a regulatory race to the bottom). Particular focus is on the contentious services directive as a prominent example of using mutual recognition. In addition, contributions look at the application of mutual recognition in the market for goods, in the area of Justice and Home Affairs, in tax policy, and in the World Trade Organization, so that the book achieves a comprehensive assessment of mutual recognition as a new mode of governance.

This book was previously published as special issue of the Journal of European Public Policy.

Mutual recognition as a new mode of governance

Susanne K. Schmidt

Introduction

Mutual recognition is generally not mentioned in debates about new modes of governance (Eberlein and Kerwer 2004; Héritier 2003; Scott and Trubek 2002). Yet, mutual recognition is the principle on which the single market is built. Stemming from an innovative interpretation of the freedom to trade goods in the Cassis judgment, it allowed the Community in the late 1980s to push the realization of the single market despite its incapability of agreeing on the harmonization of rules. Due to its novelty – the idea being that goods being marketed according to the regulations of any member state could be marketed in principle in all other member states – the principle of mutual recognition roused significant interest. Analyses were related particularly to the danger of a ‘race to the bottom’ of regulatory standards (regulatory competition), which could occur if products marketed according to lower standards could be sold just as easily as more expensive, higher-standard ones (e.g. Gatsios and Seabright 1989). But as European integration progressed with monetary union, the addition of the second and third pillars, and three enlargement rounds, attention to these issues and the concomitant Treaty negotiations soon diverted interest from mutual recognition and the single market. Therefore, when the debate on the new modes of governance came up in the mid- to late 1990s – particularly in relation to the need for economic policy co-ordination in view of monetary integration – mutual recognition was no longer at the centre of attention. ‘The most important of Europe’s institutional innovations is hardly mentioned any longer in the debates on the so-called “new modes of governance”’ (Joerges and Godt 2005: 95).

Why reconsider the principle of mutual recognition? Here it is useful to start by returning to the underlying distinction between government and governance. While the former implicates the potential for hierarchical steering, the discussion about the latter gained ground with the realization of how little gains from co-ordination and co-operation can be assured on an exclusive hierarchical basis. Domestically, states rely on the co-operation of various associations and other non-state actors (policy networks). Internationally, ‘governance without government’ (Rosenau and Czempiel 1992) exposes the need for non-hierarchical solutions to co-ordination and co-operation needs. Mayntz points to three distinct uses of the term. Originally, governance was equated with governing. Then the term was ‘used to indicate a new mode of governing that is distinct from the hierarchical control model, a more cooperative mode where state and non-state actors participate in mixed public–private networks’ (Mayntz 1998: 8). Governance now refers to different forms of social co-ordination, going back to Williamson’s analysis of markets and hierarchies, and the extension of his typology to include other forms of co-ordination (Williamson 1985).

As with the definition of governance, there is little agreement as to what ‘new’ modes of governance (NMG) are. New modes of governance, to start, are those that allow for the provision of governance functions in an innovative, but not yet established, way. Authors who attempt to positively characterize NMG generally emphasize that these new modes achieve governance functions in a less binding way (voluntariness), drawing in a wide range of relevant actors (inclusion). Thus, the legitimacy and effectiveness of political decisions is thought to be enhanced (Héritier 2003: 106). Topics much studied in the context of the debate on NMG are the open method of co-ordination (OMC), comitology, and independent regulatory authorities. Apparently, there is difficulty in distinguishing new modes of governance from governance. Moreover, while OMC has been new for the European Union (EU) and has proliferated into several policy fields, the way member states co-ordinate their policies via OMC is most similar to the non-binding co-ordination achieved in other international regimes such as the Organization for Economic Co-operation and Development (OECD) or the International Monetary Fund (IMF) (Schäfer 2006). Similarly, independent regulatory authorities have been new in the context of the EU but are established in the US.

‘New’ seems to relate as much to the context of where a particular mode of governance is brought to bear as to the mode itself and its true novelty.¹ Rather than attempting a positive definition of NMG which aims at delineating its features, several authors therefore prefer a negative definition, defining NMG in the EU as deviating from the classic Community method (i.e. the adoption of directives and regulations by the Council and the Parliament based on proposals from the Commission) (Eberlein and Kerwer 2004: 122; Scott and Trubek 2002: 1, 5). This definition makes it possible to take into account all ‘new’ forms, without limiting the analysis because of previous alternative definitions (e.g. no legal measure or the inclusion of private actors as a precondition) (Eberlein and Kerwer 2004: 136).

We do not need to decide whether it is sensible to speak of new modes of governance or simply of governance modes. Mutual recognition, it is apparent, could be seen to be just as new as other examples studied, such as the OMC, comitology, and independent regulatory authorities. While the principle of mutual recognition originally surfaced in the early 1980s with moves to complete the single market, in the late 1990s it was also transferred to the field of justice and home affairs. Outside of the EU, mutual recognition has gained in importance, especially within the World Trade Organization (WTO) but also in other trading blocks. Considering the other characteristics of NMG, how does mutual recognition relate to them?

If we look at the inclusion of a broad range of actors, mutual recognition typically works when actors (such as companies and professionals) offer their goods and services abroad. They need to actively take up their rights under mutual recognition, and act under the assumption that the regulations they abide by are deemed to be equivalent. Thus, as far as mutual recognition provides governance functions, it is due to the extent to which multiple actors act according to the principle. If mutual recognition is not used, it cannot function. Moreover, private actors also seem to play a role in the control of the equivalence of regulations. Established companies in a market have an interest in monitoring the entrance of differently regulated competitors well, and are willing to claim non-equivalence if reasonable.²

If we turn to voluntariness, the case law of the European Court of Justice (ECJ) requires member states to accept equivalent products of other member states. However, the extent to which equivalence exists is not clearly defined or easily established. In their assessment of equivalence, actors have much leeway, with the ECJ being the final arbiter. For the member states, it is not acceptable to simply let any goods or services which are marketed anywhere into their markets. In his article in this volume, Trachtman (2007: 785) calls this ‘rootless recognition’. There is a restriction on equivalent products. Member states retain the right to restrict free trade. The need for exceptions quickly becomes clear when we think of products that, when traded, have particular political implications. Thus, without exemption, the Netherlands could export their liberal drug policy, as it would be possible to sell everything sold on Dutch markets in the Community. Of course, this is an extreme example. As member states remain politically responsible for the products traded in their territory, there are many other instances where clarity is lacking, regarding whether or not products meet the equivalence condition with possible consequences for health, the environment or other important societal goals. In his contribution to this issue, Pelkmans (2007) elucidates how difficult it is to bring mutual recognition to work.

Because of the inherently uncertain nature of where equivalence starts and where it stops, Weiler, for instance, deems mutual recognition inappropriate for building the single market (Weiler 1999: 367f.). Although there is an apparent need for exceptions, in fact, it is also clear that there is a fine line between legitimate exceptions and protectionism. Despite the obligation for mutual recognition stemming from the interpretation of the basic freedoms by the ECJ, mutual recognition therefore has more voluntary aspects than other forms of hard law.

Mutual recognition also embodies many of the claimed benefits of NMG compared to ‘old’ modes of governance, such as the Community method. Mutual recognition allows for more flexibility, for decentralization, and increased public–private co-operation, all of which are features claimed for NMG thought to improve policy output and compliance, in addition to increasing legitimacy (cf. Kohler-Koch 2005: 14). Thus, mutual recognition may be said ‘to realize common concerns while accommodating diversity and respecting the institutional integrity and political autonomy of its Member States in all matters where uniformity and centralization are not necessary or not possible’ (Scharpf 2001: 13), which are aspects Scharpf relates to NMG.

There is yet another reason to link mutual recognition to the debate about NMG, irrespective of how convincing its voluntariness and broad inclusion of actors is. If we think of governance as responding to the limits of hierarchical government, mutual recognition is an important alternative. Instead of agreeing on a common regulatory solution, governments agree on a patchwork of equivalent national rules. It is only by focusing on this alternative to hierarchy that the growing transnational activities of national administrations become a focus of analysis. Their relevance is increasingly being analysed on an international level (Raustiala 2002; Slaughter 2004). Within the more deeply institutionalized multi-level system of the EU, these horizontal forms of governance play an even larger role.

If this special issue is about mutual recognition as a new mode of governance, then the idea is not to prove how far mutual recognition meets the criteria of inclusion and voluntariness, or whether efficiency and legitimacy are really enhanced by it, as is claimed for other NMG. As mentioned, ‘newness’ is a tricky attribute of NMG. Rather, the idea is to take a broader approach to NMG as innovative means of providing governance functions. Instead of trying to establish criteria for categorizing NMG, mutual recognition is taken as a – comparatively new – mode of governance, and the goal is to analyse its potential to solve governance problems. The questions asked aim at an assessment of the way mutual recognition may provide governance functions, including the preconditions it needs for its functioning (e.g. trust of the member states, (Majone 1994: 75, 83)), the positive implications of achieving co-ordination through it, as well as its negative side effects (e.g. the danger of a regulatory race to the bottom). In order to provide for such an assessment, the articles in this volume look at the application of mutual recognition in different areas: in the market for goods (Pelkmans 2007) and services (Nicolaïdis and Schmidt 2007; Kostoris Padoa Schioppa 2007), in the area of justice and home affairs (Lavenex 2007), in tax policy (Genschel 2007), and in the WTO (Trachtman 2007) as well as linking the concept to other forms of recognition in international relations, political philosophy, and international political economy (Nicolaïdis 2007). Before introducing the different contributions, I turn to the concept of mutual recognition in greater detail, in order to provide for an initial understanding of its features.

Governance through Mutual Recognition

Mutual recognition allows for the integration of previously distinct markets. This is how the principle is used in the context of the single market (or in other trading blocks). Markets, which are constituted by specific regulations for goods, services or professions, and thereby held distinct, can be integrated through mutual recognition. Mutual recognition thus can act as an alternative to harmonization, which depends on the classic Community method and had been the way to integrate the common market before the turn to mutual recognition. But not only markets can be integrated in this way. The decision to implement mutual recognition in JHA, for instance with the European arrest warrant, is an attempt to integrate potentially all areas marked by different regulations, including core areas of statehood. To approach the issue of how mutual recognition works, and in which policy fields it is an option, it seems best to compare it to the existing alternatives for treating diversity. These alternatives consist of, on the one hand, harmonization, where diversity is overcome by finding a common denominator. On the other hand, diversity can be dealt with by agreeing on the use of the rules of the country where the activity takes place – that is, national treatment or host-country control, compared to home-country control under mutual recognition.

Dealing with diversity: national treatment, harmonization, and mutual recognition

The simplest approach to market integration is national treatment (non-discrimination) (cf. Nicolaïdis and Shaffer 2005: 7–15; Maduro 1998: 101–49; Armstrong 2002: 229). Member states open their borders to goods and services of foreign origin, if the providers of these comply with the rules of the host country. The only obligation, then, is not to discriminate against foreign products. This approach leaves the sovereignty of the host country intact. It is responsible for market regulation. Companies, however, are burdened with significant costs of adaptation, with the need to comply with different national rules wherever they are selling their products. This approach establishes the primate of political control. Possible trade benefits are forgone by burdening costs on business, but member states keep their regulatory control over markets.

Under national treatment markets remain separated by different regulations. However, it should be noted that this is the approach largely followed in the United States (Maduro 1998: 143). With harmonization, diversity can be overcome. Regulatory obligations are harmonized ex ante. This, however, imposes significant negotiation costs on governments. A vertical transfer of sovereignty results at the supranational level. Once regulations of a sector have been harmonized, member states are no longer free to alter them unilaterally. They can only enact new regulatory goals by starting supranational negotiations again. This is another cost of integrating markets to such an extent. As a result, companies do not face additional adaptation costs when targeting the markets of other member states. Ideally, co-operation in harmonization allows for the balancing of the possible benefits of trade with the political interest in regulation. Trade is no longer hindered by the need of companies to fulfil different regulatory obligations, which may just as well be alternative solutions to the same regulatory problem.

Finally, markets can be integrated via mutual recognition. At the lowest level is the assumption that member states’ regulations do present alternative solutions to the same underlying problem. By being lawfully marketed in one member state, products may also enter the markets of other member states. Thus, member states do not need to face the bargaining costs of ex-ante harmonization, nor do companies need to face the adaptation costs of having to comply with different national standards. Regulation falls exclusively under the responsibility of the home state. Home-state control, however, implies a horizontal transfer of sovereignty (Nicolaïdis 1993: 490–93). Member states can no longer guarantee a certain level of regulation of products marketed to their nationals as these regulations are being determined by other countries. The previous unity of territory, legitimation and the setting of rules is broken up. Governments have to trust other member states to regulate and control their companies sufficiently. Subsequently, we can see that mutual recognition is quite a demanding principle of market integration. While it promises to realize the gains of trade without levying particular ex-ante costs on governments (such as ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• 1 Mutual recognition as a new mode of governance
• 2 Trusting the Poles? Constructing Europe through mutual recognition
• 3 Mutual recognition in goods. On promises and disillusions
• 4 Mutual recognition ‘on trial’: the long road to services liberalization
• 5 Dominant losers: a comment on the services directive from an economic perspective
• 6 Why no mutual recognition of VAT? Regulation, taxation and the integration of the EU’s internal market for goods
• 7 Mutual recognition and the monopoly of force: limits of the single market analogy
• 8 Embedding mutual recognition at the WTO
• 9 Mutual recognition: comparing policy areas
• 10 So close and yet so far: the paradoxes of mutual recognition
• Index