What is ‘instrumental usage’ of soft law and why does it matter?
At the hand of a case study in the telecom sector, this blogpost maintains that soft laws can erode the principles of accountability and vertical division of powers when used instrumentally/strategically by enforcers. An example of such strategic use will be the instance when, due to its ineffectiveness, a soft law instrument is converted/leveraged into hard law. The working definition of instrumental use coined by this author is as follows: deploying soft law in order to obtain enforcement outcomes that are consistent with an enforcer’s own vision of the ‘correct’ modus operandi of EU (utility) regulation (and away from public interest/public good considerations).
Soft laws are ‘rules of conduct which, in principle, have no legally binding force but which nevertheless may have practical effects’. They also can produce legal effects through – for instance – judicial interpretation, which makes them close to binding for their addressees. While it has been argued that the near-bindingness of EU soft law, combined with the strong position of one of its issuers (the European Commission), can put a strain on democratic values such as accountability and vertical division of powers (Art. 5 TEU), the precise mechanism driving this interaction is less well researched, especially in utilities regulation. This blogpost argues that one mechanism through which these values can get eroded is instrumental usage of soft law.
Acting instrumentally is consistent with the predictions of the public choice school of regulation but has not been explicitly put forward in legal literature as a mechanism through which soft law can erode democratic values (though strategic use has been suggested here). It is important to underscore this point also because – although not lacking critical stances – much of the theory on soft law focuses on its inclusive, flexible and problem-solving nature. Also, telecom regulation commentators are rather positive regarding the ability of sector-specific soft instruments to contribute to democratic values, such as legal certainty. Although these considerations are certainly legitimate, one should also remain vigilant of the fact that enforcement through soft means can be a double-edged sword, as demonstrated by the case study hereunder.
A case-in-point from telecom regulation – the Dutch ‘OPTA saga’ (2011– 2023)
The ‘OPTA saga’ is a regulatory case in the Dutch telecom sector, spanning over a decade, and finally put to rest in September 2023. The case concerns the interpretation of the 2009 European Commission Recommendation on the regulatory treatment of fixed and mobile termination rates in the EU (the 2009 recommendation). Termination rates are fees that telecom service providers charge each other to service (and terminate) on their network calls originating on the networks of competitor providers. For instance, KPN charges a fee for terminating a call on its own network that originated on Vodafone’s network. That fee is paid by Vodafone and calculated through the methodology provided for in the recommendation.
In August 2011, the Dutch Trade and Industry Appeals Tribunal (CBb) quashed a decision of the OPTA (the former Dutch Telecom Regulator, now ACM) whereby the regulator chose to adopt an approach for setting call termination rates suggested by the 2009 recommendation. The Tribunal reasoned that although there was an EU law-based obligation of ‘taking utmost account of’ the recommendation, this did not prevent the national regulator from endorsing a different approach. It added that was also because of the recommendation’s non-bindingness. Since the Tribunal is a last appellate instance in the Netherlands, its pronouncement was final. To comply with it, in January 2012, OPTA changed its calculation methodology, away from the 2009 recommendation’s prescription. The judgment raised scholarly criticism – it was considered against the principle of loyal cooperation (Article 4.3 TEU) and hinted at a disturbed (vertical) balance of powers (Art. 5 TEU). The Commission, using its powers under the (then-in-force) Electronic Communications (Framework) Directive, expressed doubts about OPTA’s January 2012 decision and urged the authority to comply with the 2009 recommendation, in opposition to CBb’s judgment. OPTA was thus in an uncomfortable position between a binding national judgment and a non-binding but imperatively worded EU recommendation and decided to put the issue to rest by not responding to the Commission’s doubts within the respective deadlines.
Alas, the story repeated itself in the new regulatory period (2013) when the successor of OPTA – the ACM – issued a decision setting the new call termination rates, applying the 2009 recommendation’s methodology again. This decision was appealed all the way to the ECJ because the ACM argued that endorsing a methodology different from that suggested in the recommendation would risk partitioning the internal market for call termination services. The ECJ was thus asked about the extent to which the national judge can give a ruling contradicting the 2009 recommendation. In its 2016 answer, the ECJ held that the space for deviation was narrow. Deviation is possible only when ‘this is required on grounds related to the facts of the individual case, in particular the specific characteristics of the market of the Member State in question.’
Despite this decision, while the ACM repeatedly chose to follow the 2009 recommendation, the CBb (reluctantly) gave way to the ECJ’s interpretation, while Germany and Italy chose deliberate non-compliance. These developments allowed the Commission to use the trump card of harmonization and strategically proceed to adoption of a hard law act in the place of the 2009 recommendation, despite national resistance. Coincidentally, this was also the moment when the new EU framework for electronic communications was being negotiated. In 2018, the old framework was overhauled to better reflect evolving technological developments – the European Electronic Communications Code (EECC) entered into force and literally absorbed the 2009 recommendation. Under Article 75(1) of the Code, the Commission adopted a hard non-legislative act – a delegated regulation – in order to set EU-wide fixed termination rates. In this way, flexibility was excluded, and the Commission’s preferred call-termination-setting methodology was endorsed. The Commission also adopted a 2020 recommendation accompanying the delegated regulation, excluding ex-ante call termination rate setting at national level.
This (soft law-based) rule stood firm ground in a 2023 Dutch court ruling where it was held that the ACM had no right to regulate termination rates because the European Commission no longer qualifies the market for call termination as a market for ‘ex ante’ regulation. As argued by commentators, although this is a national judgment, it will have repercussions across the EU, disempowering all national telecom regulators. One can argue that the judgment also puts the last nail in the coffin of the decade-long OPTA saga, but also begs new questions. What about already adopted termination rate-setting decisions that currently apply to telecom providers at national level? Are they null and void under the 2020 recommendation and delegated regulation? What does this situation imply for legal certainty and does the use of soft law (the 2020 recommendation) not detract from this principle? While the answers to these questions are to unfold in the future, in what follows, we reflect on what current conclusions could be drawn from the OPTA saga.
Implications for vertical division of powers and accountability
Regarding vertical division of powers, it is useful to reflect on a statement of one of the respondents to the public consultation to the delegated regulation: ‘By using the legal instrument of a regulation, the Commission avoids the necessity for national implementation.’ Indeed, this approach allows for a permanent solution to the above-described (vertical and horizontal) differences in views regarding rate-setting, by sealing the Commission’s preferred methodology in a non-legislative hard law without an option for NRAs to regulate on the matter unless special circumstances apply (see Art 67(1) and 61(2) EECC). About 10% of the 68 respondents of the abovementioned public consultation expressed worries regarding the legal uncertainty that relieving authorities from setting termination rates would imply, while about a quarter complained that the termination rates as proposed in the delegated regulation were set too low. Although a transitional/gliding scale approach for implementing of the rates applies, it is a fact that a significant amount of decision-making power on an important issue for national telecom markets is now in supranational hands. This development tilts the vertical balance of power between Member States and the Commission in favor of the latter and will likely be subject to a re-assessment at the 5-year review of the delegated regulation, also because some commentators argue that Article 75 EECC as a legal basis for the delegated regulation does not empower the Commission to relieve NRAs from their decision-making powers on termination rates in the way it did.
Another point to wonder about, given that Art. 75 EECC does not specify the type of delegated act the Commission should adopt under it, is whether the instrument of delegated directive would not have been a more astute choice. The reason for this is that a delegated directive is more flexible and allows for implementation by Member States, as well as being closer to the (original) soft law recommendation in terms of flexibility. Given that there was long-term resistance towards the Commission’s policy line on termination rates by key Member States such as Italy, Germany and the Netherlands, as well as criticism of costing methodologies in the above-discussed public consultation, more heed could have been paid to these voices in line with the principle of accountability. Also, the jump from a (mere) soft law recommendation to a (delegated) regulation is rather significant and could have been further justified in the Staff Working Document to the delegated regulation. Specifically, a deeper cost-benefit assessment could have been performed between the need for uniformity of termination rates (justification for using a regulation) and the need for the continued ability of national regulators to set these (justification for using a directive).
The above is not to say that converting a soft law instrument into hard law is always problematic – this is an often-observed phenomenon, when sufficient experience and consensus has accumulated around a certain soft law norm. However, in the case of call termination rates, the opposite was true – instead of consensus, there was conflict. Additionally, it does matter what type of hard law the soft law instrument will be converted into. To this effect, an enforcer always considers whether going for more intrusive hard law solutions is truly necessary/proportionate. These points could have been elaborated on even further when the Commission was justifying its choice of a delegated instrument under Article 75 EECC. Both from an accountability and vertical division of powers perspective, this would have been desirable.