When EU laws are passed the Commission puts on its hat as 'Guardian of the Treaties' and makes sure that the laws are implemented according to the original intentions. It may take countries or organisations to the European Court of Justice (ECJ) in order to get a legal determination of an issue. The ECJ is an institution with a growing role and importance and is beginning to have a significant impact on national laws through its interpretations. United Kingdom 'Eurosceptics' want its powers curtailed or even abolished because some of its decisions on social legislation and fishing have upset the UK government. The political argument about the ECJ disguises the more important discussion of the relationship between national laws and EU law. So far the ECJ has established the principle, as did the USA Supreme Court in the relationship of Federal and State laws, that national laws must be subordinate to EU law. Incidentally, you should not confuse, as does the UK media from time to time, the European Court of Justice with the European Court of Human Rights whose decisions also annoy Little Englanders.

Subsidiarity

There are several interpretations of this term but, essentially, it means that action should be taken in the EU at the most appropriate level, whether it be at community or national or even regional level. The concept is increasingly applied to European Union decision making. The United Kingdom tends to interpret and advocate it as a way of restraining the growth of the Union's federalist tendency but the idea does work both ways. There are, for example, many occasions when joint action by all members is desirable and more effective.

1.3   The Budget and Finance

The annual budget of the EU (technically of the European Community) is fixed by the Council of Ministers and the European Parliament by a process called 'the shuttle' which begins in June when a preliminary draft budget is published. From this preliminary effort the Council draws up a proper draft budget in July which goes to the Parliament for its first reading in October. It returns to the Council which gives it its own second and final reading in November. When the Council has finished with it the budget goes again to the Parliament for its second reading and final adoption, usually in mid-December.

Some of the expenditure allowed for in the budget is designated as compul­sory expenditure which is defined as such on the basis of whether it results from the European Community Treaty and from acts adopted in accordance with it. The Council has the final say on this type of spending, most of which is agricultural or about half the budget. The Parliament has the final say on most of the remaining expenditure. There is usually some wrangling between the Parliament and the Council over amendments proposed by the Parliament which almost always wants to raise spending.

The annual budget is set up within a framework called The Financial Perspective which is a plan incorporating the four years ahead with ceilings laid down for expenditure on the six main categories within the budget. The 1995 budget, for example, included agriculture, structural actions, internal policies, external action, administrative expenditure and reserves. The commitments will lead to actual payments in the future.

Sources of revenue for the Union

The Community has four sources of revenue which together are called 'own resources'. The history of how the EU came eventually to have these own resources is long and tortuous. The four, with 1995 figures, are:

1. Agricultural and sugar levies, £1546 million in 1995, are placed on
   imports of agricultural products from non-members. They raise the price
   of imports from world price levels to the level of the threshold prices fixed
   for Community agricultural products.
2. Customs duties, £10 187 million in 1995, are received from trade with
   non-members.
3. Contributions based on VAT, £30 973 million in 1995. The calculation
   of this is complex but each member pays over an amount which is
   calculated by applying a notional rate of VAT to an identical 'basket' of
   goods and services in each member state. The amount payable is subject to
   a restriction or cap based on the size of the member's Gross National
   Product.
4. Gross national product (GNP) based contributions, £17 121 in 1995, which are calculated by taking the same proportion of each member's GNP. This source, which is also called the 'Fourth Resource', is used to make up the difference between the EU's expenditure and the revenue expected from the first three sources, and is subject to an overall own resources ceiling.

The total for 1995 for these four sources of revenue was £59827 million. The present system of finances was agreed in 1988, 1992 and 1994. Under these there are maximum contributions or own resources ceilings established until 1999:

The United Kingdom has an 'abatement' on its VAT payments in order to reduce its overall net contribution to the EU budget. Mrs Thatcher spent several years asking for 'our money back' and was partially successful. The abatement is roughly two-thirds of the difference between what the United Kingdom contributes to the EU budget and what it receives from the budget. The repayment is made a year in arrears. The UK's net contribution for 1995 was estimated at £3.1 billion.

The expenditure of the European Union

The expenditure side of the budget is divided into six main categories. The proposed expenditure commitments for 1995 are given with each item:

1. Agricultural guarantee, £29 851 million, which is the largest single
   group and covers the price and market guarantees under the CAP. Great
   efforts have been made to keep this section under control and to reduce it.
2. Structural operations, £20 723 million some of which relates to
   agricultural restructuring but most applies to regional policy. They are
   divided into:
• Agricultural guidance £2956 million
• Regional Development Fund £8338 million
• Social Fund £5072 million
• Cohesion Fund £1694 million
• Other structural operations £2664 million

This is the next largest area of spending.

1. Internal policies, £3980 million, which are a collection of policies such as
   that for the environment:

Other agricultural operations £164 million Other regional operations £40 million Social and educational policies £575 million Energy and environment policies £172 million Industry and internal market £574 million Research and development £2337 million Other internal £118 million

1. External policies, £3842 million, which cover overseas aid:

·      Food aid £667 million

·      Aid to Eastern Europe and former Soviet Union £1246 million

·      Other development aid £1462 million

·      Other external £468 million

1. Administration, £3155 million, which is a small percentage of the EU
   budget in relation to the scale of operations:

·        Commission £2039 million

·        Parliament £664 million

·        Council £242 million

·        Court of Justice £91 million

·        Court of Auditors £42 million

·        Committees, Economic and Social, of the Regions £79 million

1. Reserves and payments, £2120

·      Monetary reserve £394 million

·      Emergency reserve £254 million

·      Loan guarantee reserve £254 million

·      Repayments £1218 million

The total proposed commitments expenditure for 1995 was £63 670 million which shows a steady increase over previous years: £46000 million in 1992, £54000 million in 1993, £56000 million in 1994.

Figure 1.3 shows how the pattern of EU expenditure has altered in recent years and indicates the degree of success in reducing the dominance of agricultural spending and shifting money to regional and social policy.

The winners and losers

Some countries are net contributors to and some are net beneficiaries from the European Union budget. The largest net contributor over the years has been Germany followed by France, Italy, the Netherlands and the United Kingdom. The Netherlands usually contributes most per head of population. Most of the net contributors see their payments as necessary to raise the overall standard of living in the Union and to create better regional cohesion through the regional and social funds. The United Kingdom has taken a different line and has always protested about being a net contributor. The abatement negotiated by Mrs Thatcher leaves the UK still contributing about £2.5 billion a year net to the Union. Table 19.1 shows contributions/receipts.

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