The EU Regulatory Competition in Asylum Law

The Tiebout argument is used to understand the optimal provision of local public goods (Tiebout, 1956). His basic premise is that citizens have different preferences. However, individuals with the same preferences will cluster together in small local communities, which leads to competitive legal systems, leading to ‘allocative efficiency’ under certain restrictive conditions.

For instance, if the majority of a group of locals prefer to build a stadium and another group of citizens aims to build a theatre, a stadium will probably be provided in the first community and the second community may fulfil its preference for the arts over sport. As a result, well-informed citizens will move from one community to the other according to their personal preferences. In other words, Tiebout assumes that citizens have different preferences and they are well-informed. Thus, citizens whose preferences have not been fulfilled will move from one community to another, which will satisfy their preferences.

In the Tiebout model, information plays an important role since using information accordingly will facilitate the move from one legal system to another. In addition, in order to maximise voter utility and minimise political costs, the most efficient solution exists at the time where heterogeneous voters’ preferences are so varied that they do not overlap (Cremer et al., 1994). In the case of centralisation of normative rules, political costs increase since it is impossible to fulfil the heterogeneity of preferences (Ribstein and Kobayashi, 2006). Thus, the level of government deciding to rule should be the one ‘enjoying a comparative advantage in accounting for the diversity of preferences in its choice of service delivery’ (Estache, 1995).

In addition to limiting political costs, decentralisation has three other advantages: the evolutionary efficiency, the generation of a learning process and the speed of modifying a certain rule that is considered inefficient. Firstly, competition between legal systems might bring a sort of Darwinian evolution where only the most efficient rules survive (Zywicki, 2003). Comparative Law and Economics scholars highlight the importance of evolutionary efficiency as the main argument for the transplantation of foreign laws into the national system (Smits, 2002; Ogus, 1999; Mattei, 1994). Therefore, the most efficient rules will survive in addition to being transplanted into other legal systems. On the contrary, if the deciding authority is centralised and voters have heterogeneous preferences, the result of the law will be suboptimal compared to the decentralised decision-making model (Breuss, 2004).

The second advantage is that decentralisation hastens innovation in policy-making, since it gives agents the opportunity to choose the legal system that fits their needs (Parisi, 1998; Vihanto, 1992). Therefore, economic agents send a message to lawmakers through their choices (Snell and Andenas, 1999), giving a disciplinary effect to the regulatory competition between legal orders (Portuese, 2010) and pushing lawmakers to discover new rules that might be more efficient than the current local ones (Snell and Andenas, 1999).

Additionally, in the case of asymmetric information, competition between legal orders would be more desirable (Kay and Vickers, 1990). This is the case where the ‘supplier’ side has more information than the others. Thus, the disadvantages of asymmetrical information among policy makers and economic agents will somehow be compensated by regulatory competition between legal orders, since this grants hidden information to lawmakers (Oates 1999). According to the literature, the main costs in designing regulations are information costs (Portuese, 2010). In general, the costs for drafting, controlling, and implementing different policies is higher for the central government than the aggregate sum of the costs incurred by the local governments for doing so. This is a direct consequence of the ‘knowledge problem’ (Hayek, 1945).

The third advantage is that harmonised rules placed by central authorities can be difficult to change, since, in general, central systems can suffer from ‘gigantism’ (Woolcock, 1994; Schmidt, 1991). Furthermore, agreeing on a new decision might prove more difficult since there will be costly negotiations and compromises (Pelkmans, 1990). The modification becomes harder when the number of members is higher and there exists a heterogeneity of preferences (Buga, 2015). This might be the case in the recent failure to adopt a refugee quota system, where Eastern European countries, which do not receive a substantial number of applications for asylum protection, opposed its implementation (Zaun, 2018; Thielemann, 2018).

The Tiebout theory in favour of competition between legal systems gives perfect, positive advantages only if the subject to be regulated is a problem that does not exceed the borders of a community. On the contrary, when a problem contains an international feature, or the decision of a country has an impact on another, there might be an economies-of-scale argument. In this case, a centralised legislative body gives better results since it decreases or eliminates altogether the horizontal externalities (Bureau, 1992). In other words, there is a correspondence between the authority that has the jurisdiction to rule and the subject. Thus, if the subject is to be adjudicated crosses the national borders of the regulatory authority, the decision should be made at a higher regulatory level (Ogus, 1999).

According to the Tiebout theory, the optimal level of ruling is the national level. In simple words, decentralisation delivers gains in efficiency, unless there exists economic criteria that justify centralisation as a better alternative (Tiebout, 1956). In addition, decentralisation should take priority even if centralisation might bring benefits in terms of limiting potential free-riding by national lawmakers (Bureau and Champsaur, 1992). However, the public choice theory (Buxbaum, 1991; Porter, 1990) suggests that centralisation will be prioritised if social values – for example, the protection of vulnerable groups such as refugees – are involved, since the competition between legal systems may result in lowering their human rights standards by leading to an elimination of competitive advantages in the long run (Reich, 1992).

The notion of competition between legal systems also plays an important role in asylum law. As stated before, the State’s individual choice entails positive or negative externalities for third countries because it directly affects the flow of migration (Bubb et al., 2011). These externalities and the supranational character of the refugee crisis is an important factor for an EU qualification. As the literature suggests, the competition between legal orders would be entirely inappropriate in the case of transfrontier externalities, since the costs and benefits of an action fall to different States (Snell 2000). A combination of EU asylum law – such as the Reception Conditions Directive and the Qualification Directive, the Asylum Procedures Directive and the Dublin Regulation – fits the economic criterion for community action (Asplund, 2003).

Coasean bargaining between countries that receive a lot of asylum applications and potential relocation countries for persecuted individuals could lead to the negotiation of an agreement between them (Van den Bergh, 2000). From an economic perspective, the two main transfer systems are north-to-south and south-to-south transfers (Bubb et al., 2011). In case of north-to-south transfers, refugees are moved from wealthy countries to poorer host countries; whereas in south-to-south transfers, which require the cooperation between poorer countries, there is a broader set of migration options for refugees. The south-to-south transfer system expands migration options for refugees.

A concrete example of it is the previous case of compensation of Kenya in 1994. The Kenyan government agreed to accept money compensation in exchange of receiving teh Rwandan refugees who had fled to Congo.

The EU’s institutional framework can provide the legal instruments to enforce these types of agreements. In addition, and more importantly, the risk of strategic behaviour (Faure, 2001) and the ‘free-riding’ incentive (Andreoni, 1988) decrease since EU Member States are repeat players. Besides, harmonisation becomes the most efficient answer to avoid strategic or non-cooperative behaviour among local lawmakers (Portuese, 2010), which in the case of refugee law, is seen as a shared policy or shared asylum burden (Thielemann, 2018). In 2007, the European Commission consider the logic of harmonising EU asylum policy as a burden-sharing instrument.

Moreover, the EU approach has achieved better results than all attempts towards bilateral agreements between the Member States (Faure, 2001),

For instance, the case of pollution water provided to Dutch victims by a Belgium firm (Pasques 1996) since the negotiations between the two countries were going longer without having a positive result.

Lastly, as previously stated above, according to the Tiebout theory, information plays an important role, and there must be no information deficiencies (Van den Bergh, 1994). Thus, according to the Tiebout theory, well-informed persecuted individuals will move to the country that provides the local services that are best suited to their personal preferences, increasing their net benefits. However, only one empirical study (Neumayer, 2005) shows that refugees have adequate information about economic variables, and there is clear evidence that economic factors matter on refugee decision making. Indeed, in general, the scientific literature suggests that destinations are determined not by personal choices but by the practicalities and demands of the situation that persecuted individuals face en route to the destination country (Van den Bergh, 1994).

In summary, the assumptions of the Tiebout theory that citizens are well informed or that lawmakers are free to choose a legal rule without any type of externalities or spill-over effects are rarely met in the real world (Van den Bergh, 1994). Therefore, more realistic conditions may justify further centralisation. This is also the case in asylum law.

There is an economic argument to regulate the asylum law at the EU level since there is a risk of a ‘race to the bottom’.

In order to attract less persecuted individuals, the Western European countries have introduced restrictive asylum policies that have led to a regulatory ‘race to the bottom’ (Des Places, 2003) or policy overspill (Suriyakumaran and Tamura, 2015). More precisely, a prisoner dilemma situation could arise, eventually leading to ineffective legislation in terms of enactment or enforcement (Faure, 2001). An EU-wide capability, also in asylum law, might avoid any prisoner dilemmas (Van den Bergh, 1994).

The competition between legal orders to create advantages for individual States is an argument used in different fields of law (Van den Bergh, 1994), giving rise to the harmonisation of rules and standards under the guise of ‘levelling the playing field to avoid distortions of competition’ (Faure, 2001). Nevertheless, public choice scholars of federalism have argued that differentiated legal orders can also bring market integration (Frey, 1994). They have considered the Swiss (Frey, 1994) and the Canadian (Boodman, 1991) models. Therefore, market integration could be possible without having a complete harmonisation of all legal rules and standards (Revesz, 1992). Thus, centralisation is needed when the differences between legal systems might create an environment not conducive to competition.

The analogous application of the economic literature regarding public law that also concern topics that create externalities for other countries, such as environmental issues (Van den Bergh, 1994), might suppose that the ‘race to the bottom’ poses a problem if it is clear that the total cost of refugees will be different between the Member States. Therefore, an EU capability should exist. In other words, the ‘race to the bottom’ argument constitutes a problem if the competition between countries leads to an inefficient result. This is supported by one empirical study (Rotte, 1996), whose findings demonstrated the French restrictive asylum policy of 1991 led to the amendment of the German constitution of 1993. This then resulted in the enactment of a stricter asylum policy of the Great Britain in 1994.

Due to the increase of populism in some European countries such as France (Rydgren, 2008; Rydgren, 2003; Biorcio, 1991),

It should be mentioned that on 23 April 2017, no candidate won a majority in the first round and Marine Le Pen of the National Front (FN) was the second candidate to win the presidential elections.

To sum up, in the case of refugee law, the ‘race to the bottom’ theory is an important argument for centralisation. The increase in populism in some European countries may lead to a further prominence of the ‘race to the bottom’ theory in asylum law.

The EU capability has been revered due to the fact that harmonisation reduces transactional costs (Rose-Ackerman, 1993). This is particularly the case in private law since diverse laws increase costs for international firms (Commission on European Contract Law). In public law, some authors have discussed the idea of transaction costs (Ruiter, 2005; Van Kersbergen and Van Waarden, 2001; Dixit, 1984; Williamson, 1981), which include not only economic activities but also any kind of social activities involving transaction costs (Ruiter, 2005).

The reduction of transaction costs has been an important argument for the centralization of rules by EU’s institutions. According to this model, uniform rules may reduce information costs incurred by their legal systems since reconciliation of rules is no longer required. However, this argument is weak for two main reasons. First, legal uncertainty might not be reduced even if there are uniform rules because EU Member States use different languages. Additionally, judges in different jurisdictions may not conduct a uniform interpretation, in order to either gain prestige or lower work pressures (Van den Bergh, 2000). Second, there is no empirical evidence that uniform rules decrease transaction costs (Van den Bergh and Visscher, 2006). Although significant and large economic agents will not consider adaptation costs to a new legal system as an important factor when deciding whether to enter a new market (Wagner, 2002), transaction costs are an important factor in the case of natural persons, who will spend time and energy to better understand the differences between legal orders (Siebert, 1993).

The reduction of transaction costs plays a particular role in the case of the ‘negative harmonisation’ (harmonisation without the need of an international instrument) (Aldana, 2013). In the case of asylum law, spontaneous cooperation in international refugee law has been inefficient (Bouteillet-Paquet, 2003). This is due to the fact that spontaneous convergence has more advantages than the formal harmonisation only in the branches of law, where it is economically appropriate; in other words, where the benefits of convergence exceed its costs (Leebron, 1995). As it was stated above, countries have continuously restricted their national refugee policies by also adopting similar restrictive policies of other countries (Rotte et al., 1996).

Ultimately, in a field where transaction costs pose substantial problems in integration, harmonisation is needed (Snell and Andenas, 1999). In particular, the centralisation of asylum law at an EU level will bring about a decrease of transaction costs for two main reasons. First, transaction costs are an important factor in the case of natural persons (Siebert and Koop, 1993), as the persecuted individuals are. Second, transaction costs play a particular role in the case of ‘negative harmonisation’ (Aldana, 2013), as it has happened in the case of refugee law in Western European countries in the last few decades (Des Places, 2003).

This paper examines as well the role of the EU as a sui generis organisation protecting human rights. Although this is not an economic argument, some observations are to be noted.

The EU was created to unite the European countries economically and politically in order to secure lasting peace (the European Union). In 1957, the six founding countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) created the European Economic Community or the ‘Common Market’. Soon after, in the late 1960s, the protection of human rights was also part of the European agenda (Von Bogdandy, 2000), with aspirations to create ‘Europe with a Human Face’. This transformation occurred in stages.

Some good examples of this goal in the early 1970s are: Declaration by the Heads of Government of the Member States meeting in Paris in 1972 (Bull. EC 10-1972: The First Summit Conference of the Enlarged Community 19–20 Oct. 1972). Cf. Declaration of the Council of the European Communities and of the Representatives of the Governments of the Member States on the Programme of Action of the European Communities on the Environment O.J. 1973, C 112/1; Council Resolution concerning a social action programme O.J. 1974, C 13/1; Council Resolution on a preliminary programme of the European Economic Community for a consumer protection and information policy O.J. 1975, C 92/1.

With respect to refugee law, asylum cooperation formally started with the Amsterdam Treaty of 1999, which was a response to the Kosovo refugee crisis (Lavenex, 2001). The current Article 78 of the TFEU states ‘the Union shall develop a common policy on asylum, subsidiary protection and temporary protection’ by enhancing the EU role in the asylum law. In adherence to it, the EU has switched from a non-binding and voluntary mechanism to the binding mechanism of recent years (Thielemann, 2018). Thus, in June of 2017, the European Commission launched a legal case against Poland, Hungary and the Czech Republic for non-compliance with their legal obligations on relocation (European Commission, 2017).

In addition to the protections recognised in Article 78 of the TFEU, the role of the EU has not stopped merely at the protection of ‘refugees’ or individuals falling under the category of ‘subsidiary protection’ but has further considered the possibility of integrating visa issuance for humanitarian reasons. In order to do so, there were studies such as those for the European Commission back in 2002, the Green Paper on Asylum in 2006, the Stockholm Programme of 2009, and a Communication on An Open and Secure Europe in 2014.

However, neither the guidelines nor the coordinated approach have ever been materialized.

In short, although cooperation between the Member States was a central aim since the creation of a common market, from the late 1960s, EU institutions endeavoured to create ‘Europe with a Human Face’. This was codified in the Amsterdam Treaty of 1999 and also in the current Article 78 of the TFEU. Although this factor is not an economic argument, it is nevertheless a legal one applying a human rights approach.