A. The Need for Harmonization
An essential element of the common market envisioned by the Treaty Establishing the European Community (EC Treaty)' is undistorted competition. The legal differences between the laws of the European Community's (EC's) Member States impose different economic burdens on their competing industries. For example, prior to harmonization of product liability laws in Member States, if the economic loss caused by a defective product was borne by the producer, as was the case in France, the industry was in a much less favorable economic situation than in Italy where the damage caused had to be borne by the unfortunate victim. According to the fault liability principle in Italy, the victim could not secure compensation. This was true not only if actual damages paid were considered, but also in the context in which total insurance premiums were taken into account. In Germany, the total amount of insurance premiums paid by the pharmaceutical industry after the introduction of the Pharmaceutical Act2 in 1976 was 55 million DM at the value prevailing at that time. By contrast, the Italian industry had nothing to pay. Unequal economic burdens lead to distortions of competition.
Furthermore, variations in laws reflect major differences in approaches to consumer protection. Therefore a product user enjoys a much higher degree of protection if, in the event of damage, he can successfully bring an action against the producer, as was possible in France, but again he could not bring such an action in Italy.
One of the aims of the EC is consumer protection without discrimination in all Member States. Consequently, the EC should have uniform rules in such an important area as product liability. It must be borne in mind that the EC is much more than merely one international organization among others, such as the Council of Europe, European Free Trade Association (EFTA), or the United Nations. The EC has the power and authority to create directly applicable law under a legal procedure which is similar to that of sovereign states. The EC Treaty created the European Court of Justice with the power and authority to take and enforce decisions on legal disputes. Harmonized law promotes the economic and political integration of its Member States, an example of which is the Product Liability Directive.3
B. Legal Bases: Articles 3(h), 100, and 100a of the EC Treaty
One of the tasks of the EC as defined in Article 3(h) of the EC Treaty is the "approximation of the laws of the Member States to the extent required for the proper functioning of the common market." This provision has three components. First, the EC has competence only to approximate Member States' laws, not to unify them. Unification of laws aims to ensure identical legal provisions, whereas approximation of laws leaves the identity of the national law unaffected. Second, the phrase "to the extent required" does not allow the approximation of all national laws, even where such approximation may lie in the general interest. The task is limited to legal areas which are of relevance to the basis of the EC, namely the common market, and more precisely to the proper functioning of the EC. The common market, the third component of this provision, is defined by four freedomsfree circulation of goods, persons, services and capital-and the preservation of a system of undistorted competition.4 As a result of recent developments in the Treaty of Maastricht amendments, this definition may, in a larger context, also cover the need to protect consumers' interests and the environment.
Again, the EC has the power and authority to introduce measures necessary for the approximation of legal areas only if the legal provisions are relevant to the establishment and functioning of the common market and only if the respective legal provisions have a direct impact on the common market. Article 3(h) defines the scope of harmonization measures. …