LEX MUNDI'S

A LAWYER'S GUIDE TO DOING BUSINESS IN THE EU
(Guide contains information current as of April 1993. )
By
Pierre Bos, Esq. Trenite Van Dorne, The Netherlands

Today's     EU News (Reuters/Findlaw) and 400 European Newspapers
For underlying law and EU Institutions See HG European Union
Articles on EU Developments

I. THE EU AT A GLANCE

1. History and objectives
2. Member States
3. Geographic
4. Population
5. Currency
6. The Maastricht Treaty
6.1 General
6.2 The objectives of European Union
6.3 Economic and Monetary Union

II. GENERAL CHARACTERISTICS OF COMMUNITY LAW

1. General
2. Direct Effect
3. Supremacy

III. INSTITUTIONS AND THE LEGISLATIVE PROCESS

1. Institutions
1.1 Survey of the institutions
1.2 Council of Ministers
1.3 The Commission
1.4 The European Parliament
1.5 The European Court of Justice (ECJ)
1.6 ESC, Court of Auditors and European Investment Bank

2. Legislative Process
2.1 Types of legislation
- Regulations
- Directives
- Decisions
- Recommendations and opinions
2.2 Decision-making process
2.3 Chart - Consultation procedure/Cooperation procedure
2.4 The effect of lobbying on the legislative process

IV. MARKETS

A. THE COMMON MARKET

1. General : the four freedoms
2. Free movement of goods
2.1 General
2.2 The customs union
2.3 Fiscal Barriers
2.4 Quantitative restrictions and measures having equivalent effect
3. Free movement of persons
3.1 General
3.2 The movement of workers
3.3 Right of establishment
4. Freedom to provide services
4.1 General
4.2 Transport
5. Free movement of capital

B. SINGLE MARKET

1. General : the Single Market v. the Common Market3
2. Single European Act, 1992 and White paper
3. Removal of barriers
3.1 Physical barriers
3.2 Technical barriers
3.2.1 Harmonization of Standards
3.2.2 Sectoral harmonization
3.3 Public Procurement
3.4 Financial Services and capital movements
3.5 Corporate and corporate tax law
3.6 Intellectual Property
4. New Policy Areas
4.1 Economic and monetary policy
4.2 Regional Policy
4.3 Research and Development
4.4 Telecommunications
4.5 Environmental Policy
4.6 Consumer Protection
4.7 Broadcasting
5. Fiscal Barriers
5.1 General
5.2 Direct Taxation
5.3 V.A.T.
5.4 Excise duties

V. Competition Policy and State Aids

1. Competition
1.1 EEC v. U.S. anti-trust policy
1.2 Application of EU anti-trust law to third countries
1.3 Article 85 and its application
1.3.1 General
1.3.2 Vertical Agreements

a) Agency Agreements
b) Exclusive distribution agreements
c) Exclusive purchasing agreements for resale
d) Franchising
e) Selective distribution
f) Sub-contracting
g) Industrial supply

1.3.3 Horizontal Agreements
1.3.4 Intellectual property: licenses
1.4 Article 86
1.5 Joint Ventures, Mergers and Acquisitions
1.6 Notification, enforcement and procedures
1.7 Public Undertakings: Article 90
2. State Aids

VI. Sectoral Policies

1. General
2. Agriculture and fisheries
3. Transport
3.1 General
3.2 Air Transport
4. Coal and Steel (ECSC)
5. Atomic Energy (Euratom)
6. Energy

VII. Trade Policy

1. Introduction
2. Competence
3. Major Instruments
3.1 Antidumping and countervailing duties
3.2 Safeguard clause
3.3 Private complaints about foreign unfair trade practices

VIII.Private Remedies

1. Challenging acts of Member States
2. Challenging acts of institutions
3. Primary rulings
4. Actions for damages
4.1. Liability for damages
4.2 State liability for damage

IX. Jurisdiction and enforcement of judgement

X. Useful resources

           A LAWYER'S GUIDE TO DOING BUSINESS IN THE EC

I. THE EC AT A GLANCE

1. History and Objectives

The first step towards the establishment of a common market was made with the Treaty of Paris, signed on April 18, 1951 and establishing The European Coal and Steel Community. Subsequently, on March 25, 1957 a European Atomic Energy Community was established and, with what is known as the Treaty of Rome (hereafter "the Treaty"), the European Economic Community ("EC" or the "Community").

These treaties are indelibly linked with the names of Schumann, Spaak, Monnet and Adenauer. To capture the flavor of the times and ideas that drove these men, their autobiographies provide good reading.

Through the establishment of a common market and a progressive approximation of the economic policies of the Member States, the Community pursued four economic objectives:

(1) a harmonious development of economic activities,
(2) a continuous and balanced expansion,
(3) an increase in stability-, and
(4) an accelerated increase of the standard of living. In addition, it also sought the political objective of close relations among the states belonging to it.

These objectives received a significant boost in 1987 with the coming into force of the Single European Act ("SEA"). Amending the original Treaty, SEA strengthened the Community's institutions, improved the decision making process and set new objectives for Community policy. It marked the end of the 'Eurosclerosis' that paralyzed the Community for much of the 1970s and early 1980s.

Currently there is much public debate going on in Europe with respect to the latest Treaty, the Treaty on European Union (hereafter the "Maastricht Treaty") signed in February 1992. This Treaty has been ratified in all but two Member- States (Denmark and the United Kingdom) who are hoping to do so by summer 1993. For more details see section I.6.

In May 1992, an agreement was signed by the Community and the countries of the European Free Trade Association, EFTA (Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland), creating a European Economic Area ("EEA"). It was ratified by all signatories save Switzerland. The parties have now signed a protocol amending the Agreement to exclude Switzerland. The EEA Agreement is now expected to enter into force in early 1994, creating a large free trade zone with its own institutions.

Whether the EEA Agreement will prove to be of great practical importance remains to be seen. Its procedural and in-stitutional arrangements are cumbersome, and in general the Agreement has left many questions to be resolved. Another question is whether the Agreement will remain in existence long enough to resolve these questions. Austria, Finland, Norway and Sweden are already actively negotiating to become full members of the Community, at least in part undermining the Agreement's purpose.

2. The Present Member States

Six states originally signed the 1957 Treaty: Federal Republic of Germany, France, Italy and the Benelux countries (the Netherlands, Belgium and Luxembourg). They were joined by Denmark, Ireland and the United Kingdom on January 1, 1973, by Greece on January 1, 1981, and by Spain and Portugal on January 1, 1986. In addition since October 3, 1990, the date of the German unification, Community law is also applicable in the territory of the former German Democratic Republic.

3. Geographic

The total area of the EC countries including former East-Germany is 2,373 kmý (or 916,000 square miles). This compa-res with 9,372,610 km2 for the United States, or with 21,320,300 km2 for the area covered by the North American Free Trade Agreement ("NAFTA").

4. Population

Following Germany's reunification, the EU's population is approximately 342 million.

5. Currency

The Maastricht Treaty sets a time table for the establishment of a Single European Currency with 1999 as its ultimate deadline. At the time of writing, however, both Denmark and the United Kingdom still have to ratify the Maastricht Treaty (and even if they do, they can opt out from the single european currency).

In the meantime, in March 1979, a European Monetary System (EMS) was established with the European Currency Unit (ECU) as its central element. The value of the ECU is calculated daily based upon a basket of set amounts of Community currencies, reflecting the relative gross national products of the Member States.

While the basket is intended to include all the Member States, due to various pressures on their currencies, the British and the Italians have withdrawn their membership, while the Spanish peseta, Portuguese escudo, and the Irish punt have had to be devaluated. As per January 4, 1993, one ECU was equivalent to US $ 1.193. The ECU rate fluctuates daily. Information on this point can be obtained from the Official Journal of the European Community (see Chapter X). Very few European businesses use the ECU as a term of reference (commercial agreements) though some commercial agreements and Eurobonds are expressed in ECUS. Fines impo-sed by the European Commission in, for instance, anti-trust cases are rendered in ECUs.

6. The Maastricht Treaty

6.1 General

The Treaty on European Union was signed on February 7, 1992 in the southern town of the Netherlands, by whose name it is generally known. The Treaty met with a lot of resistance in two countries. In Denmark a second referendum was held on May 18, 1993, at which the Danish decisively overturned the narrow rejection of the Maastricht Treaty of June last year, while in the United Kingdom the Conservative Party under John Major had to struggle to get Parliament to ap-prove ratification. Of major public concern in these countries is the alleged loss of sovereignty and the perceived ever-encroaching powers of the Community.

The Treaty consists of two main chapters, one on Political Union which covers the new competencies granted to the Community and the organization of its institutions. This chapter also confirms the principle of subsidiarity (the notion that decisions should be taken at as local a level as possible) and a common foreign and security policy.

The second chapter deals with the Economic and Monetary Union ("EMU") which would lead to the circulation of a single European Currency by 1997 or 1999. This currency would be managed by a new, independent, Central Bank.

6.2 The objectives of European Union

The objectives of the Union explicitly encompass a political dimension for the first time. These objectives are as follows:

- Promoting economic and social progress including consumer protection, environment and industrial policies.
- Asserting an identity on the international scene through the implementation of a common foreign and security policy.
- Protecting the rights and interests of nationals of the Member States by introducing the concept of a European Citizenship, including the right to reside and vote throughout the community.
- Developing close cooperation on justice and home affairs (including asylum policy, external borders and drugs) and the creation of a European police force EUROPOL.
- Building on the existing body of Community law ('acquis communautaire') to ensure effective me-chanisms and institutions for the further progress at Community level. Institutional changes include these to the college of

Commissioners and the increased power for the European Parliament (see section III 1.1.4.).

6.3 Economic and Monetary Union

The Maastricht Treaty first provided for the irrevocable fixing of exchange rates leading to the introduction of a single currency. That this will be difficult is illustrated in the events in September 1992, when both the British Pound and the Italian Lira withdrew from the Exchange Rate Mechanism (ERM).

The Economic and Monetary Union is to be realized in three phases, so as to allow the development towards the ever increasing convergence of the monetary policies of the Member States to take place. The first stage started in July 1990. At Maastricht all twelve signatories reaffirmed their commitment to begin the second phase by January 1, 1994 before which the Member States are expected to have taken appropriate steps to abolish any remaining restrictions on the transfer of capital and to adopt programmes which may be necessary to achieve compliance with the convergence criteria. These criteria are (1) all national currencies must remain within the normal fluctuation band of the ERM for it must remain at least 2 years without devaluation, (2) high degree of price stability and convergence of interest rates, with inflation within 1,5 percent and long term rates within 2 per cent of the three best Member States and (3) avoidance of 'excessive government deficits', defined as ratios of national deficits and debt to gross domestic product of more than 3 per cent and 60 per cent respectively.

Phase Three of the Economic and Monetary Union is scheduled to start at the earliest by January 1, 1996, and at the latest by January 1, 1999. The Council is to determine whether a majority of Member States fulfill the convergence criteria. If they do, a date will be established for the introduction of a single currency.

The United Kingdom has a special protocol which ena-bles it to opt out of the system in the absence of an affirmative decision by its government. Denmark has  also purportedly agreed to a special protocol in the event its constitution requires a referendum prior to participation in the single currency.

II. GENERAL CHARACTERISTICS OF COMMUNITY LAW

1. General

The Member States have ceded certain jurisdictional and other elements of their respective sovereignty to the Community. Consequently, the Community constitutes supra-national autonomous legal system. Community law represents an independent legal order, both vis-&ldots;-vis international law on the one hand and the national laws of the Member States on the other.

2. Direct effect

The Court of Justice of the European Communities ("ECJ") has established in numerous cases that the Community legal order is automatically embedded in the national legal order of the Member States. This does not, however, necessarily mean that all rules of Community law have so-called "direct effect" within the Member States; that is, a citizen of one of the Member States cannot necessarily enforce rights based upon a given Community rule in his or her national court.

In order for a Community measure to have direct effect in a national legal system, the following conditions must be met: (1) the obligation imposed on Member States must be clear and precise, (2) it must be unconditional, and in case of implementing measures - the deadline for implementation into national law has passed (3) the Community Institutions or Member States are not allowed any margin of discretion.

Through the jurisprudence of the ECJ, the direct effect doctrine of Community law has little or nothing in common with the doctrine of "self-execution" in international law. The criterion is not whether the measure can operate in and of itself without the need for further national legislative implementation, but rather concerns the absence of discretion of the Member States or Community Institutions in drafting implementing measures.

The consequence of a given EC rule having direct effect is that any individual can invoke these rules directly before a national court.

3. Supremacy

Every national court must set aside any provision of natio-nal law which conflicts with Community law, whether it was passed prior or subsequent to the Community measure. This principle of supremacy of Community law was not established by the Treaty itself, but through the case law of the ECJ.

III. INSTITUTIONS AND THE LEGISLATIVE PROCESS

1. Institutions

1.1. Survey of the institutions

While there were separate treaties establishing the three Communities (ECSC,  EEC and EURATOM) each with their own institutions, these were combined to form a single Council, Commission and Court of the European Communities in 1967. Once the EEA enters into force it will have its own separate institutions: an EEA Joint Committee, an EFTA Surveillance Authority and an EFTA Court of Justice.

Responsibility for achieving the aims of the European Community lies in principle with its 5 institutions : 1) the Council of Ministers ("Council"), 2) the Commission ("Commission"), 3) the European Parliament ("Parliament") 4) the ECJ and 5) the European Council (formally recognized in the SEA as a Community Institute). These are supported by several other Community organizations such as the Economic and Social Committee, the Court of Auditors and the European Investment Bank.

1.2. Council of Ministers

This institution comprises individuals directly ap-pointed by the governments of the Member States. These individuals can be either the Minister of Foreign Af-fairs, or any other Minister, depending upon the subject being discussed by the Council. Each government has one seat on the Council. The presidency of the Council is rotated among the Member States every 6 months. The presidency can exercise a substantial amount of political power as it, inter alia, determines the priorities for the six month period, fixes the agendas and appoints the chairs of the working groups. The Council acts at its highest level when the 12 government seats are occupied by their respective Heads of State, an event that occurs twice a year. The purpose of these summit meetings is to review general topics of policy-making.

The Council enacts the Community legislation. In many cases however, this power is only triggered by the submission of a proposal by the Commission. Furthermore, the Council's power is often circumscribed by its obligations to consult with the Parliament and the Economic and Social Committee.

The Council's decisions are taken either unanimously or by qualified majority depending upon the subject of the legislation. When voting by qualified majority the more populous Member States are accorded more rates than the smaller ones.

Council Meetings are prepared by the Committee of Permanent Representatives ("Coreper"), which consists of delegates of the Member States to the European Community who are supported by national civil servants. As such, Coreper forms an important link between the national governments and the Community institutions. All this work is supported by an administrative apparatus, currently employing some 2,000 officials. The Council is located in Brussels, next to the Commission.

1.3. The Commission

The Commission is the executive of the EC. Its prin-cipal function is to propose Community policy and le-gislation. At its highest level the College of Commissioners consists of 17 members currently appointed by the governments of the Member States, with each Member State having at least one Commissioner. Commissioners are normally appointed for a four year period (however once the Maastricht Treaty is ratified the current term of office will be two years, ending 5 January 1995 so as to coincide with the elections of the European Parliament). Each Commissioner is assigned responsibility for one or more areas of Community policy, such as the field of competition, transport, environment, etc. Each Commissioner is assisted by a small staff, known as his cabinet. In addition, there is an administrative apparatus comprising 23 Directorates-General (DGs) and various specialized services.

The DGs are:

DGI External Economic Affairs (previously known as External Relations)
DGII Economic and Financial Affairs
DGIII Industrial Affairs (previously also included Internal Affairs)
DGIV Competition
DGV Employment, Industrial Relations and Social Affairs
DGVI Agriculture
DGVII Transport
DGVIII Development
DGIX Personnel and Administration
DGX Information, Communication and Culture
DGXI Environment, Nuclear Safety and Civil Protection
DGXII Science, Research and Development
DGXIII Telecommunications, Information Industries and Innovation
DGXIV Fisheries
DGXV Internal Market, Financial Institutions (previously Financial Institutions and Company Law)
DGXVI Regional Policy
DGXVII Energy
DGXVIII Credit and Investments
DGXIX Budgets
DGXX Financial Control
DGXXI Customs Union and Indirect Taxation
DGXXII Coordination of Structural Policies (this DG is to be abolished)
DGXXIII Enterprise Policy, Distributive Trades, Tourism and Cooperatives

Among the specialized or "horizontal" services, the Legal Service deserves special mention in this Guide. This office reviews all measures prepared by each of the Directorate-Generals before they reach their final form. Whenever disagreements remain unresolved with the DGs, the Legal Service can report directly to the Commissioners. Another reason why the Legal Service has considerable authority is its exclusive competence to represent the Commission before the European Court of Justice.

The Commission employs some 16,500 officials (this compares with 25,288 civil servants employers by the US State Department). Of these, 2,700 translate full-time,  orally and in writing, into the Community's nine official languages.  While previously the location of the EC institutions had always been regarded as temporary for political reasons, the Edinburgh Summit, held in December 1992, confirmed Brussels as the permanent seat of the Commission.

1.4. The European Parliament

The European Parliament represents the citizens of the Member States. The 518 members of the European Parliament (MEPs) are directly elected by the people of the Member States and serve for a period of five years. The next elections are due to take place in June 1994.

The European Parliament's power in the legislative field lies in its rights to be consulted, to make amendments and to delay legislation by withholding its opinion. It also has the power to make reports on its own initiative. In the financial field, the Parliament has the power to request and make changes in certain items of expenditure, and to reject the Community bud-get. Finally, the European Parliament can put written and oral questions to the institutions and monitor their activities.

The Single European Act increased the influence of the European Parliament by introducing a so-called 'cooperative procedure' for certain types of legislation (discussed further in paragraph 2.3 below). The European Parliament has 18 standing Committees, each dealing with a particular area of Community activity. It has also formed 26 specialized delegations, each one responsible for relations with other countries or regions of the world. The delegation for US relations meets twice a year with its counterparts in the US Congress.

The Parliament is located in Strasbourg (France) where it holds its general plenary session once a month, with committee meetings often taking place in Brus-sels. As at 1990 the Parliament employed a bureaucracy of some 3,405 officials. In addition, each MEP has the right to choose one or more personal assistants.

1.5. The European Court of Justice (ECJ)

The ECJ sits in Luxembourg and consists of 13 judges, assisted by 6 Advocates-General. The ECJ has the duty to "ensure that in the interpretation and application of the Treaty the law is observed" and is of supreme importance as the arbiter of Community Law.

An Advocate-General is assigned to each case and deli-vers an independent opinion to the Court. The opinions of the Advocate-Generals are usually detailed, with references to case law and legal articles. The Court's judgments, signed by all participating judges, are in contrast, typically tersely worded. These features, plus the fact that dissents are not published and that there is no policy that the Court follows its previous decisions make European case law rather different in style from US case law.

In 1989 a European Court of First Instance was established with jurisdiction over competition matters and cases brought by civil servants. At a later stage, trade policy cases might be added to its jurisdiction. On questions of facts, the decisions of this Court are final, though parties may appeal legal questions to the ECJ. The two Courts currently employ some 700 officials. Some of these are engaged full-time to translate every submission of the parties into the Community's nine official languages for the Court's internal use, as well as the Court's opinions and judgments for publication.

1.6. ESC, Court of Auditors and European Investment Bank

The Economic and Social Committee is an advisory and consultative body which must be consulted by the Council or the Commission on a number of topics. The Committee can also develop opinions on its own initiative. The Court of Auditors audits the legality and regularity as well as the sound financial management of the resources of the Community and its institutions. The European Investment Bank grants loans and gives guarantees to facilitate the financing of capital in-vestment, promoting the balanced development of the Community.

2. Legislative Process

2.1. Types of legislation

Legislation adopted by the Commission or the Council can take the following forms set out in the Treaty:

- Regulations

These are of a general nature, binding in their en-tirety and directly applicable in all Member States needing no national implementation. Regulations have direct effect in that they can be invoked by individuals or legal entities of the Member States in national courts as a basis for enforceable rights.

- Directives

These are addressed to the Member States and are only binding as to the results to be achieved requiring national legislation to be passed for their implementa tion. Deadlines are provided for national implementation though in practice these deadlines are not al-ways met by all the Member States. While in principle directives cannot be relied upon by individuals, where the deadline has expired, and provided that the language of the Directive is unambiguous, leaving no discretion to the Member States, then the Directive can have direct effect.

- Decisions

These are binding in their entirety on their addres-sees, being either: Member States, companies or private individuals. A decision directed to a company might, for instance, require that company terminates a cartel arrangement and pays a fine.

- Recommendations and opinions

While these have no legally binding force they are nevertheless valuable as indications of the policy of the Commission or the Council.

2.2. Decision-making process

Since the entry into force of the Single European Act (SEA) in June 1987, the decision-making process varies depending upon the legal basis of the proposed legislation. The normal procedure under the EEC Treaty re-mains the consultation procedure. However, with res-pect to all legislation relating to the establishment of the internal market and legislation based on cer-tain articles of the Treaty amended by the SEA, a so-called cooperation procedure is applicable, which pro-cedure involves two readings by the Parliament. This is a rather complicated process (see chart in section 2.3).

In general, draft proposals for legislation are drawn up by the permanent staff of the Commission working within the Directorate General competent for the subject matter in question. After, being reviewed by the Legal Service and the appropriate cabinets of the Com-missioners, the draft is adopted as a formal proposal, on a collegiate basis, by the Commission itself. Once adopted it is published as a Commission (COM) document in the C (communication) series of the Official Jour-nal (see Chapter X). By that time most of the consultations with interested parties will have taken place.

The proposal is then submitted to the Council of Mi-nisters, which in turn submits the proposal for opi-nion to both the Parliament and the Economic and Social Committee ("ESC"). For legislation based on certain Articles of the Treaty which have been introduced by the Single European Act and legislation aimed at harmonization of national laws, the Council is obliged to request opinions from both bodies. Both in the Parliament and in the ESC, the proposals are referred to the appropriate Committee. On behalf of the Committee, an appointed rapporteur drafts a report which may contain suggested amendments. The reports are then submitted to the full Parliament or ECS for a vote. The Parliament's final opinion is called a "Resolution". On the basis of an Opinion or Resolution, the Commission may decide to propose amendments to its original proposal. The Commission may amend the proposal (as many times as necessary) until the Council formally adopts it.

The Council, even often before the opinion of the ESC and the Parliament are received, refers the proposal to a working party. This working party, consisting of the members of Coreper assisted by relevant experts from the Member States and the representative of the Commission, reviews the proposal. Via the Coreper, the proposal will finally be presented to the Council of Ministers for a vote. Upon the adoption of the proposal by the Council, it becomes law.

Legislative proposals to which the cooperation procedure apply are reviewed twice both by the Parliament and the Council. After having received the initial Parliament's opinion, the Council adopts a common po-sition by qualified majority (or, if it amends the proposal of the Commission, by unanimous vote). This common position is referred back to the Parliament for its second reading. If Parliament amends or rejects the Council's common position, then the Commission is given the opportunity to revise its proposal. The Council can then approve the revised proposal by qualified majority. If however, the revised proposal does not incorporate the amendments as suggested by the Parliament in its second reading, then the Council can only adopt it by a unanimous vote.

2.3. Consultation procedure/Cooperation procedure

2.4. The effect of lobbying on the legislative process

One of the key features of the legislative process in the EC is that of its openness. There are many opportunities for formal and informal consultation at the various stages of drafting and subsequent review. The opportunities for lobbying have considerably increased since the scope of influence of the European Parliament has been enhanced by the Single European Act. The European Parliament is currently considering a Code of Conduct and Register for Lobbyists accredited to the Parliament representing interest groups.

IV. A. THE COMMON MARKET

We note at the outset that, even though we speak of a common "European market", in fact it will still be different from the US single market. Perhaps most striking, for instance,is the different languages and cultures prevailing throughout the "Single" EC Market which no amount of legislation will change. Furthermore, there is, as yet, no clear light at the end of the tunnel as the Member States strug-gle with the idea of a single currency.

The EEC Treaty established the "common market" which in-cludes the elimination of customs duties and quantitive restrictions on the import and export of goods, the abolition of obstacles to freedom of movement for persons, services and capital and common policies in the spheres of agriculture and transport. The "single" or internal market (discussed in section IV B) was established further to the single European Act and relates only to the free movement of goods, persons, services and capital.

1. General : the four freedoms

The focal point of economic integration is the Common Market in which the Member States have combined to create a unified economic territory free of customs or trade barriers. This common market rests on the pillars of four fundamental freedoms: the free movement of goods, persons and capital, and the freedom to provide services. These four freedoms have also been taken up in the Agreement on the European Economic Area. The Agreement will be directly applicable in the EFTA countries (except Switzerland) and includes provisions for the "acquis communautai-re". This basically ensures that the EFTA countries take on board all Community legislation (some 40,000 pages) and jurisprudence promulgated since the EEC Treaty came into force.

2. Free movement of goods

2.1. General

The creation of a large European market on which all goods can freely be traded requires not only the re-moval of customs barriers, but also the lifting of quantitative restrictions. Such restrictions are designed to protect a country's industries, warding off foreign competition on the domestic market. (See further section IV.3.)

2.2. The customs union

The first step in the creation of the common market was to eliminate all the customs duties levied on im-ports and exports between the Member States before the EC was established. The last customs barriers came down in 1968. The elimination of customs duties within the EC was accompanied by the establishment of a common customs tariff (CCT) on July 1, 1968, which set up a single customs barrier around the entire Community for all imports from non-member countries where duties were levied when goods entered into the economic territory of the Community. The CCT was necessary in or-der to prevent diversion of trade flows.

The CCT rates have frequently been adjusted since 1968. This is done either unilaterally, by a decision of the Council, or through negotiations between the Community and individual non-member countries or other international organizations, especially within the framework of GATT (General Agreement on Tariffs and Trade). The introduction of a common external tariff signalled completion of the first stage of economic integration and the establishment of a customs union.

2.3 Fiscal Barriers

Divergences between the various systems of taxation in the Member States form barriers to the free movement of goods. Article 95 of the Treaty permits the levy of indirect taxes on imported goods, provided they do not discriminate in relation to similar domestic products. For the export of goods, Article 96 provides that any repayment of internal taxation may not exceed the amount which has been internally levied, either directly or indirectly.  With the removal of border controls, it was necessary to ensure that the different rates of VAT charged in the Member States were harmonized, and for verification of VAT accounts for intra-community trade to take place at the business premises through review of book entries in the companies accounts.(See further section IV.5.)

2.4 Quantitative restrictions and measures having equivalent effect

Articles 30 through 34 of the Treaty prohibit quantitative restrictions on imports and exports and all measures having equivalent effect. This prohibition has direct effect and can be invoked by individuals and companies before the national courts.

Quantitative restrictions are all legislative and administrative measures which restrict the import or export of goods in terms of quantity. Even more significant to maintain the free movement of goods is the Treaty's prohibition of measures having equivalent effect.

The Commission and the ECJ have interpreted the latter expression broadly. In its landmark decision Case 8/74 Procureur du Roi Dassonville (1974 ECR, 837), the ECJ established what has become the standard formula for subsequent cases: "All trading rules enacted by Member States which are capable of hindering, actually or potentially, directly or indirectly, intra-Community trade are considered to be as having equivalent ef-fect". The term "trading rules" is not meant to be restrictive and extends to all measures including ru-les of origin, price regulatory measures and rules for consumer protection.

Article 36 clearly defines and limits the exceptions to the prohibition of Article 30. Barriers to trade may only be accepted on the following grounds: public morality; public policy; public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historical or archaeological value; and the protection of industrial and commercial property. These exceptions are permitted only under the condition that they do not give rise to arbitrary discrimination or a disguised restriction of trade between the Member States. The Court's jurisprudence interprets these exceptions very narrowly. The burden of proof lies upon the national authorities wishing to invoke an exception.

The exception concerning the protection of intellectual property rights has given rise to extensive case law. This case law has developed the principle of the exhaustion of intellectual property rights being that the owner of a patent, trademark or similar right cannot invoke this exclusive title in order to prohibit the import or trade of a product which has been rightfully put in circulation in another Member State either by himself or with his permission or by anyone legally or economically dependent upon him. Actions based on unfair competition do not fall under the scope of Article 36. Apart from the exceptions provided by Article 36, ano-ther important ground for justifying intra community trade restrictions has appeared in the Court's case law, through the "rule of reason". This theory, first established in the Dassonville case and refined in the Cassis de Dijon case (Case 120/78, Rewe-Zentrale A.G. v. Bundesmonopolverwaltung fr Branntwein, 1979 ECR 649), provides that national measures potentially or actually hindering imports and not justifiable under Article 36 can nevertheless be permitted if:

a) there is no general Community rule on the subject;
b) the measures are applied in a non-discriminatory manner;
c) the importance of the measure's objective outweighs the principle of freedom of goods;
d) the measures restrict interstate commerce as little as possible.
e) the measures have a legitimate objective, such as:

- consumer protection
- environmental protection
- prevention of unfair commercial practices
- effectiveness of fiscal supervision
- improvement of working conditions
- protection of public health
- promotion of culture in general.

The Court has subsequently recognized these as objectives as deserving protection pursuant to this rule.

3. Free movement of persons

3.1 General

Complete freedom of movement for persons was not achieved by January 1, 1993, as originally planned. Further measures are still necessary to achieve this result without creating dangers for public security and compromising the fight against illegal immigration. In particular, ratification of the Dublin Asylum Convention, the External Frontiers Convention and fur-ther negotiations on the Convention on the European Information System need to take place. This being said, changes benefiting travellers are expected in the course of 1993.

Then, the Internal Market Commissioner announced in April 1993 that the Commission will take legal action against EC members that fail to remove passport con-trols at internal borders by December 31, 1993. In fact, checks at land and sea borders should be removed by July and at airports by December. The nine Member States who signed the Schengen Agreement on the Gradual Abolition of Controls at the Commons Frontiers on June 14, 1985, had indeed pledged themselves to a free travel zone for EC nationals and goods. Britain, Ireland and Denmark are not signatories to the Schengen Agreement. Britain is disputing the need to lift passport controls on all travellers within the Community and says the rules only apply to EC travellers. In the meantime a 'blue wave' is to be introduced whereby EC citizens simply show the cover of their passports in cross-channel ferries and the channel tunnel.

Article 48 et seq. establishes the principle of the free movement of workers. It includes the abolition of any discrimination on the grounds of nationality between employees of the Member States, with respect to employment opportunities, remuneration or other conditions of employment.

Article 52 et seq. provides for the freedom of establishment. This permits self-employed persons or com-panies to exercise a profession and to set up and administer undertakings. ("Undertaking" is the Treaty's term for "entity".) The only  exceptions to this principle are restrictions on the ground of public policy, public safety and public health (Articles 48(3) and 56). The Court has not accepted that restrictions may be justified on other grounds; accordingly, the rule of reason does not apply here.

3.2 The movement of workers

Article 48 (see section 3.1) has direct effect. The principle can only be invoked by citizens of the Mem-ber States, whether they be employees or persons seeking employment. Citizens from third countries have to rely upon treaties which may be entered into by the EC. Today the free movement of workers in the EC is largely a reality.

The Council coordinates the national social security systems pursuant to Article 51. Regulation 1408/71 (as amended) is not aimed at harmonizing the national so-cial security rules but rather at attaining a coordination of the means of applying national rules. It sets out conflict rules, and contains provisions to prevent double taxation or double benefits and sets rules for the aggregation of insurance periods.

3.3 Right of establishment

The right of establishment is basically a right to equal treatment and a prohibition of discrimination. Case law accords Article 52 direct effect. The effective harmonization is being realized through Directives for mutual recognition of training diplomas and Directives requiring free access to the exercise of a trade or profession in designated sectors. Directives have been passed in such sectors as medicine, film in-dustry, food and beverages and real estate. The persons benefiting from this right are natural persons who are citizens of one of the Member States, whether or not they reside within the EC. In order that third country firms may be entitled to the same treatment as EC nationals, Article 58 requires that:

- the third country entity (except non-profit companies) form a company under the laws of one of the Member States; and

- this company have its registered offices, central administration or principal place of business in the EC.

For third country companies, the right of establishment is in fact limited to the freedom to set up and manage branches, agencies and/or subsidiaries in an-other Member State provided they have themselves for-med a company with registered offices within a Member State. In order to facilitate the establishment of companies, the Council has adopted a Directive creating a pan-European legal entity (European Economic Interest Groupings). Various other company law proposals are in the pipeline, including one creating a European li-mited liability Company.(see for more details Section IV 3.5).

4. Freedom to provide services

4.1 General

Article 59 establishes the principle of this freedom, which is defined in Article 60. This freedom comprises all economic activities with a cross-border effect which do not fall under the scope of one of the other freedoms (other than services in the field of transport which are dealt with under a separate Title in the Treaty). It applies to the same categories of in-dividuals and firms as did the freedom of establishment. As recipients of services, third country nationals (private persons or companies) can invoke the principle as long as they have an establishment within the EC.

It should be kept in mind that, until a true single market has been attained, companies must still take into account the different conditions imposed by national laws of the Member States. For third country firms wishing to set up a company in the EC, it is still wise to shop around in order to find the country with the least burdensome requirements.

4.2. Transport

While the separate Title IV of the Treaty on Transport was limited to transport by railroad and inland water-ways, sea and air transport are now included by the SEA 1987, pursuant to which legislation in those sectors can now be passed by the Council by qualified majority. In June 1992 the Transport Council reached agreement on three Regulations liberalising air transport, which dealt with a licensing system based on a single commu-nity standard (under which the airline must be effec-tively controlled by nationals of any Member State), the freedom for EC air carriers to offer services on domestic routes in other Member States and the deregulation of air tariffs (subject to limited government intervention as a safeguard). In the maritime transport sector, which has been divi-ded into various categories, gradual liberalization of maritime cabotage has started. Similarly, in the sector of road transport, there is gradual deregulation of passenger cabotage (buses and coaches) since January 1993.

5. Free movement of capital

The free movement of capital and liberalization of payment mechanisms constitute key factors for the completion of the single market. Thus far, not all Member States have lifted their restrictions on capital movement. Furthermore, there is still in force a Council

Directive 88/34/EEC on the li-beralization of capital movements (from 1988) which will become redundant on ratification of the Maastricht Treaty (as of this writing scheduled for January 1, 1994). The Directive allows Member States to impose restrictions as a protective measure against major short term capital movements which may disrupt currency markets and exchange rates, and then only with the Commission's approval. No Member States have actually invoked this protective provision.

The free movement of goods, persons, and capital and freedom to provide services further requires liberalized payment mechanisms. During the course of 1992 the Commission therefore launched a work program to improve crossborder payment systems. The European banking federations have now agreed to implement the Commission's User Charter. Under the Charter the banks agreed to provide users with information as to payment services available, their costs and a redress procedure (with particular emphasis on the possibility of redress for small and medium enterprises). The aim is to achieve the same speed and reliability for cross-border payments as for domestic payments by the final stage of the European Monetary Union. Discussions arecurrently ongoing as to whether it is necessary to adopt binding le-gislation in the form of a Banking Directive on Transparen-cy, the Commission preferring to maintain a more flexible, less restraining means while consumer groups advocate statutory rules.

With respect to the free movement of capital, the EEA Agreement extends the provisions of the EEC Treaty to in-clude the complete freedom of movement of capital and payment as provided for in the Directive 88/361/EEC. Furthermore, special provisions had to be included as to exchange rate policies inasmuch as the EEA Agreement does not require the EFTA countries to adhere to the Communities' monetary discipline required by the Maastricht Treaty.

For the most recent Community developments in this area, see further sectionIV B 3.4.

IV. B. SINGLE MARKET

1. General : the Single Market v. the Common Market

The "single or internal market" is a new legal concept. Though not mentioned in the original EEC Treaty, as a political concept it figured increasingly in pronouncements by the European Council, culminating in the Commission's White Paper "Completing the Internal Market". (White Paper from the Commission to the European Council, June 1985, COM (85) 310 final). Article 8A of the Single European Act expressly restricts the concept of the "internal market" virtually exclusively to the four fundamental freedoms of movement of goods, per-sons, services and capital. The notion of "internal or sin-gle market" is therefore narrower than that of the "common market" in the EEC Treaty and in case law. The EEC Treaty, for instance, encompasses a common commercial policy and coordination of economic policies as well.

2. Single European Act, 1992 and White Paper

In fact, however, there is nothing new in the basic idea behind "1992". By the beginning of the 1980s it had become clear that the initial impetus of the 1957 Treaty was lost and fresh initiatives had to be taken in order to succeed in establishing a fully integrated market.

At a summit meeting held in Brussels in March 1985, the Council declared that particular emphasis should be placed on: "Action to achieve a single large market by 1992 thereby creating a more favourable environment for stimulating enterprise, competition and trade".

The Council asked the Commission to draw up a detailed program with a specific timetable for the completion of a single market. Thereafter, the Commission published its White Paper containing some 300 proposed directives necessary for the completion of the internal market and a timetable indicating how the programme was to be achieved by the end of 1992. The White Paper identified three categories of barriers to be removed by the end of 1992: physical, technical and fiscal. Ninety-five per cent of the White Paper proposals have been adopted in time for the December 31, 1992, deadline.

The second major step was the Intergovernmental Conference which agreed to a number of amendments to the Treaty of Rome in order to facilitate the achievement of the single market. This resulted in the signing of the Single European Act (SEA)    effective July 1, 1987.

The SEA introduced major changes in the legislative process by eliminating a Member State's veto power over "1992" mea-sures before the Council; they may be adopted by a qualified majority, excluding the fields of taxation, free movement of persons and rights and interests of employees. The SEA also contained provisions enlarging the scope of the EEC treaty to, inter alia, social policy, research and technology, environmental policy and consumer protection.

3. Removal of barriers

3.1 Physical barriers

December 31, 1992, marked the end of all systematic frontier checks within the Community. Fiscal controls at borders have been replaced by accounting require ments at the business premises of both supplier and purchaser (see further section IV.A. 5.3).

Goods imported from outside the Community still have to pass customs. Customs formalities are covered by Regulation 4151/88/EEC and in October 1992 the Council adapted the Regulation establishing a Community Customs Code to guarantee homogeneity at the Community's external borders. The code aims to bring together in a single and coherent body the general rules and all the regimes and procedures applicable to goods which are the subject of trade

between the Community and third countries. Besides being an instrument of consideration and transparency for the Community's customs legislation, it also introduces the right of ap-peal against decisions taken in customs matters. The code as a whole comes into effect on January 1, 1994, with the exemption of the measures concerning exports and export declarations which came into effect from January 1, 1993.

Furthermore Regulation 339/93/EEC governs customs authorities measures on external frontier checks as to the imported products safety. Where the product displays "certain characteristics which would give rise to a serious and immediate risk to health or safety", the release of such product may be prohibited.

3.2. Technical barriers

3.2.1.

Harmonization of Standards

Standards for most products are issued by centralized national standards   institutes of the various Member States. Under the present system where European stan-dards are available, they are issued by the European Committees CEN and CENELEC, and then adopted uniformly in each Member State. The initial efforts of the EEC to remove the barriers caused by different standards were based upon a policy of harmonization and approximation. In 1984, the Council introduced a "New Approach" requiring that mandatory harmonizing directives be limited to establishing essential safety requirements or other performance re-quirements in the public interest, while leaving the technical details to the European Standards organizations. Products manufactured in conformity with the technical specifications outlined by CEN and CENELEC may carry a "CE-mark", and are presumed to conform to the essential requirements of the Directives and are entitled to circulate freely within the EC. This CE-mark indicates that a product conforms with all applicable Community Regulations which lay down the Community procedures for attesting to the conformity with Community requirements. The person who affixes the CE-mark assumes responsibility for such conformity. As yet in draft form is a proposal for a Regulation concerning the affixing and use of the CE-mark.

3.2.2. Sectoral harmonization

A large number of directives have been either adopted or proposed dealing with technical specifications or harmonized product-standards for various categories of products, the most important being the directives on toy safety, machine safety and gas appliances.

3.3. Public Procurement

The EC divides public procurement in two sectors: supplies of goods and works. For both sectors, directives have been adopted giving the basic rules for ad-vertizing bids, technical specifications, tendering procedures and award criteria. A separate Directive lays down procedures to address infringements of existing legislation. These Directives do not apply to the so-called "excluded sectors": water, transport, energy and telecommunications. Those sectors are covered by another Directive under which contracts are to be awarded on the basis of the most economically advanta-geous bid or the lowest price received.

Another Directive covers the award of public service contracts or concessions whose estimated value, net of VAT, is not less. Service contracts have been broadly defined so as to include all contracts which are not yet covered by existing Community legislation (with certain exceptions). A distinction is made between "priority" and "residual" services, the former being those which should or can be provided more easily across borders and need to be opened up to competition immediately while the latter need not yet be liberalized (e.g. Legal services, personnel placement servi-ces, catering and educational services). Although the EC has taken important steps to open up the public procurement market for non-EC bidders, such firms should nevertheless be aware of provisions permitting rejection of bids for goods which have an "EC content" lower than 50 percent. Currently under discussion between the US and EC is this provision as well as a provision allowing awarding authorities to give preference to an EC bid if its price is not three percent over a non-EC bid.

3.4. Financial Services and capital movements

With the entry into force of the SEA, renewed initiatives were taken aimed at facilitating the free establishment of financial institutions and providing a wide range of financial services throughout the EC. The numerous regulations and high degree of fragmentation in the Member States form a significant obstacle.

Of special interest to non-EC firms is the issue of reciprocity. A reciprocity clause is included in the Second Banking Directive, which (together with the solvency ratio and own-funds Directives) provides for a single EC-wide banking license on the basis of the principle of home country control. This Directive en-tered into force on January 1, 1993, and enables a bank established in one Member State to open a branch in another, without host country authorization, and to pursue abroad all the activities allowed by the legislation of its home country. The reciprocity clause aims to ensure that EC credit institutions are offered the same competitive opportunities as are available to domestic credit institutions. Where this is not the case, the Commission is to request a mandate from the Council to enter into negotiations to remedy the situation. The reciprocity aspects are subject to conformity with international Treaty obligations.

A Directive on the accounts of bank branches, which entered into force on January 1, 1991, relieves bank branches with non-EC headquarters from having to publish their own annual accounts, and permits instead their publishing the institution's overall financial statements, providing they use accounting standards which are equivalent to the EC-standards. The Directive also requires reciprocity. In the field of investments services, there is a pro-posal for a Directive which, like the second Banking Directive, would provide for a single license for financial institutions wishing to provide investment services in the Community with home state control, and for the principle of mutual recognition of minimal prudential and supervisory standards. It also contains provisions with regards to reciprocity with third countries.  Furthermore there are Directives on the Mutual Recognition of Stock Exchange Listing Particulars, the prevention of money laundering and insider trading.

Currently pending is a proposal for a Directive on capital adequacy of investment firms and credit institutions. This proposal is aimed at coordinating the rules governing start-up capital and on-going capital requirements for different categories of risk of non-bank investment firms, though its scope is not limited to non-bank investment firms. Many of the main risks dealt with in the proposal apply to credit institutions' traditional activities as well as their investment business. There is also a draft Directive which would allow cross border pension fund investment and management.

In the field of capital movements, two liberalization Directives are in force. A proposal has been made for a Directive introducing a common system of withholding tax on interest income, the key to rounding off the existing Directives but at the same time one of the most controversial issues. In the insurance sector, there are several Directives dealing with non-life insurance services (insurance covering direct risks other than life insurance)

which provide for the freedom of establishment, setting con-ditions for supervision and giving detailed rules re-garding the applicable law to the contracts and the indirect tax and para-fiscal regime. The third Non-Life Insurance Services Directive is very similar to the Second Banking Directive coordinating the essential rules on prudential and financial supervision, with home country authorization. This last Directive is to be implemented by July 1, 1994. The Directives themselves do not have a reciprocity clause, however, they were introduced by the Third Motor Liability Directive for the entire non-life insurance sector.

A Directive dealing with life insurance was adopted in November 1990 and must be implemented by mid-1993 (though there are transitional measures for Spain, Greece and Portugal). This Directive establishes the freedom of companies to provide life insurance services in a Member State other than that in which they are established without prior authorization. The principle of home country authorization is, however, undermined by the provision that policy holders must seek to buy insurance in another Member State on their own initiative. The reciprocity provisions mirror those of the Second Banking Directive.

3.5. Corporate and corporate tax law

The existing patchwork of various laws on companies and their taxation in EC Member States forms an ob-stacle to cross border cooperation between companies. In an effort to harmonize these rules, the EC has adopted eleven company law Directives and there are three proposed Directives which are still pending.

Adopted are, inter alia, Directives on: disclosure of corporate information (1st), on formation and capitalization (2nd), on mergers between public limited liability companies (3rd), on the division of public companies by sale of assets (6th), onaccounts and audits (4th, 7th and 8th), on single member private limited companies (12th), and the 11th concerning disclosure requirements in respect of branches, including those established by non-EC firms. Noteworthy in this respect is the assurance, given by the Commission in negotiating the 11th Directive, that it will recognize the equivalence of United States and European accounting standards.

The outstanding Directives deal with controversial is-sues concerning the structure of public limited liabi-lity companies and the powers and obligations of their organs (5th), take-overs and other general bids (13th), and cross-border mergers of public limited liability companies (10th). The 9th Directive, not yet proposed, will deal with relations between underta-kings in a group.

The issue of worker participation is a major obstacle. This highly controversial issue is also dealt with in the proposed Directive on employee participation in the so-called "European Company" ("S.E." or "Societas Europea"), a notion that first appeared officially in a 1970 Commission Proposal. From 1982 to 1987, the draft European Company Statute received little attention. Discussions were taken up again to facilitate and stimulate trans-border cooperation between enterprises in Europe.

The latest proposal was revised and published by the Commission in May 1991. The draft Regulation proposes two management structures, the choice being left to the founding companies of the S.E.: a two-tier structure consisting of a managing board with a supervisory board monitoring its activities, or a single-tier structure with an administrative board including representatives of the general meeting of shareholders and employees (where employee participation is chosen).

The proposed statute, although intended to create a single European business entity that could operate as such throughout the Community, would not quite reach its goal. The S.E. could lead to substantial administrative savings and facilitate European-wide management. The European Company as currently envisioned will be subject to the tax law of the Member State in which it is established. The disparities between current tax systems of the various Member States will therefore prevent a true financial integration with an EC-wide balance sheet (see further section IV B 5.2.).

The present draft Statute provides for the possibility to offset the combined losses made by branches in a Member State or a non-member State against the European Company's profits in the State where it is resident for tax purposes. Subsequent profits of such branches are in turn to be added to the European Company's profits up to the amount of losses earlier deducted.

The draft Regulation on the S.E. is complemented by a draft Directive on employee participation. The Directive puts forward three models of employee involvement and it is for the Member State to make provisions in its implementing legislation for a standard model of representation, conforming to the most advanced practice in that Member State. As currently conceived the S.E. has lost a lot of sup-port due to its insufficiently developed tax aspects and its employee involvement requirements, which could result in European worker participation and Euro-collective bargaining.

A second supra-national entity, based on a Regulation which entered into force on July 1, 1989, is the European Economic Interest Grouping (EEIG). Companies from separate Member States may establish an EEIG by contract and subsequent registration in order to permit members to operate under a single name, and to permit coordination of activities within the sphere of the EEIG. Its activities must be ancillary to the main activities of its members and cannot be aimed at the main activities of profit-making. Furthermore, it may not employ  more than 500 persons and, as in a partnership, its members remain jointly and severally liable for the debts of the EEIG.

Besides the S.E. and EEIG, there are currently other Regulations under discussion creating such legal entities as: (1) European Cooperative Societies, which are to have the object of developing their members' economic and social activities; (2) European Mutual Socie-ties which would engage in such activities as providence, insurance, health care systems or credit, (3) European Associations, being non-profit organizations whose members have come together for a general interest purpose or to promote the trade or professional interests of its members.

Product Liability

Following the debates on the Maastricht Treaty, there has been more awareness of the individuals within the single market. Various measures have been taken to im-prove pan-European consumer protection. In June 1992, a Directive on General Product Safety was adopted, with a deadline for implementation in June 1994. It introduces an obligation on Member States to ensure that only products certified as being safe are produced and marketed, and it covers all products inten-ded for consumer use. Where the manufacturer is not established in the EC, either his EC representative or the importer of the product will be held responsible.

Since 1988, strict liability may be imposed on the producer of defective goods. This liability without fault primarily covers industrially produced goods, though the Member States were allowed to include agricultural products in their national implementing le-gislation by way of derogation. A special Regulation to cover the checks for conformity with the rules on Product Safety was adopted in December 1992 to harmonize the procedures in the case of products imported from third countries. Basically, national authorities are responsible for monitoring the market and prohibiting the release of products which may pose a serious and immediate risk to health or safety.

Corporate tax law

Notwithstanding the importance of a harmonized directtax policy, it was not until mid-1990 before significant progress could be made in this area. The main ob-stacles were national interests and the requirement of unanimity in Council decisions in the field of taxation. Since 1990, the Council chose a new strategy in the field of company taxation, based upon the approximation, rather than harmonization, of national taxation systems. The new initiatives aim to remove tax obstacles in cross-border operations. In 1990 two Directives were adopted.

The Parent and Subsidiaries Directive aims at eliminating double taxation on profit distributions by a subsidiary to its parent company in another Member State. The Mergers Tax Directive applies to mergers, divisions, transfers of assets and exchanges of shares between companies established in different Member States. The Directives were to have been implemented by January 1, 1992.

A Convention on Double Taxation establishes an arbitration procedure aimed at ensuring that any double taxation is eliminated in connection with the adjustment of profits of associated enterprises. The Convention will enter into force when ratified in each Member State. Unfortunately, not all Member States have fully implemented the Directives nor ratified the Convention. Besides these, pending adoption by the Council, are Directives on the possibility for related companies to offset profits made in one Member State against losses incurred in another, and on the abolition of withholding tax on royalties and interest payments between related companies in different member states.

3.6. Intellectual Property

Both the scope and protection of intellectual property rights vary widely among the Member States of the EC. The Commission is developing a Community-wide approach. With respect to trademarks, a Directive designed to approximate the national laws was adopted in December 1988, to be implemented by the end of 1991. In addition, a Regulation has been proposed to establish a single Community Trademark valid throughout the Community and to set up a Community Trademark Office. The proposed Community Trademark offers certain advantages.

It would avoid a multiplicity of national procedures as well as the risk of cancellation of a national registration from a prolonged period of disuse in that particular country. A registration, however, could be blocked by opposition of a third party with a conflicting ownership claim in one or more of the Member States. The success of the Community Trademark will depend upon whether the compulsory search at EC and national level, as provided for in the present proposal, will be maintained. National trademark registrations will continue to exist alongside the Community Trademarks. Discus-sions on the Directive are blocked mainly because of the linguistic regime for the future office. The Regulation would be backed by a second Implementing Regulation laying down streamlined formalities on the application or registration of a trademark and to ensure the rapid completion of procedures.

In the field of patents, the Community took a first step forward in 1973 by adopting the European Patent Convention, permitting a control system for patent applications and registrations. The Community Patent Convention ("CPC"), signed in 1975, provides for the creation of a single Community Patent as a complement to the national systems. The CPC still awaits ratification by Member States to enter into force. Various inter-governmental conferences have been held on the Community Patent since the Convention was signed in 1975.

A draft Protocol was released in February 1992 modifying the conditions of entry into force and postponing instituting the Community Patent until 1996. The problem with ratification lies in the fact that Ireland and Denmark have certain constitutional ob-stacles with the Convention. The draft Protocol suggests the Community Patent should come into force without these Member States, but there is some resistance to this.

Still to be proposed by the Commission is a Community Patents Appeal Court (COPAC) which is mentioned in the Protocol to the CPC.  Early in 1989, the Commission proposed a Directive on the legal protection of biotechnical inventions, de-signed to harmonize patent protection of biotechnical inventions. Patent protection will be offered to mi-crobiological processes or products but not to plant or animal varieties as such. If the draft Directive is adopted as it stands, the degree of protection for plants and plant materials would be far inferior in the EC to that already available in the US and that which will probably be available in Japan.

The proposed Directive is currently being studied by the Parliament as to whether it is compatible with the Treaty on Biological Diversity and in conjunction with the proposed Regulation on plant breeders' right. It is expected to be adopted sometime in 1993. Regarding copyright, the Commission issued a "Green Paper on Copyright and the Challenge of Technology" in June 1988 dealing with a number of specific copyright issues: piracy, pricing, audio-visual home copying, distribution rights, exhaustion and rental rights, data bases and computer programs. In addition, the Paper reviews the role of the Community in the international perspective, which is reflected in its position in the GATT's TRIP (Trade Related Intellectual Property) negotiations . In each of the copyright areas, the Commission proposed measures to be taken in the Green Paper. So far only the Directive on the legal protection of computer programs, providing for copyright protection of computer programs has been adopted and was to have been implemented by the Member States by January 1, 1993. It is similar to the protection of literary works by the Berne Copyright Convention.

Various other Directives have been or are proposed in the field of copyright, relating to such matters as (1) satellite broadcasting and cable transmission, (2) rental and lending rights and (3) home copying of sound and audiovisual recordings. With respect to database protection, there are two proposals. One of the proposals is a Directive on protection of personal data and aims at the harmonization of data protection laws in the Member States, ensuring the right to privacy and guaranteeing the free circulation of personal data. The other proposed Directive is on the legal protection of the copyright of original data which would secure remuneration for the author of a database. The legal regime the proposal introduces is substantially different from the protection afforded to databases in the US where the Supreme Court has rejected the "sweat of the brow" doctrine.

In response to the pressure from the United States, the Community issued a harmonization Directive on the protection of semi-conductor topologies. The Directive creates a new form or right, distinct from any patent or copyrightprotection, requiring Member States to enact laws protecting the topologies infavour of EC nationals and residents and firms established in the EC. MemberStates are permitted to negotiate and enter into conventions with third countries. When such an agreement would extend protection differing from the Directive,however, the Commission must be notified.

4. New Policy Areas

4.1. Economic and monetary policy

In 1969, the political leaders of the Community laun-ched an initiative foreconomic and monetary union ("EMU"). Although little progress was made in the1970's, establishment in March 1979 of the European Monetary System ("EMS")gave a new dimension to European monetary cooperation. Its purpose was tocreate a zone of monetary stability in Europe as free as possible from aberrantcurrency fluctuations. The EMS seeks to achieve its objectives of internal (price)and external (exchange rate) stability by means of a system of fixed but adjustable guidance rates resting on a variety of intervention and creditmechanisms. Within the system, the European Currency Unit "ECU" plays a central role.

The Single European Act sought to revive the goal of economic and monetaryunion by writing into the Treaty a binding commitment on the part of the MemberStates to work progressively to realize the goal. A committee of experts chaired by Jacques Delors, the President of the Commission, drafted a document known as the "Delors-Plan".

This plan envisioned the establishment of economic and monetary union in three stages. The first step, which was started in July 1990, was to bring the BritishPound Sterling, the Greek Drachma, the Portuguese Escudo and the SpanishPeseta into the exchange rate mechanism ("ERM") of the European Monetary System by mid-1990 so that it covers all the Community currencies. This was thecase for a while, but in September 1992, both the British Pound and the ItalianLira were withdrawn from the ERM and they may yet be followed by other currencies as the cost and effects of German unification and recession are felt throughout the rest of Europe. Also as part of stage one, the economic policy in the member countries was to be more closely coordinated than in the past. The second stage involved the adoption of new treaties gradually transferring national powers in the areas of fiscal, monetary and exchange-rate policy to the Community institutions. In the third and final stage, an independent central bank system would be set up ("Eurofed"), paving the way for the introduction of fixed exchange rates (or a single currency).

On signing the Maastricht Treaty the Member States confirmed their commitment to begin the second stage by January 1, 1994. The intention was to establish a European Monetary Institute (EMI) composed of the governors of the Member States central banks who would strengthen coordination of national monetary policies and lay down the groundwork for a single monetary authority. According to this plan, by July 1998, the EMI is to be superseded by a new European System of Central Banks (ESCB) which consists of a European Central Bank (ECB) and the individual Member State's central banks. Currently, there is growing concern about the deterio-ration in the Community economy with the average bud-get deficit of the Community in 1992 at its highest level ever and rising unemployment. The implementation of the convergence programs in the Member States is facing problems, so while the political desire might be there, economic reality has thrown up hurdles.

4.2. Regional Policy

In the SEA of 1987, besides the new priority of the internal market, there was also, recognized need to strengthen the economic and social cohesion of the Community. The SEA included a new title to the EEC Treaty dealing with this aim of "reducing the disparities between the various regions and the backwardness of the least-favoured regions" (Article 130A). To redress these imbalances the Community has various European Structural funds, such as the European Regio-nal Development Fund (ERDF) and the European Social Fund (ESF).

The Maastricht Treaty reconfirms the need to boost economic and social cohesion and sets up a Cohesion Fund to alleviate problems facing countries whose GNP is below 90 percent of the Community average (Ireland, Portugal, Spain and Greece). These Member States will receive significant aid for transportation infrastructure and to implement environmental protection measu-res. Also at the Maastricht Summit, the heads of government agreed to increase the budget of the structural funds and to set up a Committee of the Regions which will give a new dimension to the representation of the re-gions at a European level. This Committee will be used as a consultative body by the European Council and Commission on aspects of regional development and planning.

4.3. Research and Development (R & D)

Article 130F of the Treaty stresses the need for a Community Policy in the field of R&D in order to strengthen the scientific and technological basis of European Industry and encourage it to become more competitive at an international level.  The Community is currently in its third R & D framework programme (Council Directive 90/221/EEC;1990-1994) which emphasizes three main areas: enabling technologies (information and communications technologies); management of natural resources (by environment and energy) and management of intellectual re-sources (human capital and mobility). A fourth R & D framework programme (1994-1998) is now being discussed.

The framework programs operate through specific programs regarding the separate activities. As such the Council has adopted all fifteen specific programs which compose the third framework programs. Examples of these specific programs are: the ESPRIT III, (a research and development program for the information technology sector), BRITE/EURAM (on Basic Research in the field of industrial manufacturing technologies and advanced materials applications), and JOULE, (an R & D program in the field of energy, non-nuclear energies and rational use of energy). For European companies of American parentage, Joule has the advantage of more relaxed participation rules than U/C Esprit or BRITE. The amount of the annual financial contribution by the EC is established under the budgetary procedure.

4.4. Telecommunications

This very important sector was not included in the Internal Market White Paper. Instead, in 1987, the Commission issued a Green Paper on the development of the common market for telecommunications services and equipment. This paper is a comprehensive document, which analyses the future direction of telecommunications in the Community, and contains recommendations to the Member States for policy reforms in this sector and an examination of the main areas for Community action such as complete freedom of access, separation of regulations and operational functions and opening of the terminal market to competition. Follow-up actions, together with a time-table, were announced in the Commission's progress report.

Progress has been made through the proposed Directive on the opening of the markets for terminal equipment, requiring national Telecom Administrations to allow and ensure that other suppliers, including third country companies, can compete for sales of this equipment after 1990, as well as through the recent adoption of Directives on the liberalization of telecom services; and on the Open Network Provision ("ONP").

This last Directive creates a legislative framework for the harmonization of conditions for open access and use of public telecommunications networks and services offered by telecommunication organizations pursuant to special or exclusive rights. The development of conditions of ONPs must comply with a number of ba-sic principles such as objectivity, transparency and equality of access. Certain essential requirements, including security, integrity, interoperability of services and data-protection, have to be met. Member States were required to comply with the Directive by January 1, 1991. However, as of writing the Commission had failed to receive notification from half of the Member States.

The potential impact of the ONP Directive will depend upon the manner in which the detailed ONP conditions will be formulated. While the terminal equipment Directive does not re-strict or otherwise require reciprocity in terminal trade, the market for telecom services and ONP access connections may be restricted for non-EC firms or ma-de dependent upon reciprocal market access in such non-EC countries.

The Commission has circulated draft guidelines for the application of competition rules in the telecommunications sector.  In 1990, the Commission prepared a Green Paper on a common approach in the field of Satellite Communications, for both equipment and services. The primary objectives recommended by the Green Paper were to stem the tide of divergent national legislation as the Member States liberalize parts of their satellite communication sectors on their own initiative and further to prepare the Community to take a role in the emerging satellite communications needs of Eastern Europe.

This was followed by an action plan included in a Council Resolution of December 1991. The plan of action aims at a competition-oriented EC-wide satellite communications market.

4.5. Environmental policy

The SEA added a new Title VII on environment to the EEC Treaty. The objectives of Community action in the environment area are: 

- to preserve, protect and improve the quality of the environment;
- to contribute towards protecting human health; and
- to ensure a prudent and national utilization of natural resources.

While the SEA gave a legal basis for Community environmental measures, the Maastricht Treaty not only reconfirms the objectives (Article 130A) but seeks toensure a growing concern for the environment and ex-plicitly ranks environmental issues equally with the other policies of the Community.

Action is to be based on the principles that:

- preventive action should be taken;
- damages should as a rule be rectified at the source; and
- the polluter should pay.

In environmental matters, the Commission shall take as a base a high level ofprotection. Member States are permitted to maintain and introduce more stringent protective measures, provided that they deal directly with environmental concerns and do not form an unjustifiable obstacle to the free movement of goods.

In May 1990, a Regulation was passed to establish a European Environmental Agency and a European environmental information and observation network. Their aim is to provide technical and scientific support to the Community and its Member States in the area of environmental protection. The Agency will provide them with information as to the state of the environment. The actual entry into force of the Regulation is held up by discussions as to where the seat of the European Environmental Agency is to be.

To guarantee natural and legal persons the right to information on the environment, a Directive was adop-ted in June 1990. The Directive covers all data of a factual or legal nature held by public authorities, which should be provided at the latest within two months of the request. The Member State may however refuse a request for information where it affects secrecy or security. Regulations concerning the management of waste (treatment, disposal and transportation) are of particular interest to companies doing business in the EC.

The Council adopted a transportation Directive providing that the producer of hazardous waste is responsible for the wastes until their disposal. This producer is strictly liable for any damage caused by the waste to a third party. A proposed Regulation sets out tight rules for the supervision and control of cross-border shipments of waste within, into and out of the Community introducing a prior authorizations regime.

Another Directive provides rules for the disposal of all waste, both recyclable and non-recyclable. Companies producing, holding or disposing of hazardous waste will be subject to regular inspections and will have to keep detailed records.

A draft Directive first proposed in 1989 on civil liability for damages caused by waste aims to establish a system whereby a producer and an importer of waste in the EC may be held jointly and severally liable for damage caused to the environment, to property or to individuals. A government licence cannot exonerate them, nor can their liability be limited or discharged by contract.

In case of disposal of the waste by an authorized disposal undertaking, the latter becomes liable to the producer if damage occurs for which the disposer is at fault. Further action on the proposal awaits a Community policy decision as to how best to approach environment liability either in the context of a broader liability system (as apparently proposed in a, as yet unpublished Green Paper) or abandoning it in favour of a 'Europe Convention' which is being draf-ted by the Council of Europe on liability for damage resulting from activities dangerous to the environment.

In 1992 the Council adopted a Regulation establishing a common notification system covering the export from and import to the Community of certain dangerous che-micals which are already banned or severely restricted within the Community. Furthermore there is a Directive relating to the classification, packaging and label-ling of dangerous preparations which has now been amended seven times (the last time in April 1992, to enter into force October 1993). Within the scope of the Directive are substances which may be sensitizing or dangerous to the environment.

The Commission has drafted a proposal for a Fifth Community Environmental Action Program. This places great emphasis on the need to 'price' the environment. The Community powers in this area are covered by the new Article 130s of the Maastricht Treaty which gives the power to adopt laws imposing environmental taxes. Thus, fiscal instruments would be used to influence the behaviour of economic agents in an environmentally favourable way.

4.6. Consumer Protection

The protection of consumer interests is not included as a separate policy in the SEA, but forms a part of other policies. In December 1992, the Commission published a report on "Consumer Policy in the European Community - An Overview", which sets out its achievements to date in this field and its future intention to put the interests of the individual high on the agenda. The protection of consumers is a manifestation of this.

Now directives have been issued concerning consumer credit, on contracts negotiated away from business premises, misleading advertising, product liability (see Section IV. B. 3.5.), on the harmonization of packaging and labelling of products as well as several others.

In June 1992, the Council adopted a Directive on Gene-ral Product Safety, which aims at protecting consumers by imposing liability on manufacturers (or, where they are not established in the Community, on either their EC representative or the importer) for supplying products which do not fulfill the safety requirements. Products will be deemed safe if they comply with the national laws as to health and safety of the Member State in whose territory the product is circulated. The Member States have until June 28, 1994, to adopt the necessary legislation to comply with the Directive.

The Commission has also proposed a Directive on liabi-lity for services. As drafted, the Directive covers all services to businesses with the exception of public services, package travel services and services in the health care andconstruction sectors.

4.7. Broadcasting

In October 1989, the controversial Directive on Trans-border Broadcasting:"Television without Frontiers", was finally adopted after some three years of discussion. The purpose of the Directive is to permit television broadcasts whichcomply with the requirements, as set out in the Directive, to be received andtransmitted freely in all Member States. The Directive sets rules for advertising, sponsorship of programs and establishes a right of reply.

The most sensitive topic in the Directive is the re-quirement of European local content in programming. The original proposal set a 60 percent minimum. In its final text, the Directive requires a simple majority (50%) of local European content; moreover the Annex states that the articles concerning the attainment of a majority European content are politically, and not legally, binding on the Member States.

5. Fiscal Barriers

5.1. General

The EEC Treaty does not provide for uniform taxation throughout the Community. The vast differences between taxation rates, bases and systems however, create barriers to cross-border transactions.  The harmonization of national tax differences is a slow and difficult process. Any legislation dealing with the harmonization of taxation still requires an absolute majority in the Council. Moreover, it is one of the most politically explosive issues of the EC's internal market program as tax issues are seen to strike at the heart of Member States' sovereignty and national coffers. An assessment needed to be made of the distortive ef-fect, if any that the different taxation in Member States had on investment decisions and competition, and what Community action was needed to eliminate such distortion.

Therefore in April 1990, an independent committee of experts was given a mandate to make an assessment of company taxation. This Committee (commonly named after its chairman Onno Ruding) published its conclusions and recommendations in March 1992. The Ruding Committee felt that while total tax harmonization was not justified at this stage, it proposed recommendations to be implemented during three phases; phase I to begin by the end of 1994, and phases II and III to run parallel to the implementation of phases II and III of the EMU (by 1996 and 1999 respectively).

In very simple terms, its recommendations consisted of (1) abolition of such features of cross-border taxation which disrupt cross-border investment and shareholding (including extension of the Parent Subsidiary Directive, (mentioned previously in section 3.5) and a proposal for a uniform withholding tax of 30 percent on dividend distribution not covered by the Parent-Subsidiary Directive; (2) harmonisation of corporate taxation rates, bases and systems; (3) transparency of any incentive or promotion aimed at increasing investment and (4) setting up an independent group of technical experts.

5.2 Direct Taxation

Currently corporate tax rates within the EC range from a high of 50 percent in Denmark to a low of 34 percent in Luxembourg .In July 1992, the Commission adopted new guidelines on company taxation reflecting its position on the recommendations of the Ruding Committee. With respect to the recommendations as to the rates, the tax base and the system of corporate taxation, the Commission be-lieves these go too far, taking into account the subsidiarity participate. Debate on a single tax regime is expected to continue this decade.

The Commission wants to give priority to eliminating double taxation of cross-border operations. In this field the Council had already adopted three corporate tax measures in July 1990. These are aimed at eliminating the double taxation burden and a further two measures in 1991 which came into effect January 1992 and January 1993 respectively.

5.3 VAT

In 1987, the Commission proposed a package of measures on VAT, featuring the harmonization of VAT rates and a VAT clearing system.  These proposals were based on thorough harmonization of indirect taxation throughout the Community, both as regards VAT and excise-duty rates and as regards the VAT-system itself. Since the beginning of 1989, the Commission gave priority to dismantling frontier checks by January 1, 1993, this being the main objective of the Single Market exercise. After much discussion, a Directive and two Regulations were passed by the Council which are now in force.

Briefly, the Directive requires VAT not to be paid at importation (as since January 1, 1993, there are no more fiscal controls at borders) but to be an accounting exercise. Provided the customer's VAT is quoted on the seller's invoice, then the supply is exempt from V.A.T. and the purchaser must account for tax on the acquisition in his Member State (this is referred to as the "country of origin" system of taxation). The Directive, however, lays down a time for the move to the "country of origin" system of taxation (i.e., sales taxable in the country of supply as opposed to acquisition). The origin system is intended to come into force on January 1, 1997.

The two Regulations deal with intra-Community trade statistics and administrative cooperation in the field of indirect taxation; they were necessary as there are no longer to be any controls at the borders between Member States. Goods imported from outside the EC are still to be subject to import VAT. If they are then sent onto another Member State they will then be subject to acquisition

VAT to be accounted for by book entries. As of January 1, 1993, Member States are to apply a standard rate of VAT of not less than 15 percent during the period in which the transitional arrangements are in operation (January 1, 1993, to December 31, 1996). They may also apply either one or two lower rates of not less than 5 percent for a specified list of goods and services; and the zero rate remains where currently in use (e.g. the United Kingdom) until the origin system is introduced.

5.4 Excise duties

In 1991 and 1990 the Commission defined a general fra-mework for the elimination of all border controls relating to excise-duties as from January 1, 1993. The framework is based upon the principle of subsidiarity. The Member States themselves have to choose the me-thods of implementing the rules established in the Directives proposed by the Commission. In February 1992, a Directive was adopted which lays down arrangements for products subject to excise duty such as cigarettes and tobacco, mineral oils and alcohol and alcoholic beverages.

The Directive sets out when products are subject to excise duties depending upon whether they were produced in the EC or imported into the EC. It also stipulates when and where the du-ties are payable, i.e. when released for consumption. This is generally in the country of destination. The Directive provides for a suspension of duty where products are processed and held in the tax warehousing system.

Specific Directives relating to the above-mentioned products were adopted during the EcoFin Council of October 1992 harmonising the structures of the excise duties charged on the products in the Member States. The basis of calculation is the retail selling price. While their adoption makes a great step forward to-wards ensuring the free movement of goods, the direc-tives will not necessarily prevent substantial differences in the duty levels in the Member  States because they only set the minimum rates and allow certain countries transitional periods of two years. By way of illustration, Directive 92/79/EEC on the approximation of cigarette prices requires that from January 1, 1993, the minimum excise duty on the most popular price category of cigarette in each Member State is to be at least 57 percent of the retail price (all taxes included).   Spain was granted a two year derogation by the Directive.

V. COMPETITION POLICY AND STATE AIDS

1. Competition

1.1. EC v. United States antitrust policy

When comparing the EC and United States antitrust policy, one should bear in mind that the primary objective of EC antitrust ("competition") policy is that of the Treaty itself: market integration.  Another source for the significant contrasts between the EC and United States laws is the difference in the formulation of what is meant by "competition". In the EC, social and political values play a far greater role and the economic component of competition policy differs following the development in the United States of the Chicago School approach. Major differences be-tween the two systems are:

a) Enforcement systems: highly centralized in the EC and decentralized inthe United States.

b) Procedure: the EC procedures are less formal, the EC lacks evidentiaryrules.

c) Definition of "restriction of competition" under Article 85 (1) and "restraintof trade" under Section 7 of the Sherman Act: in the United States a shifttakes place from the "per se" rules to the "rule of reason" analysis, whilein the EC the Commission interprets the prohibition of Article 85 (1) verybroadly. Much of the rule of reason analysis is reserved for exemptionsunder Article 85 (3).

d) Vertical restraints: in the United States, vertical restraints are treated with increasing tolerance, while the EC approach remains very strict, maintaining, inter alia, a "per se" rule with respect to absolute territorial restrictions.

e) Monopolization and abuse of dominant position: the policy objectives under Section 2 of the Sherman Act are narrower than those under Article 86, which takes market intervention and fairness into consideration.

f) Definition of relevant market: notwithstanding an approach that is rather similar, a difference exists inasmuch as the EC does not use the sub market concept and is often willing to limit the relevant market to the supplier's own products.

g) Dominant position v. monopoly power: the definition of a dominant position as developed by the ECJ includes elements of independent behaviour and prevention of effective competition, while monopoly power in the United States is usually more narrowly defined as the power to control prices or exclude competition. In both the United States and EC, however, the Courts look closely at the market shares.

1.2. Application of EC antitrust law to third countries

The jurisdictional sweep of EC competition law is very broad. The prohibition of Article 85(1) pertains to any agreement which has an effect upon trade between Member States, whatever the nationality or the territorial location of the undertakings concerned. Agreements involving trade into or out of the EC may nevertheless have an effect upon intra-Community trade and therefore fall within the scope of 85(1). This will often be the case with agreements restricting im-ports and only seldom with agreements relating exclu-sively to trade outside the Community (restrictions in respect of exports to third countries), although the likelihood of goods being re-imported into the Community should always be considered.

In its landmark decision, in the so called "Wood Pulp" case, the ECJ stated that the Commission can exercise jurisdiction irrespective of the place of establishment of the defendant when the defendant's conduct has an effect, actual or potential, within the Community. The conduct of a subsidiary is imputed to the parent, and parent companies can be joined as co-defendants in proceedings against the subsidiary. They can also be fined.

In case of a dispute in a Court of a third country over an agreement with effects in the Community, Articles 85 and 86 may be legitimately raised in that third country court, if the agreement is subject to the laws of one of the Member States. If the agreement is governed by the laws of a third country, the application of EC antitrust rules will depend upon the ru-les of conflict of law applied bythe foreign court in question. Many jurisdictions will refuse to enforce an agreement which is unlawful under the law of the place of performance.

In September 1991, a US-EC Agreement was signed regarding Consultation and Cooperation between Competition Authorities. The agreement is purely administrative and does not actually affect the competition laws of the contracting parties themselves. It provides for cooperation by means of notifications to the other parties when actions are taken affecting its important interests, consultation and mutual assistance. Under the principle of "positive comity", where the important interests of one party are being affected by restrictive business conduct in the territory of the other, it may call upon the other party to take enforcement action under its laws.

The agreement also incorporates the principle of "who goes first". Where both parties could take enforcement action regarding an infringement they can agree that only one of them do so. Negotiations are currently taking place with Canada for a similar agreement. As of the time of writing, the US-EC Agreement is being challenged by France, which alleges that the Commission exceeded its powers when entering into the agreement.

1.3. Article 85 and its application

1.3.1. General

Article 85 prohibits agreements between undertakings, decisions by associations of undertakings and concer-ted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market. In particular, the Article precludes, inter alia, agreements that fix prices or trading conditions, limit or control production, share markets or sources of supply, apply discriminatory conditions in equivalent transactions and tying.

Agreements, decisions and concerted practices falling under the scope of Article 85 (1) are automatically null and void (Article 85 (2)), unless they are ex-empted under Article 85 (3) or unless they are considered to have a de minimis effect on interstate trade and competition. In a non-binding Notice, the Commission has given guidelines for the "de minimis rule": the participating parties, including their parents and/or subsidiaries, should have a market share of less than 5 % in the product market for the relevant goods or services in that area of the Community affected by the agreement. In addition, the aggregate annual turnover of the parties should be less than 200 million ECU.

Article 85 (3) lists four cumulative conditions for an exemption. Such an exemption may either be automatic due to the fact that the agreement in question fits into a broad category of exemptions, as defined in va-rious so-called "Block Exemption Regulations", or par-ties may secure individual exemptions by prior application to the Commission (notification). Extensive case law and Commission practice have developed and refined the interpretation of the constituent elements of Article 85.

1.3.2 Vertical agreements

A vertical agreement is an agreement between a supplier and its customer. Vertical agreements often contain restrictions such as a restriction on the seller not to supply goods to anyone except the buyer, a restriction on the buyer not to acquire goods from anyone except the seller and restrictions on the buyer's freedom to determine the resale price or where, or to whom the goods may be resold. At some point, a line must be drawn to determine which restrictions are permitted and which are not.  In most anti-trust systems, this problem is decided on a case by case basis. The United States has approached the problem by developing a distinction between restrictions which are illegal per se and those which are illegal only if they restrict competition to an unreasonable degree -- in other words the so called 'rule of reason'.

Community law takes two approaches. The first, often followed by the Commission, is the broad-brush approach, whereby almost every restriction is regarded as falling under Article 85 (1), to be permitted if at all only under an Article 85 (3) exemption.   The second approach, which involves a kind of rule of reason, interprets Article 85 (1) less broadly. This approach has been developed by the ECJ. It avoids the need for an exemption by excluding certain restrictive agreements from the scope of Article 85 (1).

This dual approach exacerbates the difficulties inhe-rent in most anti-trust analyses when trying to distinguish what is permitted from what is prohibited. Agreements that have been held by the Court of Justice to be restrictive per se include horizontal agreements to fix prices, divide territorial markets, and deal exclusively through agreed channels, and vertical agreements imposing export bans or otherwise restricting the freedom to dispose of the goods.

The EC regulates specific vertical agreements as follows:

a. Agency Agreements

In its Notice on Exclusive Dealing Contracts with Commercial Agents published in 1962, the Commission stated that the nullity provision in Article 85 (2) does not apply to an agreement between a principal and an agent in which the latter agrees, in relation to a specified part of the common market, to procure business, or to close transactions in the name and on behalf of the principal, in circumstances where the agent is not acting as an independent trader on his own account. That view was confirmed by the ECJ.

In the Commission's view, Article 85 (1), also does not apply to an obligation of the principal neither to compete with the agent nor to appoint another agent in the specified territory. The appointment of commercial agents by a dominant undertaking could be considered an abuse un-der Article 86 if it means that foreign competitors are then unable to find other distributors for their products and are left with no choice but to use the same agents as the dominant under taking. If a non-compete provision binding the agent is imposed on him by a dominant underta-king, then it may deny third parties access to the market.

The Commission's 1962 Notice has been overtaken by subsequent case law. The Commission finalized the draft of a new Notice at the end of 1990 in-corporating this new case law. No official noti-ce, however, has been published thus far. In addition, and in stark contrast to the US sys-tem, the Council adopted a Directive giving inde-pendent commercial agents broad protection,

particularly in relation to methods and timing of termination. While effective now in most Member States, this Directive is not due to become effective in the UK and Ireland until 1994.

b. Exclusive Distribution Agreements

In general, Community law considers the anti-competitive effect of exclusive distribution agreements to be outweighed by other considerations. An exclusive distribution agreement is one under which a supplier agrees with a distributor to supply only that distributor in a defined territory. These are caught by Article 85(1), but can be exempt provided they do not attempt to provide absolute territorial protection. Such protection may be given in the form of export bans (restricting sales by other distributors to customers in the contract territory) or by restricting parallel imports (restricting sales by the supplier or other distributors to customers intending to im-port the goods into the territory).

Under Regulation 1983/83, the Commission has granted a block exemption accompanied by a Notice providing guidance on the interpretation of the Regulation, for certain distribution agreements. The only permissable restriction upon the supplier under the block exemption is the obligation not to supply the contract goods to users in the distributor's contract territory.

Restrictions which may be imposed on the distributor are the obligations  to manufacture or distribute goods which compete with the contract goods, to obtain the contract goods for resale only from the supplier, and not to actively seek customers for the contract goods outside the contract territory. Agreements between competing manufacturers are not exempt by the block exemption.

c. Exclusive purchasing agreements for resale.

In principle, Article 85 (1) may apply to these type of agreements, which require a distributor to acquire goods only from a certain supplier. Regulation 1984/83 offers a block exemption. The only permitted restrictions on the reseller under the block exemption are an exclusive purchasing obligation and a non-competition clause with regard to the contract goods. The supplier may only be required not to compete against the reseller. To be exempt, an exclusive purchasing agreement may not be for an indefinite term or for a term of more than 5 years.

d. Franchising

In its Decision in "Pronuptia de Paris v. Schill-galis Case 161/84", the ECJ held that franchise agreements are not per se restrictive of competition. Only certain clauses might fall within the scope of Article 85 (1). A block exemption Regulation (4087/88) has been issued covering both distribution and service franchises, but not including manufacturing. The Regulation permits clauses which are indispensable to prevent the know-how and assistance given by the franchiser to the franchisee from being communicated to competitors. Price setting and market partitioning are precluded.

e. Selective distribution

A selective distribution agreement is where a supplier will only supply certain chosen distributors. This type of agreement is often used in the luxury industry. An important distinction to be made with selective distribution systems is whether the supplier selects his dealers solely on qualitative criteria or on quantitative criteria as well (e.g., density of coverage and intensity of sales effort). Where it is a purely qualitative selection and the dealers are selected solely on the basis of non-discriminating and objective criteria then the system is unobjectionable and does not fall under Art 85 (1).

These criteria must also be reasonably necessary to ensure an adequate distribution of the pro-ducts; all qualified resellers must be admitted and the supplier must not take any measures likely to obstruct parallel imports or exports.

A subjective, quantitative selection is caught by Art 85(1) and may not be exempt. Also not all products may justify a selective distribution system, though they have been approved for such products as jewellery, perfume, medicines, tableware and personal computers. Products that did not justify a selective distributorship system include tobacco, sanitary fixtures and bananas. In the motor-vehicle sector, the Commission has issued a block exemption Regulation for selective distribution.

f. Sub-contracting

In its notice dated December 18, 1978, the Com-mission set out criteria under which subcontracting agreements will fall outside Article 85 (1). A subcontracting agreement typically provides that one firm supplies goods or services to or on behalf of the contractor, in accordance with the latter's instructions. As such, the subcontractor does not appear independently in the market. The agreement is seen as not being caught by Art. 85 (1) because the main restriction in such agreements is an obligation on the subcontractor to supply only the relevant goods or services to the contractor or to others on his behalf. This restriction is justifiable as the contractor must be able to protect the economic value of the technology or equipment it furnishes to the subcontractor.

g. Industrial supply

Exclusive purchasing obligations for industrial use may infringe Article 85 (1) and, under exceptional circumstances (such as unusual duration), supply contracts for specified quantities might even as well. They may, however, be eligible for an exemption under Article 85 (3).

1.3.3. Horizontal Agreements

Horizontal agreements between undertakings at the same level of supply are often caught by Article 85(1) as they tend to include clauses which restrict competition. Article 85(1) explicitly prohibits agreements or concerted practices that 'directly or indirectly fix purchase or selling prices'. Agreements which restrict price competition in respect of goods imported into the EC may also infringe Article 85 (1). With rare exceptions relating to service industries (banking, insurance), no exemption has been granted under Ar-ticle 85 (3) for price fixing agreements.

Exchanges of information, when this includes confidential competitive information on individual undertakings, are like-ly to infringe Article 85 (1) with little possibility for exemption under Article 85 (3). As price is close-ly related to supply, agreements as to  production quo-tas are also considered as restricting competition. Price-fixing cartels can expect very high fines from the Commission. This was demonstrated in the "Polypropylene case" where the Commission imposed fines total-ling ECU 57.85 million (at the time approx. $ 73 mil-lion) on 15 petrochemical producers.

Exemptions may only be given if the agreement forms part of a restructuring, specialization or joint ven-ture agreement. Agreements on the adoption of common technical standards often infringe Article 85 (1), but may be exempted if they fulfill the conditions of Ar-ticle 85 (3). Market sharing agreements, whether at producers' or distributors' level, infringe Article 85 (1). This may also be the case if such agreement is made between parties within and outside the EC if such agreements restrict competition from, or reduce the supply of, imports into the EC. Only for certain types of agreements may market sharing be exempted through a block exemption.

Collective exclusive dealing agreements - i.e. agreements between a group of manufacturers and an association of resellers - prohibit non-members ("outsi-ders") from entering the  market. These agreements in-fringe Article 85 (1) and  may not benefit from an ex-emption. Joint-selling and joint-purchasing agreements normally infringe Article 85 (1).

Horizontal agreements between companies aimed at collaboration in R & D and production and specialization agreements need close assessment as they may on the one hand restrict competition, but on the other offer advantages significant enough to warrant an exemption. Block exemption Regulations have been issued for R & D agreements and specialization agreements (Regulation 418/85 and 417/85), giving detailed rules on the contractual restrictions which are permitted and those which may not be included. Production joint ventures are discussed below at chapter V, Section 1.5.

1.3.4. Intellectual property; licenses

Although intellectual property rights themselves do not fall under the scope of Article 85 (1), infringement actions may contravene Article 85 (1) where such actions have a tendency to divide markets and are brought as "the object, means or consequence" of an agreement. An infringement of Article 86 may also occur in the context of an improper exercise of an intellectual property right by a company holding a dominant position. Licenses of intellectual property rights, notably patents and know-how agreements containing exclusive and territorial provisions, may give rise to a system of absolute territorial protection to which Article 85 (1) applies. Article 85 (1) may also be applicable to other clauses in license agreements, such as no-chal-lenge or non-competition  clauses. The block exemption Regulations (2349/84 for patent licenses and 556/89 for know-how licenses) give detailed but also rather complicated rules providing a "white list" of permitted restrictions,  a "black list" of clauses which prevent the agreement from qualifying for exemption and an opposition procedure for obtaining an accelerated exemption for agreements which do not come within the terms of the block exemption and yet do not contain any "black-listed" clauses.

1.4. Article 86

Article 86 prohibits any abuse of a dominant position within the Common Market or in a substantial part thereof, by one or more undertakings, in so far as trade between Member States might be affected. This prohibition is followed by an illustrative -- but not exhaustive -- list of abusive practices. The prohibition of Article 86 is directly applicable. What is a substantial part of the Common Market will be a matter of fact in each case. A dominant position within a large Member State will certainly meet this condition.

The ECJ has defined a dominant position as a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition on a relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers. In making the assessment whether an undertaking has a dominant position, one must consider the relevant markets: the relevant product market and the relative geographical market. Market share is of foremost importance. A market share of more than 60 % is in it-self sufficient evidence of a dominant position, save in exceptional circumstances. Even a market share of 45 or 50 percent (or lower) can be an indication of the existence of a dominant position. The existence or acquisition of a dominant position is not in itself an infraction but it means that the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition in the mar-ket. Article 86 only prohibits the abuse of a dominant position.

The concept of abuse must be interpreted on the one hand by reference to the examples given in Article 86 itself, and on the other hand by reference to the ob-jectives of the   Treaty as provided in Article 2 (harmonious development of economic activities and balan-ced expansion etc.) and Article 3 (ensuring that com-petition in the common market is not distorted). The requirement of Article

86 that there is an effect on interstate trade is intended to define the scope of application of Community rules in relation to national law.

1.5. Joint Ventures, Mergers and Acquisitions

A particularly important issue of EC competition law is the application of Articles 85 and 86 to mergers, acquisitions and joint ventures. The Treaty does not provide for definitions of these concepts, but definitions have been developed in various Commission deci-sions, reports and notices. A joint venture is usually defined as an enterprise subject to joint control by two or more undertakings that remain economically independent from each other.

A distinction is made between cooperative and concen-trative joint ventures. A joint venture that is set up for a limited period and does not perform all the activities of an autonomous entity will not be a concen-trative joint venture. A merger or acquisition (concentration) is often defined as an operation whereby an entity takes control over, or merges with another, so that the two entities form a single economic unit.

The application of Article 85 (1) to cooperative joint ventures will depend on a number of factors which should be considered in combination with each other. These factors include the actual or potential competition between the partners, the restriction of competition between them, the effect of joint ventures on third parties and the question whether these effects are appreciable (the "de minimis" rule). Joint venture agreements may benefit from block exemptions or be eligible for an exemption under Article 85 (3).

In February 1993, the Commission published a Notice setting out the questions it will raise when assessing cooperative joint ventures pursuant to Article 85(1) and (3). In considering exemptions, the Commission attaches considerable weight to improvements in the competitive structure. That may be brought about by the joint venture. Also the Commission must be satis-fied that the joint venture agreement does not impose any restrictions on the parties that are not indispensable. Non-competition clauses between the parents are normally accepted, but should be confined to the dura-tion of the joint venture agreement. Article 86 has not been applied to the formation of joint ventures, but could play a role if a company in a dominant posi-tion enters into a joint venture agreement as a result of which the effective competition in a relevant mar-ket will be eliminated.

Applying Articles 85 and 86 to mergers and acquisition is complex as well. In 1966, the Commission issued its Memorandum on Concentrations, defining concentration as several enterprises being brought together under a single economic management at the expense of their economic independence in a manner that indicates permanence.

In its Memorandum, the Commission stated that Article 85 should not apply to concentrations. The ECJ's land-mark case, Philip Morris British American Tobacco Company Ltd & R.J. Reynolds Industries Inc. v. Commis-sion,  however, indicated that Article 85 might be ap-plied to certain kinds of agreements for the acquisi-tion of minority control in a competing company, when one might anticipate that the acquisition could lead to the coordination of the activities of two indepen-dent competitors or could enable the acquiring company to obtain effective control over the other party. 

Special attention should be given in situations in which the acquisition agreement includes a non-competition clause. Non-competition clauses are permitted only if the transfer of assets includes goodwill or know-how and always under the condition that the non-competition clause does not exceed that which is necessary to secure to the buyer the transfer of the full value of the transferred undertaking. The non-competition clause should also be limited in duration. The termination of the legitimate period depends on the facts of each individual case, but as a rule of thumb, two years is a minimum, whereas, more than five years is virtually ruled out. A merger or acquisition could be caught by Article 86 if an undertaking in a dominant position strengthens such position in such a way that the degree of dominance reached substantially fetters competition, i.e., that the only undertakings remaining in the market are those whose behaviour depends upon the dominant one. The leading case on this point is "Continental Can Europ Emballage Corp. v. Commission & Continental Can Company".

On September 21, 1990, the Council Regulation on the Control of Concentrations between Undertakings, often referred to as the Merger Control Regulation, entered into force. Concentration with a Community dimension must be notified to the Commission prior to implementation. To meet the "Community dimension" requirement, two thresholds have to be exceeded: the combined aggregate worldwide turnover has to be more than 5 billion ECU and the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than 250 million ECU, unless each of the under-takings concerned achieves more than 2/3 of its aggregate Community-wide turnover within one and the same Member State. For banks and insurance companies, the threshold is 1/10 of its assets. These thresholds are scheduled to be reviewed in 1993.

Following notification, the Commission has between one and four months to decide whether a merger should be allowed, taking into account the overall market position of the undertakings concerned and the potential effects that the concentration may have on competitive behaviour. The concentration may not be put into effect either prior to or up to three weeks after the date of original

notification. This period may be prolonged by the Commission. If the Commission finds that the concentration should be disallowed, then it will initiate proceedings and issue a final decision within four months after the date these proceedings are begun. To date only one merger has not been allowed to proceed. In other situations the Commission has allowed mergers only after the parties offered - sometimes far reaching - undertakings (e.g., to divest themselves on part of the acquired companies).

Fines between ECU 1,000 and 50,000 may be imposed when undertakings either intentionally or negligently fail to notify, supply incorrect information or fail to comply with an obligation imposed by a decision under the Merger Regulation. There is an implementing regulation dealing with the specific details of the notification, calculation of time limits, hearings, etc. An explanatory notice has been issued providing guidelines for the interpretation of various issues.

Mergers not having a so-called "Community dimension" fall to the jurisdiction of the Member States, unless the Member States request the Commission to intervene. On the other hand, the Commission may refer a merger with a Community dimension to the decision of the na-tional authorities in cases where the effect on competition is more or less confined to that Member State's market.  The Commission's merger control provides a "one-stop-shop": authorities of the Member States may not apply their national merger control to a concentration which has a Community dimension and thereby falls under Community jurisdiction. The only exceptions are cases concerning some legitimate interests -- e.g., public security or plurality of the media. These interests must also be compatiblewith general EC law principles.

1.6. Notification, enforcement and procedures

Agreements meeting the precise conditions of a block exemption under Article 85 or 86 are not required to be notified. For the remainder, formal notification may serve two objectives: to obtain a negative clearance or to obtain an exemption under 85 (3). Still, there are various considerations (e.g., dislike of publicity) why parties sometimes prefer not to notify but rather discuss their agreements informally with the Commission.

The competence of the Commission and procedural rules are set out in Regulation 17, further implemented by Regulation 27. Prior to notification, there is nothing to prevent the parties or their advisors to approach the Commission informally and if necessary anonymously to discuss whether a particular agreement might be acceptable. Notification, for which a special form (A/B) is pre-scribed, protects the relevant parties from fines and possibly permits obtaining an exemption with retroactive effect. The Commission recently announced that it was speeding up its internal procedure for Art. 85 no-tifications of joint ventures. It has imposed itself a time limit of two months to examine a case. It will then send the parties a "comfort letter" (allowing them to proceed with the deal) or a "warning letter".

A comfort letter provides the parties with protection from fines and the assurance that the Commission will not reconsider its position unless there has been a material change of circumstances or if the letter was issued on the basis of incorrect information. National courts, however, are not bound by comfort letters, al-though they tend to follow their contents.

Where the Commission has serious doubts about the acceptability of the notified deal, it will send the parties a "warning letter". The warning letter means that the Commission will open a second stage inquiry to decide whether to approve or forbid the deal. The immunity of fines is lifted and there is no time limit on the second stage inquiry.

The formal Decisions by the Commission, as well as an outline of the notifications which will be followed either by a formal Decision or an official comfort letter, are published in the Official Journal.  Pursuant to Regulation 17, the Commission has extensi-ve powers to investigate and terminate infringements and to impose fines. The power to terminate infringements includes the power to order positive action, to grant interim measures and to impose penalty payments to ensure compliance. Frequently, cases are resolved in an informal manner by negotiations between the Commission and the parties.

Fines ranging from 1,000 to 1 million ECU or 10 per-cent of the undertaking's latest annual turnover may be imposed if the infringement has been intentional or negligent. In fixing the amount of the fines, the Commission takes into account the gravity and duration of the infringement.

Regulation 17 also deals with the Commission's powers of investigation and fact finding. It gives the Com-mission the power to obtain all necessary information from undertakings and Member States and empowers the Commission to carry out on-the-spot investigations, powers somewhat similar to United States discovery. "Dawn raids" -- investigations without warning -- are permitted. The Commission may either try to obtain the voluntary cooperation of the undertakings or force them to cooperate on the basis of a formal Decision. Such decision is taken prior to the investigation af-ter consultation with the competent authorities in the Member State where the investigation will take place.

Commission Decisions forcing parties to supply documents or ordering an investigation may be appealed. This appeal does not have automatic suspensive effect. The scope of the Commission's investigative power has been the subject of a variety of cases before the ECJ. One important exception to the rule that all relevant correspondence must be disclosed by the Commission is the protection given to communications with lawyers. This legal privilege however is limited to correspondence with an independent lawyer admitted to the Bar of one of the Member States and therefore does not in principle extend to correspondence with "in-house" lawyers or, e.g., United States lawyers. (Although in practice the Commission does seem to recognize the privileged nature of correspondence with foreign lawyers as well).

Proceedings can be initiated in three ways: following a notification by a party, following a complaint by anyone claiming a legitimate interest or by the Commission upon its own initiative. The Commission's procedures are of an administrative nature but the fundamental rights of defense must always be observed. The Commission is under an obligation to inform the par-ties in writing of the objections raised against them by means of a so-called "Statement of Objections". This document must contain the essential facts upon which the Commission will base its final decision and provide the details necessary for the defense. The parties are given the opportunity to answer in writing and require an oral hearing. These hearings are orga-nized and chaired by an independent Commission official, the Hearing Officer.

Before taking any final decision, the Commission must consult the Advisory Committee on Restrictive Practi-ces and Monopolies, but is not bound by its opinion. Subject to principles of confidentiality, the Commission must publish Decisions ordering fines or termination of infringements. The Commission may order inte-rim measures during the course of proceedings. Commission's Decisions regarding competition matters, inclu-ding Decisions to impose to fines or periodic penalty payments, are subject to ECJ review.

Appeals against Commission Decisions may be lodged by any person to whom the Decision is of direct and indi-vidual concern. The grounds of appeal include lack of competence, infringement of an essential procedural requirement, infringement of the Treaty or infringement of any rule relating to its application or misuse of powers. Appeals do not have automatic suspensive effect, but the Court may -- at the application of one of the parties -- grant interim relief in matters pen-ding before the Court.

1.7. Public Undertakings: Article 90

Article 90 (1) provides that, in the case of public undertakings and undertakings to which Member States grant a special right, Member States must neither enact nor maintain in force any measure contrary to the rules of the Treaty, in particular to those rules pro-vided for in Article 7 and Articles 85 to 94. Article 90 (2) provides for certain exceptions to the applica-bility of competition rules. These exceptions apply to undertakings entrusted with the operations of services of general economic interest or having the character of a revenue-producing monopoly. Under Article 90 (3), the Commission is provided with the power to address appropriate directives or decisions to the Member States.

This Treaty Provision has been activated in recent years by the Commission to push through reform, exposing the public utilities to competition (such as the post, telecom and energy public undertakings).

2. State Aids

Articles 92 and 93 offer additional weapons against distortion of competition. These Articles form a special set of rules for aids granted by Member States or through State resources that may distort competition by favouring certain undertakings or the production of certain goods. In princi-ple, the Treaty declares such aids illegal to the extent that they affect trade. State aids can consist of cash grants, an exemption from or reduction of fiscal, social or other charges, credit guarantees, low interest credits, etc. (i.e., charges on the public account).

These Articles also contain possibilities for exceptions under certain circumstances.   New aids must be notified to the Commission by the Member States. The notification has a blocking effect. State aids that are notified may not be put into effect. The Commission then makes a preliminary examination. If the Commission considers that the aid is incompatible with the Trea-ty, then it must initiate a procedure under Article 93 (2) within two months from the date of notification. All inte-rested parties have a right to submit their comments before the Commission makes a final decision on the aid.

In case of a negative Decision, the Commission can require the Member State concerned to demand repayment of the aid. The Commission has announced that it will systematically oblige recipients of illegally granted aid to refund it. A Member State cannot easily evade its obligation to require repayment even if the undertaking concerned is or would be placed in financial difficulties.

The ECJ has decided that Article 92 does not have direct effect and cannot be invoked in proceedings before a natio-nal court. The Commission can enforce a Decision prohibiting   an aid under this Article by referring the matter di-rectly to the ECJ. A corresponding right is conferred upon any other interested Member State. The recipient of an aid may bring proceedings under Article 173 (see infra, Chapter VIII) to challenge a Commission Decision addressed to a Member State prohibiting the granting of the aid.

VI. SECTORAL POLICIES

1. General

The Treaties of the EEC, ECSC and Euratom expressly provide for a sectoral policy in the field of agriculture, transport, coal and steel, and atomic energy.

2. Agriculture and fisheries.

Agriculture, as one of the "foundations of the Community", plays a key role in Community policy. It accounts for by far the largest proportion of EC legislation and more than two thirds of the Community budget expenditures. The objectives of the Common Agricultural Policy (which are set out in article 39 of the Treaty), are to increase productivity, ensure a fair standard of living for the agricultural community, stabilize markets, ensure the availability of sup-plies, and ensure that supplies reach consumers at reasonable prices. The objectives include fishing as well as farming.

The principal means of achieving these objectives was through fix-ing support prices for farmers which are higher than those on the world market. They are sustained by a system of duties and levies on imports and the buying up of market surpluses. As such the Common Agricultural Policy ("CAP") has not been very successful, creating ridiculous surpluses (apple mountains and wine lakes).

The CAP has now been reformed, and these reformations should be implemented in July 1993. The most important area of reform was the 29 per cent cut in cereal support prices which should lead to a reduction in the cost of feeding for livestock and therefore also a drop in the final price of meat products.

Furthermore full compensatory aid is offered to producers who set aside arable land which will reduce Community production. On the world trade scene, the Community's agricultural policy has caused great dissension, as manifested in the delay of the Uruguay Round of the GATT negotiations.

3. Transport

Under the Treaty, transport was intended to be a common policy area. Individual modes of transport, however, still rely in large part upon old national legal structures.

3.1. General

Article 75 contains the most important provisions, setting out measures to be adopted in developing a common transport poli-cy. As part of its 1992 program, the Commission has proposed a series of measures that will help eliminate controls at the frontiers and stimulate competition in the various transport sectors.

With the removal of intra-EC customs barriers in January 1993, a Regulation was passed on VAT on transport, as previously the customs played a vital role in the collection of VAT. The Re-gulation ensures that VAT is collected once the goods reach their final destination and that the value of the transporta-tion service is included in the value of the goods over which VAT is charged.

The Council has promulgated a Directive which lays down the conditions under which non-residents  may operate national road passenger transport services within a Member State. As to road haulage services, the Commission has issued a proposal laying down a cabotage system under which haulers shall enjoy mutual recognition of their domestic road haulage services without having a registered office in another Member State.The proposal which was to come into effect on January 1, 1993 is still pending before Parliament.

In a Green Paper on the impact of transport on the environment, the Commission has outlined the factors which impede the search for sustainable development and identifies the bottle-necks that need to be removed. The Green Paper concludes that there is a need for an intensive integrated transportation and environmental policy backed by legislative, financial and edu-cation measures. As such, transportation and related problems are one of the Commission's priorities for the coming years. The Commission expects to issue a White Paper presenting the legislative program in this sector.

3.2. Air Transport

In the air transport sector, it was only after the Single European Act that the Council adopted a package of measures aimed at liberalization. In April 1989, the ECJ delivered a landmark decision applying competition rules to the air transport sector. The Court decided that price fixing agreements for domestic routes or flights between EC and non-EC airports are void unless specifically cleared by the national authori-ties in the EC country involved. Price fixing agreements on flights between EC Member States must be approved by the Commission. In February 1991, a Regulation on the operation of air cargo services entered into force.

The Regulation aims at encouraging the development of express parcel, door-to-door and just-in-time  services within the Community by lifting restrictions on market entry, market access and operational flexibility for air freight carriers. For most areas of air cargo services, the Regulation's scope is limited to "Community air cargo ser-vices," being defined as companies having their head office and majority shareholders in a Member State or those having provided air cargo services within the EC during the 12 months preceding the date of adoption of the Regulation. This concept is called the 'Genuine Link'. In the fall of 1992, the Commission and the United States entered into discussions on the problems arising from the Genuine Link requirement. Thus far, there has been no decision.

Two important Regulations in the opening up of the air trans-port market are one on the access for Community air carriers to intra-Community air routes and another on common rules for the allocation of slots at Community airports. Both Regulations aim to facilitate  competition and to encourage entrance into the market. The Regulations require reciprocity from third countries before these will be given equivalent treatment. Thus, where it appears that the third country does not grant Community air carriers de facto national treatment or grants carriers from other third countries more favourable treatment, appropriate action may be taken, including the suspension of the Regulations' benefits.

On a more general level, at a meeting in March 1993 of the Transport Ministers, it was accepted that for the near future the Member States would continue to remain fully responsible for their external relations in the field of aviation and would conduct their own bilateral negotiations. Negotiations with third countries would only be conducted at Community level when the Council established the existence of a clearly defined common interest among the Member States and a better result for all Member States could be reached.

When conducting bilateral negotiations, however, the Member States are to take into account the existing obligations under the Treaty including the third aviation package. In May 1992, the Commission consulted the Economic and Social Committee on the possibility of Community action in the air-craft industry with the goal of strengthening its competitive-ness. The ESC concurred in the need to accelerate harmoni-sation of technical standards to avoid dominance of American standards in the industry and to avoid duplication of stan-dards at national and company level. The disputes between the US Administration and the EC regarding subsidies has focused the attention on the question of State aid and the need to guarantee fair international trade.

4. Coal and Steel (ECSC)

The most significant features of a common market for coal and steel can be derived from the prohibitions laid down in Arti-cle 4 of the ECSC (restrictions on the movement of products, practices which discriminate or interfere with a purchaser's free choice of supplier, state aids and market sharing or ex-ploitation). Article 5 of this Treaty provides the guidelines for the Commission in exercising its power to regulate the market.

5. Atomic energy (EURATOM)

The objective of the EURATOM Treaty is specified in Article 2 of this treaty. Its main features are the development of re-search in the area of atomic energy by coordination of national research and additional research at Community level, pro-motion of investments, a regular and fair supply of raw mate-rials, safety control, health control, ownership by the Community of all raw materials and finally the establishment of a common market for atomic energy.

6. Energy

The energy policy of the EC is not specifically laid down in the Treaty. It only developed after the first oil crisis in 1973. A strategy was laid down in a regulation that focuses on assuring a stable procurement of energy. Liberalizing the Energy Market in Europe is now part of the aims of the internal market progress. Energy enters as a cost factor into the prices of industry in general, an integrated energy market would ensure attractive and secure energy supplies thereby assisting European competitiveness.

Directives on price transparency and transit were adopted in 1991 to open up the gas and electricity markets. For the next stage of liberalization, the Commission has studied the possi-bilities of third party access ('TPA') to grid systems, where-by the transmission and distribution companies are obliged to offer access to their networks to certain customers at reason-able rates. The Commission proposals in this area have given rise to lively and prolonged debate, the main criticism being that TPA will endanger security of supply and be of benefit only to very large consumers at the expense of households.

During 1993, the Directorate-General for Energy will be study-ing the various national measures adopted to guarantee securi-ty of energy supplies with a view to approximating these measures. The Commission also intends to develop guidelines on Trans-European energy networks. In December 1991, the European Energy charter was signed in The Hague. Its proposal intended to capitalize on the complementary relationship between the EC, the former USSR and the countries of Central and Eastern Europe. There it was decided to include all European Countries (east and west), as well as non-European G-24 member countries. The Charter is to provide a political framework, fixing fundamental, political, economic, energy and environmental principles.

At present, negotiations are taking place to extend the Char-ter's principles into a legally binding international agreement, the Basic Agreement (BA). The BA will cover the various aspects of investment such as protection and promotion of in-vestments, compensation for losses, expropriation, repatriation of investments and returns taxation and dispute settlement. It will provide for non-discrimination between Charter parties, transparency ofregulation and freedom of transit.

VII. TRADE POLICY

1. Introduction.

When planning to export to the European Community, US indus-tries will have to considera variety of regulatory issues such as standards, product liability, etc. European industriesneed similarly to address these issues when placing their pro-ducts or services on themarket. There is, however, a diffe-rence. European industries benefit directly from legislationdesigned to harmonize national rules and to stimulate business activities within theCommunity. Foreign industries may not always be fully entitled to these benefits. And evenwhen they are in principle, they could still be handicapped if they had no say in drafting thelegislation to which they then have to adapt. A case in point is the development ofCommunity product standards.

Exporters into the EC, moreover, have to consider an additio-nal layer of regulations, relatingto the Community's external borders: exporters of goods, into the EC will normally have topay import duties. Furthermore, some exporting industries may be faced with other barriersto entering the Common Market. This raises the question whether the CommunityInstitutions or the Member States themselves are competent to regulate market access tothe European Community.

2. Competence.

While the Community's competence is not always clear in other areas of external relations,the division of powers between the Community and the Member States with respect to tradepo-licy would seem to be well defined. Pursuant to Article 113, as interpreted by the ECJ,Community Institutions have exclu-sive competence regarding trade with third countries.Nevertheless in practice quite a few complications occur. For in-stance, it is not yet settledwhether the exclusivity rule of Article 113 applies to trade in services. A number of qualifications also have to be made regarding trade in goods even though the Community'sexclusive competence is undisputed. Here as well, the Member States remain actively involved in trade policy in various ways.

For instance, the Member States participate in the internatio-nal negotiations of trade agreements, as well as in the prepa-ration of unilateral measures taken by the Community at the Council level (e.g., antidumping measures). Moreover, the Mem-ber States retain national trade agreements and restrictions, because the Community's policies regarding trade are as yet incomplete. Notable examples of this are the various national restrictions on imports from Eastern Europe, on imports from Japan on products such as cars. For various reasons and in varying degree, these restrictions are now being dismantled. In sum, a company would be ill-advised to ignore the Member States while seeking or resisting Community trade policy measures.

3. Major Instruments.

The Community has issued several major instruments to implement its trade policy. The most important of these is the Com-mon Customs Tariff (CCT). The CCT is laid down in a basic re-gulation to which an annex is appended containing the actual duties as well as the tariff classifications. This annex is revised annually. Apart from the CCT, a number of instruments are of particular importance to private parties who are involved in the Community's trade with third countries. These will be discussed below,  with reference to their counterparts in US trade legislation. These instruments are also important from an institutio-nal point of view, since they represent a delegation of powers from the Council (read: the Member States) to the Commission. It should be remembered,  however, that the Council can take trade policy measures at its discretion on an ad hoc basis pursuant to Article 113.

In the following discussion, no account is taken of special sectoral measures such as regarding trade in agriculture, steel and textiles. In general, we note that the administering authorities in the EC have considerably more discretion to apply trade laws than their US counterparts.

3.1. Antidumping and countervailing duties.

The Community's provisions for both antidumping and coun-tervailing duties are set out in one basic regulation (No. 2423/88). Like United States antidumping and countervailing duty law, the Community's provisions derive from GATT principles. Yet, although they have the same source and both claim to be in conformity with the GATT, there are notable differences between United States and Community law.

There is no difference as far as the principle of anti-dumping duties is concerned. Dumping is a case of price discrimination, in which an exporter sells abroad at a lower price than on his home market. Differences arise in how the Community and the United States measure the price differential. For instance, if there are insufficient sa-les in the country of exportation to establish the "nor-mal value" of the allegedly dumped product, the EC autho-rities normally resort to a constructed value whereas their United States counterparts usually prefer to look at the value of third country sales.

"Countervailing duties" is the rubric applied to governmental export subsidies granted to an undertaking which improperly permits that undertaking to compete abroad un-fairly. No agreement exists between the Community and the United States with respect to countervailing duties, even on the principle of how to define subsidy. According to the Community, only those government benefits to a private industry are countervailable which create a cost for the government. The cost to the government is, in contrast, of no concern under United States countervailing duty law.

All government measures which confer a benefit on a specific industry can amount to a countervailable subsidy according to US law. This difference in the scope of countervailing duty law is one of the explanations offered for the fact that, since 1980, there have been about a dozen countervailing duty cases in the European Community, whereas more than three hundred such cases have been filled during the same period in the United States.

There are also differences in administration common to both antidumping and countervailing duty law. For in-stance, contrary to United States complainants, EC complainants are not entitled to relief once they have shown to be injured by dumped or subsidized imports. The Community authorities can deny relief on the ground that the imposition of duties would not be in the Community inte-rest. Of greater practical importance is the provision in Community antidumping and countervailing duty law that duties will not necessarily equal the dumping or subsidy margin found. The Community authorities will impose a lo-wer duty if they consider this sufficient to remedy the injury suffered by the European industry. Such authority to modify duty levels is unavailable to United States authorities.

Another typical difference concerns access to confidential information. Outside counsel both complainant and defendant can have access to each other's confidential information in United States trade proceedings. That is not the case in the European Community, where each side obtains only a non-confidential summary of the other's confidential information. This makes the outcome of European proceedings harder to predict and harder to verify for private parties.

3.2. Safeguard Clause

Antidumping and countervailing duties are considered re-lief measures for adomestic industry against unfairly traded imports. Yet the GATT has also madeprovision for import relief measures with respect to fairly traded, but injurious imports.This, the GATT's safeguard clause, has been implemented in both EC and UnitedStates law.

In the European Community, the safeguard clause is incor-porated in the commonimport regimes established for tra-de with state trading and non-state tradingcountries (respectively Regulation Nos 1765/82 and 288/82). These safeguardclauses envision only quantitative restrictions. They are rarely invoked. Significantly,private parties have no right to petition the Community institutions for safeguardmeasures. Private parties can only present such requests through one of the Member States.

The absence of a private petition right in the Community's safeguard clauses is one of the major differences with the United States safeguard clause, which does provide for private petitions. This is one of the reasons offered for the larger number of safeguard actions administered by the United States government.

3.3. Private Complaints about foreign unfair trade practices.

Inspired by Section 301 of the US Trade Act of 1974, the Community adopted in 1984 what is still called The New Trade Policy Instrument. Both instruments allow private parties to lodge complaints about practices of a foreign government which hamper their trading interests.

One of the main differences, however, between United States Section 301 and the EC New Instrument is that the latter provides that all actions taken should be in conformity with the GATT. This is a conscious reaction to and disapproval of United States Section 301, which in-structs the Executive to take retaliatory action against an unfairly trading government even if such action would be inconsistent with the GATT. Another typical difference between these two remedies is that United States

Section 301 sets forth strict time limits within which the Execu-tive is to respond to a private complaint, whereas the New Instrument is less precise. While Section 301 is regularly used and has become a focal point of United States trade policy for third countries, the EC New Instrument leads a mostly dormant existence. Since its adoption in 1984, the Community has taken only four formal decisions under this Instrument. The first of these was directed at the United States.

It led to a GATT ruling that the application of Section 337 of the United States Tariff Act of 1930 to patent disputes was inconsistent with the GATT's national treatment principle.

VIII. PRIVATE REMEDIES.

1. Challenging acts of Member States.

Under Article 169 of the Treaty, the Commission or a Member State can initiate infringement proceedings against a Member State to establish that such Member State has failed to comply with a Treaty obligation.

2. Challenging acts of Institutions.

Article 173 empowers the Council, the Commission, a Member State, or a natural or legal person to seek judicial review of measures taken by EC institutions. The grounds for such action are strictly limited to those mentioned in Article 173 and cover, for instance, such grounds as lack of competence, in-fringement of an essential procedural requirement or misuse of powers.

The Council, the Commission and Member States have automatic locus standi. Natural or legal persons seeking judicial review must establish locus standi by showing that the measure is either a decision addressed to them or, if not, that it is of direct and individual concern to the person seeking locus standi. This criterion has been strictly interpreted by the ECJ. Not all acts of the Commission are subject to review under Article 173. Whether or not they are depends on the sub-stance of the act rather than its form. For a private party to establish locus standi in actions for annulment of a Regula-tion, he must show that the Regulation is of direct and indi-vidual concern.

An EC Institution's failure to act can trigger a proceeding by a Member State or an EC Institution, pursuant to Article 175. Private parties only have locus standi if the Community Institution failed to take an action that it had a duty to perform and that could have been binding on and of direct and individual concern to the private party. The time limit for bringing actions under Article 173 or Article 175 is two months from the date of announcement of the measure (Article 173) or two months after a formal request for action (Article 175). In practice, the addressee of a decision is likely to receive notification

of a decision prior to its publication. Time then starts to run from the day following receipt. The possibility for private parties to initiating direct action against the Institutions' measures of a general effect are rather limited. In connection with a dispute, however, Article 184 permits private parties to invoke a plea of illegality against all acts having a general effect which form the legal basis for the individual measures attacked by the applicant. Article 184 does not create an independent right of action; the plea of illegality may only be raised indirectly in proceedings against an implementing measure. The ECJ has decided,

moreover, that the plea may only be invoked in disputes pending before the ECJ and not before a national court. In many instances, however, a private party is able to challenge Community acts indirectly, before a national court. For this, the private party will dispute the lawfulness of a national measure that implements a Community act. In this dispute the validity of the Community act will also be put into question and the national court will be asked to request a so-called preliminary ruling from the EC on the interpretation of the Community act.

3. Preliminary Rulings

To ensure uniformity in the application and interpretation of Community Law, Article 177 of the Treaty permits the ECJ to give preliminary rulings relating to Treaty interpretation, acts of Community Institutions and the validity of those acts. A National Court is entitled and as a court of last instance even obliged   to ask the ECJ for a preliminary ruling if a question of interpretation or validity is raised by either the parties or by the court itself ex-officio. Preliminary rulings are binding on national courts.

4. Actions for Damages.

4.1 Liability of the Community

Article 215 of the EEC Treaty deals with liability of the Community. With regard to contractual liability, this is governed by the law applicable to the law of the contract in question. In the case of non-contractual liability, the ECJ has laid down in a number of Decisions prerequisite conditions for the Community's liability. These conditions are:

- actual damage;

- a causal link between the damage claimed and the conduct alleged against the Institution;

- the illegality of such conduct, including a breach of unwritten Community law.

Admissibility may further depend upon national procedures. The existence of an effective remedy before a national court can prevent private parties from pursuing the procedure of Article 215.

4.2 Member State Liability For Damages

In the landmark case of Francovich, the principle of State liability for damages to individuals caused by breach of Community law for which the State is responsible was seen as "inherent in the scheme of the Treaty". Until then it had been acknowledged in Community law jurisprudence that a private individual could rely on Community law only if it was directly effective. Where this was the case, an individual could invoke the Community measures before the national courts to challenge or ignore inconsistent national law. The basic reasoning behind this being the supremacy of Community law over national law.

The main drawback of this principle of direct effect, however, is its inadequacy as   means of enforcing directives. Only those directives that are sufficiently clear and unconditional are capable of direct effects and then they can only be invoked against the State or an emmination of the State (the so called "vertical effect" of directives).

In Francovich, the Italian government had failed to implement a Directive despite having been taken to Court by the Commission under Article 169. The Court found that the Directive was not directly effective as some of the provisions were insufficiently precise and were conditional. However, the Court held that, even though the Directive was not directly effective, the Italian State was responsible for damages for failure to fulfill the obligation imposed on it by the Treaty of taking all necessary  steps to achieve the result required by the Directive.

This failure to implement a directive can give rise to liability provided that the following three conditions are met: the result required by the Directive must include the conferring of rights for the benefit of individuals; the content of these rights must be determinable by reference to the provisions of the Directive ; and there must be a causal link between the breach of the obligation of the State and the damage suffered by the person affected.

IX. JURISDICTION AND ENFORCEMENT OF JUDGMENTS

The 1968 "Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters", (otherwise known as the "Brussels Convention") is now effective in all Member States. It seeks to establish uniform rules of jurisdiction and to ensure that a judgement handed down in one Member State will be recognized and enforced in another. The Convention applies to all judgments in civil and commercial matters and is not limited to judgments in favour of nationals of one of the Member States. Some areas, such as bankruptcy, are excluded from the Convention's scope. Article 2 of the Convention permits a person domiciled in one of the Member States to be sued there, putting such person on equal jurisdictional footing as the nationals of the Member State. Such person may be sued in another Member State only pursuant to the rules set out in the Convention.

Several additional bases of jurisdiction are listed in Article 5. For example, in matters of contract, proceedings may be initiated in the courts of the place where the obligation was to be performed. This may provide a plaintiff with the ability to forum-shop. To limit this possibility of a choice of forums, parties can include a contract clause that confers jurisdiction on the Courts of a specified State, or one providing that either party may be sued only in its home state. The Brussels Convention allows such clauses to be agreed to by both parties provided at least one of these parties is domiciled in a Member State.

The Convention provides that the judgment rendered by a Court in one of the Member States must be recognized by the other States, except for a few exceptions listed in the Convention. The recognizing Court may never review the foreign judgment on its merits. Rather, they may only deny enforcement on the grounds which would warrant a refusal to recognize it. A litigant wishing to enforce a foreign judgment will need to follow the procedure set out in the Convention, as amplified by the procedural rules applicable in the State of enforcement. The Courts must give their  decision on the enforcement of foreign judgments without delay.

At the time of the negotiations for the accession of Spain and Portugal to the Brussels Convention in 1982, negotiations were also entered into with a view to extending the Convention's application to include the EFTA countries. As these countries were not part of the Community and therefore not subject to the jurisdiction of the European Court of Justice, various adjustments needed to be made. The result was a parallel Convention (the "Lugano Convention") which contains provisions equal or analogous to those in the Brussels Convention binding the EC States and EFTA countries. It is therefore the Lugano Convention which applies to the relations between persons belonging to the two areas, as well as to relations between persons within the EFTA area.

X. USEFUL RESOURCES. Today's EU News (Reuters/Findlaw) and 400 European Newspapers For underlying law and EU Institutions See HG European Union

The Community institutions produce a lot of work on paper, most of them in all nine official
languages. Because so much is translated, divergences between the different language versions
occur regularly. Therefore, whenever a point of textual interpretation becomes important, one does
well to compare different languages.

Essential reading for any serious observer of Community affairs is the Community's Official Journal,
in some ways comparable to the United States Federal Register. The Official Journal is published
daily, with the exception of the institutions' holiday period in August. It comprises two series : the
L(aw) series, in which the legally binding acts of the Community are published, and the (Communication) series, which collects various announcements, proposals etc., as well as the Commission's answers to Parliamentary questions.

In addition, the Commission publishes a monthly Bulletin, summarizing the main events of the
month. This Bulletin reports, among other things, the Commission's informal decisions in the
antitrust area. Both formal and informal decisions in this area are reported annually in the
Commission's Competition Law Report. For the sake of completeness in the antitrust area one
should also consult the Commission's Press Releases (available via Database).

The Court's opinions and judgments are ultimately printed in the European Court Reports. This
publication runs almost two years behind. In the meantime, it is useful to take a subscription to the
provisional texts. Because the Court's working language is French, the French texts always appear
first.

Furthermore, to keep up to date on Community developments, one should read the independent
daily (Agence) Europe (published in French, English and German editions) or the bi-weekly
European Report (published in English and French and available via Lexis-Nexis).

Finally, a membership of the American Chamber of Commerce in Brussels can be helpful in several
ways: to meet and exchange views with your peers, to obtain drafts of legislative proposals, and to
try to build coalitions to influence such legislation.

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