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 environme