Common Market Law Review: Sijthoff Award 1978 European Law Essay

EDITORS

Paul J. G. Kapteyn, Claus-Dieter Ehlermann, Kenneth R. Simmonds and Jan A. Winter

ADVISORY BOARD

Bob Baardman, Rotterdam Gerhard Bebr, Brussels Laurens J. Brinkhorst, The Hague Isi F oighel, Copenhagen Michel Gaudet, Paris Herman H. Maas, Leyden John D. B. Mitchell, Edinburgh

Pierre Pescatore, Luxembourg Mary Robinson, Dublin Henry G. Schermers, Amsterdam Clive M. Schmitthoff, London Guy Schrans, Ghent Eric Stein, Ann Arbor Ernst Steindorff, Munich

SECRETARY TO THE EDITORS

Catherine Crisham, B.A., LL.M.

EDITORIAL ADRESS

Common Market Law Review Europa Instituut, Hugo de Grootstraat 27,

Leyden, The Netherlands

ISBN 978-94-015-2068-3 ISBN 978-94-015-3273-0 (eBook) DOI 10.1007/978-94-015-3273-0 Copyright© 1978 by Springer Science+Business Media Dordrecht Ursprünglich erschienen bei Sijthoff & Noordhofflnternational Publisher B.V., 1978

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SIJTHOFF AWARD 1978 European Law Essay

1

The Editors and Publishers of the COMMON MARKET LA W REVIEW are pleased to announce the award of the SIJTHOFF AWARD 1978 to:

ANTOINE T. J. M. JACOBS (Lecturer in Social and Labour Law, Katholieke Hogeschool,

Tilburg, The Netherlands)

for a paper entitled:

"TOW ARDS COMMUNITY ACTION ON THE LA W OF STRIKES ?"

The paper will be published in the following issue of the COMMON MARKET LAW REVIEW.

2

SIJTHOFF AWARD 1979 European Law Essay The Publisher of COMMON MARKET LA W REVIEW will offer a prize of Dfl. 1,000 for the best paper received from a young author concerning a topic of European Community Law. The following conditions will apply to the award of the prize: (1) manuscripts must not have been published previously, or sub

mitted for publication elsewhere; (2) manuscripts must be submitted to one of the Editors of

COMMON MARKET LAW REVIEW by October 31, 1978; (3) manuscripts must be written in English, German, or French; (4) manuscripts must not exceed a length of 15-20 printed pages

(6,000-8,000 words); (5) author's age should not exceed 35 years on October 31, 1978; ( 6) authors must be of postgraduate status at least at the time of the

submission of the manuscript.

Authors may be required to provide confirmation of the factors mentioned in points (5) and (6).

Manuscripts will be judged by the Editors of COMMON MARKET LAW REVIEW. Adecision will be reached by December 31, 1978. The author of the winning manuscript will be awarded a money prize of Dfl. 1,000 and the manuscript will be published in COMMON MARKET LAW REVIEW in the course of 1979. Publication of manuscripts other than the winning manuscript is not excluded. The prize will only be awarded if an entry of sufficient merit is received.

Detailed information and technical guidance may be obtained from the Secretary to the Editors: Ms. Catherine Crisham, Buropa Instituut Hugo de Grootstraat 27, Leyden, The Netherlands.

3

TABLE OF CONTENTS

Editorial Comments 5

Articles Alan Dashwood and Thomas Sharpe, The lndustry Acts 1972 and

1975 (Part I) . 9

Shorter Articles, Comments and Notes E. Steindorff, Product Shortages, Allocation and Price Contra!

under Article 86 of the EEC Treaty . 35 Clive M. Schmitthoff, The Second EEC Directive on Company

Law 43 Martijn van Empel, The EEC TradeMark Memorandum 55

Conference Report Sixteenth Leiden-London Meeting, Direct Elections and the Future

of the European Parliament, report by L. A. M. Mulders 69

Survey of Literature 75

Book Reviews 97

109

TABLE OF CONTENTS


Articles Alan Dashwood and Thomas Sharpe, The Industry Acts 1972 and

1975 (Part II) . 115 Antoine Jacobs, Towards Community Action on Strike Law? 133 Guus Braakman, Monetary Evolutions and the Common Agri-

cultural Policy . 157

Preparations for Direct Elections in the Member States Mary Robinson, Preparations for Direct Elections in Ireland. 187 F. Saverio Baviera, Preparations for Direct Elections in Italy . 199

Case Law (Nos. 113 and 114) A. Court of Justice

Case No. 8177, Concetta Sagulo, Gennaro Brenca and Addel-madijd Bakhouche, with annotation by J. C. Seche. 207

Case No. 30177, Regina v. Pierre Bouchereau, with annotation by Derrick Wyatt 214

A. and B. Court of Justice and the National Courts The Convention of Brussels of September 27, 1968 an Juris

diction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, by A. McClellan . 228

4

EDITORIAL COMMENTS

Harmonisation for harmonisation's sake?

"But sometimes one has the impression that there are Directives which deal with harmonisation for harmonisation's sake alone. lt seems as if some conscientious civil servant in Brussel, not having enough to do, takes it into his head, or is perhaps persuaded by some Iobby ... that there is some branch of the Jaw which it would be fun to alter; and having started on that course it is difficult getting him to turn back." Lord Diplock, House of Lords, November 22, 1977.1

The approximation of Jaws produces more problems and is subject to more severe and fundamental criticism in the United Kingdom than in any other Member State of the European Community. This criticism goes to both the methods and the principles of the approximation of laws. As far as the methods are concerned, the criticism would appear, in some cases at least, to be justified. But the most serious-and, for the Community, least justified-objections touch upon the very foundations of the Community; they can be explained only on the basis of a certain conception of European unification.

Before looking more closely at the United Kingdom criticisms, it is useful to give a brief sketch of the place and role of the approximation of laws in the Treaties.

According to the Treaties, there is no common policy on the approximation of laws. In fact, only in the EEC Treaty are a significant number of provisionstobe found on this subject, provisions which do not, moreover, constitute one of the objectives of the Treaty. Approximating laws is merely an instrument for achieving those objectives; it is therefore subordinate in nature. The instrumental, subservient nature of the approximation of laws emerges clearly from Article 100 of the EEC Tfeaty, the main instrument of harmonisation: under Article 100, the purpose of approximation is to help ensure the establishment or the functioning of the common market.

Approximation of laws in the Community is thus somewhat different

1. House of Lords Official Report, Vol. 387, no. 9, p. 822 (Motion on the Report of the European Communities Committee on (Self-Employed) Commercial Agents).


from the approximation-or unification-of laws carried out for many years in international bodies and organisations. It is not an end in itself; it is not as such intended to facilitate international cooperation. Approximating laws in the Community context is intended to help achieve the objectives of the EEC Treaty, to create a common market.

To these ends, it is the task of the approximation of laws to eliminate or reduce difficulties which arise from differences between the national legal systems. It is not designed to improve the national legal system. Nevertheless, in approximating laws, efforts to secure the highest possible quality are surely legitimate. The rules of law to be approximated must continue to fulfil the purpose for which they were created, and the better they do this, the more acceptable they are to the Member States. Approximation of laws and improvement of national law are therefore certainly not incompatible; on the contrary, an improvement in quality should be the normal by-product of any approximation of laws.

To return, after these more general reflections, to the criticisms directed in the United Kingdom against the approximation of laws: these criticisms are, as mentioned above, concerned with both the methods and the principle of approximation.

As far as the methods are concerned, part of the criticism is directed against the Commission's manner of formulating proposals. This applies both to the conclusion that approximation is necessary in the sector in question, and to the solution adopted. It is submitted that this criticism is basically unwarranted. At the same time, however, it should be taken to heart, since even where the Commission has obtained the best advice from all the parties concerned, it does not perhaps make this sufficiently clear. The Commission should indicate more clearly whom it has asked for advice and what material it has examined. It should not be afraid to refer to a greater extent than hitherto to the statements made by the industries affected and by trade unions, consumer associations and the like. This would also make the influence of governments more relative; it is arguable that the influence of national bureaucracies on the Community bodies is already strong enough. Intensified consultation of those concerned means more hearings and more "white" or "green" papers and in this connection the Commission can only learn from United Kingdom examples.

Another part of the criticism is directed against the number and scope of approximation plans. The harmonisation plans are, it is said, too ambitious; hence the quality of the proposals must suffer also. However unjustified this criticism may have been originally, it is certainly justified today. Approximation of laws has in fact proved much more difficult than was originally assumed. This applies in particular to the decision-making process in the Council. The political and economic climate is not what it

6 Editorial Comments

was in the early 'sixties; each Member State feels itself impelled to defend its national interests more resolutely than before. Against this background, the programmes for the approximation of laws do appear over-ambitious today. But all concerned, the Commission, the Council and the national governments have laboured under the illusion of possible faster progress. The stone should therefore not be cast at the Commission alone.

Criticism of the programmes for the approximation of laws brings to light a further, structural problern to which there is virtually no solution. The approximation of laws serves to make the common market function and thus to secure the objectives of the Treaty. But the appreciation of these objectives alters with time and the conception of the common market is also subject to change. As the goal changes, the means must also be reassessed. Any project in the field of the approximation of laws should therefore be examined at specific intervals to see whether it still corresponds with the Community's current priorities. Such an examination will, however, come up against practical difficulties in that the approximation of laws, like complicated research projects, requires years of investment.

The accusation of unsatisfactory working methods is closely connected with the criticism of the content of proposals. The Commission is told that its proposals do not take sufficient account of United Kingdom legal concepts and approaches, that they are not sufficiently flexible (i.e. they are in many cases too detailed), that they are not practicable, or too costly, etc.

In view of the time involved in projects of harmonisation, the criticism that United Kingdom law is not sufficiently taken into account may have been justified in the first few years after accession; but it is certainly not justified in the case of more recent proposals. If it were, one might indeed ask in how far this is the fault of United Kingdom government officials, since Commission proposals are always formulated in close-often, perhaps, too close-cooperation with government experts.

The complaint of lack of flexibility is not voiced solely by the United Kingdom: it corresponds to the general and well-known criticism that the Commission's proposals are too detailed. In regard to this objection, a number of observations can be made. In the first place, some proposals, such as, for example, the elimination of technical barriers to trade, by their very nature require to be precise and detailed. On the other band, other proposals could be less detailed; but if they leave the Member States little room for manoeuvre, it is often because the Member States themselves require greater precision, greater detail. The Community is unfortunately not always a Community of trust.

But in spite of these difficulties, the Commission should do everything to avoid accusations of lack of flexibility or excessive detail. The approximation of laws, as mentioned above, has no intrinsic and no absolute


value, but serves to make the common market function. Consideration should, moreover, be given to the fact that for most of us uniformity or homogeneity is undesirable; we cherish our differences, which are part of our cultural heritage, part of our wealth. Approximation of laws should therefore not eliminate differences to the fullest extent possible, but only to the extent that is necessary. Where there are several possible ways of achieving a specific objective, then these ways should be left open. What is needed is a maximum of imagination. Only in this way will it be possible to carry out the approximation of laws where the divergencies, and thus the Opposition, are the greatest.

Flexibility cannot, however, mean approximation of laws at the lowest Ievel. Proposals which result in the watering down of national legislation, for example in the field of environmental protection, are acceptable neither to the Member State concerned nor to the Community as a whole. This means that the approximation of laws will on occasions involve considerable expenditure; but this is the case with any progressive national legislation.

After these criticisms, which are directed essentially at the methods used in the approximation of laws, the most weighty objection remains to be dealt with, namely, the criticism that the approximation of laws in the Community forces changes in United Kingdom law which are legally binding and thus result in a loss of sovereignty for the United Kingdom. In answer to this, it must be said, in the first place, that it is the essence of any approximation of laws that it Ieads to changes in national laws: the Treaty provides (with the single exception of Article 27) only for binding legal instruments, namely directives, for the approximation of laws. Further, it should be remernbered that the approximation of laws based on Article 100 requires unanimous decisions by the Council. This allows each Member State to make feit its views on the optimal structure of the common market and the extent and degree of the approximation of laws.

But the United Kingdom has in relation to Community legislation a special psychological problem. To "civillaw" lawyers, law enacted by the State is something wholly familiar; membership of the Community merely means that the originator of the enacted law changes. The United Kingdom, on the other hand, is proud of its historically developed common law. lf even the statute law enacted at Westminster is regarded with scepticism, the institutions in Brussels are all the more certain to be faced with mistrust, even aversion.

This can, however, serve as an explanation only where approximation of laws affects common law, which in many areas is not the case. lf the binding approximation of laws is rejected in principle in the sphere of statute law also, then ultimately a fundamental Community instrument is


called into question. It then becomes clear that, in certain circumstances, the criticism of methods conceals a fundamental conflict, namely, divergent conceptions of the final purpose of the Community.

These differences of opinion are a political rather than a legal problem, and a political solution should therefore be sought. But at the purely technical Ievel of the approximation of laws, a response is also possible: The Community should learn from the United Kingdom criticisms and so improve its efforts that the methods used for the approximation of laws no Ionger occasion justified criticism. Secondly, and more importantly, the Community should give priority to tackling problems which even its opponents can hardly deny need to be solved on the Community level. Of such problems there is certainly no lack.

C.-D. E.

THE INDUSTRY ACTS 1972 AND 1975 AND EUROPEAN COMMUNITY LA W

PART I

by

Alan Dashwood * and Thomas Sharpe **

9

There are some things with which governments ought not to meddle and other things with which they ought; but whether right or wrang in itself, the interference must work for ill, if governments, not understanding the subject which it meddles with, meddles to bring about a result which would be mischievous.

J. S. Mill

A. INTRODUCTION

The present article is concerned with the implications for European Community Law of two important examples of recent British legislation in the economic field, namely the Industry Acts 1972 and 1975. In summary, this legislation empowers the government of the United Kingdom to grant large scale selective financial assistance to industry; establishes the National Enterprise Board (NEB) with the responsibility inter alia of extending public ownership into profitable areas of manufacturing industry; creates new powers in relation to the transfer of control over important manufacturing undertakings; and introduces a "planning agreement" mechanism to improve co-ordination between the development of the activities of individual companies and the economic policies of government.l

* Reader in Law Studies, School of European Studies, University of Sussex. ** Lecturer, Department of Public Law, University of Dundee. The warm thanks

of the authors are due to the Commission of the European Communities for enabling them to visit Brussels in connection with this article and to officials of the Commission and of the Permanent Representation of the U.K. to the European Communities for advice, assistance and information generously given. Without this, the article could not have been written. Any deficiencies are the sole responsibility of the authors.

1. The Industry Act 1975 also includes provisions requiring the disclosure of information to, and by, companies, which are not relevant to this discussion: see Part IV of the Act, ss. 27-34.

© Sijthoff & Noordhoff International Publishers, Alphen aan den Rijn 15 C.M.L. Rev. 1978, 9-34

10 Dashwood and Sharpe

Four main topics have been singled out for treatment. In the first place, there is the exercise of the supervisory powers of the Commission under Article 92 EEC et seq. 2 in relation to general aid schemes, an example of the latter being found in sections 7 and 8 of the Industry Act 1972, as amended by the Industry Act 1975. Secondly, the role of the NEB as an agency through which the State intervenes in the market place, is examined with special reference to the status of the Board in Community Law and the application to it of the state aid provisions and the prohibition in Article 86 EEC of abusive behaviour by dominant undertakings. Thirdly, the powers under Part II of the Industry Act 1975, which can be used to prevent major British industrial assets from falling into the hands of persans not resident in the United Kingdom, are described, and an assessment attempted of their compatibility with Community Law, in particular with the provisions relating to the right of establishment. Finally, brief consideration is given to the need for planning agreements to be adapted, where necessary, to any changes in the Commission's co-ordination principles an regional aids.3

B. GENERAL AIDS UNDER THE INDUSTRY ACTS 1972 AND 1975

Few areas of the Commission's responsibilities are so obviously replete with difficulties as the co-ordination of what has come to be known as industrial policy in the Member States. Industrial success is one of the yardsticks by which political success is measured, so that there is every incentive for the Governments of Member States to buy votes by the skilful distribution of their largesse. The Commission has needed to be sensitive to the fact that an aid is all too often the product of a domestic political compromise; at the same time, it has striven to develop certain co-ordinating principles which are designed to ensure, at the very least, that such aid schemes are not competitive and ultimately self-defeating. Its task has been complicated by the energy crisis and the subsequent world-wide decline in industrial production and employment which have caused a considerable growth in the number of relevant aid schemes. Although an aid or subsidy is comparable to other forms of protectionin that it will have the effect of changing relative prices primarily between domestic and foreign producers, and more recently between one domestic

2. See in general, Megret et al., Le droit de Ia CEE, Vol. 4, pp. 379-413; Schrans, "National and Regional Aid to lndustry under the EEC Treaty", 10 C.M.L. Rev. 1973, 174-194; Dashwood, "Control of State Aids in the EEC: Prevention and Cure under Article 93", 12 C.M.L. Rev. 1975, 39 et seq.

3. See footnotes 17 and 18 infra.

The lndustry Acts 11

producer and another 4-the Commission's policy has never been one of total opposition to State aids. Thus it has admitted that:

"The intervention of the State represents an instrument of the structural policy necessary as long as market forces do not permit ( or do not permit within an acceptable time) the attainment of certain ends of legitimate development through the hope of better quantitative or qualitative knowledge, or eise it will Iead to intolerable social tensions." 5

Not merely a perverse but a fanatical belief in the free play of markets would be required to deny the truth of this statement.

1. The Contra[ of General Aid Schemes

According to Article 92 (1) EEC: "Save as otherwise provided in this Treaty, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States be incompatible with the common market." 6

Prest defines a subsidy "least unsatisfactorily" as a payment which directly affects relative prices in the commercial sector and as such may take the form of payments to producers or consumers or the remission of any dues owing. 7 The aptness of this definition is revealed in the reasoning of the European Court of Justice in Case 173173 8, which concerned an Italian law reducing contributions payable in respect of family allowances by certain textile industry employers. It was held to be no defence for the Italians to argue that the Ievel of family allowances contributions in Italy was higher than elsewhere in the Community: what mattered was that the remission had the effect of changing relative prices. Viewing the question in this way, it is not necessary to adopt the distinction between

4. Unless of course it is a clumsy scheme which subsidises both foreign and domestic producers or consumers. A good example is provided by shipbuilding in the U.K.: see Graham in Heckermann (ed.), The Labour Government's Economic Record 1964-1970, p. 176.

5. First Report on Competition Policy (1972), pp. 107-108. 6. A formulation which must necessarily exclude general macro-economic mea

sures which though perhaps favouring all enterprises in a Member State as compared with similar enterprises elsewhere do not favour "certain" enterprises in the Member State, e.g. a general investment subsidy.

7. See Whiting (ed.), The Economics of lndustrial Subsidies (H.M.S.O. 1975), p. 65.

8. Commission v. ltaly (1974) E.C.R. 709.


"aid" and "subsidy" proposed by Advocate-General Warner.9

The Commission has considerable discretion, subject to the final decision of the European Court, as to what constitutes aid, but it has itemised certain benefits such as:

" ... direct subsidies, tax exemptions, preferential interest rates, guarantees of loans on especially favourable terms, acquisition of land or buildings either gratuitously or on favourable terms, provision of goods and services on preferential terms, indemnities against Iosses and other measures of equivalent effect." 10

This Iist was subsequently elaborated to include: " ... reimbursement of costs in case of success, direct or indirect State guarantees of grants or credits; preferential application of discount rates; preferential settlement of public accounts; deferred collection of fiscal and social contributions." 11

Payments or benefits transferred to "certain undertakings" without any real counterpart or exchange of benefits 12 must constitute an aid, and will be subject to scrutiny. Under Article 92 para. 2 aid for certain purposes remains compatible with the common market even if all the conditions Iaid down in Article 92 para. 1 are satisfied. By contrast, Article 92 para. 3 establishes certain discretionary exceptions to the proscription of Article 92, and it is to the Iatter that we must turn in the context of general aid schemes and the Industry Acts.

A general aid scheme may be defined as a scheme whereby State assistance is granted to undertakings in whatever business or location for purposes which are typically ill-defined but which are normally expressed in terms of encouraging economic growth or modernization of the national economy or some such broad formula. National Iegislation sanctioning general aid schemes has many of the characteristics of enabling powers and in the United Kingdom the grant of aid and its distribution are political and administrative decisions which are not susceptible to judicial review. The discretion to grant aid is a subjective one but the minister's discretion is exercised in accordance with a particular underlying policy.13

9. Jbid. at 723. 10. Commission Written Reply No. 48 of July 30, 1963, J.O. 1963, 2235/1. 11. Cited by Lipstein, The Law of the European Economic Community, (1973),

p. 246. See also Veneceslai (1969) Riv. Dir. Eur. 257 at 272. 12. The term contre partie is used by Scheuing in Les A ides Financieres Publiques

(Paris, 197 4): anglice "consideration". 13. See British Oxygen Co. Ltd. v. Minister of Technology (1971) AC 610, for a

successful reconciliation of the problems associated with the duty to exercise a discretion and the desire to adhere to a policy. See also Galligan, "The Nature and Function of Policies Within Discretionary Power" (1976), Public Law 332.


There are two reasons why general aid schemes, so defined, cannot take advantage of the derogation in favour of "aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the economic interest" (see Article 92 para. 3 (c)). In the first place, they have no specific relationship to any given industry or region, and, secondly, the Commission cannot evaluate at the inception of a scheme the effect its implementation will have on competition and trade.

The Commission has been prepared to relax this rigorous interpretation on condition that all significant individual applications of aid under a general aid scheme, or any implementing programmes of aid made thereunder which are sectionally or regionally specific, be notified to it in advance.14 In this way, the Commission will have an opportunity to assess the value of the aid and its effects on trade and competition. In the Fifth Report an Competition Policy,15 the Commission noted that at the beginning of 1975 only one scheme had not conformed with the requirement of prior notification. This was the Belgian Law of J uly 17, 1959 which provides a nurober of benefits for investments which contribute to industrial expansion. The Commission adopted a Decision requiring the Belgian Govemment to notify any future aids granted under the Law in question.l6 This is an interesting extension of the procedure under Article 93 para. 2. In principle, the procedure is designed to determine the compatibility of aids with the common market, and to remedy any incompatibility, but it was here used as a means of ensuring compliance with the requirement to notify.

Once notified, the legality of an aid scheme is judged in the light of the principles of Co-ordination of regional aids established in the First Resolution an General Regional Aid Systems 17 which has recently been superseded by the Communication to the Council of February 26, 1975.18

In the past the Commission has taken a robust view of the compatability of general regional aid schemes. First, it has attempted to ensure that aid intensity should vary with the nature, gravity and urgency of the problems involved, subject to "differentiated ceilings" of intensity for different areas. Thus the Belgian Law on economic expansion of December 30, 1970 was challenged on the ground that it applied to Belgium as a whole

14. In the case of sectoral schemes, where the value of the investment is 3m. u.a. or more or where the value of the aid, expressed as net subsidy equivalent, is 15% or more of the value of the investment.

15. (1976) at para. 135. 16. Decision 75/397/EEC, O.J. 1975 L 177/13. 17. O.J. (Special Edition) (Second Series) IX 1971 57, 60. 18. See Jordan (1975-6) E.L. Rev. 236.


and made no concession to regional differences. It did not qualify for any derogation under Article 92 para. 3 (c).t9 Similarly, the Commission opposed the extension of a German scheme of non-selective investment grants to North-Rhine-Westphalia which were designed to mitigate the effects of the decline of coal industry. Here, although the scheme was regionally specific, the Commission judged that the aid had succeeded and was no Ionger entitled to enjoy the derogation in Article 92 para. 3 (c). 20 Secondly, the Commission has insisted that, wherever possible, aid should be disbursed in the form of programmes relating to particular industrial sectors. In this way, a clearer view of the effects on trade and competition can be obtained. For example, it becomes possible to see whether an aid has conservatory effects, increases excess capacity or makes no contribution to the rationalisation of an industry. 21

The Commission's approach was weil illustrated in relation to Article 9 of Italian Law No. 464, providing for interest subsidies on loans entered into by companies to avoid laying off workers. The subsidies were scheduled to last for a maximum of fifteen years and it was estimated that the subsidy effect could be a maximum of 70 per cent. of the expenditure involved. The Commission initiated the procedure of Article 93 para. 2 on the grounds that the aid was conservatory and did not contribute to rationalisation and that it was impossible to measure in advance its effect on competition and trade. The Italian Government responded by agreeing, first, that the aid would be conditional on the receipt of re-organisation proposals from the supplicants and that the money should be used exclusively for investment; secondly that the aid should be directed toward less favoured regions and should accord with the co-ordination principles for regional aids established by the Community; and, lastly, that aid outside these ten favoured regions should be notified to the Commission in advance.

A relatively recent development has been the reliance placed upon Article 92 para. 3 (b) to permit aids to be judged compatible with the Treaty. This concerns aid the object of which is to "remedy a serious disturbance in the economy of a Member State". In the past this derogation has been invoked to justify aids granted on a short-term basis which would not otherwise have been admissible. In the Commission's handling of the Italian Law No. 184, which permitted preferential credits to enter-

19. Decision 72/34/EEC of December 15, 1971. See also Decision 72!173/EEC of April 26, 1972, O.J. 1972, L 105/13.

20. Case 70/72 Commission v. Germany (1973) E.C.R. 813. 21. Although formidable problems of measurement remain: see Mellis and

Richardson in Whiting (ed.), Economics of lndustrial Subsidies H.M.S.O. 1975, p. 23.

The Industry Acts 15

prises irrespective of their business or location, a more indulgent attitude became evident. The aid was prima facie incompatible, but the Commission nevertheless stated:

"that it should take into account the general context of the Italian economy underlying the Government's decisions ... without assistance from the central authorities to help them carry out re-organisation operations, the firms concerned might have been forced to scale down operations ... this would have been bound to worsen further an economic and social climate which is already unfavourable." 22

Grudging approval was also extended to measures assisting Italian textile concerns on the same basis.

The last two quarters of 197 4 marked the beginning of the most significant drop in industrial output and employment since the war. This economic tremor has had the effect of exacerbating the structural deficiencies and inefficiencies of certain industries within the European economy and, as already remarked, has caused Member States either to implement new programmes of industrial subsidies or to renew and refinance existing schemes to forestaU even higher unemployment and bankruptcies. Faced with the understandable desire of Member States to seek to insulate themselves from such occurences, the rigour with which the Commission can enforce the provisions of Article 92 has weakened. In an important statement the Commission:

"bearing in mind the exceptional economic and social situation confronting the Member States, has agreed to certain measures which, in this particular phase of the Communities' existence, it deemed eligible for the derogation provided for under Article 92 para. 3 (b) of the Treaty, according to which aid "to remedy a serious disturbance in the economy of a Member State" may be considered to be compatible with the common market." 23

This provision has proved a convenient safety valve. It is more flexible and less contentious than the procedure provided in Article 92 para. 3 (d) and, moreover, as the Commission's statement testifies, manifestly temporary. Nevertheless the aid under the economic recovery measures so permitted must be notified in advance in order for the Commission to ensure that the investment does not expand capacity in industries in decline and that the recipients are "basically sound". Furthermore, the grant of the aid should not have the effect of favouring undertakings at the expense of other undertakings in other Member States, and should "fulfil genuine and important requirements with regard to employment".

22. Second Report on Campefition Policy (1973) para. 123. 23. Fifth Report on Campefition Policy (1975) para. 133.


2. Section 7 and section 8 of the 1972 Act, as amended

The British aid schemes with which we are concerned are found in sections 7 and 8 of the Industry Act 1972. This Act contains the most significant powers in relation to both regional and sectoral financial assistance. Since 1972 there has been a steady growth in its use, accompanied by a contraction of payments under the superseded provisions of the Local Employment Act 1972 and other less selective schemes of aid. The 1975 Act, apart from significantly amending the earlier Act, establishes the National Enterprise Board, the activities of which will be discussed in the next section; its importance for present purposes lies in the possibility for the Secretary of State for Industry of delegating his responsibilities under the 1972 Act to the Board. 24

Selective financial assistance for undertakings situated in "assisted areas" (meaning, the development areas, the intermediate areas and Northern Ireland) 25 is provided under section 7. The delineation of which areas are to be considered "assisted" is left to the discretion of the Secretary of State, but the Commission is consulted. 26 The Secretary of State has complete discretion in deciding when the "assistance is likely to provide, maintain or safeguard employment ... " 27 Financial assistance may be given on " ... any terms or conditions and by any description of investment or lending or guarantee, or by making grants" for the following purposes: -to promote the development or modernization of an industry; - to promote the efficiency of an industry; - to create, expand or sustain productive capacity in an industry, or in undertakings in an industry; - to promote the reconstruction, re-organisation or reconversion of an industry or of undertakings in an industry; - to encourage the growth of, or the proper distribution of undertakings in an industry; - to encourage arrangements for ensuring that any contraction of an industry proceeds in an ordinary way.28

24. Such delegation would not affect the status of payments under ss. 7 and 8 as "aid" for the purposes of Art. 92 et seq. In Case 78/76, Firma Steinike und Weinlig (1977) E.C.R. 595, the European Court held that it was immaterial whether aid was granted directly by the State or through the medium of a public or private body.

25. Special Development Areas Order S.l. 1972 No. 1234; Assisted Areas Order S.l. 1974 No. 1372: Assisted Areas Orders S.I. 1977 Nos. 683 and 706.

26. Dept. of Industry Press Release No. 25, January 30, 1975. 27. lndustry Act 1972, s7(l). 28. Industry Act 1972, s7(2).


Guidelines relating · to the use of the powers und er section 7 (regional financial assistance) have been published. 29 Broadly the reason for supplying assistance is twofold: to create new jobs and to safeguard existing ones. In the former case, the subsidy element is more pronounced, with concessionary loans, interest relief grants, the taking of share capital and removal grants. In the latter case loans are given at near commercial rates and normally only where finance cannot be privately obtained. Outside these categories, the Department of Industry notes that aid may be granted where a company is facing liquidity problems and where there is some special reason for the undertaking to be supported. This is presumably the dass of case with which the Commission is most concerned, although there is no evidence of intervention and disapproval.30 lt should be noted that Parliamentary approval is not necessary for the expenditure of monies under section 7.

The provisions of section 8 constitute a general aid scheme untainted by regional or sectoral specificity. The purposes are the same as those expressed in section 7 para. 2 but, instead of a justification based upon the employment effect of the aid, it must "benefit the economy of the United Kingdom or of any part of the United Kingdom and it is the national interest that the financial assistance should be provided on the scale and in the form and manner proposed".31 Payments under section 8 are subject to an overall total of <L 1,600 m,32 and although originally scheduled to lapse at the end of 1977 are no Ionger subject to any time limit. 33

Section 9 of the Industry Act 1972 creates a new body, the Industrial Development Advisory Board, which consists of individuals who have, inter alia, "shown capacity in industry, banking, accounting and finance". The Board gives the Secretary of State guidance on the deployment of the resources at his disposal but it plays an advisory role only, the final decision resting with the Minister. Any departure from the IDAB recommendation has to be justified by the Secretary of State in a statement before Parliament if the Board so requests.34

29. Reprinted as Appendix E, Annual Report on the lndustry Act 1972, HC 619 of 1975-6.

30. For examples of such aid see para. 18-19 Annual Report HC 620 of 1974-5; paras. 16-17 Annual Report HC 619 of 1975-6.

31. s. 8 (1). 32. The 1972 Act placed a Iimit of J2. 550 m. This was increased to J2. 1600 m.

in the Industry (Amendment) Act 1976. For further explanation see Mr. Varley, HC Deb (1975-6) 910 c 579 (2nd Reading).

33. S. 22 lndustry Act 1975, Schedule 4 (2) (d). 34. S. 9 (4). See e.g. Annual Report, para. 20, HC 620 of 1974-1975.


3. Aidsgranted under the Industry Acts: the Commission's assessment

No case has yet reached the European Court concerning State aids to manufacturing industry in the United Kingdom. 35 The British government appears to have fulfilled its obligation to notify such grants of aid to the Commission and any differences have normally been settled as a result of administrative consultation, the Commission finding it necessary to initiate the procedure of Article 93 para. 2 in only two cases.36 Aid under section 7 which is within the published Guidelines would seem to present the fewest problems. The Commission is concemed that the region in receipt of the grant is in need of assistance, that the total aid does not exceed the agreed maximum in intensity 37 and that the aid is transparent. By contrast, section 7 aid outside the Guidelines would seem to require special justification; but perhaps because the sums involved were relatively small, while the issues involved were politically sensitive, the Commission did not take any action. These instances usually consisted of "rescue operations" whereby the imminent bankruptcy of an undertaking was forestalled by government aid. Even so, the Commission's view is perhaps surprising, particularly in the light of the attitude known to have been expressed by the IDAB against instances of aid. These findings are, for the most part, confidential and not passed on to the Commission. The IDAB is primarily concerned with the economic rationality of a proposed aid. lt is common ground between the Berlaymont and Whitehall that aids which conserve capital and jobs and which will not have the effect of rendering the recipient self-sufficient and profitable within a reasonable period of time,38

are undesirable and disapproval by the IDAB may be taken to indicate a prima facie case of incompatability with the Treaty, assuming that trade between Member States is affected. However, such examples constitute a very small proportion, both numerically and financially, of aid granted under section 7. The Department of Industry has noted that profitability and returns on capital are the primary indices of the worthiness of the

35. Cf. the recent controversy concerning aid to pig producers which led to the issuing of an interlocutory injunction by the European Court of Justice: see Cases 31/77R and 53/77R (not yet published).

36. The Offshore Supplies Interest Relief Grant Scheme under s. 8 was the first: see Sixth Report on Competition Policy, para. 219-221. The second case concerned an investment incentive scheme for the instrumentation and automation sector, also under s. 8: see O.J. 1977 C 8/2. Few details of the latter scheme appear to be available, but it is understood that agreement is near in order to render it compatible with Treaty Obligations.

37. But note the welcome derogation in favour of the Highland and Islands Development Board: see Fifth Report, para. 98.

38. The new word is "viable".


recipient of aid. 39 The Commission is also at liberty to question why aid has been granted under section 7 rather than under section 8. In view of the amendments effected by the 1975 Act, the choice of power is no Ionger as important as previously; nevertheless, it is not obvious why a regional aid scheme was utilised to assist Ferranti. Equally, the Commission is doubtless aware of the possibility of aids accumulating under section 7 and section 8: for instance companies in receipt of both regional and sectoral aids, as in the case of British Leyland.40

Under section 8 aid has been administered in the form of programmes or, exceptionally, given to individual companies. All programmes and all significant applications of aid have been notified to the Commission in advance of their implementation. The Fifth Report on Competition Policy,41 for example, notes the submission to the Commission of a substantial programme of aid to the textile industry to remedy its structural weaknesses. The main features of the scheme were a 20 per cent. grant for the purchase of new plant and machinery, a 50 per cent. grant for the use of consultants, and the establishment of a productivity centre for the industry. The latter two provisions were unexceptionable, but the Commission objected to the 20 per cent. grant, since individual firms were not required to restructure their plant or to give undertakings that the cash would not be used to expand capacity in an industry where capacity was far in excess of demand. The programme was resubmitted in the light of the Commission's response, and the aid was made conditional on programmes of rationalisation proposed by the firms themselves.

Another example of the Commission's intervention concerned the implementation of a programme of aid to the machine tool industry. In the United Kingdom this industry is still highly fragmented and has declined markedly in competitiveness. The scheme proposed loans at concessionary rates to encourage product development, as well as grants for new plant, buildings and machinery, and for reconstruction: to these, the Commission made no objection. However, it did object strongly to concessionary loans to finance stockpiling of machine tools during the cyclical trough up to the end of 1976. This, it was argued, was conservatory in effect. The United Kingdom sought to justify the measure by arguing that it would provide capacity to meet the demand consequent upon the expected expansion of the economy-a role traditionally and increasingly played by imports. On the other band, the Commission held that such a scheme

39. Criteria for Assistance to lndustry. Notified to Parliament 12 January, 1976. Reprinted as Appendix A to the Annual Report on the Industry Act 1972, HC 619 of 1975-1976.

40. See Annual Report HC 620 of 1974-5 para. 42. 41. (1976) at paras. 108-9.


would seriously distort compehhon and exacerbate the difficulties of competitors in other Member States. Ultimately, the stockpiling provision was dropperl from the scheme.42 (It was later taken over, on near commercial terms, by the National Enterprise Board.)

The first instance of the Commission initiating the procedure under Article 93 para. 2 against the United Kingdom occurred when the Govemment refused to modify the Offshore Supplies Interest Relief Grant Scheme. This scheme 43 provides for an Interest Relief Grant of 3 per cent., for a maximum of eight years, on credit obtained to finance up to 80 per cent. of the value of contracts with British suppliers for the supply of fixed offshore installations, components and services situated in the United Kingdom Contineotal Shelf outside territorial waters.44 Usually such contracts would not attract ECGD facilities and the United Kingdom's earlier position, which was initially accepted by the Commission, was that an indigenous offshore supply industry could not establish itself in the face of foreign competition, which was itself benefiting from preferential export credits. The Commission's analysis is interesting. The aid could be regarded as a subsidy both to the purchasers of the equipment and to the suppliers of equipment. In the former instance, it contributed toward the acceleration of production of hydrocarbon resources, a noble aim and one in line with Community policy; in the latter case, the initial justification-the infant industry argument-bad, in the Commission's view, ceased to be relevant. The rapid growth of the market within the United Kingdom and increased competition within the common market meant that the discrimination inherent in subsidising British suppliers distorted competition. The United Kingdom drew attention to the maintenance of market shares by other Member States as indicating that distortions had not increased since .the inception of the scheme. Nevertheless, the Commission insisted that this proportion was the product of reduced profit margins. In itself this did not originally cause serious distortions, but once the industry and market has expanded, the effect of the distortion grew correspondingly. The essence of the Commission's case is

42. Sixth Report (1977) paras. 232-235. Cf. the Commission's willingness to hold that the prohibition contained in Art. 4 (c) of the ECSC Treaty was inapplicable with respect to the finance of steel stocks by the British Steel Corporation from the National Loans Fund, ibid. para 263.

43. Introduced to Parliament HC WA (1973-4) 863c119; Annual Report HC 619 of 1975-6 paras. 49-50.

44. An interest relief grant permits the supplicant company to seek funds from private sources and it is the subsidy equivalent of a concessionary loan. It has the advantages of being relatively cheap and delegating project appraisal to commercial lenders. In this case the bulk of the risk is borne by the borrower.


that the distortion is now unacceptably great and although the interest relief grant could remain as a form of protection, its scope should be extended in respect of equipment purchased from other Member States.45

The Commission has proved tolerant of substantial aid to the British motor industry, particularly to Chrysler (U.K.) Ltd. and to the British Leyland Motor Corporation. With Chrysler, the American parent company announced that after sustaining heavy Iosses it proposed to withdraw from the United Kingdom. In return for certain undertakings, the government provided aid in the form of grants, guarantees and low interest loans. In the case of British Leyland, " ... whose models have not always been weil adapted to market requirements and whose Ievel of productivity is inadequate owing to the age of its plant and machinery and difficult labour relations",46 the government was permitted to assist in the form of guarantees, long term loans and State participation involving an increase in the company's share capital. On one Ievel there is little doubt that the Iiquidation and closure of both enterprises would qualify as a ". . . serious disturbance in the economy of a Member State". They are major employers, and in Chrysler's case primarily situated in areas of high unemployment which the closure would have exacerbated. Moreover their disappearance would have affected the British balance of payments, not only in eliminating exports but in permitting imports a greater market share. The Commission's view was that the aids were compatible because it was thought Iikely that the recipients, after re-organisation, will be commercially viable and able to compete successfully and, in addition, the granting of aid did not aggravate existing problems at a Community Ievel or transfer problems elsewhere-although it was pointed out that the aid was to be phased over time and that the operation would remain under scrutiny.

Clearly the notion of "commercial viability" is proving as elastic in the Berlaymont as it is in Whitehall. There are many economists' models analysing market failure, 47 yet there seems to be no litmus test-short of political expediency and vote maximising-to determine whether imminent bankruptcy is any more than an efficient indicator of consumer wishes with regard to the products of British Leyland and Chrysler. If so, an alternative strategy, perhaps of retraining and investment elsewhere, is indicated. Faced with similar circumstances the German government in its handling of Volkswagen closures was prepared to accept the market

45. For a general discussion of the trade effects of aid, see Denton et al. Trade Efjects of Public Subsidies to Private Enterprise (1975).

46. Fifth Report (1976) para. 17. 47. E.g. Bator, "The Anatomy of Market Failure", (1958) Quarterly Journal of

Economics.


solution. It proposed to encourage development in the regions most affected but it was not prepared to grant aids to the company itself; a development which the Commission noted "with satisfaction".48

C. THE NATIONAL ENTERPRISE BOARD

Section 1 of the Industry Act 1975 provides for the establishment of the NEB, to consist of a chairman and not less than eight or more than sixteen other members, who are appointed by the Secretary of State for Industry.

The statutory purposes of the Board, as expressed in section 2 para. 1 of the Act are to develop or assist the economy of the United Kingdom ( or any part thereof); to promote industrial efficiency and international competitiveness; and to provide, maintain or safeguard productive employment. In order for these purposes to be achieved, the functions outlined in section 2 para. 2 include the provision of finance for industrial investment, the establishment of enterprises, the promotion of industrial re-organisation and the extension of public ownership into profitable areas of manufacturing industry. In addition, the NEB acts as a holding company for Shareholdings in industrial companies which it has acquired either through its normal functioning or through a transfer of existing Government holdings.

1. Status of the NEB in Community Law

Article 222 of the EEC Treaty provides: "The Treaty shall in no way prejudice the rules in Member States governing the system of property ownership."

There can, therefore, be no objection in Community Law to any form of public ownership as such. However, the State, in so far as it takes on the role of an economic actor, as weil as undertakings subject to its control, are bound to adapt their behaviour to the rules of the Treaty,49 except where a derogation is permitted by the Treaty itself.

Special rules concerning the intervention of the State in economic life through the medium of undertakings are found in Article 90 of the EEC Treaty. The first paragraph of the Article seeks to ensure that measures applied by Member States in relation to "public undertakings" and "undertakings to which Member States grant special or exclusive rights" are

48. Fifth Report (1976) para. 118. Fora comparative study of British and German state aids, see Corden and Fels, Public Assistance to Industry (1976).

49. See notes 51 and 52 infra.


compatible with the Treaty, and in particular with Article 7 (general prohibition agairrst discrimination based on nationality) and Articles 85-94 (rules on competition).50 The second paragraph defines the position in Community Law of "undertakings entrusted with the operation of services of general economic interest or having the character of a revenueproducing monopoly": these are expressed to be subject to the rules of the Treaty, in particular the competition rules, "insofar as the application of such rules does not obstruct the performance in law or in fact of the particular tasks assigned to them". However, the exemption enjoyed by such undertakings is limited by the proviso that the development of trade must not be affected to an extent which is contrary to the Community interest. Under the third paragraph the task of supervising the application of the Article is entrusted to the Commission, which "shall, where necessary, address appropriate directives or decisions to Member States".

The first question to consider is whether the NEB qualifies as an "undertaking" for the purposes of Community Law. The answer might seem obvious, since the Board possesses the two attributes which are generally regarded as the distinguishing mark of an undertaking, namely, legal capacity and the object of carrying on economic (not necessarily profitmaking) activities.51 However, in addition to its operations as a market participant, the Board may be called upon to exercise certain powers which in the hands of a department of Central Government or of a Local Authority would be recognised as manifestations of sovereignty and would not result in the subjection of the State itself to the rules which the Treaty imposes specifically upon undertakings: 52 an example would be the power to grant selective financial assistance under sections 7 and 8 of the Industry Act 1972.53 In such cases, it may be argued, the Board would act not as an undertaking but as an organ of the administration, and any legal liability

50. This puts into concrete form the Obligation imposed on Member States by Art. 5 EEC. Deringer, The Campefition Law of the European Economic Community, at p. 227 discusses the reasons for the inclusion in the Treaty of a provision relating specifically to public undertakings.

51. See Deringer, op. cit. note 50, p. 4 et seq. and p. 227 et seq. and refs; Megret et al., op. cit. note 2, Vol. 4 p. 105 et seq. and refs.; Lipstein, The Law of the European Economic Community, p. 199 et seq. and refs.

52. The predominant view is that, although the State or its subdivisions may constitute undertakings in Community law if they carry on economic activities, this cannot be so where "sovereign activity" is involved: see Deringer, op. cit., p. 228-229. Contra, Schindler, "Public Enterprises and the EEC Treaty", 7 C.M.L.Rev. 1970, 57 at 62-64, who admits that Arts. 85 and 86 might not apply to "sovereign activity" but argues that the concept of "undertaking" may be different in Art. 90.

53. Industry Act 1975, s. 3 see infra. For a fuller discussion, see Sharpe, The Jndustry Act 1975, Ch. 3.


would result from the direct infringement by the United Kingdom of its obligations as a Member State. Some support for this approach can be found in the judgement of the European Court in Sacchi 54 where it seems to be admitted that the status of a body under Article 90 may vary depending upon the type of activity in which it engages. A disadvantage would lie in the difficulty which might be experienced in determining precisely when the Board should be treated as an undertaking and when not, since its functions tend to merge into one another, especially as regards the granting of aid.

Subject to the foregoing, there can be no doubt that the Board constitutes a "public undertaking" within the meaning of Article 90 para. 1. The factor which contributes this "public" quality is the ability of the state to exercise a preponderant influence over decisions of the undertaking, regardless of the legal form which the relationship may take; 55 such influence would clearly be present inter alia in the appointment of the chairman and other members of the Board, 56 the determination of its financial duties 57 and the power to give it general or specific directions.58

Article 90 para. 1 would, therefore, apply to any "measure" adopted by the Government in relation to the Board. This would include statutory provisions, directions under section 7 of the Act or pressures of a wholly informal nature. Examples of possible infringements would be if it were intimated that the Board and its subsidiaries should always seek, in the first instance, to obtain their requirements from British suppliers, or that the objective of "extending public ownership into profitable areas of manufacturing industry" should be pursued by means of a predatory pricing policy. However, it is worth pointing out that the Guidelines 59 for the exercise of the Board's powers, which have been formally adopted as a general direction under section 7, exhibit a clear intention that the Board should abide by the ordinary rules of good business practice.

A question of some interest, given the Commission's concern with the potential of the Board as an instrument of general aid, is the interaction of Article 90 para. 1 with Articles 92 et seq. It is submitted that, insofar as the Board operates as an undertaking when engaged in the granting of aid, any incompatibility of such aid with the common market would entail an infringement of Article 90 para. 1, providing grounds for the Commission

54. Case 155/73, (1974) E.C.R. 409 at 429-430. 55. See Deringer, op. cit. note 50, p. 232 et seq.; Megret et al., op. cit. note 2, pp.

84-35; Schindler, loc. cit. at pp. 61-62. 56. lndustry Act 1975, s. 1 (3).

57. lbid. s. 6. 58. Ibid., s. 7. 59. As to the Guidelines, seefurther note 74 infra.


to invoke the procedure under Article 90 para. 3 as an alternative to that under Article 93 para. 2: the former procedure would have the advantage, as compared with the latter, of greater flexibility. 60 On the other hand, where the Board is to be regarded as an arm of government, so that there is no "undertaking" in relation to which a ''measure" can be adopted, the only available procedure would be that under Article 93 para. 2.

lt remains to be considered whether the Board's own obligations under Community Law may be modified by the exemption in Article 90 para. 2, an issue of considerable importance to other market participants in the United Kingdom. The Board is obviously not an undertaking "having the character of a revenue-producing monopoly",61 so the only possibility would be to show that it has been "entrusted with the operation of services of general economic interest". In the SABAM 62 case, an invitation from the referring court to provide a general definition of entrusted undertakings 63 was declined by the European Court, which however made the point that, as a provision derogating from the rules of the Treaty, Article 90 para. 2 must be interpreted strictly. lt was also held that the act of entrusting must have been done by "the public authority", a condition which would be fulfilled in the case of the Board.64 The difficult question is whether the tasks assigned to the Board amount to "the operation of services of general economic interest." This phrase is apt to describe the organisation of some performance for the benefit of the general public (although ultimately enjoyed by specific recipients), typically through the provision of a commodity or facility, for instance, public utilities, transport or broadcasting.65 One view would be that the Board

60. The necessity for resorting to Art. 90 (3) is doubted by Deringer, op. cit. note 50 at p. 242.

61. Examples would be the German alcohol monopoly or the Italian monopoly in manufactured tobacco. For the interaction between Art. 90 (2) and Art. 37, see Megret et al., op. cit. note 2, Vol. 4, p. 91.

62. Case 127/73, 1974 E.C.R. 313. 63. This convenient description is used by Deringer, op. cit. note 50. 64. Hence a body to which the management of intellectual property rights was

entrusted by private contract would not be covered by Act 90 (2). See SABAM and the earlier Decision of the Commission in Re GEMA, O.J. 1971 L 134/15.

65. See Deringer, op. cit., p. 245 et seq. He argues convincingly that the term "services" must be interpreted more widely in Art. 90 (2) than in Art. 60. On the other hand, "operation of services" cannot be intended to cover every kind of economic activity entrusted to an undertaking in pursuance of public policy goals, since the express reference to fiscal monopalies would then be superfluous. In the two cases where the European Court of Justice has been willing to recognise the existence of an entrusted undertaking, the task in question fell squarely within the interpretation here adopted: see Case 10/71, Müller, (1971) E.C.R. 723 (operation of river port facilities); Case 155/73, Sacchi, (1974) E.C.R. 409 (broadcasting).


was not envisaged by Parliament as a body responsible for securing a performance in this sense: such at least is the impression created by the Statement of purposes in Section 2 para. 1 of the Act ( development of the economy, promotion of efficiency and international competitiveness, provision of employment) where the Board seems destined to play the part of an economic demiurge. On the other band, it may be argued that certain of the Board's functions, as stated in section 2 para. 2, may involve the operation of services, and that it can only be determined whether the Board is acting as an entrusted undertaking for the purposes of Article 90 para. 2 by looking at the particular circumstances of each case. Thus in establishing, maintaining or developing an undertaking 66 or in promoting the re-organisation or development of an industry,67 the Board may weil perform a function analogaus to that of a bank or other institution affering financial services; this may be contrasted with its role as profit-seeking entrepeneur 68 and as promotor of industrial democracy,69 where the service element would be missing. lt must, however, be remernbered that, even when functioning as an entrusted undertaking, the Board will only be entitled to exemption if the application of the strict rule would make the performance of its allotted task impossible. lt is hard to see how, for example, abusive behaviour on a market where the Board is dominant, could ever be essential to a restructuring operation, so as to exclude the prohibition in Article 86. Further, of course, the exemption is ultimately limited by the requirement that the development of trade must not be affected to the extent of damaging the Community interest.

2. The NEB and State aid

The legal link between the 1972 and 1975 Industry Acts is contained in section 3 of the latter Act, which places a duty upon the Board to give effect to any Direction the Secretary of State may give regarding the exercise of his powers under sections 7 and 8 of the 1972 Act. In performing this duty, the Board is acting as the agent of the Secretary of State and will be re-imbursed the cost of the assistance given. A Direction has been issued with respect to assistance to British Leyland. For present purposes this delegation of powers adds no new factor which is not present when the powers are exercised directly by the Secretary of State. Attention is, therefore, focussed on the general "commercial" side of the Board's activities. It is worth pointing out that this is of concern to the Commission,

66. Industry Act 1975, s. 2 (2) (a). 67. Ibid. s. 2 (2) (b). 68. lbid. s. 2 (2) (c). 69. lbid. s. 2 (2) (d).


in the context of Act 92 et seq., for two reasons: in the first place because the NEB may itself be a recipient of aid, thus enjoying a competitive advantage over other market participants,7° and in the second place because it may act as a vehicle for aiding other undertakings.

The compatibility of the Board's activities depends to a large extent on the financial discipline imposed on it. Leaving aside operations in accordance with a Direction under section 3, the financial provisions concerning the NEB are found in Schedule 2 to the 1975 Act. The Board's borrowing takes the form of drawings from the National Loans Fund. Schedule 2 para. 2 ( 4) dictates that loans will be repaid to the Secretary of State, at such times and at such rates as he, with the approval of the Treasury, directs. This comes under the provisions of section 5 para. 1 of the National Loans Act 1968 which provides that the rate of interest must be fixed in accordance with section 5 and must not be less than the Treasury at the time of the loan can borrow for a comparable period and on comparable terms. This will, almost invariably, be less than the rate demanded of a private concern.

Schedule 2 para. 5 empowers the Secretary of State, with Treasury approval, to invest Public Dividend Capital in the Board and to have any capital debt already incurred (following the transfer of existing Government holdings) treated as Public Dividend Capital. The Secretary of State and the Treasury together determine the amount of dividend payable to the Consolidated Fund. Public Dividend Capital is non-redeemable and is remunerated by variable dividends reflecting each year's trading results.

Potential for "aid" in the capital structure and borrowing powers of the Board undoubtedly exists.71 The charge that the Board enjoys softer terms than a comparable bank is a familiar one (echoing comments on the NEB's predecessor, the Iudustrial Re-organisation Corporation, although, unlike the NEB, the IRC did not have access to Public Dividend Capital. This had the effect of placing it on the same footing as a company financed solely by debt rather than by equity capital). Of greater importance than the slender differential in interest rates between public and private capital is the discretion afforded to the Secretary of State in determining the amount of Public Dividend Capital extended to the Board and the proportion of debt already assumed which will be so regarded. This means that the Minister can vary the composition of the Board's capital structure in a way beneficial to the Board. The Commission has recognised that a

70. "Undertaking in Art. 92 (I) includes public undertakings: see Case 78/76, Firma Steinike and Weinlig, (1977) E.C.R. 595.

71. For an indication of the Commission's possible attitude towards the NEB's financial means, see Sixth Report (1977) para. 263, on the BSC stockholding operation.


waiver of interest upon capital put at the disposal of a public enterprise can be regarded as aid if in comparable circumstances a private creditor, acting upon economic considerations only, would not have waived bis rights, or at least not to the same extent. 72 This need not necessarily be serious and it should be recalled that the Secretary of State, in consultation with the Treasury, has the power to determine the value of assets transferred to the NEB, which will determine the Board's initial capital debt. lt is possible that the valuation placed on such assets may not accord with the NEB's figure: the Board can protest, but there is little eise it can do.73

Turning from the cost of money to the NEB to the financial duties placed upon the Board, section 6 states that the Secretary of State, after obtaining the Treasury's approval, has a duty to lay down the financial obligations of the Board, possibly making different determinations for different assets, but in all cases ensuring "that the duties to be imposed on the Board are likely, taken together, to result in an adequate return on capital employed by the Board". The Guidelines 74 specify that in lending to subsidiaries or to other companies, the NEB must charge a rate of interest not less than that paid by commercial companies of the highest standing when raising finance. (The Test Rate of Discount is a familiar concept in public sector finance.) Furthermore,75 the Board can acquire or take positions in undertakings "only when they see the prospect of an adequate rate of return within a reasonable period". lt is understood that there is an agreement for all financial and other Directions to be forwarded to the Commission for appraisal if they would have fallen to be notified under Article 93 para. 3 in the event of the grant being made directly by the government.

lt should be recalled, in the present context of legal control on the giving of aid within Member States, that the NEB has wider responsibilities than other commercial undertakings. lt was not designed to be a carbon copy of existing financial institutions but tobring an element of discrimina-

72. Commission Reply no. 48 of July 30, 1963, J.O. p. 2235/1963. 73. For differences over Rolls-Royce see NEB Annual Report pp. 7-8. The

"criteria" for valuation are found in Schedule 2 (6). 74. National Enterprise Board (Guidelines) Direction 1976 para. 11. This novel

form of legal restraint was introduced as a response to criticism of the vagueness of the statutory financial duties in S. 6 and elsewhere. The position seems to be that the NEB owes a duty to the Secretary of State who alone may enforce the duties contained in the Guidelines. This means that the only form of control is both political and centralised; moreover it does not afford a trade competitor any legal remedy. See the application for an interim interlocutory injunction by a number of tanning companies against the NEB: Financial Times 30th April, 1977. This topic is treated at greater length in a forthcoming article.

75. Ibid. at para. 13.


tion into the capital market, which has acknowledged deficiencies, the precise extent of which is unquantified and perhaps unquantifiable. lt is possible, for example, that certain NEB investments will have "external" effects on the United Kingdom economy, such as stimulating investment and development in less developed regions. In addition, the NEB may impose conditions on the grant of capital which are more onerous than those imposed by private sources, for example, by establishing investment and productivity Ievels or by renegotiation of management service contracts, or the insistence on certain resignations or adherence to wage and dividend policy 76 and so forth. Paying regard only to the quantitative effects of NEB activities may have the result of obscuring the qualitative changes taking place as a result of its intervention, particularly when the transactions may take place against a background which is not competitive and which may become more competitive as a result.

There remain serious difficulties in establishing criteria as to what constitutes aid and how it may be measured, especially with regard to the application of the co-ordination principles on regional aids.77 In the case of concessionary loans which are important in relation to the exercise of section 7 and 8 powers, the aid element may be identified as the difference between the commercial and concessionary rate. Such an approach, however, contains the implicit assumption that a commercial lender would extend finance to the undertaking at the commercial rate or indeed at any rate of interest. This must necessarily be a subjective judgement.

The acquisition of shares cannot of itself constitute aid, but it can constitute a potential source of aid, the effect of which cannot be established or quantified in advance. An aid element may be present if the Government or the NEB purchases equity or subscribes to new capital and later disposes of the holding at a lass. The interest element-as the price of time-would have to be quantified and allowances made for any dividend payment. Two other factors are relevant: first, and obviously, the State or its agency, in choosing to subscribe to equity, is placing itself in a less advantageaus position than if it acquired debenture or preferential loan stock (the latter would have priority in the event of Iiquidation and a commerciallender may not offer funds other than on security); secondly, the taking of equity may be regarded by potential creditors or other subscribers to capital as constituting an estoppel or a form of insurance,

76. Jbid. at para. 15. 77. Sixth Report (1977) para. 192, where it is stated that 50% of all regional

assistance at present granted by Member States in the EEC cannot be measured. This is presumably in part, a reference to tax relief offset against future profits. At what rate of interest should future tax remissions-if and when they come into play-be discounted?


indicating that in the event of failure the State will indemnify them. If the risk element is thereby reduced, more substantial funds or easier trading terms may be extended to the company than would otherwise be the case. The NEB Guidelines at paragraph 10, make it clear that in the absence of any express statement to the contrary, the Government will not indemnify creditors of failed concerns. Nevertheless there is a good case for at least considering that both the Government and the NEB may be liable if they are privy to a company trading while insolvent. The case-law, however, though speaking with a single voice, makes two sounds.78 It is further stated that the normal practice of holding companies in relation to the debts of their subsidiaries will be followed. 79

The Commission has some experience in reviewing the operation of such "para-governmental agencies", for example, that of the Italian agency, GEPI, in 1972. The Italian Law No. 184 of March 22, 1971, had as its purpose the attempted reconversion and re-organisation of enterprises in difficulty. The law authorised additional credits to a financial agency, IMI, in order to facilitate preferential credits for new fixed investment, the retraining of labour and the taking of temporary Shareholdings in enterprises. In addition, the law created a new organisation, GEPI, the function of which was to take temporary Shareholdings in companies in financial difficulties. GEPI itself was wholly owned by Italian state financial institutions but was a private company and enjoyed no privileges by virtue of its public activities. In its reply to a question in the European Parliament, the Commission outlined its attitudes toward the law.80 The preferential credits were permitted under the derogation contained in Article 92 para. 3 (b ). Equity participation in an enterprise by a State agency, could not of itself, constitute an aid (cf. Article 222 of the EEC Treaty, supra); however, without derogating from Article 222, such participation could be regarded as an aid by reason of the objectives pursued. Further, in its Second Report an Campefition Policy 81 the Commission stated that:

"the work of these agencies must be considered ... insofar as it is liable to affect intra Community trade and competition. This does

78. The relevant statutory provision is s. 332 (1) of the Companies Act 1948; the voice is that of Managham J. in Re William C. Leith Bros. Ltd. (1932) 2 Ch. 71,77 andRe Patrick and Lyon Ltd. (1933) Ch. 786, 790-1. Fora fuller discussion see Sharpe: The 1ndustry Act 1975, pp. 29-32.

79. Whatever standard may be intended, this is a legal Obligation placed on the NEB: we know this by virtue of the heavy type in para. 10. But such an obligation is only likely to be enforeable by the Secretary of State and not by the subsidiary's creditors, although this is a speculative conclusion.

80. See J.O. 1972 C 68/5. 81. (1973) at para. 124.


not mean, however, that their work is necessarily and automatically to be treated as that of an aid scheme. Generally only the actual working of the agencies considered brings out aid effects, discernible on the basis of concordant evidence, such as, for example: (a) that the acquisition of holdings are used as an alternative to or a factor strengthening traditional forms; (b) that they are provided for firms in Iiquidation which would disappear from the market without such assistance; ( c) that the purchases of holdings do not ensure normal remuneration of the capital committed or that they are eventually sold to the partners falling short of the acquisition price."

In order to be in a position to make a judgement, the Commission has extended to the NEB the practice, already adopted in relation to other agencies, of requiring an annual report to be submitted. Although the Commission is understood to be studying the first annual report of NEB, it is possible that further information will be sought.

3. The NEB as a Dominant Undertaking

Whether a given undertaking qualifies as dominant, or its activities as abusive, for the purposes of Article 86 of the EEC Treaty is a matter which can only be determined with regard to a particular state of facts. 82

The present discussion can, therefore, do no more than provide some general indications of the way in which Article 86 is likely to operate in relation to the NEB.sa

The test of a dominant position which the Commission formulated in its Continental Can Decision,84 and which it has consistently applied since is "overall independence of behaviour": undertakings occupy such a position when they are able, on the whole, "to act without taking into account their competitors, purchasers or suppliers". This may be due to a preponderant market share, or to a combination of market share "with the availability of technical knowledge, raw materials of capital". A constant factor in assessing the strength of the NEB on a given market will be the size of its general financial resources. In particular, the range of

82. This was laid down by the European Court in response to the argument, which had been put forward by the Commission, that exclusive dealing agreements, as a class, were automatically caught by Art. 85 (1), although individual agreements might qualify for exemption under Art. 85 (3): see Case 56/65, LTM v. MEV (1966) E.C.R. 235. However, the principle would be equally applicable in the context of Art. 86.

83. As to whether the NEB is an "undertaking", see 23 supra. For an example of a public body to which Art. 86 has been held not to apply, see Case 94!174, IGAV (1975) E.C.R. 699.

84. J.O. 1972 L 7/25.


the Board's interests, tagether with its access to public funds in the form either of conventional loans from the Secretary of State or of "public dividend capital", and the possibility of obtaining Treasury guarantees for non-Governmental loans, gives it a position analogaus to that of a conglomerate with immense holdings in banking and insurance. Another consideration is the Iack of ordinary commercial constraints upon the Board, at least in respect of particular operations. Thus the Secretary of State and the Treasury are required before making a financial determination under section 6 "to satisfy themselves that the duties to be imposed on the Board are likely, taken together, to result in an adequate return on capital 85 employed by the Board". lt is hardly necessary to stress the vagueness of the italicised phrase. The adequacy of any return on capital is a matter for the unreviewable judgement of the Secretary of State and the Treasury, while cross-subsidisation between the activities of the Board may be contemplated, despite the condemnation by the Monopalies and Mergers Commission of similar practices on the part of private undertakings.86 Finally, it is worth recalling that a subsidiary which is subject to the practical control of the Board will form with the latter, "a single undertaking or economic unit"; 87 its own share of the market may be modest, but the power of the Board standing behind it may ensure a degree of freedom from competitive pressures sufficient to bring it within the scope of Article 86.

Turning to the second criterion of prohibition in Article 86, no purpose would be served by speculating about the various predatory practices of which the NEB might be capable. A different source of possible abuse would be the internal organisation of the "group" represented by the Board and its subsidiaries: thus a policy of favouring members of the group in business dealings might fall within Article 86 (c). However, not only is the Board subject to the fair trading legislation and to the same body of good practice as applies to private undertakings but it is specifically enjoined to "avoid showing undue preference in their (sie) trading relationships" and to "use any power they possess to ensure that their subsidiaries also avoid this".88 A question that may be asked is whether

85. Emphasis added. 86. Para. 20 of the Guidelines could be read either way. For an example of cross

subsidisation criticised by the Monopalies and Mergers Commission, see the report on the supply of contraceptive sheaths to the United Kingdom: HC 135 of 1974-1975, para. 209.

87. Seenote 51 supra. The quotation is from Cases 6-7/73, Commercial Solvents Corporation (1974) E.C.R. 223 at 254, reproducing the phrase used by the Commission in its Decision, J.O. 1972 L299/51.

88. See Guidelines, para. 14. See also the declaration in s. 2 (5) of the Act as to the Board's subjection to the general law.


takeovers by the Board are liable to constitute an extension of a dominant position beyond the Community's Iimit of tolerance, as defined by the European Court in Continental Can.89 On the one band, it is clear in principle, and was confirmed by the court in Sacchi, 90 that concentration taking the form of the creation or extension of a national monopoly cannot, in itself, be incompatible with Article 86. On the other band, the emphasis in Sacchi upon a grant of special or exclusive rights by the State suggests that a distinction is tobe drawn between out-and-out nationalisation, to which the Article does not apply, and acquisitions resulting from the entrepreneurial activity of a public undertaking, to which it may do so. The Board, when indulging in activity of the latter type, should therefore be sensible of the risk of committing an abuse.

The requirement of an effect upon trade between Member States delimits the sphere of the Community's competition rules.91 There would doubtless be many cases where an abuse of a dominant position by the Board would have competitive consequences extending beyond the United Kingdom.

A final point concems the operation of Article 86 within the framework of Article 90, on which further clarification by the Court of Justice is urgently required. The first task for an English court faced with an allegation that the NEB is guilty of an infringement of Article 86 would be to determine whether the Board had been acting as an entrusted undertaking at the material time. If so, then Article 90 para. 2 would come into play, and it might be inferred from the judgement of the Court in Müller,92 the first case in which this provisionwas applied, that the proper course for the English court would be to terminale the proceedings ( or, if the alleged abuse was merely incidental to some other issue, to exclude it from consideration), leaving it to the Commission to take any necessary remedial action.93 However, a different inference is to be drawn from the following passage in the judgment in Sacchi, where the court had been invited to pronounce upon a series of possible abuses by a national monopoly:

"The national court has in each case to ascertain the existence of such abuse and the Commission has to remedy it within the Iimits of its powers.

89. Case 6/72, {1973) E.C.R. 215 at 245. 90. Case 155/73, (1974) E.C.R. 409 at 430. 91. On the application of this requirement under Act 86, see, in particular, Case

6-7/73, Commercial Solvents Corporation [1974] E.C.R. 223 at 252-253. 92. Case 10/71, (1971) E.C.R. 723. 93. See Kapteyn and Verloren van Themaat, lntroduction to the Law of the

European Communities, p. 273.


Even within the framework of Article 90, therefore, the prohibitions of Article 86 have a direct effect and confer on interested parties rights which the national courts must safeguard." 94

This must mean, at the very least, that the national court should apply Article 86 to discover whether, apart from the exception in Article 90 para. 2, the conduct in question would involve a prohibited abuse. However, the phrase "ascertain the existence of such abuse" seems to imply that the national court should reach a conclusion on the actual legal position (as opposed to one that is merely hypothetical): in other words, if the criteria in Article 86 are satisfied, it should go on to consider whether or not the Board can escape the prohibition by invoking the exemption based on the performance of the particular tasks assigned to it. If this is correct, it represents an alteration of the view forcibly expressed in Müller that Article 90 para. 2 is not directly effective. However, the whole exercise would be futile if, as the first paragraph of the quoted passage suggests, the national court would not be competent to remedy an abuse which was found not to be covered by the exception. Perhaps the Court did not intend to exclude the possibility of a remedy being granted in the form of a declaratory judgement: a declaration by the High Court that the Board had abusedadominant position, although lacking "teeth", could normally be expected to produce a salutary effect.

An alternative approach would be to interpret the Court's remarks about the remedying of abuses as relating only to the situation where the exception under Article 90 para. 2 applies prima facie, and the question is whether the development of trade has been affected to an extent contrary to the interests of the Community. This involves an appreciation of economic factors, within a Community perspective, which would be beyond the capacity of a national court, and action under Article 90 para. 3 seems most appropriate. Such an interpretation would be hard to reconcile with the first of the quoted paragraphs, although the second would provide support for it. 95 The result would be that national courts would retain full power to apply Article 86 in respect of the NEB, and to remedy any abuse that was found to exist, unless and until the Board succeeded in proving that the conduct in question was unavoidably connected with the performance of one of its allotted tasks.

(to be continued)

94. Case 155/73, (1974) E.C.R. 409 at 430. 95. Moreover, this paragraph is reproduced in the operative part of the judge

ment.

SHORTER ARTICLES, COMMENTS AND NOTES

PRODUCT SHORTAGES, ALLOCATION AND PRICE CONTROL UNDER ARTICLE 86 OF THE EEC TREATY

A Comment on the ABG Decision

I

35

1. The Commission's ABG Decision of April 19, 1977 1 held that in a shortage situation, such as provoked by the oil crisis of 1973, an undertaking in a dominant position is obliged, under Article 86 of the EEC Treaty, to allocate available resources to its customers without discrimination. A dominant position in the sense of Article 86 may be provoked by a shortage situation in which all customers become dependent on their suppliers and in which there is no more competition between suppliers.

This decision comes close to what the German Kammergericht decided under § 26 (2) of the GWB ( German Restrictive Practices Act, as amended in 1973) on July 9, 1974.2 But it is clearly opposed to the decision of a U.S. District Court (7th cir.) in Mullis v. Arco Petroleum Corporation (502 F.2d 290 1974), which also had to do with petrol products. Here (at p. 299) the Court said:

"If the artificial restraints imposed by the government during a period of shortage make it appropriate to characterize ARCO as a monopolist for purposes of construing the Sherman Act, it would seem to follow that each of the 20 other oil companies, and perhaps each of the independent jobbers who sell to retail service stations in the same area, is equally a monopolist. For, conceivably, if the shortage is sufficiently acute, any one of those distributors might have the power-assuming that no contract or regulatory objection interferes-to discontinue sales to a retailer and, therefore, to put him completely out of business. If each such action were violative of § 2, the Sherman Act would, in effect, outlaw any change in existing patterns of distribution until after an acute shortage was ameliorated.

From a broad policy standpoint, perhaps such a temporary freeze would serve the public interest. Such a freeze might be an appropriate, even a necessary, Counterpart to an emergency price control

1. O.J. L 117/1-13. 2. WuW/E OLG 1507, 1512. Cf. already WuW/E OLG 1497.


36 Steindorff

program. Historically, however, that kind of regulation of the economy has only been undertaken by a public agency pursuant to express legislative authorization. The Sherman Act has never been construed as a broad charter authorizing the judiciary to fashion such controls. Quite the contrary, it is such regulation, when accomplished by private action, that the Sherman Act was specifically intended to prohibit. Certainly that statute should not be construed as an authorization to the judiciary to engage in the kind of economic regulation that the statute was designed to outlaw."

In the Mullis case, the Court refers to Davis v. Crown Central Petroleum Corporation (483 F.2d 1014 1973, 4th cir.) where we read (at p. 1017):

"The claim of the plaintiffs is appealing and our sympathies are with them. As the District Courts indicated, it is equitable in periods of scarcity of basis materials for the Government to inaugurate a program of mandatory allocations of the materials. This, however, is a power to be exercised by the legislative branch of Government. The power of the Court extends only to the enforcement of valid contracts and does not camprehend the power to make mandatory allocations of scarce products on the basis of any consideration of the public interest. Public reports indicate that Congress is cognizant of the problern presented by these actions and is giving active consideration to the establishment of a program of mandatory allocations that would apply from the oil producer down to the oil retailer. It is earnestly hoped that Congress will take the necessary steps to establish such controls. For that control, however, the parties must Iook to the Congress and not to the Courts." 3

The fact that discriminatory reduction of deliveries to a certain customer would Iead to its elimination from the market as a distributor was discussed by the Commission in its ABG Decision only where it stated that such elimination would affect interstate trade. It was not considered in the context of abuse within the meaning of Article 86. According to the Commission, termination of supplies to a customer or discriminatory reduction of supplies in a shortage situation constitutes an abuse, without more. This implies that undertakings in a dominant position will have to develop and to apply allocation plans, such as are entrusted to the Commission (High Authority), i.e. a public authority, in Article 59 of the ECSC Treaty.

Leaving aside all the problems of implementing such a ruling, we must

3. For further information, see Byrnes, Lowry and Bondurant, "Product shortages, allocation and the antitrust laws", XX The Antitrust Bulletin 1975, 713 et seq.

Product Shortages, Allocation and Price Contra! 37

conclude that at least for specific situations rules of iustitia distributiva prevail over reliance on a system of free competition and its forces. The failure of the contracting States to write into the EEC Treaty an article comparable to Article 59 of the ECSC Treaty may thus be remedied to a certain extent. 2. In its ABG Decision the Commission relied explicitly on existing customer relations and it ruled only that a seller must not reduce deliveries to a customer in a discriminatory way. Certainly, termination of supplies to a customer in a discriminatory way could constitute an abuse. But once Article 86 is applied to shortage and emergency situations, undertakings in a dominant position should also be obliged to sell to "newcomers". There is the possible case, for instance, of a distributor who as a consequence of an emergency situation has been cut off from his former supplier. But there is also the possibility of a really new demand. Not only are such newcomers equally dependent on undertakings which still dispose of any goods, but there is a strong supplementary reason to forbid refusal to deal in such cases. Any rule which would restriet customer protection to existing customer relations must induce customers to concentrate their demand, in ordinary times, on the suppliers whom they think will have resources available in time of emergency.

The petrol case clearly shows that this will be the big companies and not the small dealers, who may be cut off from resources. But such small dealers may be the only ones who in ordinary times compete actively in an oligopolistic market. If we want to keep such competition alive and not to detract from smaller suppliers, we must guarantee that buyers have access to big suppliers in crisis situations. And if we do not want to freeze the structure of industry or distribution, we must also forbid under Article 86 a refusal to deal if a really new demand should appear. The Commission, therefore, can only choose between two alternatives: either abandoning its interpretation of Article 86 and following the U.S. Courts' decisions, or extending its ruling to cover newcomers. It is obvious that such an extension would cause great difficulties, and would imply the existence of a cartel under Article 85 para. 3 which had developed allocation plans. Confronted with such consequences, one must ask whether the Commission's petrol decision is not too short-sighted and whether, with the American decisions, it would not have been better to state that allocation problems in periods of extreme shortage can be adequately handled only by public authorities. Article 59 Treaty is certainly better law than the Commission's ruling.

38 Steindorff

II

1. In seeking to establish the existence of the dominant position, as required in Article 86, the Commission adopted a somewhat mystical approach in stating that in a shortage situation customer relations acquire a "new quality". The consequence of this, that customers become dependent on suppliers and that this dependence creates a dominant power on the part of the suppliers, could have been developed more easily by reference to German Law. In Germany, until 1973, a ban on discrimination was restricted to undertakings in a dominant position; an amendment of 1973, by introducing § 26 (2) 2 into the German Restrictive Practices Act, extended the prohibition of unjustified discrimination to all enterprises insofar as other undertakings are dependent on them. There is no doubt whatsoever that such dependence can exist with or without preexisting customers relations.4 But the German Act shows, at the same time, that dependence cannot be identified with a dominant position. This is stated expressly in the legislative materials.5 Dependence can exist where, for example, a specialised dealer is required to offer to his customers a complete array of all major competing products, i.e. where producers compete and, consequently, have no dominant power. Further, it is weil known that dependence may exist for some, but not for all customers of one and the same undertaking.6 That is the reason why § 26 (2) 2 bans discrimination "insofar as customers are dependent on a supplier". This makes it impossible to conclude that a dominant position necessarily exists where customers are dependent. A dominant position

4. Cf. Bundesgerichtshof at WUiW /E BGH 1211 and 1423. In a report to the Bundestag on the bill it is expressly explained that the new rule shall Iimit the possibility of producers' establishing selective distribution. This implies that newcomers have a right to be included in a distribution system. Cf. Deutscher Bundestag Drucksache 71765 p. 10 (1973). On refusal to deal see, above all, Rolf Belke, Die Geschäftsverweigerung im Recht der Wettbewerbsbeschränkungen (1966) and by same author, Kundenbeschränkung und Verkaufsverweigerung im Antitrustrecht der Vereinigten Staaten (1967). For the most recent state of affairs in the U.S.A. see Burdett Sound Inc. v. Altec Corp. 515 F.2d 1245 (1975) and J. J. Schmitt, Selektiver Vertrieb und Kartellrecht (1975).

5. The report quoted in n. 4 supra explicitly states, at p. 10, that by the new rule the prohibition of discrimination is extended to undertakings which do not have a dominant position. This was confirmed by a judgment of the Bundesgerichtshof at WuW/E BGH 1391, 28 NJW 1976, 801. Cf., esp., Report of the Bundeskartellamton its activities 1976, Deutscher Bundestag Drucksache 8/704 p. 30 et seq.

6. In the case quoted in n. 5 supra, the Bundesgerichtshof had to decide on a refusal to deal practised by a French ski producer. It was found that specialised Sports dealers in Upper Bavaria depend on Rossignol skis, though these skis do not account for more than a small percentage of sales.

Product Shortages, Allocation and Price Contra/ 39

can only exist in toto or not at all; it cannot exist with respect to some customers only. It must, therefore, be found not in vertical, but in horizontal relations, and can only be found where an undertaking has no significant competitor. This is valid also for Article 86.

The Commission's petrol decision is the exception that proves the rule. The extreme shortage situation may have permitted the statement that all dealers in the Netherlands had become dependent on (their) suppliers and it may have been possible, under such extraordinary circumstances, to affirm the existence of a dominant power. But such an affirmation must be restricted to extraordinary situations of shortage or emergency. A general rule, according to which Article 86 is to be applied to cases of dependence, cannot be found by interpretation of that provision; rather it presupposes legislative action on the basis of Article 235 of the EEC Treaty. It is, however, submitted that refusals to deal and similar actions in cases of dependence can be adequately dealt with by national law and that Community action is not necessary in this field, at least for the moment. 2. Among a number of further problems, only one further question raised by the Commission's decision will be discussed here. The Commission based its finding of a dominant position of Dutch petrol companies amongst others on the fact that the Dutch Government had fixed maximum prices. A distributor was tberefore unable to buy petrol products outside tbe Netberlands, because he would have bad to resell at considerable loss to bimself. Readers will be surprised tbat this decision came out only about a montb after tbe Commission, in an answer given to a parliamentary question,7 bad stated that a fixing of maximum prices by one Member State will violate Article 30 of the EEC Treaty if imported products, wbich can be bougbt at bigher prices only, cause Iosses to the importer or distributor wbo can reseil them only at prices not exceeding the fixed Ievel.

When, years ago, the question was discussed wbether an independent antitrust or cartel agency sbould be created in tbe Community, tbere was one major argument against any such proposal: The Commission alone would be in a position to decide antitrust questions in the context of the whole common market programme. Now we see the Commission base an antitrust decision concerning a particular situation (fixed prices), without even mentioning that according to its own statements it should itself bave taken action to abolish that situation.

7. Answer to Written Question No. 808/76, given on March 10, 1977, O.J. 1977, c 84/14-15.

40 Steindorff

The Court, in its Sugar Decision of December 16, 1975,8 also relied on price regulations of a Member State, but with an opposite effect: The Court decided that the conduct of the undertakings could not appreciably impede competition where such competition is already excluded by State interventions; it therefore concluded that the prohibition of Article 85 did not apply. Besides, the Court found that the relevant Member State regulation had already been annulled by that State's Constitutional Court.9

a) For the sake of argument, let us start by assuming that the price regulation in the Netherlands was in violation of Article 30. It may be suggested that in such a case another rule on misuse of powers comes in, namely, the one contained in Article 173 para. 1 of the EEC Treaty. The Commission should not be obliged to completely refrain from antitrust actions, but it is a misuse of antitrust powers directed against undertakings if the interrelation with actions against States 10 is not taken into account. Further, if action against a State is possible and if ·such an action-here in regard to maximum prices-is apt to produce more far-reaching effects, including an abolition of the dominant power of undertakings, then the Commission, in order to avoid a misuse of powers in the sense of Article 173 para. 1, must give priority tothat action. In our case this would have been the procedure on the basis of Articles 30 and 169 of the EEC Treaty. Article 86, in such a case, can come in only as a supplementary remedy in relation to gaps left by the broader procedure.t1

b) But the petrol case shows, at the same time, that this submission may be wrong and that the problems of price fixing under Article 30 should be reconsidered. Here again we are confronted with a problern in regard to which the ECSC Treaty, in its Article 61, enables the Community to act and for which the EEC Treaty provides no express solution. If we look at the Court's decisions, two rules may be distinguished.t2 State price fixing is certainly prohibited in fields for which powers to act have been trans-

8. Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie and others v. Commission (1975) E.C.R. 1663, 1920 et seq. Cf. the Observations by Gijlstra and Murphy in 14 C.M.L. Rev. 1977, 45 et seq.

9. Quoted in the Sugar decision, n. 8 supra, at 1920. The Commission has opened a procedure under Art. 169. Cf. Fifth Report an Competition, para. 20.

10. According to Arts. 30, 155, 169 EEC Treaty. 11. The Court in its judgment quoted in n. 8 supra, had to deal with such an

interim situation, since a price-fixing regulation had, after some time, been repudiated by a court.

12. Case 31/74 Ga/li (1975) E.C.R. 47; Case 65/75 Tasca (1976) E.C.R. 291 and Cases 88 to 90/75 Sadam v. Cornifata interministeriale dei prezzi (1976) E.C.R. 323. See 13 C.M.L. Rev. 1976, 509 and 14 C.M.L. Rev. 1977, 89. See also Case 50/76, Amsterdam Bulb v. Produktschap voor Siergewassen (1977) E.C.R., 137.

Product Shortages, Allocation and Price Contra! 41

ferred to the Community and where State action may conflict with Community action. Agriculture is the outstanding example.13 On the other hand, there is the ordinary Article 30 problem, to which the Court in its Tasca and its SADAM decisions gave a very strict answer:

"A maximum price, in any event in so far as it applies to imported products, constitutes a measure having an effect equivalent to a quantitative restriction, especially when it is fixed at such a low Ievel that, having regard to the general situation of imported products compared to that of domestic products, dealers wishing to import the product in question into the Member State concerned can do so only at a Ioss."

It should, however, not be overlooked that the Court's approach is not as stringent as are the proposals made by Waelbroeck in his most penetrating study on the subject.14 According to the Court, a maximum price applicable without distinction to domestic and imported products is not in itself a violation of Article 30. This implies that a certain reconciliation seems to be possible between the economic-and especially prices -policy of the Member States and the abolition of barriers to trade. Two questions, however, remain to be answered.

The Court and the Commission, by extending Article 30 to other than discriminatory state measures, have certainly contributed to a remarkable extent to removing trade barriers.15 But if one Iooks, for purposes of comparison, to the United States, one will find that a similar tendency bad to incline, to a certain extent, before State policies.16 As far as the Community is concerned, a comparable withdrawal from an overextension of Article 30 may have to be considered; but here two factors should be born in mind. Where the EEC Treaty-in cantrast to the ECSC Treatyhas withheld powers from the Community, we must preserve the Member States' ability to act. Secondly, it should be remernbered that the EEC Treaty in Article 2 provides that the Community by establishing a common market and approximating economic policies shall promote, amongst

13. This has been underlined by Costa, "Jnterventi statali in materia di prezzi e disciplina CEE: Jl caso Galli", 11 Riv. dir. europ. 1975, 218. See also Sabiani in (1975) R.T.D.E., 633.

14. Les n!glementations nationales de prix et le droit communautaire (1975). For a more recent study see Winkel, "Die Vereinbarkeit staatlicher Preismassnahmen mit dem EWG-Vertrag", 29 N.J.W. 1976, 2048.

15. It may be sufficient here to refer to the report of Meij and Winter in 13 C.M.L. Rev. 1976, 79-104. The Commission has formulated its opinion in a regulation of December 22, 1969, O.J. 1970 L 13.

16. Most illuminating in this respect is Roth, Freier Warenverkehr und staatlicher Regelungsgewalt in einem Gemeinsamen Markt (1977), who draws conclusions from the American experience for the Community.

42 Steindorff

others, an improved standard of living. Such a standard, now more than ever before, involves social protection, including, if necessary, a prices policyP lnsofar as the Community does not yet dispose of the instruments to ensure social protection and to conduct an active price policy, the Member States must be given the leeway to do so, and the creation of the Common Market should proceed in accordance with these demands. lt will be obvious that this is important above all in emergency situations and in such situations even general Treaty provisions should be interpreted in a way which is not directed exclusively to the elimination of trade barriers.t8 The elimination of barriers to interstate trade must be reconciled with other objectives, amongst others those of social protection.

Three ways are available to accomplish such a reconciliation. Article 36 could be reinforced, empowering Member States to apply protective rules even if, to some extent, interstate trade may be impeded.19 Or it may be possible to reach a reconciliation within Article 30 itself, on the basis of a special rule of reason.20 The choice is comparable to the one that must be made in antitrust law. Lastly, one could argue that price fixing is a part of economic policy and that this is a field, where responsibility still lies with the Member States.21 A way can be found, if there is a will to do so. The reader of the ABG Decision does not know to what extent the problems of Article 30 were considered when the decision was prepared. On the assumption that they must have been considered, the Decision may express the Commission's opinion that the application of Article 30 to maximum prices may have to be seen in a new light, at least where we have to do with emergency situations. All this leads to the conclusion that the ABG Decision raises more questions than it settles, unfortunately without even discussing them.

E. Steindorff Munich

17. The author of this article has dealt with this problern in 14 C.M.L. Rev. 1977, 133 et seq. Cf. esp. Case 43/75, Deirenne v. SABENA, (1976) E.C.R., 455, where the Court held at consideration 9 that Article 119 EEC "forms part of the social objectives of the Community, which is not merely an economic union, but is at the same time intended, by common action, to ensure social progress and seek the constant improvement of the living and working conditions of their peoples, as is emphasized by the Preamble of the Treaty". See further 14 C.M.L. Rev. 1977, 108 et seq. with annotation by C. Crisham.

18. Special Treaty clauses are not dealt with here. As to such special clauses, see the articles recently published in Schutzmassnahmen im Gemeinsamen Markt, Kölner Schriften zum Europarecht, vol. 28 (1977).

19. This is the way proposed by Roth, op. cit. n. 16. 20. Cf. the discussion by Van Gerven in 14 C.M.L. Rev. 1977, 5 et seq. 21. See further the study by Waelbroeck, op. cit. n. 14.

43

THE SECOND EEC DIRECTIVE ON COMPANY LA W

On December 13, 1976, the Council of Ministers of the EEC adopted the Second Directive on Company Law Harmonisation, concerning the formation of public companies and the maintenance and alteration of their capital.l This Directive, like the First which was issued on March 9, 1968,2

is founded on Article 54 para. 3 (g) of the EEC Treaty. The Second Directive obliges the Member States to bring into force the laws needed to comply with it within two years.3 The United Kingdom Department of Trade published already in July 1977 a consultative document 4 which indicated the intention of the Department to implement it by December 1978.

CLASSIFICATION OF COMPANIES

The Directive has an interesting history. lt was designed to apply only to public companies and that intention was carried out in the version in which it was eventually published. But the difficulty was how to define a public company, as Contrasted with a private company. When we compare the laws of the European continental Member States with those of the United Kingdom and Ireland, we note in particular two differences. First, on the continent the nature of the private company is defined by statute, but in the common law jurisdictions the requirements of a private company are laid down in its articles; thus, section 28 para. 1 of the United Kingdom Companies Act 1948 states that-

"the expression 'private company' means a company which by its articles (a) restricts the right to transfer its shares; and

1. Dir. 77 /91/EEC: O.J. 1977, L 26/1. 2. Dir. 68!151/EEC, J.O. 1968, L 65/8, Spec. Edn. 1968 II, p. 41, concerning

the disclosure of company documents, the validity of obligations and the nullity of companies.

3. Second EEC Directive, Art. 43 (1), but an extension of time may be admitted for certain provisions specified in Art. 43 (2).

4. U.K. Department of Trade, lmplementation of the Second EEC Directive on Company Law, an explanatory and consultative note (July 1977).


44 Schmitthoff

(b) Iimits the number of its members to fifty, ... and (c) prohibits any invitation to the public to subscribe for any shares or debentures of the company."

Secondly, according to the laws of the continental Member States, the private company need, on principle, not disclose its balance sheet and profit and loss account, but that principle is subject to exceptions; in Germany and the Netherlands certain large private companies have to publish accounts.5 In the United Kingdom, on the other hand, since the Companies Act 1967 every private company has to publish full accounts, but in the Irish Republic a private company need not do so.

The EEC Commission originally did not consider the British and Irish private company as having the same status as the German GmbH, the French Sari, the Belgian Sparl, the Dutch BV, or the Italian Srl. The Commission contended that the British and Irish private company had the characteristics of a public company, the securities of which were not Iisted at the Stock Exchange and that therefore private companies incorporated in the United Kingdom, Northern Ireland 6 and the Irish Republic feil under the definition of public companies in the Second Directive, which then was in draft form. Why the Commission took that view was not quite clear. Its reason could not have been the British requirement that a private company had to publish its accounts because the Commission treated Irish companies like British companies and in the Irish Republic private companies need not publish their accounts. The reason was probably that in the continental view the public and private company are two entirely different forms of business organisation, but in the common

5. Germany: Publizitätsgesetz of August 15, 1969 (BGBI. I S. 1189). A !arge GmbH is defined as one which satisfies at least two of the following criteria: (a) the total balance of the annual balance sheet exceeds DM 125,000,000; (b) the turnover in the last 12 months exceeds DM 225,000,000; (c) the enterprise has employed more than 5,000 exployees during the last 12 months.

The Nether/ands: The BV was introduced into Dutch law in 1971; the law relating to it is to be found in ss. 175-284 of Book 2 of the new Civil Code. The following are the publicity requirements of the BV: (a) it has to publish its accounts in full if engaged in banking or insurance or has issued bearer bonds or bonds for which bearer certificates are in circulation (s. 213); (b) it has to publish only the balance sheet but not the profit and loss account if (i) its total assets amount to Dfl. 8,000,000 or more; and (ii) it employs at least 100 persons (including employees of Dutch subsidiary companies) (s. 214).

6. The Companies Acts 1948-1976 of the United Kingdom do not apply to Northern Ireland which has its own companies legislation.

The Second Company Law Directive 45

law countries there is only one form of company recognised by statute,7 the private company being a sub-type of that company concept, and all companies which do not satisfy the requirements of the private company are regarded as being public companies, so that the residual company concept is the public company. The view of the Commission that the private company in the common law jurisdictions was not on a par with the continental forms of the private company was strongly contested in the United Kingdom. s

The Commission then published an amended Draft of the Second Directive on October 30, 1972. The amended Draft of the Second Directive still proposed that private United Kingdom and Irish companies should be treated as public companies, but provided a lower minimum subscribed capital for those types of company than was suggested for public companies in the EEC.9 This compromise proposal was likewise rejected by writers in the United Kingdom, mainly because, unlike the position on the continent, the private company is the normal form of small business in the United Kingdom and Ireland; thus, in the United Kingdom there were registered in 1975 592,243 companies of which 576,653 were private companies.1°

In its definitive version, the EEC has relented and accepted the plea of the United Kingdom and Ireland. lt is now provided that the Second Council Directive shall apply in the United Kingdom and Ireland only to public companies.11 lt is thus clear that it will not apply to private companies in those two Member States, as it will not apply to corresponding company forms in the other Member States.

7. The English courts have recognized the different character of the private company as a "quasi-partnership" company; see Clive M. Schmitthoff, "How the English discovered the Private Company" in Qua V adis, Jus Societatum?, Liber Amicorum Pieter Sanders, Kluwer-Deventer, 1972, 183; G. K. Morse and R. H. Tedd, "Partnership Companies", [1971] J.B.L. 261.

8. Clive M. Schmitthoff, "New Concepts in Company Law", [1973] J.B.L. 312, 313; Jane Welch, "The English Private Company-A Crisis of Classification" [1974] J.B.L. 277.

9. Art. 6 (I) of the Amended Second Draft Directive. That provision also required the characteristics of the private company to be laid down by statute, and not merely in the articles, and the company to include the word "private" in its name.

10. Department of Trade, Companies in 1975 (1976). 11. Art. 1 of the Second Directive. The Article further provides that the name of

any company shall contain a description distinct from that of other types of companies. Unlike the amended Draft, that obligation is not imposed on private companies only. In the United Kingdom it is contemplated, for reasons of economy, that public and not private companies shall add a distinctive description to their names.

46 Schmitthoff

However, it is evident from the consultative document published by the United Kingdom Department of Trade 12 that the United Kingdom-and presumably also Ireland-bad to pay for that concession a price which in the circumstances cannot be regarded as too high. First, the decisive criterion of the private company that it may not offer its shares or debentures to the public shall become a statutory requirement, reinforced by criminal sanctions, and shall no Ionger have its place only in the articles of the company. Secondly, the whole emphasis of United Kingdom company law will have to be shifted. The private company will become the residual category and the public company will be closely defined in order to comply with the requirements of the minimum subscribed capital and the other requirements of the Second Directive; it will have to be provided that a company which does not satisfy the statutory conditions of a public company shall be a private company.

The Second Directive authorities Member States not to apply the Directive to public companies which are investment companies with variable capital or to co-operatives, but if a Member State makes use of this authority it shall require these exempted companies to include the words "investment company" or "co-operatives" in the business documents specified in the First Directive of March 9, 1968.

THE MINIMUM SUBSCRIBED CAPIT AL

The most important, though unspoken, contribution of the First Directive to the coalescence of the company laws of the Member States and the creation of a "common market for companies" was the requirement that the distinction between public and private companies should be recognised by all Member States; those which formerly did not admit that distinction had to introduce it, viz. the Netherlands (1971) and Denmark (1973). The most important, but expressly postulated, contribution of the Second Directive is the uniform requirement that every public company in the EEC shall have a minimum subscribed capital and that shares issued for cash by these companies shall be paid up to at least 25 per cent. of their nominal value. This means that the company laws of the United Kingdom, Ireland and Belgium,13 which so far have not required a minimum capital

12. See supra, p. 43 and n. 4. 13. Belgium has now changed its law and requires a minimum capital for public

companies as weil (1976); Belgian law always required a minimum capital for private companies.


for the public company, will have to introduce it and that the Netherlands will have to enlarge the present amount of the minimum capital from Dfl. 25,000 to approximately Dfl. 60,000, in order to comply with the minimum capital required by the Directive.t4

The minimum subscribed capital which the Second Directive requires of a public company is 25,000 European units of account; 15 this amount corresponds at present to approximately .f:, 16,000. The United Kingdom Department of Trade indicated already that it considered that figure as too low in the United Kingdom and that it proposed to fix the minimum subscribed capital of the public company at .f:, 50,000.16 The Directive provides machinery for the alteration of the amount of the required minimum subscribed capital if the value of the European unit of account is altered or in other circumstancesP

The Directive further contains requirements for securing the minimum subscription to the company. lt distinguishes between the issue of shares for cash and for a consideration other than cash. If the shares which the promoters have undertaken to subscribe are issued for cash, they shall be paid up at not less than 25 per cent. of their nominal value at the time the company is incorporated or is authorized to commence business.18

Incidentally, if new shares are issued subsequent to the incorporation of the company, for instance, as a consequence of an increase in capital, they likewise shall be paid up to 25 per cent. of their nominal value and any premium shall be paid in full. 19 Where the shares subscribed on creation of the company are issued for a consideration other than cash, for example, in consideration of a business which the company wishes to take over or of property which it wishes to acquire, that consideration shall be transferred to the company within five years from the date of the issue of the shares 20 and, before the company is incorporated or authorized to commence business, a detailed report on the adequacy of the consideration has tobe furnished by one or more independent experts; 21 that report has to be published and duly notified in the manner provided by the First Directive. The assets which form the subscribed capital shall only be

14. P. Sanders, Dutch Company Law (Oyez Publishing London, 1977) p. 26. The Dutch Stock Exchange requires a minimum subscribed capital of Dfl. 500,000.

15. Second Directive, Art. 6 (1). 16. Department of Trade Document referred to in n. (4), para. 11. 17. Second Directive Art. 6 (2) and (3). 18. lbid., Art. 9 (1). The Directive also admits the issue of no par value shares, in

which case the 25 per cent must be on their accountable par. 19. lbid., Art. 26. 20. I bid., Art. 9 (2). 21. /bid., Art. 10.

48 Schmitthoff

assets capable of economic assessment and may not include an undertaking to perform work or supply services. 22 Goodwill or know-how, however, shall be lawful consideration for the issue of shares, subject to assessment by an expert. Similar provisions apply where on increase of capital shares are issued for a consideration other than cash, but here the Member States are authorized to dispense with the expert's report in case of take-overs where new shares are affered to the shareholders of the company to be taken over for their shares in that company.23 It may be expected that most Member States will avail themselves of that authority. The United Kingdom Department of Trade has indicated that the company's own auditor will qualify as an independent expert.

Member States are authorized to derogate from the principle that on issue shares shall be subscribed at least to 25 per cent. of their nominal value, as far as is necessary for the adoption or application of provisions designed to encourage the participation of employees, or other groups of persans defined by national law, in the capital of undertakings. 24 The United Kingdom intends to take advantage of this exemption, which would also cover the issue of shares to directors who hold salaried employment in the company.2;

It should be noted that the guiding principles underlying these provisions of the Second Directive is to establish the subscribed capital as the credit basis of the company in the interest of those having dealings with it.

MAINTENANCE OF THE SUBSCRIBED CAPITAL

The company laws of the United Kingdom, Ireland and the Netherlands distinguish between three types of capital, viz. the authorized ( or nominal), the issued and the paid up capital. 26 According to these legal systems, the directors may at any time issue authorized but not issued capital without consent of the general meeting, unless the articles restriet that power. French and German company law, on the other hand, do not know the distinction between authorized and issued capital, and on principle every increase of the capital, which to the French and German lawyer means the subscribed capital, requires a resolution of the general meeting. On the other hand, the regulation adopted by the first-named group of

22. Ibid., Art. 7. 23. Ibid., Art. 27. 24. lbid., Art. 41 (1). 25. Department of Trade Document referred to in n. 4, para. 31. 26. In Dutch maatschappelijk, geplaatst, gestort kapitaal; see Sanders in the work

quoted in n. 14, at p. 26.


company laws is eminently practicable and the need to give the management authority to issue new shares without first obtaining a resolution of the general meeting has made itself feit also in French and German law. Both legal systems have overcome this difficulty by providing that the general meeting may authorise the directors to issue new shares to an amount limited by the general meeting, but that authority lasts only five years and if not used during that period either lapses or has to be renewed.27 In practice, apart from the Iimitation in time, there is not a great difference between the two legal systems.

The Second Directive follows the French and German precedent. It does admit the concept of the authorised capital but provides that on principle any increase in capital must be decided upon by the general meeting.28 It admits the delegation of the increase for a period to be fixed by the national laws of the Member States, though that period must not exceed five years.29 Accordingly, in the company Jaws of the United Kingdom, Ireland and the Netherlands the authorized capital as a central concept in company law will lose significance and the concept of the subscribed capital will gain correspondingly.

lt has already been noted that on increase of capital the new shares, if issued for cash, have to be paid up to 25 per cent., and if issued for a consideration other than cash, an expert's report and the transfer of the consideration within five years are required.

The Directive further prohibits a company to subscribe its own shares and provides that if shares are subscribed by a nominee for the benefit of the company, the nominee shall be deemed to have subscribed for hirnself and that the promotors and directors shall be liable for the subscription but may be released from that obligation if they can prove that no fault is attributable to them.30 Unlike English company law,31 the Directive does not prohibit a company from acquiring its own shares because both in French and German company law a company may-exceptionally-do so up to the amount of ten per cent of the subscribed capital; in both laws the approval of the general meeting is required.32 There is, however, a difference between French and German law. Whilst French law in general allows the acquisition of own shares up to ten per cent., in German law

27. French loi sur !es societes commerciales of July 24, 1966, arts. 180 and 181; German Aktiengesetz of September 6, 1965, paras. 202-206.

28. Second Directive Art. 25 (1). 29. lbid., Art. 25 (2). 30. lbid., Art. 18. 31. Trevor v. Whitworth [1887] 12 App. Cas. 409. 32. French Loi sur les societes commerciales, Art. 217-:::; German Aktiengesetz,

para. 71.

50 Schmitthoff

such acquisition is only allowed in narrowly defined special cases, of which the most important is to avert severe darnage from the company. The Directive follows in that respect the more liberal French regulation; it provides that where the laws of a Member State permit a company to acquire its own shares, authority to do so shall be required of the general meeting and the holding shall not exceed ten per cent. of the subscribed capital.33 If its own shares are acquired by the company contrary to the prohibition of the Directive and the case does not fall within one of the admitted exceptions, the shares shall be disposed of within one year, otherwise they must be cancelled.34 Moreover, even where the laws of a Member State allow a company to acquire its own shares, the votes of those shares shall be suspended, a reserve equal to their value and not available for distribution shall be shown in the balance sheet, and the annual report shall show details relating to them.35 These provisions may have an unforeseen effect on English company law. An English company cannot take notice of any trust relating to its shares,36 and consequently a nominee holding shares for a beneficiary is hirnself treated as the beneficiary. Whilst a company itself cannot, as has been seen,37 hold its own shares, according to the principles just discussed a nominee may hold shares for the benefit of the company, and that without Iimitation on the size of the holding. 38 The Directive, however, Iimits lawful nominee holdings for the benefit of a company, where admitted by the nationallaw, to ten per cent. 33 When effect is given to the Directive in the United Kingdom, that Iimitation in nominee holdings for the benefit of the company will have to be introduced.

The Directive further provides that a company may not advance funds, make loans, or provide security, with a view to the acquisition of its shares by a third party, but admits exceptions where the transaction is concluded by banks or other financial institutions in the ordinary course of business or where the transaction is effected with a view to the acquisition of shares by or for the company's employees or the employees of an associated company.39 Theseprovisionsare evidently modelled on those of the United Kingdom Companies Act 1948, s. 54. The Directive further provides that, on principle, the acceptance of the company's own shares as security shall be treated as an acquisition of the company's own shares and therefore be

33. Second Directive, Arts. 19-22. 34. lbid., Art. 21. 35. lbid., Art. 22. 36. United Kingdom Companies Act 1948, s. 117. 37. See supra, p. 000. 38. Re Castiglinone's Will Trusts [1958] Ch. 549. 39. Second Directive, Art. 23.


subject to the general prohibition just discussed.40 Whilst this provision clearly applies to a legal mortgage of an English company on its own shares, since the legal mortgagee becomes the owner of the mortgaged property, equitable charges and Iiens on its own shares may in future have to be prohibited in the United Kingdom, except Iiens in favour of the company securing unpaid calls on the shares; they remain lawful by virtue of an exemption provision in the Directive.41

The Directive contains detailed provisions on the reduction of the subscribed capital and the compulsory withdrawal of shares.42 These provisions are much as one would expect, and only three points shall be mentioned here. First, the resolution of the general meeting for reduction of capital requires a qualified mi!jority which shall not be less than twothirds of the votes represented, but of course national company laws may require a higher majority, for example, a three-quarter majority; further, the Directive authorises Member States to admit a simple majority when at least half the subscribed capital is represented.43 Secondly, where there are various classes of shares, each class affected by the reduction must agree separately; here again a qualified majority is required.44 Thirdly, the Directive admits the issue of redeemable shares and follows here closely the regulation of the United Kingdom Companies Act 1948, s. 58.45

Of importance for the maintenance of the subscribed capital are further the provisions of the Directive relating to the distribution of dividend. It is provided that, except in case of reduction of capital, no distribution to shareholders shall be made if it is made of assets lower in value than the amount of the subscribed capital, plus any reserves which are not distributable by virtue of the law or the articles of the company.46 If the laws of a Member State allow the distribution of interim dividend, interim accounts must be presented showing that the funds available for distribution are sufficient and the amount of the interim dividend must not exceed the total profits made since the end of the last financial year, plus any profits brought forward or placed into a dividend equalisation reserve.47

Shareholders who receive dividend contrary to the provisions of the law or the articles, shall have to repay the amounts received if the company can prove that the shareholders knew that the distribution was irregular

40. Jbid., Art. 24. 41. lbid., Art. 20 (1) (e). 42. lbid., Arts. 30-40. 43. lbid., Art. 40. 44. I bid., Art. 31. 45. lbid., Arts. 35 and 39. 46. lbid., Art. 15 (1). 47. lbid., Art. 15 (2).

52 Schmitthoff

or in the circumstances could not have been unaware of this fact. 48 These provisions, particularly those dealing with distributable profits, will require considerable alterations of the company law of the United Kingdom.

The EEC legislator thus displays great concern for the maintenance of the subscribed capital as the credit basis of the company and as a central concept in European company law.

SERIOUS LOSS OF THE SUBSCRIBED CAPIT AL

The Directive provides that "in the case of serious lass of the subscribed capital" a general meeting of shareholders must be called within the period laid down by the laws of the Member States, to consider whether the company should be wound up or any other measures be taken. A "serious lass" may not be set higher by the laws of the Member States than half the subscribed capital.49

This is an important and sound innovation in the company laws of most Member States. It is inspired by a provision of German company law.50

The United Kingdom Department of Trade has indicated that the United Kingdom statute which will give effect to the Directive will set the "serious lass" at 50 per cent. or more of the subscribed capital, that the directors will be required to call an extraordinary general meeting within thirty days when they become aware of the event, and that they will be guilty of an offence if they fail to call such meeting with knowledge that a serious lass of the subscribed capital has occurred.

MAINTENANCE OF THE SHAREHOLDER'S POSITION IN THE COMPANY

The Second Directive gives, on principle, existing shareholders a right to maintain their participation in the company. It provides that whenever the capital is increased by an issue for cash, the shares shall be affered on a pre-emptive basis to the Shareholders in proportion to their present holdings.51 However, the laws of the Member States are given far-reaching authority to derogate from this principle; they may provide that the pre-emptive right shall not be given to shares which carry only a limited right to participate in the dividend or distribution of assets in the winding-

48. lbid., Art. 16. 49. Jbid., Art. 17. 50. German Aktiengesetz (1965), para. 92 (1). 51. lbid., Art. 29 (1).


up; further, if there are various classes of shares and the newly issued shares are only of one of these classes, the shareholders of that class may be given the first claim to proportionate pre-emption and the pre-emptive right of the other shareholders shall only arise if and in so far as the shareholders of that class have refused to take up the new shares.52 It is further provided that the right of pre-emption may not be restricted or withdrawn, except by a resolution of the general meeting which requires a qualified majority.53

The right of pre-emption is derived from German law which, however, grants it to a wider extent 54 than is provided for in the Directive; German law does not Iimit the Bezugsrecht to issues for cash consideration. United Kingdom companies legislation does not at present grant shareholders a pre-emptive right, but where companies listed at the Stock Exchange are concerned, issues for cash of equity capital must be affered in the first place to the existing shareholders in proportion to their holdings, unless the general meeting-by an ordinary majority-has agreed to other specific proposals. In exceptional circumstances, however, the Council of the Stock Exchange may dispense with the need to obtain the prior approval of the general meeting to an abrogation of the pre-emptive right; listed companies must give such an undertaking in the listing agreement which they conclude with the Stock Exchange.55 The exemptions which the Directive admits to the pre-emptive right of the shareholders are thus influenced by British Stock Exchange practice. The provisions of the Directive on pre-emptive rights of the shareholders provide an illustration of the skilful blending of comparative legal material, taken from the laws and practices of several Member States by the Commission, which was responsible for the drafting of the Directive.

The grant, on principle, of a pre-emptive right to existing shareholders indicates the intention of the Directive to be fair to the smaller shareholders and to maintain the principle of non-discrimination between shareholders. This intention is further displayed by the following provision: 56

"For the purposes of the implementation of this Directive, the laws of the Member States shall ensure equal treatment to all shareholders who are in the same position."

52. I bid., Art. 29 (2). 53. lbid., Art. 29 (4). 54. German Aktiengesetz (1965), para. 186. 55. Stock Exchange Admission of Securities to Listing, para. 22; Palmer's Com

pany Law, 22nd. ed., Vol. II, para. C-025; and ibid., Listing Agreement--Companies, para. 16, Palmer's Company Law, Vol. li, para. C-058.

56. Second Directive, Art. 42.

54 Schmitthoff

CONCLUSION

The Second Directive represents a major step towards the harmonisation of company law in the European Economic Community and towards the achievement of an economic union. There is no doubt that it will be implemented by the Member States, and probably the ambitious target of implementation in the relatively short time of two years will be achieved.

Three conclusions emerge from the successful adoption of the Second Directive by the Council of Ministers. First, the immense value of the comparative legal method should be noted. The preceding observations have shown that the Commission took its inspiration for the various provisions of the Directive from the national laws of the Member States, notably from French, German and United Kingdom sources. With admirable skill, the best features of national company laws have been welded into an instrument which in practical importance goes far beyond the impact of the First Directive of 1968.

Secondly, the importance of the time element should not be overrated. Time is not of the essence of the harmonisation of law. The EEC wants to carry out a long-term project and it is more important that it builds well, on a basis of general consensus, than that it builds hastily. We should fully appreciate that the process of coalescence of basic features of national company laws is, by its nature, relatively slow if it is to be sound and able to endure.

Thirdly, tribute has tobe paid to the officials of the Member States who found a common platform to agree on this incisive measure. Company law reform is not normally a subject of a politically explosive character; it concerns a technical matter. The will to co-operate constructively in the international and supra-national field is usually more frequently met in technical legal matters than in topics which have political overtones. Nevertheless, the acceptance of the principles of the Second Directive demanded sacrifices from all Member States, not least from the United Kingdom, and there was ample opportunity to obstruct by taking a stand on narrow national peculiarities of the regulation of public companies. That such an attitude was not adopted, but that, on the contrary, these national prejudices were disregarded in the interest of European unity, is an encouraging portent and augurs weil for the implementation of the outstanding Directives on the harmonisation of European company law.

Clive M. Schmitthoff *

* Visiting Professor in International Business Law at the City University and the University of Kent at Canterbury, Barrister-at-law.

55

THE EEC TRADEMARK MEMORANDUM

I. INTRODUCTION

In 1976 the EEC Commission published a "Memorandum on the creation of an EEC trade mark". 1 This was a follow-up to its publication in 1973 of a "Preliminary Draft Convention for a European trade mark" dating from 1964 (hereafter referred to as the 1964 Draft). 2 An outline of background and contents of that 1964 Draft has been given in an earlier contribution to this Review. 3 As was explained there, a number of elements of the Draft were obviously in need of updating and reconsideration in the light of developments since 1964. As it is, rather than going immediately for a new, revised Draft, the Commission has sought to indicate, in a "Memorandum" prepared with the assistance of a triumvirate of experts,3a the guiding principles of their present approach.

Before setting out to discuss this Memorandum, it may be useful to recall briefly the more general setting in which it is to be placed. In a very early stage of the EEC, it was feit that if the recognition of industrial property enshrined in Article 36 of the EEC Treaty was not to be a perpetual obstacle to the free movement of goods within the Common Market, national protection of industrial property should be replaced by a European system of protection. Hence the drawn-out work on an "European Patent", which finally resulted in two separate Conventions: the Munich Convention of 1973, dealing with granting procedure,4 and the Luxembourg Convention of 1975, providing substantive rules for "EEC Patents".5 Hence also the present endeavours towards the creation of an EEC Trade Mark.

At the same time, however, the case law of the Court of Justice developed along lines which, ever more clearly, presented Article 36, not as the confirmation of a general immunity, but rather as an exception to the

I. Supplement 8/76, Bulletin of the European Communities. 2. An unofficial English translation has been published: Department of Trade

and Industry, Proposed European Trade Mark: Unofficial Translation of a Preliminary Draft of a Convention for a European Trade Mark (H.M.S.O. 1973).

3. 12 C.M.L.Rev. 1975, 27-41. 3a. Professor F. K. Beier, Mr. J. Burrell, Q.C., Mr. A. Thrierr. 4. See Van Empel, The Granfing of European Patents (Leyden, 1975). 5. O.J. 1976, L 217.


56 Van Empel

rule of free movement of goods. 6 This development markedly affected the spirit in which the legislative drafting is done: rightly or wrongly, protagonists of industrial property feel themselves put ever more in the position of having to justify their time-honoured concepts, not on their intrinsic merits, but rather as exceptions to differently inspired rules. In other terms, they feel themselves forced increasingly into a defensive position.

At the same time, one cannot make any real progress in this field without adequate support from those who have to use the newly-created system, the so-called "interested circles". This is the more so as, also according to the Memorandum, Community and national systems of trade marks are going to coexist, side by side, for the forseeable future. The obvious answer to this problern is the dassie political device of combining different elements into a package which offers something to everybody. This means, in the present context, that "interested circles" should not only be faced with the "stick" of increasing priority being given to free trade over industrial property, but also be affered a few "carrots" in the form of real improvements in the industrial property system as such.

It is submitted that these "carrots" indeed proved essential to the progress of the Patent Conventions. This is obvious for the Munich Convention, which, to be honest, ended up as an almost purely patent lawinspired instrument with hardly any connection with the Common Market. As far as the Luxembourg Convention is concerned, due to its separation from the "carrot" of centralized granting procedure, it had lost much of its flavour for "interested circles". Indeed, for them, the advantages affered in terms of uniformity of scope, centralized revocation, and the promise of patent protection for chemicals, pharmaceuticals and foodstuffs throughout the EEC hardly balanced the concessions they had to make to "Common Market idiosyncrasies". Not only did this result in some additional delay, but-much more seriously-it led to an instinctive Iack of interest, which avenged itself in the drafting, in particular of those parts where national delegations, manned basically by civil servants, were in need of expert advice from practice. The Iast-minute waking-up to the complications of judicial proceedings in the new framework is but one telling example.7

6. See esp. the Jeading cases; Case 78/70, Deutsche Grammophon v. Metro S-BGrossmärkten, (1971) E.C.R. 487, 9 C.M.L.Rev. 1972, 87-93; Case 192/73, Van Zuylen v. Hag, (1974) E.C.R. 731, 11 C.M.L.Rev. 1974, 387-397; Case 51/75, E.M.l. Records Ltd. v. C.B.S. U.K. Ltd., (1976) E.C.R. 811; Case 15/74, Centrafarm v. Sterling and Case 16/74, Centratarm v. Winthrop, (1974) E.C.R. 1147 and 1183, 12 C.M.L.Rev. 1975, 261-268.

7. In fact, it was only in 1974, at meetings in Lyons and Nice, that the problern

The EEC TradeMark Memorandum 57

The gist of the present argument is that, when examining the present EEC trade mark project, one should beware of concentrating exclusively on the-certainly fascinating-problems of fitting an enormaus stock of some 1.5 million existing national trade marks into a Common Market framework. Whatever the ingenuity to be showed in the solution of that problem, at least some sacrifice of vested interests will be implied. For such sacrifice to draw genuine support amongst "interested circles", the argument that it is all for the good of the Common Market will hardly be good enough. A quid pro qua closer to the heart of the trade mark system will be needed for that.

For this reason, attention will be paid first here to the intrinsic qualities of the trade mark system such as it is outlined in the Memorandum.

II. INTRINSIC QUALITIES OF THE NEW SYSTEM

a. One of the distinctive features of the system as envisaged is its comprehensive scope. Indeed, in conformity with the 1964 Draft, the Memorandum proposes that service marks as weil as collective and certification marks be allowed for registration as EEC trade marks in addition to the "classic" trade marks for goods of individual companies.8 In the same vein, the Memorandum states-again following the 1964 Draft-that "the Community trade mark system should adapt a definition of the term trade mark which is as broad as possible and include all signs or devices which are capable or distinguishing the goods or services of the applicant from the goods or services of others". 9

Such a comprehensive approach should certainly be approved. As mentioned by the Memorandum, it makes available the proposed system to more potential users and, by bringing these into the system, makes for morelegal certainty. More intrinsically, such an approach should allow for taking maximum account of the "market relevance" 10 of the trade marksystem as a whole, as weil as in its various constituent parts. Finally, in the present EEC context, it seems much more appropriate to try to come to

of patent infringement proceedings at European Ievel really came to the fore. See: Droit international et actions en contrefa9on de brevet dans Ia CEE, 4e rencontre internationale de propriete industrielle, PIBD (September 1974).

8. Memorandum, nos 69-71. 9. Memorandum, no. 72. I 0. See Bei er, "Objectives and Guiding Principles of the Future European Trade

mark Law", 8 IIC 1977, 1-27 (at 20).

58 Van Empel

a general common understanding of the place, within the Common Market framework, of the trade mark system in its widest possible connotation.11

At the same time, however, comprehensiveness should not be taken to necessarily imply uniformity. In particular, it is ail very weil to ailow for registration of service marks, but this does not mean that these marks should be treated in exactly the same way as trade marks for goods. If "market relevance" of the system is to be the criterion, it must be taken into account that goods have much more a life independent of the trade mark owner than is true for services. Whereas goods, once put on the market, may pass from one party to another, without losing their "origin", a "trade-marked" service can only be rendered by the trade mark owner, or at least under his control. As a matter of fact, to a certain extent, service marks occupy an intermediate position between trade marks for goods and trade names. It could even be argued that a reaily comprehensive EEC system in this field should cover trade names as weil. It may weil be that this is rejected, as not sufficiently relevant to the EEC to warrant the effort, because precisely trade names do not have a substantial impact on intra-EEC trade. But then, does not this hold true for service marks as weil? If, on the other hand, the extension to service marks is meant as one of the "carrots", held out to render the prospective system attractive, one should be careful lest the carrot be poisoned by an over-dose of rigidity in terms of registration, prior rights, geographic scope, exhaustion, etc. 12

b. One of the yardsticks to be applied for the attractiveness of the proposed system to its prospective users will be the balance it will strike between registration and use as the basis for trade mark-protection. It should be noted that in specific trade mark-law terms, this is the perennial question as to legal certainty versus fairness in the individual case. Of necessity, therefore, a completely satisfactory answer would be like squaring the circle. Be that as it may, the compromise to be reached here should appeal to a sufficiently large number of prospective users, if the whole present exercise is not after ail to be in vain. What is more, it should, for that purpose, be more attractive than present national trade mark systems in the EEC Member States, ail of which in the same

11. Including, possibly, appellations such as discussed in the Sekt/Weinbrand case, Case 12/74, Commission v. Germany, (1975) E.C.R. 181. 13 C.M.L.Rev. 1976, 121-124.

12. It should be noted that the dassie example of service marks, the US Lanham Act, finds it place in a system still decisevely based on use, rather than registration.


way, seek to strike an acceptable balance. So it would seem that here, as elsewhere, the draftsmen of the EEC trade mark are caught in a dilemma: the EEC trade mark should be seen to be sufficiently different from national trade markstobe preferred to the latter, but at the same time too much differentiation would jeopardize its political acceptability in one or more Member States.

It so happens that within EEC member countries the trend at present is towards an increased emphasis on the register. This is most marked in the drastic changes brought about by the new Trade Mark Acts in France and the Benelux countries, but it appears to make itself feit elsewhere as weil.

This means that, if the EEC trade mark is to establish that it is different from national trade marks on this count, it should either be less or, on the contrary, even more register-oriented than its national counterparts. To have the register play a lesser role at the European Ievel than within the respective EEC Member States would appear Contradietory and selfdefeating. Indeed, it does make sense to sacrifice, to a certain extent, rights derived from actual use in parts of a territory, for the sake of the legal certainty provided by a register covering the whole of that territory. But it does not make sense to aim at legal certainty at the Ievel of the part, only to abandon it at the Ievel of the whole; in fact, the former would then simply be tuned down to the Ievel of the latter.

It appears logical, therefore, to take the opposite approach: to make the EEC trade mark even more register-oriented than the average of national trade mark systems in the EEC. As a matter of fact, this was the approach of the 1964 Draft. Not only was registration presented as the only gateway to the EEC trade mark, but after having been on the register for five years the latter would, in principle, become "incontestable", i.e. immune even to revocation. To be fair, however, it should be noted that barriers to entry on the register, set by the 1964 Draft, were indeed extremely high.

On this point, the Memorandum proposes a different balance. On the one hand, barriers to registration are lower, and on the other hand, more is required for an EEC trade mark on the register to become "incontestable". The question of barriers to registration is essentiaily that of conflicts with prior rights. The 1964 Draft resolved the problern by providing that ail holders of prior rights were entitled to oppose registration of an EEC trade mark and that the existence of such prior rights, even if they were valid in only one EEC State ( or even in part thereof), precluded the registration of the EEC trade mark. Prior rights here included not only EEC trade marks, but also national trade marks, as weil as ail other exclusive rights in respect of a designation used in trade, such as the get-

60 Van Empel

up of products, trade names, and the like. The Memorandum, on the contrary, proposes 13 to submit this right to enter an opposition against registration of an EEC trade mark to two, cumulative, conditions: - the prior right invoked must be a registered trade mark (national or EEC) or a "notorious mark" within the meaning of Article 6 bis of the Paris Convention; - the prior trade mark so invoked must have been used genuinely for the goods concerned within the previous five years.

This implies that conflicts with other prior rights, if any, have to be settled in revocation-proceedings, aimed at striking out the already registered trade mark. Obviously, this must have its implications for "incontestability", which precisely aims at restricting the risks of any such eventual revocation. According to the 1964 Draft, the EEC trade mark, once registered, would be "incontestable" 14 for the following categories: - prior rights cited unsuccessfully in opposition proceedings; - prior rights the owners of which have been notified by the European trade mark office in registration proceedings,15 but which have not been cited in opposition proceedings; - all other prior rights, after a period of five years from registration of the EEC trade mark.

Again therefore, the 1964 Draft very markedly emphasised the registration aspect: potential conflicts were "forced" towards opposition proceedings, leaving very little scope for revocation proceedings.

While maintaining the principle of "incontestability" as such, the Memorandum seeks a more flexible approach. It transpires that, again, the user requirement is to play a more important role. Thus, although the wording of the relevant passages of the Memorandum is not entirely clear, it would seem logically implied that any prior rights can be cited in revocation proceedings only when they have been genuinely used (within the previous five years?). The user requirement is to play its role also, however, against the EEC trade mark: the latter can only become "incontestable" on the condition that it has been genuinely used, for a period that is set tentatively at three years in the Memorandum.16 This in turn should be seen in the context of the drive-very pronounced in the Memorandum-for "strict and resolutely applied user requirements". Thus, apart from its role in revocation proceedings mentioned above,

13. Nos. 93-98. 14. Subject to the exceptions provided for in Art. 11 and 125 of the 1964 Draft. 15. It may be recalled that the 1964 Draft provided for the Office to make an

ex officio search for prior rights, and to advise owners of prior rights so found of the application.

16. Memorandum, no. 140.


genuine use of the EEC trade mark is to be a condition for renewal of registration and for enforcement in infringement proceedings. Moreover, the Memorandum envisages cancellation of registration in case of nonuse, to be pronounced by the EEC trade mark office, ex officio or on application by an interested party. In all these cases, "genuine use" is to be taken as to refer to "genuine use in (a substantial part of) the common market"Y

Taking all in all, there seems to be much merit in the new approach proposed in the Memorandum. It is indeed in the long-term interest of all concerned that trade mark conflicts-which as such are already frequ~nt and complicated enough-be confined to trade marks which have real market relevance in terms of actual use. It may be expected, therefore, that this aspect will not meet with much opposition from interested circles. But then, it has been submitted above that what is needed to see the whole exercise through is not neutral acceptability, but rather some clearly marked advantages of the new EEC system over the existing national ones. As it is, "incontestability" was to have ranked highly amongst those advantages in the 1964 Draft,18 and all attractions of "flexibility" and easier access to the register cannot conceal the fact that less "incontestability" is affered to registered EEC trade marks now than in 1964. The crux of the matter lies in those trade marks which are brought to light in the ex officio search and which possibly conflict with the EEC trade mark applied for. Both in the 1964 Draft and in the memorandum it is proposed to have the owners of these prior rights notified with a view to possible opposition. If opposition is actually filed, the approach is again the same: if the opposition fails, the EEC trade mark by that token becomes "incontestable" vis-a-vis that particular prior right. It is when no opposition is lodged on the basis of such prior right, that the 1964 Draft and the Memorandum part company: whereas in 1964 "incontestability" ensued vis-a-vis those rights also, in the Memorandum, the registered EEC trade mark could become "incontestable" only after a threeyear period of genuine use. This means that, in the Memorandum's approach, it does not affect the legal position of the owner of the prior rights whether he has been notified of the application concerned or not. In both cases, he will be allowed to consider the actual use made of the later, registered EEC trade mark in practice, before he has to decide whether he deems it worthwile to move against that EEC trade mark. But then, what is the use of such notification by the EEC trade mark Office?

17. Memorand\]ffi, nos. 118-129. 18. See Roettger, "Gedanken zur Schaffung einer EWG-Marke", (1959) GRUR

lnt., 329 (at 332); Beier, op. cit., note 10 at p. 19.

62 Van Empel

Would it not suffice to make the results of the search available to the applicant? More generally, under these circumstances a question-mark can be put behind the ex officio search for prior rights as such, which is going to cost the applicant a lot of money for precious little legal security. In this regard, the Memorandum shows the weakness of any compromise: 19 a full fledged ex officio search for prior rights pays its way, either by providing for "incontestability" as a premium for unsuccessful opposition or for lack of opposition (1964 Draft) or by allowing for ex officio refusal of trade marks which are confusingly similar to prior trade marks, which is the British approach (and incidentally also corresponds to the prior examination system of the European Patent Convention).

Obviously, there may be-and usually are-good reasons for such compromise solutions as such. But that is not the point here. As indicated above, the objective of the present exercise should be to offer an EEC trade mark system which is more attractive to potential users than present national systems. And it seems only fair to conclude from the preceding expose that, if anything, the solution presently proposed in the Memorandum does not show that particular merit which would make it stand out on this count as an asset to be worth the sacrifice of interests on other counts. c. Similar disappointment awaits those who might expect the EEC trade mark to be particularly generous in terms of the rights it confers on its owner. Here again, the emphasis is rather on what is common ground between national trade marks at present. The Memorandum even goes back on the 1964 Draft in so far as it wishes to exclude from statutory trade mark protection "the right to oppose any other use 20 of the trade mark or a similar mark in commerce without justification under such circumstances as may cause darnage to the proprietor of the (EEC) trade mark".21 Such claims are referred by the Memorandum to "the general provisions of competition law or the law of torts",22 where protection should be reserved to "weil known trade marks".

As for the famous question of "exhaustion" of the trade mark, any hope for a strict interpretation which might still have existed in 1964 has

19. Memorandum, no. 74. 20. l.e. other than the "use of the trade mark or a similar mark in commerce for

goods in respect of which the European trade mark has been registered of for similar goods" (Art. 14, 1st Variant, (l) (a), 1964 Draft).

21. See Art. 14, 1st Variant, (1) (b), 1964 Draft.

22. The reference, under no. 108 of the Memorandum, to "special provisions, as in the Benelux trade mark law" is somewhat curious, as the provision of the 1964 Draft, discussed here, is the exact translation of Art. 13A (2) of the Uniform Benelux Trade Marks Act.


been crushed in the meantime by developments in case-law at both national and European level.23 If anything, this development is now consolidated in the Memorandum in an extensive fashion in that it also specifically refers to "cases where the trade mark owner or a related company has marketed goods of differing composition or quality under the same trade mark".24

111. THE EEC TRADEMARK BETWEEN MEMBER STATE AND COMMON MARKET

The discussion above yields a picture of an EEC trade mark which-if certainly fairly up to standards prevailing at present in Europe-is hardly exhiliratingly new and attractive. But then, its main asset is to be its EECwide coverage: "The Commission considers that the creation of an EEC trade mark enjoying protection on an uniform basis throughout the territory of the common market ... is clearly in the interests of manufacturers, distributors and consumers in the common market".25 At first sight this seems so obvious as tobe almost a platitude. It is, moreover, tempting to point to the parallelism with the EEC patent, where this logic has been accepted already by the nine governments concerned. Nevertheless, such easy Iogic and analogy may be deceptive. The stock of patents is subject to a constant rejuvenation, with old patents expiring and new ones being granted. With each new application the applicant is faced with the question as to the geographical scope he wishes for his patent monopoly. A new system which offers new applicants the opportunity to obtain an EEC wide coverage at one stroke (based, moreover, on a serious prior examination), may, therefore, be deemed attractive enough.

The picture for trade marks is somewhat different. Quite a number of trade marks on the respective national registers at present must be considered as permanent for all practical purposes. The scope for, and consequently the interest in, real innovation is therefore considerably reduced. At the same time, as the Memorandum recognizes, more and

23. At the national Ievel, should be mentioned in particular, Belgian Cour de Cassation~ 23-5-1945 (Email Diamant), 1949 lng. Cons. 38; Dutch Hoge Raad, 14-12-1956 (Grundig I), 1962 N.J. 242; German Bundesgerichtshof, 22-1-1964 (Maja), (1964) GRUR 372; idem, 2-2-1973 (Cinzano), 4 IIC 1973, 432. At the European Ievel, the leading case is Centrafarm, op. cit. note 6.

24. Thus doing away with the so-called "Nescafe-doctrine". See also the German Cinzano case, mentioned above under note 23.

25. Memorandum, no. 1.

64 Van Empel

more trade marks are de facto European,26 be it as "notorious marks" (Article 6 bis, Paris Convention) or by virtue of registration in the various countries concerned. Indeed "national trade marks are already by their very nature an instrument not only of national but also of international trade".27 However, it is stressed that "trade marks remain, from a legal point of view, split up as before into seven national varieties of industrial property right, subject to rules differing from Member State to Member State".28 Apparently, the complications due to this legal diversity as opposed to factual uniformity should justify the whole exercise: "for aii these reasons it is necessary to introduce and provide protection for an additional trade mark at Community Ievel".29

lt does not seem worthwile to quarre! about the exact impact of the problems created by present-day diversity in this field. Whereas it is, of course, easy to write off the Commission as too theoretical and too harmonisation-happy any way, much "practical experience" invoked against it may weil prove fairly specific as weil. Under present circumstances, the correct approach seems to be to give the Commission the benefit of the doubt. As such, a mere addition to existing national trade marks of an EEC trade mark should do no harm and if it is a useful instrument it will attract interest in due time.

For such equanimous appraisal of the proposed system it is, however, essential that the EEC trade mark is indeed a mere addition to existing national trade marks. A considerable part, at least, of the some 1.5 million trade marks now on the respective national registers are very valuable assets which should not be put in jeopardy for a new, unproven system.

It would seem that this point is basicaiiy also taken in the Memorandum. Indeed, the most valuable trade marks will be, of course, at present both registered and used. When cited in opposition, such trade marks will prevent the registration of a conflicting EEC trade mark at all. Moreover -although this is not speiied out clearly in the Memorandum-it seems only Iogical that during the period that the registered EEC trade mark is still "contestable", revocation proceedings based on a prior national right would, if succesful, result in the striking out the EEC trade mark from the register with effect ex tune and erga omnes throughout the Common Market. Whereas existing trade mark rights are thus framed as a relative ground of refusal vis-a-vis the EEC trade mark, other conflicting exclusive

26. Memorandum, no. 22. 27. Memorandum, no. 21. 28. Memorandum, no. 22. 29. Memorandum, no. 25.


rights, such as get-up, trade names and the like, are to be protected, according to the Memorandum, in the "marketing area" of their owner or in the EEC State concerned, as the case may be. Thus, in that case, the EEC trade mark will be registered weil enough, but will have to suffer a "gap" in its EEC-wide territorial coverage.

The existence of such a gap should, in good logic and fairness, imply that on both sides real exclusiveness is guaranteed, for each right on its side. To that extent, at least, the legal situation as found by the European Court of Justice in the Terrapin case 30 should therefore be permanent.

Could the same apply to so-called "consent agreements" whereby demarcation of conflicting trade marks is settled amicably between the parties concerned? As far as the text goes, the Memorandum appears to envisage such demarcation only along product-group lines, but not on a territorial basis.31 This is, of course, hardly surprising, coming from the Commission, to whom any form of territoriality is anathema. Nevertheless, it is submitted here that it is simply not realistic to suppose that one can safeguard existing (valuable) trade mark rights while ignoring the territorial element altogether. It so happens that there are indeed confusingly similar trade marks for similar goods in different EEC States. Allowing expansion of one trade mark on the territory of the other, be it only for certain products covered by the latter, is an encroachment on that latter mark, whichever way one wants to turn it. This means that Terrapin is good law and should remain so in the future. And this in turn meansit is submitted-that "consent agreements" should remain valid also: parties concerned should be able to obtain amicably what they could obtain in court. And, to take the argument one step further, what should be possible between two national trade marks should not be denied between a national and an EEC trade mark. In other words, it is proposed here that as far as territorial scope is concerned, the applicant for an EEC trade mark and the owner of a conflicting prior national trade mark should not be confined to the all-or-nothing choice between disappearance of the national trade mark as such and refusal of registration of the EEC trade mark. Rather, parties should be allowed to work out a modus vivendi with the two trade marks co-existing, each within its own territorial Iimits.

All this, of course, should not be taken as an attempt to get away from Article 85 of the EEC Treaty. What is submitted here is not an immunity for consent agreements, but neither should there be a per se approach condemning automatically each and any consent agreement on a terri-

30. See supra, note 6. 31. Memorandum, nos. 37 and 99.

66 Van Empel

torial basis. Here, as elsewbere, Article 85 sbould be applied on a caseby-case basis, taking tbe trade mark-situation as one constituant part, amongst otbers, of tbe overall competitive position of tbe parties concerned.

Witb a view to working out consent agreements tbe Memorandum apparently sets great store by tbe so-called "Conciliation Board" wbicb is to be a part of tbe EEC trade mark office. However, tbe relevant passages of tbe Memorandum sbow some dangerously confused tbinking. It is one tbing to "belp parties, by affering advice and proposals for conciliation, to resolve tbeir differences"; 32 it is quite anotber to bave tbat Board force upon an "uncooperative" trade mark owner on "agreement" wbicb sacrifices (part of) bis rigbts. 33 If tbis is indeed to be tbe declared policy of tbe Commission, it is no use pretending anymore tbat lawfully-acquired prior rigbts will be respected, and tbat tbe EEC trade mark is to win out on its sbeer merits.34

For tbat matter, if it comes to tbe merits of tbe EEC trade mark, tbe final test will be its enforcement in infringement actions. In my earlier contribution in tbis Review, on tbe 1964 Draft, it was concluded tbat "rules on tbese proceedings figure amongst tbe weakest spots of tbe Preliminary Draft". Unfortunately, tbere is no room for a more positive appraisal now. Tbe simple fact is tbat tbe Memorandum confines itself to stating tbat "tbe provisions of tbe 1964 Draft sbould in general be retained",35 but could be adapted on a number of points. Indeed, tbe most positive element on tbis count is tbe indication tbat a solution will be looked for, not in isolation, but witb due regard for tbe links wbicb would exist between EEC trade mark law on tbe one band and EEC patent law as weil as national civil, commercial and competition law, on tbe otber band.

Be tbat as it may, as matters stand at present tbe "easily enforceable trade mark protection" envisaged by tbe Memorandum 36 still seems a long way off. More in general, tbe conclusion must be tbat altbougb certain interesting modulations bave been made on tbe basic tbeme of tbe 1964 Draft, tbe overall picture cannot be said to be satisfactory or even

32. Memorandum, no. 99. 33. "It does not appear to suffice, therefore, to leave the solution of conflicts

between the applicant for an EEC trade mark and the owner of prior rights to the parties alone, subject to notification of the Conciliation Board." (no. 100).

34. Again, the Memorandum contradicts itself with regard to the advisability of an interim period to be left for the respect of lawfully-acquired prior national rights ( cf. nos. 100 and 159).

35. Memorandum, no. 155. 36. Memorandum, no. 55.


complete. Of course, this is no reason for despair. It should not be a reason either, for trying to push through as a Regulation something which might not be swallowed as a Convention. It should be a reason for reflecting further upon the possibility of an EEC trade mark which would be indeed "a genuine alternative to the existing national and international system of trade mark law" .a1

Martijn van Empel *

37. Memorandum, no. 55. * Legal department, Philips Gloeilampenfabrieken N.V. Due to unforseen circum

stances publication of this article has been delayed.

RE PORT

DIRECT ELECTIONS AND THE FUTURE OF THE EUROPEAN PARLIAMENT

Sixteenth Leiden-London Meeting, London, June 25, 1977

69

Up until this year, the "Leiden-London meetings"-the annual joint meetings of the Institutes sponsoring this Review-have mainly been dedicated to various recent developments in Community Law. Different themes were discussed during one meeting and therefore a report did not always seem feasible. On occasions addresses or papers were reproduced in the Review.t

The sixteenth Leiden-London meeting was, however, entirely devoted to one theme: Direct Elections and the Future of the European Parliament. The theme was divided into five subjects: I. "The British White Paper", Prof. K. R. Simmonds; 2. "The European Parliament in Operation: strengths and weaknesses", Prof. A. De

ringer; 3. "The Preparation of Legislation for Direct Elections", Dr. S. Patijn; 4. "A Survey of National Legislation: proposed or adopted", Dr. N. March Hun

nings; 5. "The Future of the European Parliament", a panel discussion, with the participa

tion of Prof. A. Deringer, Prof. H. H. Maas, Dr. N. March Hunnings and Prof. J. D. B. Mitchell (Chairman).

Professor Simmonds reviewed developments in Britain subsequent to the introduction of the Green Paper, Direct Elections to the European Assembly,2 in February 1976 and up to the presentation of the European Assembly Elections Bill (Bill 142) on June 24, 1977, the day before the meeting.

In March 1976 the House of Commons debated the Green Paper, which listed the matters on which decisions were needed before the elections could be he1d. As a result a Select Committee on Direct Elections was set up. It published two reports, the first relating to questions requiring Community decisions, the second to questions requiring decisions by the Parliament in the United Kingdom. The first report was of little consequence in view of the fact that it was discussed in the British Parliament on the very day that the Prime Minister attended the meeting of the European Council in Brussels which agreed on the number and distribution between the Member States of the seats of the directly-elected Parliament.3 The second report dealt with the distribution of the 81 seats which had been allocated to the United

I. See e.g. W. van Gerven, "The recent case law of the Court of Justice concerning Articles 30 and 36 of the EEC Treaty" in 14 C.M.L. Rev. 1977, 5-24 and John A. Usher "The case law of the Court of Justice 1975-1976 in 14 C.M.L. Rev. 1977, 73-88; both adresses to the 15th Leiden-London meeting.

2. Cmnd. 6399. 3. Meeting of the European Council on July 12 and 13, 1976; see for the state

ment on the outcome of the deliberations with regard to the elections, Bull. of the EC. 1976, no. 7 I 8, point 110 I. See also Lauwaars "The European Council" in 14 C.M.L. Rev. 1977, 25-44.


70 Mulders

Kingdom; the electoral system; and the boundaries of the coQstituencies. According to the Committee the distribution of the seats should be proportional to population, with some allowances being made for Scotland, Wales and Northern lreland. The following recommendation was made: England 66, Scotland 8, Wales 4 and Northern Ireland 3 seats.

Faced with a choice between an electoral system of proportional representation and the system of simple majority ("first past the post") the Cbmmittee favoured the latter, considering the introduction of a new system inappropriate. In any event, a later change would be necessary, because of the expected harmonisation of national electoral systems. Not surprisingly, the Liberals were opposed, because despite the support of 20-25 per cent of the electorate, they could end up without any seats at all.

On April 1, 1977, the Government published the White Paper, Direct Elections to the European Assemb/y,4 in which it examined different electoral systems. From the White Paper one could already deduce some preference on the part of the Government for a system of proportional representation. The European Assembly Elections Bill, issued on June 24, 1977, opted for proportional representations by means of a regional Iist system,s which is defined as follows: "each elector in an electoral region has a single vote which is cast for a named candidate chozen by the voter. The seats for each electoral region are allocated according to a system of proportional representation". Most noticable in the Bill, however, is the fact that a return to the simple majority system remains possible.6 The Bill follows the recommendation of the Select Committee on the distribution of the seats. Professor Simmonds estimated the chances for the Bill being accepted rather small, especially with a free vote in Parliament. U nless a guillotine is imposed, the bill will not be discussed in Parliament until the Autumn of 1977.7

Professor Deringer pointed out that the European Parliament does not have most of the powers and competences a Parliament should enjoy in a modern democracy: i.e. to approve or disapprove the budget; enact Iaws; and appoint the government. The vote of censure against the Commission has in practice proved to be a blunt sword.

The Council, although it takes all major decisions within the Community, does not Iegally depend on the Parliament in any way. Nevertheless, its decisions have been, and still are, influenced to a greater extent by Parliament than public opinion assumes or than might be deduced from the wording of the articles of the EEC Treaty. This is especially true when the opinions of the European Parliament on proposals of the Commission are based on sufficient expertise and when the vote in plenary session reflects the political balance within the Community with regard to the matter in question.

Written and oral questions and public debates in the Parliament are politically effective in that they force the Council and the Commission to take up a position

4. Cmnd. 6768. 5. As opposed to proportional representations by means of the single transferable

vote system, now used in Northern Ireland and the Republic of Ireland. The system is defined in Bill 142, the Explanatory Memorandum and Part. II.

6. Bill 142, Part. I, clause 3, section 2. 7. The Bill Iapsed at the end of the 1976-1977 parliamentary session. It was re

introduced in the autumn of 1977 and passed its second reading on Nov. 24, 1977.

Conference Report 71

in public. Of the same political importance, although not found in the Treaty, might be the roJe of the European Parliament in creating and developing an "EuropäischesGemeinschaftsbewusstsein", which Prof. Deringer defined as a "common feeling of all citizens of all Member States of belanging to one European Community". This requires, as has happened already, the formation of political groups in the European Parliament, instead of national delegations, so that the differences between national interests are replaced by differences in political concepts. Within the Community as a whole political groups and concepts of a European-wide character will now have to be developed. The programmes which the political parties or groups will have to define with a view to the direct elections might contribute to this.

After the elections, the development of basic political concepts will be even more important than the immediate acquisition of legislative powers. The latter will depend on the preparedness of the Member States to delegate powers to the European Institutions. Up to now, the Member States have been reluctant to do this and the future expansion of the Community will make it more difficult still.

In 1973, when Dr. Patijn became a Member of the European Parliament, the direct elections issue was dead; the Dehousse proposals of May 17, 1960 s were buried and no politicians were involved in the preparation of new proposals. After the Conference of the Heads of Government in Paris in 1974,9 the chances for the elections improved. The Parliament, with its members divided in their attitudes towards the Common Market, started to elaborate a proposal. lt decided to aim at concrete results, i.e. the direct elections, and not to pose as a "constituant" assembly with supranational ambitions. The proposal should not contain any controversial issues, as these would make its acceptance by the Council impossible, and it should not try to solve all the problems at once. The main issues in the Parliament were: - the number of seats: although the Parliament came with a proposal, it left the decision completely to the Council. lt only laid down two criteria: the future Parliament should not be too big and no Member State should have fewer seats than at the moment; - the dual mandate: the Parliament did not take up a stand on this, because Iack of time on the part of the parliamentarians would solve the problern in practice; - the harmonisation of the national electoral systems: the Parliament originally proposed a uniform system to be accepted before 1980, but later it abandoned the deadline since uniformity would only be really necessary in the case of transnational elections. - voting rights for "foreigners" (an important issue for ltaly): it was not possible to make rules on a European Ievel. Harmonisation of national rules would be necessary when the possibility of double voting occurred, for example if Ireland allows all nationals of Member States resident in Ireland to vote for Irish representatives, and the other Member States allow their nationals living abroad to vote in their mother country.to - the voting day: it was most important to aim for a fixed date as this was the only way in which a decision would pass the Council.

Dr. Patijn thought it interesting to note that most Member States are at present working on the same basis, i.e. a system of proportional representation, an optional

8. J .0. 1960, p. 840. 9. Communique in Bull. of the EC. no. 12!1974, 7-14; esp. point 12. 10. Article 8 of the Act on Direct Elections prohibits plural voting.

72 Mulders

dual mandate, voting rights for citizens abroad (except Ireland and the U.K.11), and were aiming for elections in May/June 1978, even though the debate on these issues had not started in the Member States before September 20, 1976, the date of the adoption of the Council Decision and Act on the direct elections.t2 Only the number of seats had earlier been a subject of heated discussion. By June 1977, 80 per cent of the road had been covered andin September 1977, 7 or 8 ratifications of the Act were expected. The point of no return had been passed and pressure on the United Kingdom to follow suit would increase.13 "If the elections do not happen now, they will not be held in this century anymore."

In the discussion which followed these introductory speeches, the first theme was the relationship between the increase of the legislative powers of the European Parliament and the direct elections. lt was feit that, with the exception of budgetary powers, the increase of formal powers would for the time being not be an issue. The increase would depend more on legislation by the Council than on direct elections.

In this context the conciliation procedure between the European Parliament and the CounciJt4 might play an important roJe. Although it does not give any formal legal powers to the Parliament, it introduces a dialogue between two political bodies which might shape itself into a system of co-decision. The conciliation procedure has led to a politisation of the relationship between the two institutions. The next step should be an open discussion so that the Parliament is no Ionger confronted by a silent Council.

Another point of interest during the discussions was the relationship between the national Parliaments and the European Parliament. They have a comparable function in that both to a certain extent provide the executive with democratic legitimacy. But it is important that they remain in close contact (e.g. by way of "watchdog" committees). If each Parliament goes its own way, there is a danger of substantive conflict and the emergence of a "credibility gap". This possible antagonism might be an argument in favour of the dual mandate. Particular problems might occur in the long rather than in the short run, notably in an economic and monetary union (for instance in the case of Iimits for the national budgets).

Since much had already been said on the national legislation, Dr. March Hunnings gave a series of variations on the theme of the direct elections. He first of all Iooked at them in the context of a transfer of powers from one body to another, which is not a new phenomenon in history.

As it is now constituted, the European Parliament represents the national Parliaments. After the direct elections it will represent the peoples. This might

11. Bill 142 excludes from voting any person not registered in the register of (national) parliamentary electors at an address within the region (Part II, clause 5, under a.).

12. O.J. 1976 L 278/1. 13. On September 20, 1977 the Council decided to include in the agenda of each

"general session" an examination of the state of ratification and the state of preparation for the elections. There are two reasons for this: to maintain pressure where it is necessary and to reaffirm to public opinion the desire to respect the deadlines, see Agence Europe of September 21, 1977, p. 5.

14. Joint Declaration by the European Parliament, the Council and the Commission, in O.J. 1975, C 89/1; seealso 12 C.M.L. Rev. 1975, 317.

Conference Report 73

amount to more a change of political basis than a change in the balance of power in the Community. He was sceptical, however, of "dramatic" consequences of the direct elections. In order to evaluate these consequences, two key factors have to be recognised. The nature of the constituency within which the representative will be elected is the first key factor. Where a country is to be made into one national constituency, the end result is not going to differ from the present situation, and in that case there will be no real difference between direct and indirect elections. The nature of the parlies is the second key. At present the groups in the European Parliament are coalitions of national parlies and there is therefore a strong element of national political influence in the European parties. This is not likely to change in the near future. Only a change of approach can alter this, namely, if the European Parliament, which represents the public interest, were also to represent public opinion. This requires that information be made available to the people.

Dr. March Hunnings also highlighted one important specific issue with regard to the Act on the direct elections itself. Article 7 of the Act leaves it to the national Parliaments to decide on eligibility to stand for the European Parliament and to vote. With respect to the latter point, most Member States will only allow their nationals to vote; this may include nationals living abroad. The Irish approach, namely, to allow residents to vote for Irish representatives, is, however, the only Iegitimale one. The more general practice does not conform with Article 7 of the EEC Treaty, which forbids discrimination on the ground of nationality. Article 7 of the Act can not allow this discrimination, the prohibition of which is so fundamental to the Community.

During the panel discussion the main issues were the alienation of the voter from his representative(s) and the relationship between the national Parliaments and the European Parliament. There is a danger of an alienation at all Ievels of social life where people are represented, which makes improvement of the contact between electorate and elected necessary. The question was posed whether the Ionger distance between the constituency and Strasbourg would Iead to more alienation, especially within a regional Iist system. It was feit, however, that the electorate would not lose a parliamentarian, but get an additional one. Neither regional representation nor a bigger constituency would be a problem. The !arger distance would be compensated for by cooperation between the national Parliament and the European Parliament. The link between the national Parliament and the European Parliament was considered more important. If a dual mandate proved in practice impossible, the link should be maintained in other ways. Suggested solutions were: - membership of the House of Lords for the members of the European Parliament ("five-year peers"); - cooperation between the members of both Parliaments within the constituency; - the system of Iist voting, where a vote is cast for both a party and an individual.

The problern of coordination between the national and European parliamentarian which would arise after direct elections is, however, not new. Representation on different Ievels within a country has existed for a long time. It was recognised that problems between parlementarians working on different Ievels can more easily be avoided when there is a centralised party structure. A more important problem, however, is the possible conflict between the national Parliament and the European Parliament, which especially might occur if the European Parliament attempted to increase its power at the expense of the national Parliaments. The French Parliament, for instance, approved the Act on the Direct Elections on the condition that an increase of power of the European Parliament would never be possible without the

74 Mulders

consent of the French Parliament.t5 It should be remembered, however, that four weeks beforehand the same Parliament approved with an overwhelming majority the Second Budget Treaty 16 which will increase the budgetary powers of the European Parliament to a higher Ievel than enjoyed by the French Parliament itself. Furthermore, one should not forget that an increase of powers for the European Parliament will require an amendment of the EEC Treaty and therefore ratification by the Member States, after approval by the national Parliaments. The European Parliament has to maintain a link with the national Parliaments in all Member States. Otherwise at the end of this decade it will find itself in conflict with the national Parliaments rather than with the Commission or the Council.

If a good relationship is assured the European Parliament could function as a transnational link, influencing the national Parliaments and the Community institutions. Direct power is not at issue and this type of power should not be stressed.

L. A. M. Mulders Europa Instituut Leyden

15. See also the decision of the French Conseil Constitutionnel, Agence Europe of January 3/4, 1977; see further, P. van Dijk, "De Franse Conseil Constitutionnel over de grondwettigheid van de rechtstreekse verkiezingen van het Europese Parlement" in 25 S.E .. W. 1977, 186-190 and R. Kovar and D. Sirnon "Some reflections on the Decision of the French Constitutional Council of December 30, 1976, 14 C.M.L. Rev. 1977, 525-560.

16. Treaty amending certain provisions of the Treaties establishing the European Communities and of the Treaty establishing a single Council and a single Commission of the European Oommunities, E.P. Doc. 501/74; see also 12 C.M.L. Rev. 1975, 310 et seq.

75

SURVEY OF LITERATURE

I. INTEGRATION, GENERAL ASPECTS

20 Ans d'Europe ... et demain? 20 Annales du Marche Commun 1977, no. 2, 19-14.

Paul J. Bailey & Ilka Bailey-Wiebecke, "AII-European co-operation: the CSCE's Basket Two and the EEC", XXXII International Journal 1977, 386-407.

Andrea Chiti-Batelli, "Perspectives d'une politique culturelle europeenne" XX Problemes de l'Europe 1977 no. 75-76, 13-16.

Raphaella Bilshi, "The Common Market and the Growing Strength of Labour's Left Wing", 12 Government and Opposition 1977, 306-331.

M. A. Boisard, "Une politique europeenne de co-operation culturelle", XXX Studia Diplomatica 1977, 263-272.

Marion Bywater, "La communaute europeenne et Ia non proliferation", 1977 R.M.C. no. 206, 159-162.

Canada and the U.S.-important suppliers of enriched uranium to the Community-have almost ceased these supplies since the Indian nuclear bomb test and the energy policy of the Community is thereby seriously threatened. Canada demands new guarantees including IAEA inspections in France. But the risks of proliferation are even greater in regard to the enriched uranium originating mainly in the U.S. Cancern about proliferation on the one hand, and about the continuation of supplies, on the other, is creating new tensions in the relations between Europe and the U .S. and Canada.

John C. Cairns, "France, Europe and 'the design of the world' 1974-7", XXXII International Journal 1977, 253-271.

Lawrence T. Caldwell & Steven E. Miller, "East European integration and European politics", XXXII International Journal 1977, 352-385.

Lawrence Freedman, "Britain and a European foreign policy", 33 The World Today" 1977, 167-175.

Britain, now a world power of only secondary importance, is interested in a Community foreign policy. But tension exists between those who would Iike to see Europe speaking with one voice, and those who would Iike to impress a decidedly British stamp on the common foreign policy. Britain will have to make a choice between these alternative approaches.

Curt Castyeger, "Europa en de toekomst van het communisme", XXXI Internationale Spectator 1977, 231-23 7.

Reginald I. Harrison, "La melancolie Britannique et Ia communaute europeenne"


76 Survey of Literature

1977 R.M.C. no. 206, 163-170. A study of British attitudes towards the E.C. In cantrast to his equivalent on the continent, the average British worker associates the Community more with economic decline than with prosperity. The political and industrial elite also expresses growing criticism in regard to the methods of European integration. In spite of this rather negative attitude, the author of this article, writing before the event, is optimistic as to the chances of a successful British presidency of the Council.

Ronald Inglehart, "Long-Term Trends in Mass Support for European Unification", 12 Government and Opposition 1977, 150-177.

Roy Jenkins, "The United States and a Uniting Europe", 1977 The Atlantic Community Quarterly no. 2, 209-220.

Norman Kogan, "Italy, the European Community, and the alliance", XXXII International Journal 1977, 272-287.

After World War II the foreign policy of Italy was for a while dominated by party-political conflicts. With the oil crisis a change came about, and since 1975 a foreign policy has developed which is supported by the most important political groups. The author discusses in particular the attitude of the Italian Communist Party. He concludes that the communists have in regard to foreign policy gone their own way, independent of Moscow and Peking. They do not dominate Italian foreign policy, and at the most may be said to influence it: they, too, are so concerned about the economic crisis that they are very unlikely to push Italy into new adventures. Italy is best served by relaxed international atmosphere, in which commerce can flourish again.

Peter Merk!, "The Study of European Political Development", XXIX W orld Po/itics 1977, 462-475.

Richard Piper, "Liberal Communism in Western Europe?", 1977 The Atlantic Community Quarterly no. 2, 229-234.

What will happen if communists come to power in e.g. Italy or France? According to the author, 2 possibilities present themselves: 1) a greater degree of centralisation with as a result reduced productivity, black market etc. and eventually a "hard-line" system which will lean heavily on Moscow, 2) it does appear possible to construct socialism "with a human face"; but here a repetition of the situation in Czechoslovakia in 1968 must be feared.

Sergio Segre, "Eurokommunismus-eine strategische Entscheidung", 5 Europäische Rundschau 1977, no. 3, 3-9.

Y. Shishkov, "Little Europe in an impasse'', International Affairs-a monthly journal of political analysis (Moscow) 1977, nr. 3, 53-61.

Pessimistic view of the European construction as seen from Moscow. 1976 was a year of acute crisis for the E.C. for which not only psychological factors are to blame. No attempt at integrating the economies into a regional complex can alter the capitalist nature of prevailing production relations, or halt the signs of growing economic illness: overproduction, unemployment, etc. Discontent


among working people is growing and there is a trend to politicisation. Further, reactionary forces are seeking to reverse detente, preferring the political instability which brought the smaller Western European countries into alliances.

A. Stoleshikow, "A new step to Consolidate Peace in Europe", International Affairs -a monthly journal of political analysis (Moscow) 1977, nr. 3, 79-84.

The Political Consultative Committee of the Warsaw Pact, when meeting in November 1976, reaffirmed that it could continue a policy of consolidating peace and security in Europe. The member countries propose in a draft treaty that all participants in the CSCE undertake not to be the first to use nuclear weapons against the others.

Herber! Weissenberger, "Die Südtiroler auf dem Weg nach Europa", 5 Europäische Rundschau 1977, nr. 3, 87-110.

N. Yuyev, "Towards a Europe of Security and co-operation", International Affairs -a monthly journal of political analysis (Moscow) 1977, nr. 2, 19-28.

II. EVROPEAN COMMUNITIES

A. COMMON SUBJECTS

1. General

J. Andrews, "European Convention on Products Liability", 1977 E.L. Rev., 242-245.

U!ontin-Jean Constantinesco, "La constitution economique de Ia C.E.E.", 13 R.T.D.E. 1977, 244-281.

Investigation of the economic system on which the E.E.C. Treaty is founded. Under economic system the author understands "L'ensemble des normes etablissant !es structures pn!cisant !es facteurs economiques, leurs fonctions, et specifiant les regles, regissant Je deroulement du processus economique". This economic system is composed of 3 elements: the objectives, the means and the principles which govern the normal functioning of the means. The system has a dualistic basis, i.e. it is founded on two rather contradictory means: the institution of the common market and the Co-ordination of economic policy. The political advantage of this is that the Member States remain competent in relation to the most important sectors of the economy. But it also has disadvantages: 1) the unity of the economic process is sacrified and 2) an imbalance exists between the two means for achieving the objectives of the Treaty, Co-ordination of economic policy allows the Member States to protect their own national interests, whereas it is particularly in this area that far-reaching co-operation is required. The institutions of the Community have in this area up to now acquired very few powers.

Arved Deringer & Joachim Sedemund, "Europäische Gemeinschaftsrecht" (Die Entwicklung des Gemeinschaftsrechts bis März 1977), 30 N.J.W. 1977, 988-991.


G. Issac, "La Codification du droit communautaire", 13 R.T.D.E. 1977, nr. 1, 79-92. A study of the codification of secundary Community Law, which occurs in particular in the areas of agricultural and customs law. The author discusses both the procedures used and the material content of the codification work.

Hans Ulrich Jessurum d'Oliveira, "Characteristic Obligation in the Draft EEC Obligation Convention", 25 A.J.C.L. 1977, 303-331.

Discussion from the theoretical and practical points of view of the question whether the theory of "characteristic obligation" should be applied in the EEC. Point of departure is the "Draft EEC Convention concerning the law applicable to contractual and non-contractual obligations" which does enshrine the theory of characteristic obligation a theory developed in Switzerland and which, up to now, does not have much support in the E.C.

Ernesto Loh, "Feuerversicherungsmonopole und Europäisches Gemeinschaftsrecht", 23 RIW/AWD 1977, 258-262.

Roger Morgan, "The Treaty of Rome-twenty years on", 33 The World Today 1977, 119-121.

"Open Letter to Roy Jenkins", 1976 agenor 60, 1-17.

Emilia Cortese Pinto, "Su alcune clausole di salvaguardia del Trattato CEE in funzione di garanzia del zistema communitario", XVII Riv.Dir.Eur. 1977, 155-166.

In addition to judicial procedures, such as Arts. 169 and 170, the EEC Treaty has a number of procedures of a non-judicial character which also provide a guarantee for the respect by the Member States of the system of the Treaty, i.e. the so-called "escape clauses". The author considers in particular Arts. 37 (3), 107 and 115 EEC. These provisions permit the reduction or neutralization of the harmful effects of Member State actions taken in derogation of the Treaty.

G. Ponedelko, "EEC: In Search of New Ideas", 1977 International Affairs-a monthly journal of political analysis (Moskow) nr. 5, 135-138.

T. Rava, "Quelques reflexions de droit compare a propos d'une rencontre communautaire", 16 dir. com. scamb. int., 5-12.

Some reflections provoked by the academic and judicial conference held in Luxembourg in September 1976.

Reinhard Riegel, "Eigentumsbegriff", Sozialbindung und Enteignung im europäischen Gemeinschaftsrecht", 92 Deutsches Verwaltungsblatt 1977, 7 49-753.

R. van Rooij, "Rechtelijke bevoegdheid en interpretatie van het Europees Jurisdictieen Executieverdrag: beginselen en belangen", 52 N.J.B. 1977, 613-622.

Gerard Streiff, "Marche commun du traite de Rome au projet d'e1ection de l'assemb1ee europeenne", Cahiers du communisme 1977, nr. 4.

A survey of the 20-year history of the Community through communist eyes. The French communist party opposes the decision to hold direct elections because the E.P., which will consist largely of reactionary elements, will be able to lay down the law to the French people.


P. Verloren van Themaat, "De universele planmethode van Jean Monet als verbindend element tussen nationaal, Europees en internationaal economisch recht", 25 S.E.W. 1977, 346-358.

Hans-Vigge von Hülsen, "Ist die von der E.G.-Kommission vorgeschlagene Form der strikten Produzentenhaftung eine gute Lösung?", 23 RIW I AWD 1977, 373-383.

This question is answered in the negative. But first a comparative law survey is made of 3 kinds of fault: a production fault, a construction fault and a fault which comes to light after some time, as is often the case with medicinal products (research faults). Then follows an analysis of the draft EEC directive. The author concludes that the directive will change the present case law drastically, because the notion of fault is general and vaguely defined, and because it leaves open the application of differing national rules in regard to the question whether the fault is the relevant cause of the damage. As an alternative, the author proposes a strict product Iiability, a less strict Iiability in regard to construction faults, and no Iiability at all in regard to research faults.

Hans-Jochen Vogel, "Die Europäischen Gemeinschaften auf dem Weg zur Rechtsunion", 30 N.J.W. 1977, 977-982.

The twentieth anniversary of the Treaties of Rome forms the inspiration for an interim balance drawn up by the W. German Minister of Justice. Community Law is being extended to more and more areas and penetrates to an increasing extent the national legal systems. In particular, the recent common declaration of the EC institutions in regard to fundamental rights marks the transition from an economic to a legal Community (Rechtsgemeinschaft) which expressions the commonly-held values of the European citizens.

2. Relationship Community I National Law

Achille Accolti-Gil, "II sistema normativo del Trattato CEE per Ia tutela degli interessi nazionali dopo Ia fine del periodo transitorio", XVII Riv. Dir. Eur. 1977, 111-154.

First part of a study which will investigate the roJe of escape clauses in the EEC Treaty. In this part the author describes the general system of escape clauses, with special reference to certain individual provisions.

A. Barav, "Some aspects of the preliminary ruling procedure in EEC law", 1977 E.L.Rev. 3-19.

An investigation of two important groups of decisions given by the Court in the context of the Art. 177 procedure, decisions relating to the interpretation of the Treaty and decisions concerning the validity of acts of the institutions. To date, there have been more requests for interpretation than questions relating to validity, but it may be expected that the number of the latter will increase as the volume of Community legislation increases. The author considers that the Court should make a clearer distinction between the two groups, since each has its own specific characteristics.

G. Bebr, "Arücle 177 of the EEC Treaty in the practice of the national courts", 1977 I.C.L.Q., 241-282.

Requests for a preliminary ruling form the majority of cases which come before


the Court. Most requests are sent by judges in the lower courts. Without this provision the Court would be very much more limited in its development of Community Law, and yet the application of Art. 177 depends entirely on the initiative of the national judge. The article considers further a number of concrete questions: whether Art. I 77 is applicable to all kinds of procedures; the procedure of Art. 177 when commenced by a lower or the highest court; the binding force of preliminary rulings; the theory of the "acte clair". Finally, the significance of Art. 177 for national law is considered.

P. van Dijk, "De Franse Conseil Constitutionnel over de grondwettigheid van de rechtstreekse verkiezing van het Europees Parlement", 25 S.E.W. 1977, 186-190.

Andrew Z. Drzemczewski, "Fundamental Rights and the Communities", 2 Human Rights Review 1977, nr. 1, 69-83.

A clear survey of developments in Community Law in relation to fundamental rights, covering all the relevant case law of the Court of Justice, the special problems of Italy and Germany, and the attitude of the Community institutions.

"Les Droits fondamentaux et le citoyen europeen", 20 Les Annales du marche commun 1977, nr. 3, 21-26.

T. C. Hartley, "Concurrent liability in EEC Law: A Critical Review of the Cases", 2 E.L.Rev. 1977, 249-265.

Francis Jacobs, "Which courts and tribunals are bound to refer to the European Court?", 2 E.L.Rev. 1977, 119-121.

Hans Kutscher, "Aicune tesi sui metodi d'interpratazione del diritto communitario da! punto di vista d'un giudice", XVII Riv. Div. Eur. 1977, 3-24.

Text of a talk given on the occasion of the judicial and academic conference held in Luxembourg in Sept. 1976 and devoted in the main to the methods of interpretation of the Court of Justice.

"Vereinbarket eines Systems staatlicher Beihilfen mit dem EWG-Vertrag", 23 RIW/ AWD 1977, 560-566.

4. lnstitutional

David Allen, "The European Assembly Elections Bill: the British perspective", 2 E.L.Rev. 1977, 315-319.

David Allen and Roger Morgan, "Rechtstreekse verkiezingen voor het Europese Parlement: het Britse dilemma", XXXI Internationale Spectator 1977, 489-496.

Diane de Bellescize, "L'article 169 du traite de Rome, et l'efficacite du contröle communautaire sur !es manquements des etats membres", 13 R.T.D.E. 1977, 173-213.

C. Borman, "Goedkeuring van de akte inzake europese verkiezingen", XXVI A.Ae. 1977' 645-653.


Jean-Louis Burban, "La dialectique des elections europeennes", 27 Rev. fr. de SC.

polit. 1977, 3 77-406. Analysis of the political controversy which from the very start has surrounded the notion of direct elections. The first direct elections will be organised in each Member State according to its own rules and will therefore have a strongly national character. For this reason the author does not believe that the directlyelected EP will opt for a supranational Europe, nor for a Europe orientated on the U.S., as so many Frenchmen hope or fear.

P. Colard, "La France et l'election du parlement europeen", XXX Studia Diplomatica 1977, 213-226.

Analysis of the main political viewpoints in France in regard to the coming direct elections to the EP.

Alessandre Costa, "Controli nazionali dei prezzi e sistema comunitario nell'ottica della Corte di giustizia dell Comunita", Riv. Dir. Eur. 1977, 52-64.

H. J. Dixon, "The European Unit of account", 14 C.M.L.Rev. 1977, 191-208. As a result of far-reaching changes in the international monetary system, the use by the Community of a U.A. based on a fixed quantity of gold is running into increasing difficulties. The adoption of the European Unit of Account will greatly improve the situation. The worth of the EUA will be established on the basis of a "basket" of Member States' currencies. This EUA is already in use for the operations of the ECSC and for the European Development Fund. Attempts are now being made to draw up the Community budget in EUA.

Geoffrey Edwards and Helen Wallace, "EEC: The British Presidency in Retrospect", 33 The World Today 1977, 283-286.

M. R. Emerson and T. W. K. Scott, "The financial mechanism in the budget of the European Community: The hard core of the British 'renegotiations' of 1974-1975", 14 C.M.L.Rev. 1977, 209-229.

John Forman, "Direct elections to the European Parliament", 2 E.L.Rev. 1977, 35-41.

John Forman, "The European Assembly Elections Bill: the Community perspective", 2 E.L.Rev. 1977, 319-323.

John Forman, "The Joint Declaration on Fundamental Rights", 2 E.L.Rev. 1977, 210-215.

F. Gundelach, "Relations between the Commission and the European Court of Justice", 16 dir. scamb. int. 1977, 1-4.

Christian Hen, "La motivationdes actes des institutions communautaires", 13 C.D.E. 1977' 49-91.

Analysis of the duty imposed on the Community institutions by Art. 15 ECSC and Art. 190 EEC to state the reasons on which legislative acts are based. First, the author considers the scope of the duty to motivate, as laid down in particular


Treaty provisions or by the case law of the Court; then he considers the content of the duty, which varies according to different factors, such as the kind of act involved, the objective of the act and its addressees. The content is further determined by the requirements imposed by the Court in relation to judicial control, and by the practice of the different directorates of the Community institutions. The author concludes that the duty to motivate is in danger of becoming a purely formal rule: the real reasons for a decision are not stated in the motivation and the motivation itself is becoming briefer. The author does not, however, want to impose a general duty to motivate on Member States which do not have such a rule; he suggests rather a duty to motivate in the case of decisions which affect individual rights, or alternatively, a general duty to motivate subject to certain exceptions.

Hans Peter lpsen, "Der Europäische Gerichtshof im Tindemans-Bericht", 92 Deutsches Verwaltungsblatt 1977, 128-132.

R. H. Lauwaars, "The European Council", 14 C.M.L.Rev. 1977, 25-44. A study of the origin and of the present role of the European Council. In the author's view, the institution of the Council has some positive aspects, but at the same time poses a threat to the institutional balance of the Community.

Guy I. F. Leigh, "Resurrection of the Provisional Decision", 2 E.L.Rev. 1977, 91-104.

Juliet Lodge, "Citizens and the E.E.C.: The RoJe of the European Parliament", 58 The Parliamentarian 19 7, 176-181.

Gerard Nafilyan, "La position des etats membres et !es recours en manquement des articles 169 C.E.E. et 141 C.E.E.A.", 13 R.T.D.E. 1977, 214-243.

Michael Palmer, "The roJe of a directly elected European Parliament" 33 The World Today 1977, 122-130.

Nicoletta Parisi, "Conference al vertice e Consiglio Europeo: un tentativa di sistemazione giuridica", Riv. Dir. Eur. 1977, 25-51.

This article investigates in the first place the legal character of the declarations of the former European summit conferences, and concludes that these, as the product of international diplomatic conferences, have no binding force in Community Law. The institutionalisation of the summits in the form of the European Council has in this respect brought about no change, since in the view of the author the European Council does not have the character of a Community Institution.

H. G. Schermers, "Procedures over ongeldige gemeenschapsnormen", 25 S.E.W. 1977, 587-605.

B. H. ter Kuile, "Procedures over ongeldige gemeenschapsnormen", 25 S.E.W. 1977, 606-631.

Texts of reports delivered to the 1977 annual meeting of the Dutch Association for European Law, which was devoted to the subject: Procedures in regard to


invalid Community norms. Schermer's approach is essentially theoretical, that of ter Kuile more practical. The emphasis in Schermers' report lies on the problern of concurrent actions against the Community and a Member State for liability arising out of the same facts. According to the Case Law of the Court of Justice, both that court and the National Court are competent to hear such a case (see Kampffmeyer) but Schermers advocates another approach: the national judge should alone be competent in such a case, with the possibility, of course, of his referring a request for a preliminary ruling to the Court of Justice. Ter Kuile, however, prefers the Kampffmeyer ruling: in his view, the system works weil enough in practice. In addition, he also gives a survey of the procedures of Arts. 173, 177, 184 and 215 EEC, as seen from the point of view of the practitioner. Both reports contain a wealth of information and analysis which defies a brief summary here.

Mr. I. Steenbergen, "Het beleid van het Hof bij de ontwikkeling van het gemeenschapsrecht", 25 S.E:W. 1977, 415-432.

Report to the joint meeting of the Belgian and Dutch associations for European Law, held in April 1977 in Antwerp, and devoted to the subject: judicial policy and in particular that of the Court of Justice of the E.C. This article surveys the policy of the Court in the process of the development of Community Law. Also very useful are the detailed notes with abundant references to case law and doctrine.

Christopher Tugendhat, "Problems of Community budgeting", 33 The World Today 1977, 287-294.

The restricted volume and Iack of balance in the Community budget effect the general development of the Community. But in the future the budget could play a significant roJe. lmportant developments are: the transition to a system of own resources, which will make the Community financially independent, and the holding of direct elections to the European Parliament, which i.a. will bring about a better control of budgetary policy. The limited means of the Community must be used as effectively as possible, and alternative sources of finance, e.g. Community loans, should also be sought.

W. van Gerven, "Contribution de l'arret Defrenne au developpement du droit communautaire", 13 C.D.E., 131-143. Comment on Case 43/75, Defrenne, by 0. Stocker, 1977 C.D.E., 176-226.

The same issue of the C.D.E. contains two important articles on the implications of the Dejrenne case. Van Gerven considers in particular the two significant innovations of the judgment, i.e. the use of the technique of non-netroactivity and the subjection of individuals to Obligations arising from Treaty provisions ("horizontal" direct effects). Van Gerven considers that the Court would have been better advised to opt for a fully retroactive effect for Art. 119. As for the second aspect, he considers that with the exceptions of Arts. 85 and 86 EEC, Treaty provisions can only impose Obligations on individuals with the object of protecting fundamental rights.

The annotation of the case by Stocker gives a thorough analysis of all its aspects. Attention is also paid to national law in regard to sex discrimination.


5. Adhesion

L. J. Brinkhorst, "Uitbreiding: Verdieping of verwatering, of spiegel van een Gemeenschap in wording", XXXI Internationale Spectator 1977, 469-473.

Geoffrey Edwards, "How !arge a Community?" 15 The A tlantic Community Quarterly 1977, nr. 1, 67-79.

An analysis of the problems with which the Community and the adhering States, as well as third countries, will be confronted as a result of the further enlargement of the E.C. The present discussion over "profondissement" opposed to "elargissement" may well turn out to be quite irrelevant, but enlargement could well provide the stimulus for a re-evaluation of the objectives of the Community. The costs of a refusal to admit the candidate states are too high to be contemplated.

L. Hoffman, "E.G.: niet rijp voor uitbreiding", 62 ESB 1977, nr. 3120, 853.

H. H. J. Labohm, J. G. Petit, J. H. M. Tak, "Uitbreiding van de Europese Gemeenschap: Op Hoop van Zegen", XXXI Internationale Spectator 1977, 474-488.

Michael Leigh, "Mediterranean Agriculture and the enlargement of the EEC", 33 The World Today 1977, 207-214.

Although Italian and French politicians have declared that they are in principle in favour of the enlargement of the EEC, now it comes to the point their actual attitude is greatly influenced by different interest groups, in particular agricultural, which demand protective measures and guarantees to protect them from the competition presented by cheap Mediterranean products. These demands are certain to play a roJe in the negotiations with the candidate States.

Rudolf Morawitz, "Die wirtschaftlichen Probleme eines Beitritts Griechenlands zur Europäischen Gemeinschaft", 32 E.A. 1977, 249-258.

6. Externat relations, association and deve/opment

Luigi Boselli, "Die Beziehungen zwischen der Europäischen Gemeinschaft und Latein Amerika". Auf den Wege zu neuen Zielen? 32 E.A. 1977, 427-432.

Relations between the EC and SELA Iands are characterised primarily by the fact that the latter are Jooking for an alternatvie to their relationship with the U.S.A. For commercial reasons they are Jooking for new markets. Further, the SELAcountries feel that the Lome convention has passed them by. The EC has no real Latin American policy. But on the credit side may be mentioned 1) four bilateral treaties 2) an EC aid programme to stimulate regional attempts at integration 3) the familiar instruments of EC development policy, i.e. the generai system of preferences, promotion of exports and financial and technical assistance.

"EEC-Arab Co-operation Agreements" 11 J.W.T.L. 1977, 291-295.

Carl A. Ehrhardt, "EWG und RWG kommen sich nur langsam näher" 28 Aussenpolitik 1977, 161-176.


The author discusses the growing contacts between the EEC and the CMEA. Recognition may be said to have de facto taken place, although formally this is still an obstacle. The problern of fishing zones and the desire to make the CSCE and its follow-up a success have forced the East European countries to soften their attitude.

Agnes Hubert, "L'enjeu europeen dans Ia negociation internationale sur Je commerce des textiles" 1977 RMC no. 208, 279-281.

Neville March Hunnings, "Enforceability of the EEC-EFTA Free Trade Agreements", 32 E.L.Rev. 1977, 163-189.

Community Law derives not only from the EC Treaties, but also has an international dimension, since the Community is bound by many bilateral and multilateral treaties. The author considers in particular the bilateral free trade agreements between the EC and the EFT A countries. In a thorough survey, he considers to what extent internal Community law takes these agreements into account and to what extent they contain directly effective provisions.

P. Leopold, "The external relations of the EEC in theory and practice", 26 I.C.L.Q. 1977, 54-80.

Analysis of the external competence of the EEC with special reference to Arts. 111, 113, 228, 238, and to the ERTA judgment and Opinion 1/75 of the Court of Justice.

"Vers un nouveau Partnership: l'accord-cadre Communaute Europeenne-Canada", 20 Anna/es du Marche Commun 1977, no. 1, 3-7 (to be concluded).

Claude Lucron, "La Convention de Lome, examp1e de cooperation reussie", XXIX Studia Dip/omatica 1977, no. 1/2, 7-170.

Hans-Joachim Meyer-Marsilius, "Die Bewährung des Freihandelsabkommens Schweiz-EG aus der Sicht der Wirtschaft". 32 Aussenwirtschaft 1977, no. I, 30-54.

The free trade agreement between the EC and Switzer1and, which came into force on 1/ l/73, reached an important stage on 1/7/77: the achievement of a completely free trade area for industrial goods (with the exception of a few "sensitive" products). The system only covers goods originating in the territory of the treaty partners. The notion of origin has been recently adapted, but at the same time new non-tariff barriers to trade have come into being. There are also differences of opinion concerning the interpretation of competition rules. The institutions of the agreement are, however, working weil, and in the recent period of recession the agreement has in generat shown that it is sufficiently flexible and balanced to guarantee advantages to both treaty partners.

Charles Pentland, "Linkage politics: Canada's contract and the development of the European Community external relations". XXXII International Journal 1977, 207-231.

John Pinder, "The Community and Comecon: what could negotiations achieve? 33 The World Today 1977, 176-185.

The USSR is interested in negotiations with the EC, hoping thereby to promote


integration in its own region. The EC prefers bilateral negotiations with the different Comecon countries, in order to some extent to reduce the influence of the USSR there. Negotiations between the EC and the USSR itself are rather pointless: no direct economic interests require this and in any case the EC is in a politically weak position as against the USSR. Matters are different in regard to the other Comecon countries: they export agricultural and industrial goods to the EC (and the USSR primarily raw materials) and are thus involved with powerful economic interests in the Community.

Hanns H. Schumacher, "Kooperationsverträge und RWG, Sackgasse für die Gemeinsame Handelspolitik", 12 EuR 1977, no. 2, 26-42.

At the end of the transitional period, it appeared that the Council had made little use of the many possibilities in the area of the common commercial policy. In the meantime, a number of bilateral treaties were concluded between Member States and East European countries. The Commission found no adequate response to this threat to the commercial policy. Art. 113 EEC is not a proper basis for cooperation agreements since it is restricted to a number of concrete measures. Art. 238 on the other hand does provide a sufficient basis, so long as the commission remains within the Iimits of its competences. A mixed agreement with Comecon may weil necessitate a revision of the Treaty, as provided for in Art. 238 (3).

Kar! Unger, "Die EG und die Entwicklungsländer. Das Abkommen von Lome als Grundstein einer neuen Weltwirtschaftsordnung?", 22 Blätter für Deutsche Internationale politik 1977, 301-317.

The Lome Convention is not a model of co-operation between industrialized and underdeveloped countries such as in the future will increasingly be required. The Yaounde convention attempted to be such a model, but amounted to no more than a consolidation of the relations such as they then were between developing and industrialised Iands. There was no Y aounde 111 and there will be no Lome li. It is difficult to judge whether Lome amounts to a step in the direction of a new international economic order, in view of the fact that both the EAP and the EC Iands have derived benefits from it.

Benito Ponce Vasques, "L'accord preferentiel Espagne-CEE: Limites et developpements". 1977 RMC no. 208-219.

Contacts between Spain and the EC in the 'sixties were determined not only by political but also by economic factors. In the context of the latter, the authors considers the preferential agreement concluded between the EEC and Spain in 1970. The Iimits of the agreement are taken under review, as also the dynamic effect on the export of important products. The agreement is further considered in the light of an eventual enlargement of the Community.

C. EUROPEAN ECONOMIC COMMUNITY

2. Agriculture

Pierre Baudin, "La fixation des prix agricoles pour 1977-78". 1977 R.M.C. no. 207, 213-226.

This year the Ministers for Agriculture have done more than simply fix the


prices for agricultural produce; they have also considered fundamental problems of agricultural policy, such as the implications of the end of the transitional period for the new Member States and the questions of inflation and the system of monetary compensatory amounts. A very instructive article.

A. Costa, "Controli nazionali dei prezzi e sistema comunitario nell'ottica della Corte di Giustizia della Communita", 17 Rev. Dir. Eur. 1977, 52-64.

Analysis of the case law of the court in relation to the national control of prices and Community law, with reference in particular to the Ga/li case (3I/74).

Dr. A. W. Koers, "Enige ontwikkelingen ten aanzien van de externe bevoegdheden van de EEG inzake de zeevisserij". 25 S.E.W. I977, I91-2I9. See also I4 C.M.L.Rev. I977' 269-301.

Jean Lecerf, "Pourquoi !es prix agricoles sont-ils fixes a Bruxelles?", 20 Annales du MarchtJ Commun I977, no. I, I5-I7.

J. Marsh, "De Europese landbouwpolitiek: een federale oplossing", I977 NieuwEuropa no. I, I-I9.

G. Marenco, "Le limitazioni dei poteri degli stati per effetto delle organizzazioni communi dei mercati agricoli", I6 dir.com.scamb.int. I977, 13-57.

Thierry Martin, "Pour une politique europeenne de Ia mer", 1976 Strategie, no. 46, 13-I60.

Gert Meier, "Rechtsprobleme einer EG-Aikoholmarktordnung", 23 RIW I AWD I977, 4I0-4I5.

The complex position of alcohol in the policy of the Member States explains the slow progress on this front in the context of the EEC agricultural policy. In the new draft for an organisation of the market in alcohol, the author pinpoints a nurober of legally doubtful points, such as a tax on consumers which he considers in violation of the EEC Treaty, and thc applicability of the draft regulation to distilled alcohol from non-agricultural products. Further, the author considers that the regulation involves an unlawful use of Art. 235 E.E.C.

C. C. Meijers, "Na het groene het blauwe Europa", I977 Nieuw-Europa, no. I, 25-43.

L. A. M. Mulders, "Het Gemeenschappelijk landbouwbeleid: groenten en fruit", 62 ESB I977, no. 3119,845-848.

E. Peyroux, "Les incidences du nouveau droit de Ia mer sur Ia regime des peches des Neuf", 13 R.T.D.E. 1977, no. 1, 53-77.

Dr. Hans-Georg Rahn, "Einfuhr- und Ausfuhrlizenzen im Marktordnungsrecht der EWG", 23 RIW/AWD 1977, 181-186.


D. C. Watt, "The EEC and Fishing: New Venture into unknown seas", 48 The Political Quarterly 1977, 328-336.

Discussion of the Commission proposals relating to the 200-mile zone and the conservation measures. The author doubts that the EEC is the most appropriate framework within which to develop a conservation policy for the North Sea. He is also critical of the content of the proposals.

4. Company Law

"Les entreprises publiques dans Ia communaute europeenne, 20 Les A1males du Marche Commun 1977, no. 3, 20-21.

Ian Fletcher, "The proposed Community Convention on Bankruptcy and Related Matters", 2 E.L.Rev. 1977, 15-33.

Geoffrey Morse, "The Second Directive: raising and maintenance of capital", 2 E.L.Rev. 1977, 126-132.

5. Campefition and industrial property

Uwe Albrecht, "Entwurf einer EG-Richtlinie zur Harmonisierung des Werberechts", 23 RIW/AWD 1977,258-262.

W. Alexander, "Het EEG-verdrag en het nationale merkenrecht", 52 N.J.B. 1977, 517-525.

B. Baardman, "De beschikkingspraktijk op mededingingsgebied van de Commissie Ortoli" (Jan. 1973- jan. 1977), 25 SEW 1977, 433-449.

First part of a regular survey of the practice of the Commission in competition cases, this time covering the years 1973-76. The author concentrates on some important decisions, showing the evolution of commission policy. This part of the survey is concerned with decisions on horizontal and on vertical agreements.

Dr. Christiaan von Bar, "Vorentwurf eines Übereinkommens über ein Europäisches Markenrecht, Gemeinschaftspatentübereinkommen und freier Warenverkehr in der EG", 23 RIW/AWD 1977, 468-470.

Friedrich-Karl Beier, "Vers Ia marque communautaire. Objectifs et fondement du futur droit europeen des marques", 104 Journ.dr.intern. 1977, 16-42.

P. Demaret, "Le brevet communautaire apres Centrafarm: un instrument depasse ou inacheve?", 13 R.T.D.E. 1977, no. I, 11-52.

B. van der Esch, "Non-economic boycott and the Articles 7, 85 and 86 of the EEC Treaty", 46 NTIR, 1977, nr. I, 12-19.

This article discusses a number of different kinds of boycotts. Whenever a boycott restricts trade between Member States, or whenever it is the expression of an abuse of a dominant position, then it will fall under the competition rules of the EEC Treaty. Not only Arts. 85 and 86, but also Art. 7 can play a role in


cases where this provision produces direct effects: in this context the author mentions in particular boycotts for political motives.

C. S. P. Harding, "Jurisdiction in EEC Competition Law: Some Recent Developments", 11 J.W.T.L. 1977, 422-440.

Through the application of Art. 86 the Commission has extended the reach of the competition rules of the EEC beyond the geographical frontiers of the common market. This extension has been brought about i.a. by means of a wide interpretation of the notion of "affecting trade between Member States" by the Court and the Commission. This article goes into the legal problems which arise in connection with this extension of jurisdiction.

Peter Hay and Dieter Oldekop, "EMI"CBS and the rest of the world: trade-mark rights and the European Communities", 25 A.J.C.L. 1977, 120-151.

After a short review of the existing case law on industrial property rights in the context of the rules of competition and the free movement of goods, the authors discuss the EMI-CBS case, covering i.a. the history of the trademark "Columbia", the interpretation of Arts. 30, 85 and 86 EEC by the Court, and considering also what happens to a trade-mark after a restrictive agreement has been dismantled. Two conclusions are drawn from the case: 1) that Art. 30 regulates only the free movement of goods within the EEC and does not affect movement between the EEC and third States, 2) that agreements between undertakings from the EEC and from third countries, whereby the EEC as a whole is isolated, can be restrictive of competition.

Frans van Kraay, "Towards a regulation on the control of mergers". 2 E.L.Rev. 1977, 54-57.

R. H. Lauwaars, "Beschikkingspraktijk Europese Commissie en Jurisprudentie Europees Hof Art. 85 van het E.G.-verdrag in de afgelopen jaren", 1977 Onderneming nr. 6, 3-11.

Guy I. F. Leigh, "Resurrection of the Provisional Decision", 2 E.L. Rev. 1977, 91-104.

In the light of 2 recent decisions, based on Art. 15 (b) of Reg. No. 17 (SirdarPhildar, Bronbemaling-Heidemij) the author discusses first the nature of the provisional decision, referring also to the judgment of the Court in the Cement Accord case (6-11/69). He then Iooks at the procedure followed by the Commission in such a case; this procedure appears to be governed by Reg. No. 99/63 and is for this reason rather lengthy and slow. In order to speed up the procedure, the author suggests that it is not necessary to follow Reg. 99 I 63 in such cases: the parties would not then have to be heard and it would not be necessary to consult the Advisory Committee.

Wernhard Möschel, "Le contröle des prix d'apres Je droit allemand et europeen sur !es restrictions de Ia concurrence", 1977 R.M.C. no. 207, 262-267.

Afte.r an historical survey of the French and German legal systems in relation to restrictive practices, the author draws a comparison between para. 22 BGW and Art. 86 EEC. Art. 86 is applied as a means to combat price control, whereas para. 22, at least at first sight, does not appear to allow this. This has only


been possible since the judgment of the BGH in the Hoffmann-Laroche case. The author further considers a number of legal Iimits which competition law sets on price control.

Carl Wolfgang Neumann, "Zur ersten Aufhebung eines Wettbewerbsverbots nach Art. 85 EWG-Vertrag durch die Kommission der Europäischen Gemeinschaften", 23 RIW/AWD/1977, 196-203.

For the first time in the Reuter-Basf case the Commission has declared that a prohibition of competition is unlawful. Interesting here is that the Commission arguments are couched in very general terms, so that it appears that it is trying to make an example of this agreement. The Commission's new decision shows that the Votrapo Decision of 1964 may now be considered as out of date.

Dr. Hans-Heinrich Schmieder, "Patentrecht zwischen nationaler Tradition und europäischer Harmonisierung", 30 N.J.W. 1977, 1217-1225.

"Towards an EEC Trade Mark", 11 J.W.T.L. 1977, 197-200. The success of its efforts in relation to patents has inspired the Commission to bring out a new draft regulation relating to an EEC trade-mark. A new fact of this improved version of the 1964 initiative is the possibility (under stringent conditions) of opposing registration.

"Vereinbarkeit eines Vertriebssystems mit EWG-Kartellrecht", 23 RIW/AWD 1977, 158-161.

Philip L. Williams, "The ABG Decision; competition or fair shares?", 2 E.L.Rev. 1977, 294-301.

The preamble to the EEC Treaty mentions fair competition: but in the ContinentaZ Can case the Court did not consider this aspect and looked only to effective competition. The same opposition between fair and effective competition is to be found in the Commission's ABG case. With reference to the United Brands case, the author considers whether tfie ABG decision was really fair.

6. Economic and monetary policy

E. A. Mange, "De convergentie-beschikking en het economisch beleid in 1976", 62 ESB 1977, no. 3110, 635-637.

E. A. Mange, "Het vierde programma voor de economische politiek op middellange termijn", 62 ESB 1977, no. 3106, 521-523.

"La monnaie, eiement de division ou d'unite en Europe?", 78 Revue Politique et ParZementaire 1977, no. 869, 35-49.

J. C. More! en Ch. Andre, "La politique economique a moyen terme de Ia communaute", 1977 R.M.C. no. 207, 227-232.

Jacques Riboud, "Des erreurs fecondes sur l'eurodollar", 79 Revue Politique et ParZementaire 1977, no. 866, 15-33.


Joanne Salap, "Dollar Intervention within the snake", XXIV lntemational Monetary Fund Staff Papers 1977, no. 1, 64-76.

8. Energy policy

Jean Herbert, "Un renouveau de l'activite reglementaire communautaire dans Je domaine nucleaire? Le nouveau systeme de contröle de securite", 13 R.T.D.E. 1977, 282-291.

Although in 1976 2 important documents appeared relating to nuclear energy, it is not yet possible to speak of a renewal of activity in this area. The Commission has, however, been able to change considerably the system of security control, in particular by bringing the system of the Euratom and that of the IAEA closer together.

11. Free movement of goods and customs union

H. E. Brunner, "Die Ursprungsregeln im europäischen Freihandelsraum", 32 Aussenwirtschalt 1977, no. I, 55-63.

Now that the EFT A has established internal rules regarding the origin of goods, it is for the Mixed Council to find a solution to the problems which have arisen in this regard in the context of the EC-EFT A free trade agreement. The author approaches the question from a Swiss point of view. He goes into the rules contained in protocol No. 3 of the Treaty between the EC and Switzerland, which concern the origin of goods. It is important to continue to interpret this protocol in a dynamic fashion. In view of the many different interpretations to which it has been subject, it may even be preferable to re-write it.

"Einfuhrungsumsatzsteuer bei Fahrzugreparaturen in anderen EG-Staaten", 23 RIW/AWID 1977, 171-173.

C. Jacquemart, "L'entre aide douaniere entre !es etats-membres", 1977 R.M.C. no. 208, 300-310.

Gert Meier, "Sanitäre Grenzkontrollen und Gebühren", 23 RIW/AWD 1977, 218-225.

A. C. Page, "The Concept of Measures Having an Effect Equivalent to Quantitative Restrictions", 2 E.L.Rev. 1977, 205-117.

After an historical review of the development of the notion, there follows an analysis of the case law of the Court. The author wonders whether the Court will in the future apply the broad Dassonville formula, whereby also nondiscriminating measures may be prohibited, to matters falling outside the organization of the agricultural markets.

Hans-Georg Rahn, "Ausfuhrabgaben nach EWG-Recht", 23 RIW/AWD/1977, 481-486. "Stand und Perspektiven der EG-Zollunion", 23 RIW/ AWD 1977, 341-346.

On 1/7/77 the transitional period for the new Member States expired. From that date on there is one common customs tariff for all 9 Member States and as between the Member States no further import duties are imposed (with the exception of a few products, for which the transitional period has been extended


to 1/l/78). In a communication, the Commission has described the influence which the customs union has had on European integration. This article considers the instruments of the customs union, its weak points and the measures which could be taken to make it function better.

R. Streckmann, "Haftung und Bürgschaft im gemeinschaftlichen Versand verfahren", 23 RIW/AWD 1977,549-554.

Discussion of liability arising during Community transit, as regulated by Reg. No. 222/77. Topical in view of recently discovered cases of fraud.

Nikolaas Vaulont, "Die Vereinfachung der Verfahren und Förmlichkeiten im innergemeinschaftlichen Warenverkehr im Lichte der Rechtssprechung des Europäischen Gerichtshofs zum Verbot der Erhebung von Abgaben zollgleicher Wirkung", 12 EuR 1977, 1-25.

This article considers not only customs formalities, but also the harmonisation of taxes in the. context of the Court's case law in relation to charges having an equivalent effect.

Kh. Zachmann, "Elimination des entraves techniques aux echanges des produits industriels, signification, problemes et objectifs", 1977 R.M.C. no. 207, 246-261.

12. Free movement of workers and social security

M. Bogdan, "Free movement of Tourists within the EEC?", 1977 J.W.T.L., 468-475. The free movement of persons, governed by Art. 48-51 EEC, does not cover all persons, but only those who satisfy certain requirements (i.e. those who are workers and subjects of a Member State). The author poses the question whether the free movement rules are also applicable to tourists. The case 1aw of the Court is not decisive here, but with reference to Dir. No. 73/148, he reaches a positive answer. The directive provides i.a. that persons who receive services {and tourists fall under this definition) have a right to free movement. The tourist of today is also an economic factor in the sense of Arts. 48-51, and it would be contrary to the spirit of the Treaties to exclude him from the rules of free movement.

J. A. Huy: D. Baars, "Bepalingen in de EEG-verordeningen inzake gezins- en kinderbijslagen", 32 S.M.A. 1977, 401-409.

F. Wooldridge, "Free movement of EEC Nationals: The Limitation Basedon Public Policy and Public Security", 2 E.L.Rev. 1977, 190-207.

13. Freedom of establishment and freedom to provide Services

Hans Hinrieb Boie, "Einschritt zur Freizügigheit der Rechtsanwälte in den Europäischen Gemeinschaften", 30 N.J.W. 1977, 1567-1569.

H. Bronkhorst, "Lawyers' freedom under the new Directive", 2 E.L.Rev. 1977, 224-229. Louis Pettiti, "La directive sur Ia libre prestation de services des activites d'avocats", 1977 R.M.C., no. 207, 239-245.

Commentaries on the Council Directive of March 23, 1977 concerning the free provision of services by advocates.


J. de Vries, "De wederzijdse erkenning van de artsendiploma's in de Europese Gemeenschappen", 1977 Tijdschrift voor Gezondheidsrecht nr. 1, 27-38.

Rolf Wägenbauer, "La mise en oeuvre de Ia libre circulation des medecins dans Ia communaute europeenne", 1977 RMC no. 208, 311-318.

Text of a talk given to a medical conference in Strasbourg. The author considers the basic principles of the directives: mutual recognition of the declarations of the competent authorities; in the event of establishment, recognition of diplomas; coordination of professional training with reference to certain minimum norms, etc. In relation to a number of special problems, e.g. public service, temporary measures have been taken. The author further considers the state of implementation in the Member States and the special problems arising in this regard, in particular the admissibility of a certain Ievel of language knowledge and the connection between free movement of doctors and social security (the general practitioner).

17. Jurisdiction and recognition of judgments

"Fremdenarrest und Europäische GemeinschafteFragen einstweiligen Rechtsschutzes nach dem EWG-Gerichtsstandes- und Vollstrechungsübereinkommen", 23 RIW I AWD 1977, 359-364.

Trevor Hartley, "Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters", 2 E.L.Rev. 1977, 57-63, 143-149.

Peter Hay et Robert J. Walker, "Le projet anglo-american de convention sur Ia reconnaissance des decisions et Ia convention communautaire", 13 C.D.E. 1977, 3-24.

P. Leleux, "Jurisprudence relative a l'application de Ia convention du 27 septembre 1968 sur Ia competence judiciaire et l'execution des decisions en matiere civile et commerciale", 13 C.D.E. 1977, 144-167.

20. Social Policy

Heinz-Jürgen Axt, "Sozialpartnerschaft als Modell für Europa? 'Dreierkonferenzen' als Konzertierte Aktion auf EG-Ebene", 22 Blätter für Deutsche internationale Politik 1977, 455-469.

Several tripartite conferences with the participation of the social partners have now been held on the Community Ievel. The author sees them as an element of the attempt to Iranspose the German "social-liberal" model on to the Community Ievel. He speaks of a "European concerted action", aimed at the Suppression of class conflict and directed against the autonomy of the social partners. Quoting EC Commissioner Haferkamp, the author states that such a concept requires a reformist labour movement. The ETUC is following such a course, but is said to be disappointed with the results to date of the tripartite conferences. The article ends with a survey of the most recent developments in national labour relations, which is supposed to indicate how illusory is the attempt at integration represented by the tripartite conferences.


"EC Commission Proposals for Reform of the Social Fund", 40 E.I.R.R. 1977, 22-23.

"EC Commission Proposals on Revaluation of Social Security Benefits", 38 EIRR, 1977, 4-5.

"EC Commission Proposals on Work Sharing", 41 E.I.R.R. 1977, 2-3.

"EC Commission revises programme on health and safety at work", 37 E.I.R.R. 1977, 3-4.

"EC Commission Social Report for 1976", 39 E.I.R.R. 1977, 18.

"lmplementing the EC equal opportunities Directive: The Belgian Approach", 42 E.I.R.R. 1977, 20-23.

I. M. McCallum and I. Snaith, "EEC Law and United Kingdom Occupational Pensions Schemes", 2 E.L. Rev. 1977, 266-273.

Analysis of the U.K. Law and government proposals relating to complementary systems of social security in the light of the two Deirenne judgments (80/70 and 43/75) and of the EC directives concerning equal pay and equal treatment for men and women workers.

"Reforming the European Social Fund", 37 E.I.R.R. 1977, 2-3.

Benjamin C. Roberts, "Ziele der Gewerkschaften in Westeuropa", 32 E.A. 1977, 499-506.

Because the trade unions exercise an ever-greater influence on the economic balance they are increasingly implicated in economic and social questions. The extent to which they are involved, differs from one land to the other. The author investigates in particular the situation in the U.K. and in Sweden. He considers that, as far as the future is concerned, the economic climate will work to the advantage of the trade unions.

A. Tizzano, "La democratisation des institutions europeennes dans Ia mise en oeuvre de Ia politique sociale", 16 dir.comm.scamb. 1977, 59-69.

The early seventies witnessed a resurrection of the Community social policy, but in the present economic situation, the social policy is seriously threatened by the protectionist measures of the Member States. The author argues for an effective Community policy, capable of surviving the present economic difficulties. In order to establish such a policy, the co-operation of all social forces is necessary.

F. van Damme, "Concentrations d'entreprises et protection des travailleurs", 13 C.D.E. 1977, 25-48.

Analysis of the Council Directive of February 14, 1977 on the safeguarding of employees' rights in the event of transfers of undertakings, etc.

21. Taxation

Auguste Bette, "La T.V.A. Communautaire, etat des travaux", 1977 R.M.C. nr. 207, 233-238.


Pierre Guieu, "EC: Sixth Council Directive on V AT (Uniform Basis of assessment), 1977 Intertax nr. 7, 245-254.

E.C.: Proposal for a Council Directive on the Elimination of Double Taxation in connection with the Adjustment of Transfers of Profits between Associated Enterprises", 1977 Intertax nr. 1, 7-16.

"E.C.: State of Harmonization of Fiscal Legislations", 1977 Intertax nr. 4, 125-140.

"E.C.: Taxation Policy 1976", 1977 Intertax nr. 3, 98-102.

Micheie Vleminckx, "Prevision des effets de mesures-types d'harmonisation des taux de Ia taxe sur Ia valeur ajoutee dans Ia communaute Economique Europeenne (horizon 1980)", Cahiers Economiques de Bruxelles, nr. 73, 81-104.

111. COUNCIL OF EUROPE

A. GENERAL

John Andrews, "European Convention on the Suppression of Terrorism", 2 E.L. Rev. 1977, 323-326.

P. H. Bakker Schul, I. Prakken, D. Hartkamp en G. Mols, "Kanttekeningen bij een anti-terrorisme verdrag", 52 N.J.B. 1977, 698-705.

The authors argue against the ratification by the Netherlands of the European Anti-Terrorism Convention. They fear that the initiator of the Convention, the Federal Republic, which for some years now has attempted by means of the term "terrorism" to criminalize ever more forms of political opposition, will attempt by means of the convention to apply its ideas and practices concerning internal security to the whole of Europe.

M. R. Mok, "Het Europese verdrag tot bestrijding van terrorisme", 2 N.J.B. 1977, 665-671.

The European Convention on the suppression of Terrorism, signed in Strasbourg at the beginning of 1977, attempts to fill a gap in the legal instrumentarium relating to the prosecution of terrorists. Basic principles of the Convention are the depolitisation of certain terrorist delicts and the application of the principle "aut dedere aut punire".

W. H. Nagel, "Het Europese verdrag over de bestrijding van terrorisme van 27 januari 1977", 52 N.J.B., 817-822.

Wolfgang Walter, "Das Europäische Uebereinkommen über die Rechtshilfte in Strafsachen", 30 N.J.W. 1977, 983-987.

Ursula Wasserman, "Council of Europe: Products Liability Convention", 11 J.W.T.L. 1977, 192-196.

B. HUMAN RIGHTS

Kirsten Rogge, "Einstweilige Massnahmen im Verfahren vor der Europäischen Kommission für Menschenrechte", 30 N.J.W. 1977, 1569-1570.

97

BOOK REVIEWS

The Law of the European Economic Community: a Commentary on the EEC Treaty, ed. H. Smit and P. Herzog, (Bender, New York, 1976) loose leaf, $ 475.-.

In five volumes of some 650 pages each, Professor Hans Smit (Columbia University) and Professor Peter Herzog (Syracuse University) have coilected contributions from 34 authors commenting on the EEC Treaty on an article-by-article basis.

The book is a commentary, not a coilection of documents. Apart from the texts of the EEC Treaty articles, which are carefully reproduced in their most recent version, the book contains no official texts. For all important regulations ample references are given, usuaily to the Official Journal as weil as to the CCH Common Market Reporter. The book is weil organised. Closely related articles are commented on by the same author and under each article the same headings are used (text, bibliography, implementing measures and Court decisions, general background and further description).

As always in such collective works, some contributions are better than others, but many of them are very useful indeed. To give just one example, under Article 40 an extensive survey has been given of the Council regulations on agricultural market organisations and of the case-law of the Court up to March 1975. Furthermore, a good introduction is given to the general background and the establishment of the common agricultural policy as weil as to its functioning and growth and to the different types of common market organisations. Tables present the budgetary aspects, the number of persons engaged in agriculture, the number and size of farm units, the EEC prices for grain between 1967 and 1976, and a comparison with world prices.

The other main problems of EEC law are also extensively treated under the respective articles. On the whole, the book is written with great knowledge. It offers an almost complete picture of Community Law and it will be useful especially for those who have no specialised library at hand.

The loose-leaf presentation offers a possibility of keeping the commentary up to date, and if the authors do not supplement the text too often it may turn out to be a workable method. There is no reason for frequent amendments. Almost unavoidably a commentary of this size is never quite up to date (the present text certainly is not), and one supplement a year must be enough to keep the book abreast of developments. Technically, the loose-leaf system is perfect. The changing or adding of pages is extremely easy.

In regard to a book of this size criticism is easy. Of course there are weaker aspects along with the many good ones. If the loose-leaf system facilitates amendments, it may be useful to mention the most important defects: (i) The book has no index, nor tables of cases. For those who are unfami!iar with the Treaty this must cause problems, but even readers who know the Treaty will not be able to find all the richness the book contains. For the question of the legal personality of the EEC, for example, one may Iook under Article 210 and there is some commentary there, but no reference to the more extensive commentary given under Article 1 (p. 1-8 to 1-12). And who would Iook for the German Internationale Handelsgesellschaft Case or for the Italian Frontini Case on Human Rights under Article 1 of the EEC Treaty? For some subjects the absence of an index causes less problems than for others. The commentary on competition (Articles 85-89) of 339

98 Book Reviews

pages for example is very carefully subdivided under 157 subheadings which makes it relatively easy to find the commentary on individual problems. The influence of patents and trade marks on free movement of goods and on competition, on the other hand, is (briefly) discussed under Article 36, but without any special heading. And where, when they will be included, is one to Iook for a problern such as the fishery Iimits in the North Sea? (ii) The authors might consider adding a separate introductory chapter on the general issues of Community Law. Jt is hard to find questions such as the relationship between national and Community law under Article I or direct effect under Article 189, and it could make the reader familiar with some general issues, relevant to all Treaty articles. (iii) The writing of a book of this size necessarily takes a considerable amount of time. The printing as weil has probably delayed publication. Although the book is copy-righted in 1976, in several places it gives the impression of being considerably older. The accession of the United Kingdom, Denmark and Ireland to the Communities is discussed in an appendix of 33 pages at the end of the book. This, of course, is acceptable but it is hard to justify that in the preliminary Observations on agriculture (page 2-186 to page 2-192), where a useful survey is given of the regulation of agriculture in the Member States before the Treaty of Rome, the new Members are lacking. Fortunately, this is not the case everywhere where national systems are explained. In the survey of national anti-trust law (page 3-15 to 3-23) the new members are incorporated. The references to Iiterature are often old, if not outdated. Under Article 215 para. 2, for example, a Iist of five books and 13 articles is given of which the majority is prior to 1968 and of which only the article, by Bentil in the New Law Journal of 1974, was published after the Court of Justice started its new case law on Article 215 in 1971. Similarly, on the free movement of goods the bibliography contains 24 books of which two are from 1971 and 22 are prior to 1970. Of the 67 articles mentioned in the same heading, only the article of Ghosh in the American Economic Review 1974 is more recent than 1970. Also, the case law of the Court of Justice is not always up-to-date. (iv) The authors would help their readers if in the supplements they would not only add newer Iiterature and cases, but also omit outdated references, or at least indicate which is most relevant to the subject. For example, under Article 173 a long Iist of some 75 cases only giving the name, the number and the date of each case is of little help. Which of these cases do I need when I want to know the Court's position on "individual concern"? For articles on which there are many cases, such as Articles 85 and 173, there should either be a very limited selection of cases or there should be subheadings, or short surveys of the content of each case as is done under Article 40. Mutatis Mutandis the same is true for references to further literature.

H. G. Schermers Amsterdam

Die Befugnis zur Abstraktion im europäischen Gemeinschaftsrecht. Eine Untersuchung zur Rechtsprechung des Europäischen Gerichtshofes by Jürgen Schwarze (Baden-Baden, 1976), 254 pp. Price: DM 52.-.

The title of this book demands some clarification. What is "Abstraktion"? By this notion the author understands: a) the legislative regulation o.f an indefinite number of cases; b) the general and equal administrative settlement in more or less similar

Book Reviews 99

administrative procedures, and c) the generalised way of judicial settlement without consideration for all the individual particularities of the concrete case. The power thereto has nowhere been explicitly conferred upon the European Communities. Nevertheless, the institutions often exercise such so-called powers of abstraction. The aim of the present study is to sketch a picture of the multiplicity of ways in which up to now the exercise of such powers in Community Law-in the legislative, administrative or judicial fields-has been necessary or at least has been considered to be inevitable. The material for this picture is sought in the case-law of the Court of Justice.

In respect of legislation which is directly based on the Treaty, the author argues in Chapter II that not the existence of a power of abstraction, but only its extent is problematic. However, the Court has in any case granted the Community legislator a broad power of abstraction. The same applies to the field of delegated legislation. The Court has acknowledged that the Commission has broad powers for the establishment of implementing regulations (Ch. III).

Further descending in the hierarchy of legal rules, in Chapter IV the author deals with the Court's case-law concerning abstract administrative principles of interpretation beneath the Ievel of normative regulation. In that connection the Court strictly distinguishes between supplementary legislation and the before-mentioned principles. The first is only admitted where it has been explicitly provided for in the Treaties. However, the establishment of principles of interpretation, as for example the Notice by the Commission of May 27, 1970 concerning the so-called cases of minor importance has been accepted by the Court even without an explicit Treaty basis. Although such principles are not binding upon the Court, they may have a certain binding effect upon the administration itself. In Chapter V it is shown that the Court in principle rejects the existence of a power of abstraction in the field of administrative application of the law to concrete cases.

The greater part of the book (Ch. VI, 136 pp.) is devoted to the power of abstraction of the Court itself, here defined as the power to give abstract, quasinormative decisions. Ranging from the least to the most abstract decisions, the author in the first place examines the grounds for the Court to judge the individual case other than on the basis of its individual circumstances. In this respect he refers in particular to Article 177 concerriing preliminary rulings. This provision results in the Court's obligation to give an abstract ruling. As to the Court's power of abstraction in the interpretation and application of undefined legal notions (unbestimmte Rechtsbegriffe)-the second subject of Ch. VI-it appears that the Court in the interpretation of these notions has maintained as much as possible the "flexibility" of the Community legal order. Discussing, finally, the Court's power to make abstract, quasi-normative pronouncements as such, the author analyses a great number of cases in the field of e.g. the constitutional structure of the Communities, competition law and general legal principles. Under the latter heading he chooses as a typical instance the Court's case-law on the protection of fundamental rights (pp. 227-236).

The conclusion at the end of this part of the book is that the Court has itself also assumed a power of abstraction, indeed to a greater extent that the ordinary national judge or even the constitutional judge is wont to do. It is therefore correct to speak in Community Law of a "gouvernement des juges", but only with reference to this broad power of abstraction. However, in view of the existing gaps in Community Law and the special difficulties of the Community legislator, the Court is not to be blamed for this.

100 Book Reviews

It is not easy to give a general judgment on this treatise. Apart from the chapter on the Court, a great number of well-known problems are dealt with, but from an entirely individual point of view. The chapter on the Court forms a clear, independent element. With more information on the practice of national judges (see, however, pp. 153-164 on the English, French and German case-law concerning the undefined legal notion) it could have served as the basis for a separate treatise. However, expanded as it is to cover also the legislative and administrative elements, this work offers the great advantage that a wide range of readers, if not already interested in the subject as such, will nevertheless find in it something to suit their taste.

R. H. Lauwaars

Gesellschaft, Socihe und Groupement als Rechtsformen zur Unternehmenskooperation, by Christian Müller-Gugenberger, Schriftenreihe Europäische Wirtschaft, Bd. 84 (Baden-Baden 1976) 490 p. and 79 p. bibli. and reg., DM 98.-.

I. This study-the author's thesis-reflects the results of a very detailed research in the field of legal instruments bearing on the various means of cooperation between enterprises towards certain ends needing some kind of elaborate organisation, such as common research or common marketing. "Cooperation" is understood to cover only cases in which enterprises combine for specific purposes without giving up their economic autonomy, as occurs in processes like mergers or take-overs.

The study deals with the legal instruments available under French, Belgian and German Iaw to frame those cooperation agreements which transcend simple contractual relations of a synallagmatic nature. lt clearly shows that the available legal forms are not at all suited to serve the same practical purposes as regards Cooperation, even if they are as apparently similar as the French Societe civile and the German Gesellschaft bürgerlichen Rechts (Chapters I and ll). The specific French legal situation led in 1967 to the introduction of the groupement d'interet economique. This legal form was subsequently often used for national and transnational cooperation purposes, such as the development of the satellite "Symphonie", and influenced the Regulation on a European cooperation grouping proposed by the Commission 1973.

The study describes the nature and the merits of both those instruments. (Chapter lll and IV). Such a research will appeal not only to practitioners entrusted with the difficult task of elaborating appropriate cooperation agreements and avoiding unseen obstacles in foreign law, but also to the scholars interested in comparative company Iaw. The thesis can further be recommended to all those who follow the Iong Iasting endeavours of the European Institutions to bring about legal conditions enabling enterprises to adapt their affairs to the parameters of the European Community.

In order to realise these classical aims of a Community industrial policy,t the EC Commission has proposed, inter alia, a regulation on a European cooperation grouping, based on Article 235 of the EEC Treaty. This regulation is intended to be comp1ementary to the proposed regulation on a Statute for European companies

1. See Council Resolution of Dec. 17, 1973 on industrial policy, O.J. 1973, C 117 I 1 and the previous Memorandum of the Commission on industrial policy (1970).

Book Reviews 101

and to provide a framework of Community Law for loose cooperation aimed at facilitating and developing the business of the partners involved without affecting their autonomy. The European Parliament and the Economic and Social Committee have both welcomed the principles of the Commission's proposal of December 12, 1973,2 enabling the Council to start its discussions as soon as the Commission has tabled a revised proposal. At that stage, a study on the legal problems of transnational cooperation will be particularly interesting.

2. The four chapters of the study all contain helpful summaries. They may be read separately, according to the respective interests of the reader, although · they form a conceptual unity.

The first chapter (pp. 25-287) deals with the manner in which the concept of the societas of Roman law has subsequently found expression in French and German law. According to French law, the basic type of societas, the societe civile (art. 1832 Code Civil), implies the intention of pooling assets and of engaging in business with a view to distributing the resulting profits. The more flexible associations on the other hand are not allowed to have any economic purpose, since it was feared after the French Revolution that they might give rise to a rebirth of the old guilds which were then abolished.

In Germany, however, the concept of the Gesellschaft bürgerlichen Rechts (§ 705 BGB) covers aii kind of arrangements to attain a common lawful purpose, since the German doctrine on Roman Law of the nineteenth century accepted a wider concept of societas than the mere societas quaesturia which influenced French legal developments. This accurate interpretation of basic concepts of French and German company law is very important for an analysis of Art. 58 of the EEC Treaty and, accordingly, for company law harmonisation on the basis of Article 54 para. 3 (g) of the Treaty. This programme of harmonisation, however, involves as yet only socieres anonymes, societes en commandite par actions and societes a responsabilite limitee and the equivalent forms in other Member States. Those forms are, in spite of their divergencies, much nearer to each other than those the author has had to analyse.

The second chapter of the study (pp. 289-395) shows that the legal forms available in France before the introductions of the groupement d'interet economique were either too narrow or inappropriate for many cooperation purposes, because of the conceptual restrictions of French company law.

lt is worthy of note that Belgian law did not foiiow the French pattern, although Art. 1832 of the civil code is the basis of company law in both countries. lt brought about appropriate forms for enterprise cooperation on a flexible basis, such as the association momentanee or the socihe en participation (pp. 265-281). German law, as opposed to French law, offers a wide range of legal possibilities for organising cooperation. One must only regret that the author has had to Iimit his deep study so as to exclude completely the common law systems (cf. p. 21).

The third Chapter (pp. 397-453) deals comprehensively with the merits of the French groupement d'interet economique and its practical use.

This legal form was introduced to overcome the difficulties French law posed to enterprise cooperation. According to the author, it tends to bridge over the conceptual difficulties evoked and to make French law fit to serve as a safe framework

2. Proposal of the Commission, O.J. 1974, C 14130; Opinion of the EP, O.J. 1977, C 163!16; Opinion of the ESC, O.J. 1975, C 108/46.

102 Book Reviews

for as many cooperation purposes as the German law (see esp. pp. 440-453). The final chapter (pp. 455-490) brings in the specific problems of transnational

cooperation. If different legal systems are considered, their respective conflict laws may diverge, qualifying the agreement involved either with regard to the proper law of a simple contract or with regard to the law applicable to companies (pp. 455-472). In view of these and other difficulties, the author supports the initiative of the EC Commission to introduce into Community Law the European cooperation grouping to serve, if so desired by the parties involved, as a legal framework for their cooperation agreement (pp. 472-490).

3. The study thus covers a very wide range of difficult problems on the borderline of company law and the law of contracts; it considerably helps to clarify the basic concepts involved. The practitioner may, however, regret that the author did not deal more substantially with fiscal problems (cf. p. 22), since fiscal considerations may very decisively influence the choice of a legal form for any envisaged cooperation agreement.

Furthermore, the study does not sufficiently consider the ambiguous task of any EC industrial policy, namely, to harmonise the aim of facilitating cross-frontier cooperation cooperation with the need to ensure by appropriate means that concentration processes are "in line with the economic and social aims of the Community", as required in the final declaration of the Summit conference in Paris held in October 1972.3 This categorical demand does not only refer to competition law, which is of course applicable to cooperation agreements without regard to their legal form. Ensuring that the decision-making process of !arge enterprises will be more balanced, taking into account not only the interests of the capital owners but those of the employees, as weil is also a relevant means of satisfying this demand. Promoting employee participation is therefore an important element of the Community company law harmonization programme.4

It is thus very important that the Commission's own proposals do not affect the aims of its employee participation scheme, as laid down in the proposed fifth directive and the draft European Company Statute, and other structural objectives in the field of company law.s The preamble of the proposed regulation on a European cooperation grouping takes account of the danger that the Grouping may serve as a substitute for more stringent, more structured legal forms and stipulates:

"Whereas the grouping must not in any way be a substitute for firms or companies, commercial or otherwise, since the purpose, objects and legal structure of the Iatter are completely different; whereas its activities should derive from those of its members and should remain co-terminous with them and ancillary to them."

3. Final declaration of the Heads of State and of Government, Bull. of the EC no. 10/72, 15-24, 20; cf. the Tindemans report on European Union, Bull. of the EC, suppl. 1/76, eh. 1, and the Council Resolution on industrial policy (op. cit. note 1) points 1-6 and point 7.

4. See Council Resolution of Jan. 21, 1974 on a social action programme, O.J. 1974, C 13/1, esp. point 8, and the Commission's "Green Paper", Employee participation and company structure, Bull. of the EC, suppl. 8/75"

5. Cf. Pipkorn, "Zur Entwicklung des Europäischen Gesellschafts- und Unternehmensrecht II", (1977) Zeitschrift für das gesamte Handels- und Wirtschaftsrecht, 141 et seq.

Book Reviews 103

It is thus more relevant than indicated in the study (pp. 479-481) that those intentions are met by the wording of the articles of the draft regulation on the grouping (cf. the objectives clause in Article 2 in relation with the sanction of Art. 14).6

But those deficiencies do not diminish the value of this work as a very important contribution to comparative law as regards the concept of societas inherited from Roman law and as a helpful, well-documented guide on how to overcome legal problems of enterprise cooperation.

Jörn Pipkorn Brussels

Branchesand Subsidiaries in the European Common Market: Legaland Tax Aspects, prepared by members of the European Association for Legal and Fiscal Studies, 2nd edition, Kluwer-Harrap Handbooks, London and Deventer 1976, 322 pp., Dfl. 60.-.

Four years ago the first edition of Branches and subsidiaries in the European Common Market appeared. Since that time it has proved its worth for all those ~ho are involved in the plans of undertakings to extend their activities to other countries.

In this connection, the book deals with two matters. In the first place arises the question whether the undertaking should establish a branch or subsidiary abroad. In reaching a decision on this, a number of considerations relating to company law, as weil as fiscal aspects, must be taken into account. If the choice falls on the establishment of a subsidiary, then the form of the subsidiary must be determined. Here again a number of different aspects are relevant, and the book is very helpful and illuminating in this respect. On the basis of the answers to a uniform questionnaire, specialists provide a survey of the different rules applying in the Member States, including, in contrast to the first edition, the new Member States. But the swift appearance of a second edition (first edition: 1973, second: 1976) is justified not just as a consequence of accession but also in view of the developments in the different legal systems.

The first chapter of the book contains a survey of the (draft) legislation of the EEC in regard to undertakings. The author of this section, P. M. Storm, succeeds not only in giving a full survey of developments here, but also an evaluation of the (draft) measures, an evaluation which is particularly critical in relation to company law aspects.

T. P. J. N. van Rijn, Leyden

6. On the development of this objectives clause in the earlier drafts of the proposal, see Müller-Gugenberger, "Die Europäische Wirtschaftliche Interessengemeinschaft'', (1972) Aussenwirtschaftsdienst, 110-119. See also Drury, The European Cooperation Grouping", 13 C.M.L. Rev. 1976, 7-35; Paillusseau-Lecerf, "Groupements de cooperation intrentreprises GIE et GEC", (1977) Droit et Pratique du Commerce International, 139-175; and the critical remarks regarding the competition law aspects made by Mestmäcker, Europäisches Wettbewerbsrecht (1974) p. 107, in regard to the initial draft of the Commission (doc. XIV /335).

111

EDITORIAL COMMENTS

Differentiation of rules and policies in a newly enlarged Community

At the time of writing of these comments, the Commission and the Council are engaged in formulating certain guidelines for solving the general problems raised by a possible accession of Greece, Spain and Portugal to the Community. One of the many intricate problems raised by such a new enlargement will be that of maintaining the Community's capacity to make progress towards the accomplishment of its aims after accession.

A Community of Twelve, even more so than one of Nine, risks being doomed to immobility by the sheer number of the parties having to agree on the measures to be taken. But a strengthening of the institutions and a streamlining of decision-making by expanding the practice of qualified majority voting, if attainable at all, might not be of much help.

Even if one shares the optimistic view that after a fairly long transitional period of five to ten years the new Member States will have gained sufficiently in economic strength to apply present Community Law and to participate fully in present Community policies, it is clear that during the transitional period, and probably thereafter, they will be very reluctant to assume new obligations while still struggling to fulfil the existing ones.

Inevitably, therefore, the enlargement of the Community will entail a renewed discussion of the desirability and feasibility of making more room for differentiating Community rules and policies according to the sometimes widely divergent situations in the Member States. Any such discussion is encumbered by the highly unfavourable reception of the idea of a Community "at two speeds", as originally proposed by ex-Federal Chancellor Brandt and taken up by the now nearly forgotten Tindemans Report. That idea was launched at a time when a further enlargement of the Community was still a matter of speculation. On more emotional than rational grounds it was rejected because it was thought to introduce into the Community a distinction between first and second class Member States.

Irrational as they may be, such susceptibilities should be bome in mind. Nevertheless, one may wonder whether it is not about time to face the fact that a new enlargement will heavily accentuate disparities of a structural nature in an economic Community with a membership ranging from the Federal Republic of Germany, one of the strongest industrial powers of the world, to Portugal which, even in world terms, qualifies as a developing country.


Moreover, the idea of differentiation according to regional or national economic and social situations is less revolutionary than it is sometimes believed to be. The various activities of the European Investment Bank, the Social Fund, the Regional Fund and the Agricultural Fund (structural policy section) are proof of that, as is the regime of State aids for the economic development of certain areas that is applied under the Articles 92 and 93 of the EEC Treaty (see also the Declarations on the economic and industrial development of Ireland, annexed to the Final Act of Accession of 1972).

Furthermore, the rules of the common market sometimes take into account the special problems of individual Member States. The Protocol on the Grand Duchy of Luxembourg is a case in point, as it permits a different treatment (which by now has come to an end) of this Member State in the field of agriculture and the freedom of movement for workers. But also quite a number of agricultural market regulations allow temporary derogations or provide for special rules in order to meet particular problems in one or more Member States or parts thereof.

Therefore, the issue is not whether differential treatment of Member States in a Community of Twelve is admissible, but whether the flexibility already allowed by Community Law as it stands should not be increased. Whatever decision is made, it may in any case be advisable to incorporate in the Accession Treaties certain principles and procedural rules to be observed when differentiations are made, in order to preserve the necessary cohesion of the Community and the ultimate aim of fully integrating the lesser industrialised Member States into it.

The main issue will be under which conditions and with regard to which subject-matters Member States should be free to commit themselves to stricter rules or heavier obligations than the others are able to accept. Or, putting it differently, to what extent Member States may decide-with, of course, the approval of the Community institutions-not to be bound by such rules and obligations without preventing their being binding on the others.

Much ingenuity will be required to avoid a number of pitfalls on the road to more differentiation within the Community. A few of the most important should be mentioned.

Firstly, differentiation should not Iead to a Community "a Ia carte" in which Member States are free to choose whether or not to participate in new activities. Such a choice should be left only to those of them who can show objective and convincing reasons for not participating, deriving from the weakness of their economic and social structure.

Secondly, a permanent division of the Community into two blocks of weaker and stronger countries should be ruled out. Non-participation


should be of a temporary nature only; agreement should be reached by all on the goals to be attained and in each case specific measures should be taken to enable the non-participating Member States to catch up with the others.

Thirdly, the unity of the common market itself should be preserved. That means that infringements of the basic rules of the customs union and of the freedom of movement for persans and Services should be eliminated not later than by the end of the transitional period set out in the Treaties of Accession.

These few observations are only of a tentative nature. They are meant to break a lance for a dispassionate and careful search for the solution of a problern that will 1oom large over the future of a newly enlarged Community.

THE INDUSTRY ACfS 1972 AND 1975 AND EUROPEAN COMMUNITY LA W

PART II

by

Alan Dashwood and Thomas Sharpe *

D. TRANSFER OF CONTROL OF IMPORTANT MANUFACTURING UNDERTAKINGS TO NON-RESIDENTS

115

Part II of the lndustry Act 1975 confers upon the Secretary of State for Industry a nurober of powers in relation to the transfer of control of important manufacturing undertakings to persons not resident in the United Kingdom.

1. General Scope

The general scope of Part II of the Act is delimited by the key concepts of "important manufacturing undertaking" and "change of control." 96

The meaning of "important manufacturing undettaking" given by sec-tion 11 para. 2 is as follows:

". . . an undertaking which, insofar as it is carried on in the United Kingdom, is wholly or mainly engaged in manufacturing industry and appears to the Secretary of State to be of special importance to the United Kingdom or to any substantial part of the United Kingdom."

Two features of the definition deserve special notice. In the first place, it is not necessary that the operations in the United Kingdom should form the whole, or even a major part, of the undertaking in question. Secondly, the application of the criterion of "special importance" is a matter for the discretionary judgement of the Secretary of State. There are numerous other instances of discretion being conferred in this Part of the Act by the use, in particular, of the phrases "if it appears to the Secretary of State" or "if the Secretary of State is satisfied." 97 The administrative law of the United Kingdom provides little possibility for the judicial control of the exercise of such discretion.

* For the first part of this article, see 15 C.M.L. Rev. 1978, 9-34. 96. For a fuller account, see Sharpe, The lndustry Act 1975, Ch. 4. 97. E.g. s. 13 (1), (2), (3), (4) (a), (b).



According to section 12 para. 1, a "change of control" for the purposes of this part of the Act involves the occurrence of one of a Iist of "relevant events", which aresetout in subsection 2:

"(a) the person carrying on the whole or part of the undertaking ceases tobe resident in the United Kingdom; (b) a person not resident in the United Kingdom acquires the whole or part of the undertaking; ( c) a body corporate resident in the United Kingdom but controlled by a person not so resident acquires the whole or part of the undertaking; ( d) a person not resident in the United Kingdom becomes able to exercise or control the exercise of the first, second or third qualifying percentage of votes in a body corporate carrying on the whole or part of the undertaking or in any other body corporate which is in control of such a body; or ( e) a person resident in the United Kingdom and able to exercise or control the exercise of the first, second or third qualifying percentage of votes in a body corporate carrying on the whole or part of the undertaking or in any other body corporate which is in control of such a body ceases to be resident in the United Kingdom."

There would thus be a change of control where a person carrying on an undertaking, either directly (section 12 para. 2 (a)) or through a company (section 12 para. 2 (e)) ceases tobe resident in the United Kingdom; where a non-resident acquires an undertaking, whether from a resident or from another non-resident, and either directly (section 12 para. 2 (b )) or through a local subsidiary (section 12 para. 2 (c)); or where a company carrying on an undertaking or a company controlling such a company (section 12 para. 2 (d)) is taken over by a non-resident.98 Here it should be pointed out that a company is deemed not to be resident in the United Kingdom if it has not been incorporated under United Kingdom law.99 The "qualifying percentages" referred to in the subsection, are, respectively, 30, 40 and 50 per cent. Since the power to issue vesting orders is subject to a time Iimit, 100 it was thought advisable to give the Secretary of State three separate opportunities of intervention, to cover the situation when a 30 per cent non-resident share did not call for the exercise of the power, but some further acquisition might do so.

98. S. 12 (3) provides that (a) control of a body corporate consists of the right to cost 30 per cent or more of the votes at a general meeting: (b) control of a body corporate having control of another body corporate gives control of the latter.

99. s. 18 (2). 100. S. 15 (4). See infra, p. 119.


2. Powers

The powers under the Act relate to the making of three types of orders: prohibition orders, vesting orders and compensation orders.

(i) Prohibition Orders The Secretary of State is empowered to make a prohibition order if it

appears to him (a) "that there is a serious and immediate probability of a change of control of an important manufacturing undertaking"; and (b) that the change would be against the interests of the United Kingdom or of any substantial part of the United Kingdom. By means of such an order he may "(i) prohibit that change of control; and (ii) prohibit or restriet the doing of things which in bis opinion would constitute or Iead to that change of control".101 The "thing" to be done might, for example, consist of a meeting in the United Kingdom of parties negotiating a transfer.

After it has been made, a prohibition order must be laid before Parliament. It will lapse at the end of a period of twenty-eight days beginning on the day when it was made, unless approved by resolution of each House.102

Contravention of a prohibition order will not amount to a criminal offence. The normal method of enforcement will be by proceedings instituted by the Crown for an interdict (in Scotland) or an injunction (elsewhere in the United Kingdom).toa

The territorial scope of prohibition orders is laid down by section 18 para.l. An order will not apply to a person in respect of conduct taking place outside the United Kingdom unless that person is (a) a United Kingdom citizen; or (b) a United Kingdom body corporate; or (c) carrying on business in the United Kingdom. A foreign national having control of an important manufacturing undertaking in the United Kingdom would fall within category (c). An order could therefore be issued at least in principle, respecting conduct of such a person outside the United Kingdom which is aimed at transferring control of the undertaking.

(ii) V esting Orders The conditions for the making of a vesting order are that either (a) the

two conditions which apply to the making of a prohibition order are satisfied; or (b) a prohibition order has already been made; or (c) "the

101. S. 13 (1). The order may include incidental or supplementary provisions which appear to the Secretary of State to be necessary or expedient.

102. s. 15 (1). 103. s. 17.


Secretary of State has leamt of circumstances which appear to him to constitute a change of control of an important manufacturing undertaking, occurring on or after 1st February, 1975" 104 and he is satisfied that the change is against the interests of the United Kingdom or of any substantial part of the United Kingdom. By means of such an order the Secretary of State may direct that share capital and loan capital of a "relevant body corporate" (see infra), or any assets employed in the undertaking, shall vest in hirnself or in the NEB or in nominees of hirnself or the Board.105

A Iimitation upon the power to make vesting orders is contained in section 13 para. 3. The Secretary of State must be satisfied "that the order is necessary in the national interest and that, having regard to all the circumstances, that interest cannot, or cannot appropriately, be protected in any other way". lt is in the context of Parliamentary rather than of judicial control that the provision may be of some significance.

The phrase "relevant body corporate" is defined by subsections 5 and 6 of section 13 so as to include any United Kingdom body corporate which either (a) itself carries on in the United Kingdom "as the whole or a major part of its business there the whole or part of an important manufacturing undertaking"; or (b) is the holding company of a group of such bodies corporate, where, in the judgement of the Secretary of State, circumstances relating to the company involve an actual or threatened change of control of the undertaking. According to subsection 4, a vesting order may relate to the whole share capital, and any specified portion of the loan capital, or a "relevant body corporate", if the Secretary of State considers that the interests of the United Kingdom or of any substantial part of the United Kingdom cannot, or cannot appropriately, be otherwise protected; in any other case, it may relate to the part of the share capital "which appears to the Secretary of State to be involved in the change of control". Where an order covers 30 per cent or more of the share capital of a company, there is a procedure which enables the remaining Shareholders to obtain the extension of the order to their holdings.1o6 The Secretary of State is required to issue a notice to such shareholders within twenty-eight days informing them of the making of the order and of their right to have it extended. The right is exercised by serving a counter-notice on the Secretary of State within three months.

104. The power is thus confined to changes occurring after the publication (as distinct from the enactment) of the Industry Bill.

105. S. 13 (2). Incidental or supplementary provisions which appear necessary or expedient may be included in the order for other matters which may be covered by visiting orders, see s. 16.

106. s. 14.


The order takes effect in respect of the holding in question from the date of the counter-notice.

A vesting order must be Iaid before Parliament in draft form and approved by a resolution of each House.107 No draft may be Iaid if three months have elapsed since the Secretary of State has served notice on the person concerned of his intention to Iay a draft order or since the making of a prohibition order or since the Secretary of State has Iearnt of a change of control.108

(iii) Compensation Orders A compensation order is an order providing for payment in respect of

any capital or assets acquired, or any rights, Iiabilities or encumbrances extinguished or transferred, under a vesting order. No order of the Iatter type can be made unless a related compensation order has been Iaid before Parliament.109 The content of compensation orders is defined in Section 19 para. 3, which provides inter alia for interest to be paid in respect of the period between the vesting of the capital or assets and the payment of compensation.uo

3. Part// of the 1975 Act and Community Law

(i) The argument that Part // of the Act must be read subject to the European Communities Act 1972

There is a general argument which needs to be disposed of before proceeding to examine the Part II powers in relation to specific Community provisions, namely that any prima facie incompatibility will be cured by the rule of construction in section 2 para. 4 of the European Communities Act 1972,111 so that no question can arise of the United Kingdom being in

107. s. 15 (3). 108. s. 15 (4). 109. s. 19 (1). 110. Provision is made for the settlement by arbitration of disputes ansmg in

connection with a vesting order or a compensation order. See S. 20 and Schedule 3 to the Act.

111. This provides inter alia, that ". . . any enactment passed or to be passed, other than one contained in this part of this Act, shall be construed and have effect subject to the foregoing provisions of this section" (including s. 2 (1) which provides for the recognition and enforcement of "All such rights . . . from time to time created . . . under the Treaties . . . as in accordance with the Treaties are without further enactment to be given legal effect ... in the United Kingdom ... "). For a particularly subtle analysis of the way in which the Act brings Community Law into force in the United Kingdom, while allowing it to remain true to its own nature, see Mitchell, Kuypers and Gall, 9 C.M.L. Rev. 1972, 134.


breach of its obligations under the EEC Treaty. Acceptance of this argument would not automatically render the present

discussion otiose. It would still be necessary to examine the ways in which the provisions of Part II require modification, through the operation of section 2 para. 4 of the European Communities Act, in order to ensure conformity with Community Law. In other words, the implied Iimits placed upon the Part II powers would need to be precisely identified.

More radically, an objection can be found to the conclusion that section 2 para. 4 would have the effect of preventing any Treaty infringement. The basis for this objection is the decision of the European Court in Case 167173,112 where France was held to be in breach of its obligations under Article 48 EEC and Article 4 of Regulation 1612/68 by failing to amend the nationality provision of the Code du Travail Maritime, although administrative directions had been given verbally that the provision was not to be applied to Community nationals. The Court said:

". . . the maintenance in these circumstances of the wording of the Code du Travail Maritime gives rise to an ambiguous state of affairs by maintaining, as regards those subject to the law who are concerned, a state of uncertainty as to the possibilities available to them of relying on Community law." 113

Such uncertainty was regarded as constituting an obstacle (albeit "of secondary importance") 114 to the equality of access to employment which was guaranteed by the Treaty.

Admittedly, the case of the Industry Act 1975 is somewhat different, since it can · be contended that section 2 of the European Communities Act ensures legal (as opposed to merely practical) conformity with Community requirements. However, the crucial factor is the uncertainty resulting from the unqualified terms of the provisions in Part II. This may be mitigated to some extent by the fact that the operators concerned are likely to be sizeable companies (in contrast to the individual seamen affected by the French legislation), with legal advisers who are aware of the view expressed on various occasions by British Ministers that Part II of the Act must be read subject to the obligations resulting from EEC membership.115 However, the value of such assurances is diminished by the lack of clarity which they show as to the true nature of the obligations

112. Case 167/73, Commission v. French Republic (1974) E.C.R. 359. 113. lbid. at 372. 114. lbid. at 373.

Commons on the Industry Bill, 22 April 1975, cols. 962-970, and by Lord LovellDavies during the House of Lords report stage, 5 August 1975, cols. 1577-1584.

115. See statements by Mr Meacher in Standing Committee E of the House of


in question.116 Nor should it be regarded as conclusive that the powers have never so far been used, since their mere availability, coupled with uncertainty of scope, may discourage initiatives which would otherwise have taken place. lt is, therefore, submitted that even the prima facie incompatibility of Part II of the Act with Community provisions may, in the circumstances, prove sufficient for proceedings to be brought against the United Kingdom under Article 169 of the EEC Treaty.

(ii) Compatibility of the powers with the right of estab/ishment The area of Community Law on which the powers seem most likely to

impinge is that of the right of establishment. The generat principle conferring this right is found in Article 52 of the

EEC Treaty, and in the Reyners case u; the Court of Justice held that the prohibition of Article 52 has been directly effective since the end of the transitional period. In the case of the United Kingdom, the operative date would be that of accession.us

Further, Article 53 EEC contains a standstill provision; this had been directly effective from the inception of the Community 119 (in the United Kingdom, since accession).

The subjects of the right of establishment consist of natural persans who are nationals of one of the Member States, and of companies or firms as defined by Article 58 of the EEC Treaty. According to the latter:

"Companies or firms formed in accordance with the law of a Member State and having their registered office, centrat administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persans who are nationals of Member States.

"Companies or firms" means companies or firms constituted under civil or commercial law, including co-operative societies, and other legal persans governed by public or private law, save for those which are non-profit-making."

It can be seen that there are, in effect, two criteria to be satisfied: (i) that the company has been formed under the law of a Member State; (ii) that it has either its registered office or its centrat administration or its

116. See note 15, 15 C.M.L. Rev. 1978, p. 13, and the statement by Mr Kaufman at 894 HC Deb. cols. 1347-8, which is discussed in detail infra p. 126-128.

117. Case 2/74, (1974) E.C.R. 631. See also Case 71/76, Thieffry, (1977) E.C.R. 765.

118. The Act of Accession made no transitional arrangements in relation to the right of establishment.

119. The direct effect of Art. 53 was first recognised by the Court in Case 6/64 Costa v. ENEL (1964) E.C.R. 585.


principal place of business within the Community. From this it would appear that merely by forming an EEC subsidiary with a registered office somewhere in the Community, a non-EEC national could obtain the benefit of the right of establishment. However, it is arguable that Article 58 should be read subject to the second sentence of Article 52, the wording of which might appear to confine the right of setting up an agency, branch or subsidiary to nationals of a Member State who are established: thus in addition to a registered office, a company wishing to exercise the right might be required to show that it has an effective and continuous link with the economy of one of the Member States. Such, at any rate, was the view adopted in Title I of the General Programme of 1962; 120 however, its validity remains in doubt. 121 What is certain is that an EEC subsidiary of a non-EEC company, which is established in one Member State, will be fully entitled to set up in another.

The precise nature of the guarantee in Article 52 needs to be understood. Thus the European Court held in Reyners that the Article represents a particular application of the general principle in Article 7 prohibiting "any discrimination on grounds of nationality" .122 As Advocate-General Mayras explained in V an Binsbergen, in the context of the provision of services:

". . . it is less a question of ensuring total freedom . . . within the whole territory of the common market than of succeeding, at the end of the transitional period, in proscribing any discrimination, that is, any inequality of treatment between nationals of a particular State and Community nationals." 123

For instance, the requirement that a person should hold a certain qualification before entering a profession or should satisfy certain conditions before setting up in a line of business which is liable to expose the public to financial or other risks, provided that it was the same for nonnationals as for nationals, would not normally involve an infringement of Article 52. Although such requirements might represent a practical impediment to freedom of establishment (because, for example, the need to comply with the rules twice over, in the State of origin as weil as in the State where a new establishment is contemplated, would be excessively onerous), the problern is one tobe resolved by measures of harmonisation or mutual recognition of controls, through the adoption of directives under

120. O.J. Spec. Edn., 2nd series, IX p. 8. Cf. Art. 3 of the Convention on the Mutual Recognition of Companies and Bodies Corporate.

121. See the discussion in Kapteyn and Verloren van Themaat, lntroduction to the Law of the European Communities (London, Deventer, Alphen, 1973) p. 219.

122. (1974) E.C.R. at 650. 123. Case 33/74, (1974) E.C.R. 1299 at 1316.


Articles 54 or 57. It is only with regard to the principle of equality of treatment that a directly effective right has arisen, and it is against this principle that the provisions of Part II of the Act have to be tested.

The point is important because the exercise of the Part II powers is made to depend upon the occurrence of "relevant events" which are defined in terms of the residence of the persans controlling important manufacturing undertakings, as opposed to the nationality of such persons. It is, therefore, legitimate to ask whether the objection based on an infringement of Article 52 should be dismissed in limine since non-resident nationals of the United Kingdom will be subject to the same Iiability as non-resident nationals of other Member States. To this, it is submitted, a negative answer should be given, for reasons which are set out below.

In the first place, it is possible to make out a case that the powers are directly discriminatory, in that they permit decisions to be taken with specific reference to the nationality of the person concerned. Support for this is tobe found in Section 18 para. 2 of the 1975 Act, which defines the residence criterion with regard to companies in such a way that it is tantamount to a nationality criterion: any company formed under the law of a Member State other than the United Kingdom will automatically be classified as non-resident. Another point concerns the highly discretionary nature of the decision to issue a prohibition order or a vesting order: as to the former, it must appear 124 to the Secretary of State that "there is a serious and immediate probability of a change of control ... " and "that change of control would be contrary to the interests of the United Kingdom, or contrary to the interests of any substantial part of the United Kingdom"; as to the latter, the Secretary of State must be satisfied 125 that "the order is necessary in the national interest and that, having regard to all the circumstances, that interest cannot, or cannot appropriately, be protected in any other way". There is nothing to suggest that the national interest must be assessed with reference to purely economic factors. 1t would be open to the Secretary of State to take account of, for instance, defence needs and national prestige, and his decision in re~pect of a particular change of control might very weil be influenced by the nationality of the non-resident purchaser. Thus the "relevant event", based on a residence criterion applying to nationals and non-nationals alike, is merely the trigger for a power which may be used to discriminate against non-nationals, including the nationals of other Member States.

Secondly, there can be no doubt that the powers are indirectly discriminatory. The European Court of Justice has held in several cases

124. See s. 13 (1). 125. See s. 13 (2).


relating to the free movement of workers 126 and the freedom to provide services 127 that the principle of equality of treatment may be infringed where criteria other than that of nationality have the same practical effect of exclusively or mainly restricting non-nationals,128 and this has been confirmed as regards the right of establishment by the recent decisions in Thieffry 129 and Patrick. 130 Both of the last-named cases arose out of attempts to exclude a Community national from a profession in another Member State on the ground that he lacked a national diploma, although the foreign diploma held by him had been recognised as equivalent to that in the hast State by the competent national authority: the discriminatory element consisted of requiring, in effect, an additional qualification as a condition of establishment by a non-national. In the case of the Part II powers the residence criterion, although applicable in principle to United Kingdom nationals and non-nationals alike, in practice bears almost wholly upon the latter. Nor could it be justified as necessary in order to ensure compliance with rules governing the conduct of business or professianal activities, which are imposed in the public interest, since the existence of a permanent place of business in the hast State should provide a sufficient guarantee for this purpose.1s1

The different ways in which powers based on a residence criterion would be liable to impede "the right to take up and pursue activities as self-employed persons" may be illustrated by examples reflecting the "relevant events" listed in section 12 para. 2 of the Act:

(1) X, a French national who has lived in the United Kingdom for a number of years, during which he has built up a business, wishes to return to live in France. This might fall under Section 12 para. 2 (a) or, if X controls his United Kingdomoperation through a company, under section 12 para. 2 (e). If the authorities were reluctant to issue a prohibition order in respect of X's preparations for departure from the United Kingdom, a vesting order in respect of the assets of the undertaking might be regarded as appropriate. The possibility of activating the powers in these circum-

126. E.g. Case 152/73, Sotgiu (1974) E.C.R. 153. 127. Case 33/74, Van Binsbergen, (1974) E.C.R. 1299; Case 39/75, Coenen

(1975) E.C.R. 1547. 128. E.g. criteria based on a person's place of birth or residence. 129. (1977) E.C.R. 765. 130. (1977) E.C.R. 1199. 131. Cf. the cases relating to the provision of services. On the more qualified

nature of the freedom to provide services, as opposed to the right of establishment, see Bronkhorst, 12 C.M.L. Rev. 1975, 245 et seq.


stances would have a bearing upon establishment both inward and outward. X, if he had been aware of the powers, might have been deterred from setting up an establishment in the first place. On the other hand, once resident and carrying on business in the United Kingdom, X might be deterred from opening an establishment elsewhere in the common market, either because residence on the spot was necessary to ensure the success of such a venture and he was afraid that this might Iead to the lass of his British interests, or because the Member State concerned had introduced legislation of similar effect to the Part li provisions. (2) X, a French company, enters into negotiations for the purchase of an undertaking operated in the United Kingdom by Y. The purchase of the undertaking might fall under section 12 para. 2 (b) or, if X acts through a local subsidiary, Z, under section 12 para. 2 (c). Prohibitionorders could be issued in respect of acts relating to the purchase, including extraterritorial conduct of Y, since the third criterion in section 18 para. 1, at least, would be satisfied: however, it would be difficult to apply such an order to a sale between non-nationals outside the United Kingdom unless and until something had to be done in the United Kingdom to effect completion. A vesting order could, of course, be made against the assets of the undertaking or, following the purchase, against the shares of Z, if the whole or the major part of its business in the United Kingdom consisted of carrying on the undertaking. Here the objection would be that the purchase of an undertaking is one of the recognised methods of effecting an initial establishment or, if an establishment already exists, of increasing market share or diversifying activities; in certain circumstances it may be the best, or even the only practical, method. In restricting its availability the Act, therefore, places non-residents (and hence non-nationals) at a serious competitive disadvantage in the taking up or pursuit of business activities. (3) An arrangement is proposed under which X, a French company, will purchase a majority Shareholding in Y, another French company which carries on an undertaking in the United Kingdom through its local subsidiary, Z. The merger between X and Y might qualify under section 12 para. 2 ( d). Although the entire transaction could be completed outside the United Kingdom, Y would in theory be liable to a prohibition order in respect of its conduct for the purposes of the merger since, again, the third criterion in section 18 para. 1 would be satisfied. More practicably, a vesting order could be issued against the assets of the undertaking or against the shares of Z, provided that the whole or the major part of its business in the United Kingdom consisted of carrying on the undertaking.

An interesting, though far from reassuring, insight into the Government's


view of these matters is provided by the statement of Mr. Kaufman to the House of Commons on July 1, 1975.132

"Our legal advice is that the acquisition of property of one Member State by a national of another does not fall within the freedom of establishment when the acquisition is being attempted from outside the Member State in which the property is situated. This was a matter which particularly concerned my hon. friends, among others.

1t would, therefore, be no infringement of the right of freedom of establishment for a prohibition or vesting order to be made to prevent or frustrate a bid for a United Kingdom company made by a company registered in another Member State-that is, a takeover bid from abroad-but it would infringe our Community obligations if we prevented a United Kingdom subsidiary of a company registered in and controlled by residents of a Member State from acquiring a British concern through these powers which could not by their nature be used to prevent acquisition of a British company which was not foreign-controlled.

If, therefore, an EEC company organised a bid for a key British manufacturing undertaking through a United Kingdom subsidiary, Clauses 9 to 13 133 could not be applied to prevent or frustrate the acquisition without the United Kingdom breaching its obligations. lt would not be in breach of our EEC obligations to prevent the acquisition of key British manufacturing enterprises by companies which are themselves controlled by non-EEC residents provided that the prohibition applied equally, no matter whether the acquiring company was a United Kingdom company or a company of any other EEC Member State.

The explanation for this is that such action would not discriminate between British and other EEC companies but would rather be an action applying to companies in all EEC Member States which were controlled by non-EEC residents. Thus, it would not be possible for a bid by a non-EEC acquirer to evade our legislation by being routed through a non-EEC subsidiary even if that non-EEC subsidiary were an established company."

The Minister appears to have been making two separate points: (a) that there would not be an infringement of the Treaty if the powers under the Act were used in respect of a takeover bid by a company registered in another Member State, but that there would be such an infringement if the powers were used in respect of a bid by a United

132. See note 16, 15 C.M.L. Rev. 1978, p. 13. 133. Ss. 11-20 of the Act.


Kingdom subsidiary controlled by a resident of another Member State; 134

(b) that there would not be an infringement of the Treaty if the powers under the Act were used in respect of a takeover bid by a company controlled by a non-EEC resident, provided that the same treatment was accorded to such compa~ies whether registered in the United Kingdom or in one of the other Member States.135

It is respectfully submitted that the advice received by the Govemment on both points was incorrect, and for the same reason, namely that the principle of non-discrimination was applied over-literally and without giving proper weight to the provisions pf Article 58 of the EEC Treaty. Thus the underlying assumption in (a) would seem to be that the rules on the formation of companies in the United Kingdom represent "conditions laid down for its own nationals by the law of the (United Kingdom)", so that there can be no objection to requiring compliance with the rules on the part of Community companies seeking to take advantage of the right of establishment; and similarly in (b) that if the Part li powers can be used to prevent a takeover by the United Kingdom subsidiary of, for example, a J apanese company, they must also be available in the event of a bid being made by that company's French subsidiary. The mistake here lies in the failure to distinguish between the question whether a company qualifies as a subject of the right of establishment and the question whether a qualifying company is receiving equal treatment with companies in the host State. While the answer to the latter will depend an the circumstances of the particular case, the answer to the former can only be found in Community Law, and specifically in Article 58. Any company which camplies with the criteria specified in the Article is entitled to be treated, for the purposes of establishment, in the same way as a natural person, and Member States are simply incompetent to impose additional criteria. Since natural persans would be able to take up and pursue self-employed activities anywhere in the Community without being required to form a subsidiary under the law of the host State, the same must be true of qualified companies. No doubt, in practice, a company would normally choose to operate through a local subsidiary, but it cannot be compelled to do so in circumstances where, for commercial reasons, the establishment, for example, of an agency or branch appears preferable. Nor does the Treaty say anything whatever about the location of ultimate control over companies enjoying the right of establishment; it might have done so, but this

134. The point was reiterated by Lord Lovell-Davies in almost identical terms to those used by Mr. Kaufman: loc. cit. note 15 supra at col. 1583.

135. Similar advice had been given to Mr. Meacher: loc. cit. note 15 supra, at col. 968.


would have been at the expense of the unity of economic life in the Community. The intentionwas clearly to give access to the whole common market, once a non-EEC company has established a subsidiary in any of the Member States: 136 restrictions placed on the subsidiary in another State could not be justified on the grou!Jd that they would have been applicable if that had been the state of initial establishment.

The conclusion seems inescapable that the Part II powers are prima facie incompatible with Articles 52 and 53 EEC. Moreover, where such a very imperfect grasp of the detailed legal position has been shown by Government spokesmen, it may be doubted whether the moderating effect of section 2 of the European Communities Act 1972 in relation to the powers is sufficient to ensure, in practice, the full observance of the principle of freedom of establishment.

(iii) Compatibility of the powers with the Council Directives on free movement of capital

Capital movements connected with the freedom of establishment were liberalised by the First Council Directive of May 11, 1960.137 Transitional measures relating to capital movements are set out in Articles 120-126 of the Act of Accession (see in particular Article 24), but these do not contain any derogation in respect of inward investment.

It may, therefore, be asked whether the exercise of the powers under Part II of the Act would involve an infringement of Article 1 of the First Directive, under which Member States are obliged to "grant all foreign exchange authorisations required for the conclusion or performance of transactions or for transfers between residents of Member States for the purposes of the capital movements in question". It is submitted that there would be no infringement merely on the ground that a transfer had been prevented as a result of the issuing of a prohibition order in respect of the transaction to which it related. If, however, any prohibition related directly to a transfer connected with the acquisition of an important manufacturing undertaking, this would appear to be incompatible with the Directive.

(iv) Compatibility of the powers with Article 221 of the EEC Treaty A further Community provision which might seem to have some bearing

on Part II of the Act is Article 221 of the EEC Treaty requiring Member

136. It may be necessary that the subsidiary should not be merely a "brassplate" company but one having an effective and continuous link with the economy of the Member State concerned: see p. 122 supra.

137. J.O. p. 921!1960.


States to accord to Community nationals equality of treatment with their own nationals in respect of participation in the capital of companies. Member States were to ensure the implementation of the non-discrimination principle in this field within three years of the Treaty's entering into force, and since the obligation is unconditional and no discretionary decisions on the part of the Community institutions or the Member States themselves were involved, it seems probable that the Article has been directly effective since January 1, 1961. However, the Commission has always taken the view that Article 221 relates exclusively to investment, as distinct from the acquisition of control of companies: the latter constitutes a form of establishment and must accordingly fall under the provisions of Articles 52 et seq. It is submitted that this distinction is well-founded. Although the disparity in the time-limits for the implementation of Articles 52 and 221 is no Ionger significant, both provisions now being directly applicable, it is obvious that freedom of establishment raises different, and more serious, problems for the hast government than freedom of investment. Hence the need for a more elaborate regime under the Treaty, including provisions such as Article 56 reserving to the Member States certain powers of exclusion. The "without prejudice" clause in Article 221 must, therefore, be regarded as leaving intact the rules on establishment, and it would be these rules, rather than Article 221, which would have to be invoked in the event of the powers under Part II of the Act being used to block investments by Community nationals made with the purpose of acquiring an important manufacturing undertaking in the United Kingdom.

E. PLANNING AGREEMENTSAND THE AMENDMENT OF THE CO-ORDINATION PRINCIPLES

Planning Agreements are given statutory recognition in section 21 of the 1975 Act. They are defined as " ... a voluntary arrangement as to the Strategie plans of a body corporate for the future development in the United Kingdom over a specified period of an undertaking of the body corporate or of one or more of that body's subsidiaries, or a joint undertaking of the body corporate or one or more of its subsidiaries, being an arrangement entered into by the body corporate and any Minister of the Crown which in the opinion of that Minister is likely over the specified period to contribute significantly to national needs and objectives".138

138. S. 21 (2). See Sharpe, op. cit. n. 96, Ch. 5, for a fuiJ discussion of Planning Agreements and their evolution.


For our purposes the interest lies in the possibility of the Government purporting to place itself in a situation where its alleged obligation to an undertaking may conflict with Community obligations. This view has been expressed to us as a possible cause for concern. We believe that such concern is unfounded.

The Secretary of State is permitted to make payment of regional development grants and to give assistance under the Industry Act 1972 on the basis of the law existing on the date of the Planning Agreement, notwithstanding changes made by order under the Industry Act 1972 or under the Local Employment Act 1972. The duration of a Planning Agreement is unfettered by statutory restriction but ministerial cotnment suggests that three years would be a normal Iimit. The fear resides, therefore, in the possibility that the Government's continuing obligation may conflict with changes in the co-ordination principles on regional aids.

Specifically, the Secretary of State is empowered to make payments of regional development grant in respect of approved capital expenditure on projects defined in a Planning Agreement and incurred within a period specified in the Agreement at rates which are not lower than those applying when the Agreement was concluded. The effect of this power is to enable the Secretary of State to guarantee to an undertaking that it will receive, on certain projects named in an Agreement, or on expenditure within a time period and within an amount that may be specified in the Agreement, regional development grant at not less than the rates current when the Agreement was made. The power to make regional development grants is contained in Part I of the Industry Act 1972. Grants may be given in respect of approved capital expenditure. The activities qualifying for grant and the prescribed rate of grant are set out in the table in section 1 para. 3 of the 1972 Act. These depend on whether an activity is in a special development area, development area, or an intermediate area. The guarantee will safeguard the recipient against changes that might occur between the concluding of the Agreement and the incurring of expenditure through variations in the rate of grant under section 3 para. 1, through variations in the definition of qualifying expenditure under section 3 para. 2 or through variations in the relevant geographical areas under sections 1 para. 1 or 18 para. 2 of the Local Employment Act 1972 and section 1 para. 4 of the Industry Act 1972. Guarantees in respect of aid under section 7 are similarly made.

However, three factors may be mentioned which indicate that the threatened conflict with amended co-ordination principles is unlikely to materialise. In the first place, the essential point about such undertakings is that they are given at the discretion of the Minister: he has no duty to offer the guarantee. Secondly, the relevant statutes do not permit the


Government to fetter its discretion, in that it is clear to all that the terms on which aid may be given in the future may be subject to change. This is no less true if the aid is contained in a contract 139 although we are told that the Government is " ... determined, so far as we can, to keep the law out of this kind of activity which is concerned with a developing relationship, not with an exchange of legal or financial benefits".140 Lastly, although there is the curative effect of the European Communities Act 1972, section 2 para. 4, the current formulation allows ambiguity, which may be objectionable in itself.

F. CONCLUSION

A number of points, ernerging from the discussion, require emphasis: 1. General aids are prima facie incompatible with the common market but the Commission's approval may be secured by prior notification of important individual applications of aid or of specific implementing programmes. This flexible and realistic approach has enabled the Commission to reconcile the interests of the Community as a whole with the political imperatives of Member States in a period of economic recession. In response to the latter, wider use has been made of the derogation in Article 92 para. 3 (b) based upon the need "to remedy a serious disturbance in the economy of a Member State". 2. The supervisory system of Article 92 et seq., as developed by the practice of the Commission, has been satisfactorily extended to aids granted under sections 7 and 8 of the lndustry Act 1972. Surprisingly, perhaps, in view of its rather curmudgeonly public posture towards the Community, the Government of the United Kingdom has loyally complied with the notification requirement, and no dispute concerning the compatibility of an aid to manufacturing industry has been pressed to an issue before the Court. 3. lt may be possible to draw a distinction between the exercise by the NEB of "sovereign" functions and its activities as a market participant. Evidence for regarding the Board itself as an aided undertaking can be found in its capital structure and borrowing powers, in particular the discretion of the Secretary of State with respect to Public Dividend Capital. As a vehicle for aid, the Board seems unlikely to be inhibited by the financial duties imposed under section 6, given the vagueness of the

139. See Rederiaktiebolaget Amphitrite v. R. [1921] 3KB 500. 140. Parliamentary Under Secretary, lndustry Bill 1975 HC Deb. Standing Com

mittee E col. 1248.


notion of "adequate return on capital", and the fact that such return need only result from its duties when "taken together". Moreover, the obligation in the Guidelines to charge a rate of interest not less than that paid by commercial companies of the highest standing gives scope for relatively generaus treatment, for example, of an undertating which might not be able to raise finance commercially at all. Less tangible factors, such as the psychological effect, on potential creditors or shareholders, of the Board's acquisition of equity in a company, must also be taken into account. In dealing with these problems the Commission is fortunate in being able to draw on its experience of other state undertakings such as GEPI. 4. Thanks to the Board's huge financial resources, it may be found to occupy a dominant position on markets where its share is relatively modest. Abusive conduct on such a market, where intra-Community trade may be affected, would be impeachable before national courts, and it seems unlikely that the Board would often benefit from the exception in Article 90 para. 2 in favour of entrusted undertakings. lt should be added that the Guidelines seek to prevent the occurrence of abuses. 5. The powers under Part II of the 1975 Act relating to the transfer of control of important manufacturing undertakings are prima facie either directly or indirectly discriminatory, and the resulting uncertainty may amount to a Treaty infringement, despite the curative function of section 2 para. 4 of the European Communities Act 1972. It is symptomatic of the political context in which the Bill was enacted that the inclusion of a simple formula excluding Community residents from the effect of the powers was judged inexpedient. Somewhat disturbing, too, is the extent of the misconception under which the Government appears to have been labouring as to the nature of the right of establishment conferred by Community Law. 6. There is no reason to believe that the guarantee of a stable rate of assistance which may be provided under the planning agreement system will in practice conflict with the Commission's discretion to vary the CO

ordination principles on regional aids. In general, the history of the Industry Acts to date provides an inter

esting example of the interaction between Community and Member State policies, and of the high degree of practical co-operation which has already been achieved. It is only unfortunate that such co-operation should receive almost no publicity, while domestic political drums are loudly beaten over the disputes which occasionally arise.141

141. E.g. concerning the pig production subsidy. See note 30, 15 C.M.L. Rev. 1978, p. 17.

133

TOWARDS COMMUNITY ACTION ON STRIKE LAW?

by

Antoine J acobs *

I. INTRODUCTION

The first Social Action Programme 1 of the European Community did not envisage any action in the field of the law on industrial disputes. Since this first stage of a fully-fledged Community social policy was largely completed by the end of 1976 and the Commission is under an outstanding obligation to propose a series of measures for the next stage, it might be useful to question whether a second social action programme should not provide for action on strike law. That is the theme of this article.

II. INDUSTRIAL DISPUTES WITH AN INTERNATIONAL DIMENSION

Industrial disputes with an international dimension date back to long before the European Community came into being. If, for example, one considers a strike as "international" as soon as in a subsidiary of a multinational company a decision taken at the Ievel of the world or regional group management is challenged, then international industrial action is already old-a French study 2 mentions a strike of Scottish workers of Singer against a decision taken by the U.S. group management in 1911-and since that time instances of such have become without number.

In a narrower sense, however, industrial disputes only acquire an international dimension:

a) when workers in one country take industrial action in support of workers abroad, without they themselves putting forward demands (socalled solidarity or sympathy action) b) when workers in several countries take industrial action to enforce

* Lecturer in Labour Law at the Katholieke Hogeschool, Tilburg, The Netherlands.

This article is the winning entry for the Sijthoff Award 1978 for a European Law Essay.

1. Bulletin of the E.C., Supplement 2/74. 2. Syndicats et societes multinationales, La documentation franraise (1975), p. 85.


134 Jacobs

demands of a transnational scope (what may be called "concerted international industrial action") c) when migrant workers participate in industrial action in their guest country.

Let us first have a Iook at some instances of these categories and their treatment in national law. lt will be shown that precisely these disputes are likely to acquire increasing significance as a result of the creation of the Common Market.

International Solidarity Action

One of the trades in which a real international solidarity is feit is the transport industry and a great deal of the still scarce Iitigation on international industrial action has been provoked by actions of the International Transport Workers Federation.

In 1961 Swedish dockers refused to unload Danish ships in Swedish ports in support of Danish dockers and seamen who were on strike. The Swedish Labour Court decided that the action was lawful.3 In 1966 there was a boycott in Britain of Olympic Airways by airport personnel in support of the striking Greek pilots. In the subsequent case of Olympic Airways v. International Transport Workers Federation the judge at first granted an ex parte injunction against the unions, but a few days later, after having heard the parties, he refused to continue the injunction.4

The international action of the I.T.F. against the so called flag-of-convenience vessels provoked Iitigation in several countries. The action of Rotterdam dock workers in refusing to unload flag-of-convenience vessels was ruled unlawful by the Dutch Supreme Court in 1960.5 In a comparable case, the Industrial Tribunal of Stuttgart, Germany in 1973 came to the same conclusion.6 But in Britain in 1976 a tanker company applied in vain for an order against the International Transport Workers Federation, when its tanker Camellia, flying a flag of convenience, was blacked in the port of Liverpool by some crew members who refused to sail, by the tug-boat men who would not tug the Camellia and by the Iock-gate keepers who kept the Iacks closed. 7

3. See Pankert, "Some legal problems of workers' international solidarity", (1977-1978) International Labour Review, 70.

4. See K. W. Wedderburn, "Multi-national Enterprise and National Law", (1972) Industrial Law Journal, 16.

5. Hoge Raad 15 January 1960, NJ 1960, nr. 84. 6. See Demokratie und Recht (1973), p. 416 et seq. 7. See Camellia Tanker Ltd. S.A. v. International Transport Workers Federation

[1976] I.C.R. 274 (C.A.).

Towards Community Action on Strike Law? 135

The I.T.F. action against the flag-of-convenience-vessels also raised the legal question as to the liability of the international trade union confederations for their Stimulation of international action. 8 In 197 4 a Hong Kong shipping company, whose ship was blacked in a Swedish port applied to a British judge for an interim order directing the I.T.F., which has its seat in London, to refrain from "instructing, directing or recommending" thal its ship should be blacked. However the application for interim relief was refused, the judge holding that although the I.T.F. was the deviser of the international policy towards flag-of-convenience vessels, the Swedish Union of Seamen had taken an autonomaus decision in implementation of the I.T.F. policy, so that the latter could not be held accountable for the blacking of the ship in Sweden.9

International solidarity actions (strikes or boycotts, overtime bans etc.) may also be provoked when employers, hit by a domestic strike, seek to divert their production abroad. 1959 saw a case in Germany concerning an industrial action of German printing workers who refused to carry out orders of an English company, which had been hit at home by a strike of printing workers. The Industrial Tribunal of Wuppertal ruled the solidarity action of the German workers unlawful and ordered the trade union to pay damages totheGerman employer.1o

More case law than that mentioned above can hardly be found; this is because international solidarity action up to now has only rarely occurred. Stewart holds that people tend to think nationally rather than internationally and that national unions are jealous of their independence. Workers are reluctant to become involved in disputes in other countries and there are real fears relating to job security.11 "La greve ne se te/ecommande pas", as G. Lyon-Caen pithily says.12

But there is reason to suppose that this state of affairs is changing, notably as a result of the rise of the multinational company. There is evidence of an increasing awareness on the part of the workers of the subsidiaries of a multinational in different countries that in fact they are colleagues and that they should as a consequence show solidarity when the workers of a subsidiary somewhere abroad are involved in industrial action.

8. See R. Birk, "Zur Haftung einer internationalen Gewerkschaftsvereinigung für Arbeitskampfmassnahmen nationaler Mitgliedgewerkschaften", (1975) Arbeit und Recht, 193-201.

9. See Hanseatic Ship Management Ltd. v. International Transport Workers Federation [1974] I.C.R. 112 (N.I.R.C.).

10. AP Nr. 20 zu Art. 9 GG (Arbeitskampf). 11. M. Stewart, "Some Major lssues for European Unions", in: Trade Unions in

Europe (Epping 1974) p. 38. 12. G. Lyon-Caen, Droit Social international et europeen (Paris, 1976) p. 120.

136 Jacobs

An example of this is the stoppage of work in the Italian branch of Nabisco in sympathy with workers in the U.S., who bad already been on strike for some weeks.t3 In 1971 and 1972 the international management of the Michelin concern was prevented by international solidarity actions from diverting production from its plants in France, hit by strikes, to factories in Germany, Italy and Spain.14 When industrial disputes occurred at the Belgium and British Ford plants in 1969 and 1971, international solidarity declarations and the announeerneut of an overtime ban turned out to be adequate pressure measures.15

In the possibility of diverting production abroad to circumvent the consequences of a strike at harne, not only the multinational company but every employer is aided by the creation of the Common Market. The establishment of the free movement of goods, services, capital and persans within the European Community makes it easier for an employer to temporarily divert bis production abroad or to maintain production by making use of foreign labour. Same recent i1).stances of this are the following: - the production of the Paris newspaper, Parisien Libere, hit by a Ianglasting strike in Paris, was partially diverted to Belgium; 16

- the photograph development company Grunwick, London, paralysed by picketing strikers and sympathisers, tried to board out parts of its production to the Netherlands; -Herz Denmark, hit by a strike, sought to maintain its services by means of German drivers; 17

- Philips drivers from the Netherlands and France were reported to have transported fluid gas to British Oxyde, hit by a strike of its own drivers. 18

These instances show how in a number of trades and enterprises all over the European Community the national countervailing power of the trade unians is undermined by the working of the Common Market.

Concerted international industrial action

The before-mentioned forms of international industrial action have in common that those who are involved in the sympathy action have no direct personal interest in the action. The idea of "concerted international

13. See Pankert, op. cit. note 3, 67. 14. La documentation fran"aise, op. cit. note 2 at 96. 15. See E. Piehl, Multinationale Konzerne und Internationale Gewerkschafts-

bewegung (Frankfurt 1974) pp. 153-156. 16. See notes 36 and 37 of this article. 17. Seenote 36 below. 18. See Dutch newspaper Trouw of October 20, 1977.


industrial action", in which workers in several countries take industrial action to defend common interests and to enforce demands of a transnational scope, is rather new and even more untested than that of the international solidarity action.

On the all-industry Ievel ("niveau interprofessionnel") a European action day, which would be the first in the history of the labour movement, was recently organised by the European Trade Unions Confederation to mobilise the workers of Europe in support of the right to work.19

On the industry Ievel, we have already seen the action of the seamen all over the world undertaken against the so-called flag-of-convenience vessels (But it should be noted that since this action is precisely effective because it is backed up by boycott action of the dockers, who themselves have no personal interests in this field, the I.T.F. action against the flagof-convenience vessels may be said to be a good example of a mixture of the solidarity action and of the "concerted international industrial action").

On the company Ievel, it is again the multinational enterprise that seems mostly to furnish examples of international concerted industrial action.

The following may be mentioned: - the combined action day on June 9, 1972 in all subsidiaries of the Dunlop-Pirelli concern in Britain and Italy; - the synchronised industrial action in September 1972 in some of the Dutch and German subsidiaries of the Enka-Glanzstoff division of the Akzo-group.

Both actions were undertaken in protest against international rationalisation programmes. 20

In regard to concerted international industrial action there is as yet no case law. Legal Iiterature tends to subsume this new type of international dispute under the category of international solidarity action; but it will be argued later in this article that the legal approach to concerted international industrial action must inevitably vary from that to solidarity action, so that it seems apposite to mark these actions from the start as distinct categories.

It is submitted that the phenomenon of concerted international industrial action is also likely to proliferate in the near future because of the very existence of the Common Market. The establishment of free

19. See the speech of the ETUC Secretary-General Staedelin at the symposium on the European Social Charter and European Social Policy in Strasbourg, Dec. 7, 1977. 15 million workers took part in industrial action on April 6, 1978.

20. See Piehl, op. cit. note 13, p. 178-186/191-201.

138 Jacobs

movement of goods, services, capital and persons within the European Community has stimulated companies to "go international" and has internationalised the socio-economic problems of the Member States. It has certainly also stimulated an ever closer cooperation of the trade unions in Western Europe; 21 but it is still necessary to overcome the impediments to workers' solidarity in the case that concerted international industrial action proves indispensable. For, as Gitter remarks,22 the concerted conduct of a strike against a multinational company in several countries is undoubtedly aggravated by the divergence of national laws on strikes, together with the fact that the legality and the legal consequences of the dispute is decided seperatedly in each nationallegal order. A. LyonCaen also states that "if solidarity strikes continue to be judged separately according to the law of each Member State, international industrial action will be split into as many national actions as there are Member States involved".23

In face of these difficulties for concerted international industrial action it is easy to argue that the Community should not hold aloof any longer.

Firstly: the Community stimulates companies to transnational "marriages" and in order to facilitate them it is endeavouring to harmonise the company law of the Member States and to create a statute for a European Limited Company.24

Does this not demand a comparable activity to enable multinational trade union countervailing power to emerge? As Levinson remarks:

21. See R. Miotto, Les syndicats multinationaux, (lstituto per l'Economia Europea, Rome 1976).

22. See W. Gitter, "Probleme des Arbeitskampfes in supranationaler, internationaler und international-privatrechtlicher Sicht", in: Zeitschrift für Arbeitsrecht, 1971, 130.

23. See A. Lyon-Caen, "La greve en droit international prive", (1977) Revue critique de droit international prive, 292.

24. Two company law directives have been adopted. See Dir. 68/151, J.O. 1968, L 65/8 (disclosure company documents); Dir. 77/91, O.J. 1977, L 26/1 (formation of public companies etc.). Five more have been proposed. See: proposal for a 3rd dir. (national mergers) J.O. 1970, C 89/20; proposal for a 4th dir. (financial documents) Bull. of the EC Suppl. 7/71, J.O. 1972, C 7; proposal for a 5th dir. (structure of ltd. companies) Bull. of the EC Suppl. 10/72, and see also Bull. of the EC Suppl. 8/75 (Green Book); proposal for a 6th dir. (control of accounts) Bull. of the EC Suppl. 8/72; proposal for a 7th dir. (publicity and information) Bull. of the EC Suppl. 9/76. For the proposal for a Statute for European Companies, see Bull. of the EC Suppl. 4/75. See also the proposal for a regulation concerning a European Cooperation Grouping, O.J. 1974, C 14. Further, a Treaty concerning the mutual recognition of companies and legal persons was signed on Feb. 29, 1968, and a further treaty on international mergers was sent to the institutions and the Member State governments in Dec. 1972.


"If it is legally permissible for a foreign parent company directly to control and decide on management policy from abroad, then it should be equally permissible for workers to act together with other workers of the same company abroad in their common interests without being held to be an illegal sympathy strike or secondary boycott." 25

Secondly: Community authorities have long advocated collective bargaining between employers and trade unions on a European Ievel. The Paris Summit Meeting of Heads of States and Governments of October 1972 declared that the conclusion of European collective agreements should be made possible.26

If one is to take that statement seriously, all legal impediments as to international concerted industrial action should be removed. G. LyonCaen emphasises, that for transnational collective bargaining, industrial action or demands on the transnational Ievel might be an undispensable incentive.27 And as again Wedderburn says, "it is as true on international as on the national plan that the legality of industrial action goes to the heart of the bargaining power". 28

All this shows that Community involvement in order to "liberalise" the path to concerted international action is simply the logical complement of the Community involvement in the transnational cooperation of companies.

The participation of migrant workers in industrial action

lt is not necessarily the industrial action that is international. The international element of an industrial dispute may also be furnished by the fact that migrant workers participate in industrial action in their guest country.

Again, it is the creation of the Common Market that may exacerbate this problern because of the establishment of the free movement of workers. In addition, the creation of the Common Market stimulates the international activities of companies and so contributes to their sending their workers abroad with the subsequent possibility of their involvement in industrial action there.

This poses firstly a problern of conflict-of-law rules, viz, as to the effect of an industrial dispute on the employment relationship of a foreign

25. C. Levinson, International Trade Unionism (London 1972), p. 111. 26. See Bulletin of the E.C. 10/1972, p. 20. 27. See G. Lyon-Caen, "Negociation et convention collective au niveau euro

peen" (1973) R.T.D.E., 592. 28. Wedderbum, op. cit. note 4, 19.

140 Jacobs

worker. Up to now this point has seldom given rise to Iitigation, because in most cases the contract of a migrant worker is governed by the law of the guest country and the judge of the guest country will apply this law also to the effect of the industrial dispute on the employment relationship.

And even if the contract of the foreign worker is governed by foreign law, according to Gamillscheg 29 the judge of the ordinary place of work might be assumed to apply his nationallaw: a conflict-of-law rule that in the United Kingdom is even explicitly laid down in statute.30

Only in the cases of the so-called Auslandmontage (workers temporarily send abroad to install machinery and not integrated into the foreign workforce) does there seem tobe ground for some doubt.31

Much more fundamental for the position of migrant workers participating in industrial action in their guest country is the question of ordre public. Do foreigners enjoy the same freedom or right to strike as nationals and are they not running the risk of being expelled when they participate in industrial action abroad?

The European Social Charter, which explicitly recognises the right to strike in Article 6 (4) is reassuring in this respect: its Appendix expands the circle of persans entitled to the rights mentioned in that Charter to those nationals of other contracting parties who are lawfully resident or working regularly within the territory of the Contracting Parties concerned.

But the Community legal order as well has made its contribution to the clarification of this question. In Article 8 of the Community Regulation No. 1612/68 on the free movement of workers 32 the right to equal treatment in matters of trade union activities is recognised. That this also embraces the participation of migrant workers in strikes became clear in

29. See F. Gamillscheg, Internationales Arbeitsrecht, (Berlin, Tübingen, 1959), p. 365.

30. See Section 30 (6) of the Trade Unions and Labour Relations Act, 1974. 31. In such cases it is the judge of the mother country who might be faced with

the effect of the participation of an A us/andmonteur in a strike abroad. For these situations, Gitter believes that the law that governs the contract of employment should be decisive (W. Gitter, op. cit. note 20, p. 148). In proposing that solution Gitter might have borne in mind the ordinary situation in which the contract of employment of the A us/andmonteur is governed by the law of the country where the company has its seat and where the judge resides. The French Court of Appeal however in the case of Soc. Montalev v. Giacomel, 1969 (C.d.C. Soc., Oct. 8, 1969) was confronted with the exceptional situation that the contract of employment of the French Auslandmonteurs who participated in a strike in the United States was explicitly governed by the law of the country where they did their Auslandmontage. Nevertheless the French Court of Appeal applied French law as to the consequences of a strike for the individual employment relationship.

32. J.O. 1968, L 257 I 1.


the Rutuli case.33 The Italian migrant worker Rutili who had actively participated in the evenements of May, 1968 in France, was denied by the French authorities the right to reside in the region where he used to live. But the reference made by the French authorities to the reservation of ordre public in Article 48 para. 3 of the EEC Treaty failed to persuade the Court of Justice of the European Communities of the justification of the measures taken against Rutili.

With the reference to Article 8 of Regulation No. 1612/68 and to the Rutili case, existing Community Law on the right to strike comes into the picture for the first time. But in regard to all the further situations, referred to above, in which industrial disputes acquire an international dimension, at best only a few, inadequate national law solutions can be mentioned. Community involvement in all those situations still falls short, though it could be argued that the creation of the Common Market will sooner or later also cause those situations to multiply. The clarification of the legal problems on the Community Ievel may therefore for them too become a matter of urgency.

But what stand do the Community institutions, the trade union movement and academic writers take in regard to the desirability of further Community intervention in the field of the law of strikes?

III. VIEWS ON THE DESIRABILITY OF COMMUNITY ACTION

European Parliament and the Commission

That the narrow link between the creation of the Common Market and the law of strikes must Iead to Community action on strike law is only slowly being recognised by the Community institutions.

The question was first raised in a debate of the European Parliament on the Communication from the Commission to the Council on multinational undertakings and Community regulations 34 in December 197 4. In the course of the plenary session, the Communist Member Carpentier tabled an amendment as to the insertion of a new paragraph in the draft Resolution on this issue:

"lla) Requests that European legislation should eliminate the obstacles existing in certain countdes to manifestations of solidarity between trade unions, in particular those taking the form of sympathy strikes."

33. Case 48/75, Judgment of Oct. 28, 1975, (1975) E.C.R. 1219. 34. See E.P. doc. 261/73; Suppl. Bull. of the EC, no. 8/73.

142 lacobs

But the amendment was apparently tabled too abruptly, for in spite of the lipservice of numerous speakers to the idea that workers should be able to manifest their solidarity, the amendment was rejected, obtaining only the support of the socialist and communist groups.35

Two years later, the European Parliament took a positive stand on the matter. In an extraordinary debate in November 1976 the socialist member Espersen raised the question of the Herz firm: Herz Rent-a-Car, hit by a legal strike of the workers of its Danish subsidiary, sought to maintain its services by means of German drivers. The European Parliament then adopted a resolution in which it urged the Commission to take the necessary steps to prevent similar abuses of the principle of free movement of workers.36

At the instigation of the Danish Government, the services of the Commission and the presidency of the Council are now preparing a draft Council "conclusion" (?) on this issue. This renders all the more curious the Commission's reply to a written question of the Communist Member Mrs. Goutmann in July, 1977. She had referred the Commission to the projects of the French Hersant press group to print editions of Figaro, France-soir and Nord-Eclair in Belgium, close to the frontier, in order to circumvent the consequences of the Parisien-Libere strike in Paris. The Commission laconically answered that the principle of freedom of establishment neither affects nor is affected by the right to strike. 37

Trade union movement

On the part of the international trade union movement there is a growing awareness of the legal problems of international industrial action, especially in respect of industrial relations within multinational companies. Research on the legal aspects of cross-frontier trade union action was recommended at a 1973 meeting of a working party on multinational companies of the International Confederation of Free Trade Unions (I.C.F.T.U.).38

Further the so-called "Charter of Trade Unions demands for the Legislative Control of Multinational Companies", issued in Mexico by the same organisation requires in Appendix II modifications to national legislation regulating the right to strike and the right to take industrial action when existing laws create obstacles to solidarity action by trade unions across national borders, for instance on issues such as trade union

35. See Annex to the O.J. of 1974, Debates of the European Parliament, Thurs-day, 12 December 1974, p. 228-230.

36. See Document EP 424/76. 37. See O.J. 1977, No. C 214/18 of 7.9.1977. 38. Stewart, op. cit. note 9, p. 34.


rights, transfer of production, etc. 39 The I.C.F.T.U. holds that the right to undertake international sympathy trade union actions should be clearly and unequivocally defined by legislation. In particular it proposes:

"a) that trade unions which have not the right to take sympathy measures in favour of workers in a subsidiary of a multinational company should be given such a right; b) that the question of the legality of the foreign conflict shall be judged on the basis of the law of the country where the sympathy measures are taken; c) even if a primary conflict is not undertaken abroad but would be legal according to the law of the country in question, it should be possible to undertake sympathy measures in any country in favour of employees abroad in case of infringement of trade union or human rights; d) in countries where boycotting is not authorised, legislation should be changed and provisions be made to legalise it".

The issue was further mentioned in the detailed proposals for intergovernmental action submitted to the O.E.C.D. by its Trade Union Advisory Committee, which demands that "legislation and practices restricting international solidarity action and the right to strike should be abolished" .40

Other trade union sources can likewise be mentioned.41

Academic writing

The still scarce academic writing on this subject tend to be positive as to the urgency of legal reform regarding international industrial disputes.

Dubois holds that experience shows that international trade union action could evolve outside any legal framework; but, he significantly adds, "albeit with unequal success" .42 An example of this unequal success is mentioned by Piehl: in 1971 and 1972 workers and trade unions in the German subsidiaries of Ford and Akzo shrunk back from solidarity action with their British and Dutch collegues respectively for fear of their actions being held to be illegal. 43

39. See text published in (1976) Bulletin of Comparative Labour Relations, 431. 40. See John Ridell, "The ICFTU and the Multinationals" (1976) Bulletin of

Comparative Labour Relations, 341. 41. See Pankert, op. cit. note 3, p. 74. 42. J. P. Dubois, "Multinational Enterprises and collective bargaining at inter

national Ievel", 12 C.M.L. Rev. 1975, 147. 43. See Piehl, op. cit. note 13, p. 211-212.

144 Jacobs

Bakels demands a revaluation of law on solidarity strikes: "To build up the necessary international bargaining power is in itself already difficult enough. National provisions that might hamper this process should be removed as much as possible." 44

A. Lyon-Caen also submits that a special regulation of international industrial action is necessary. In addition he holds that it cannot be accepted that the conflict of law rules hamper the development of international industrial relations.4s

Important too is that the Group of Eminent Persans which reported to the Economic and Social Council of the U.N., and the Experts, who reported to the O.E.C.D. on inter alia the impact of multinational corporations on industrial relations, both spoke out in favour of legal intervention.46 Further at a recent symposium of the Council of Europe on the European Social Charter and the European Social Policy, the working paper of Professor Zacher stressed the desirability of extending the recognition of the right to strike, enshrined in the European Social Charter, to international forms of industriaJ action. 47

Academic writing is thus clearly in favour of legal intervention as to the international dimensions of the right to take industrial action.

IV. RECOMMENDATIONS FOR COMMUNITY ACTION

The right to strike-a fundamental right?

In the course of the last decade the awareness has grown that also the European Community has to respect the so-called fundamental rights. Such a tendency can be detected in the case law of the Court of Justice of the Community 48 and has been endorsed by the Parliament, the Council and the Commission of the Community in the "Common Declaration" of April 5, 1977.49

Can it be argued that the right to strike is included in this protection

44. H. L. Bakels, "Quo vadis, Societas Multinationalis", (1977) Nederlands Juris-tenblad, 244.

45. A. Lyon-Caen, op. cit. note 23, at 292-294, 299. 46. See Pankert, op. cit. note 3, at 74. 47. Council of Europe, AS/Coll/Charter 3-E, p. 2 (Strasbourg, 1977). 48. See Case 29/69, Stauder v. City of Ulm, (1969) E.C.R. 419; Case 11/70,

Internationale Handelsgesellschaft v. Einfuhr- und Vorratstelle für Getreide und Futtermittel, (1970) E.C.R. 1125; Case 4/73, Nold KG v. Commission, (1974) E.C.R. 49.

49. See Bull. of the E.C. no. 3/77, p. 5.


of the fundamental rights? The answer would be affirmative had the right to strike been enshrined in the European Convention for the Protection of Human Rights and Fundamental Freedoms, for this Convention is referred to in the Nold case as weil as in the Common Declaration as one of the sources of fundamental rights for the Community. However, this is not the case and even the European Court of Human Rights in a recent ruling in the case of Schmidt and Dählström v. Sweden 50 rejected the contention that the right to strike follows unevitably from Article 11 of the Convention, which recognises the right to form and join trade unions. The court admits that the right to strike is "one of the most important" means of exercising the right to form and join trade unions, but it wishes to leave to the Member States the choice of the means of effectuating this right and that may be by means other than the right to strike.

On the other" band, international recognition of the right to strike can be found in - Article 8, para. 1 ( d) of the International Convenant of Economic, Social and Cultural Rights, 1966, and -Article 6, para. 4 of the European Social Charter of 1961.

The international Convenant of Economic, Social and Cultural Rights stilllacks a considerable number of ratifications on the part of the Member States of the Community, but the European Social Charter has already been ratified by all the Member States of the Community apart from the Benelux countries.51

Will these sources acquire the same significance for the content of fundamental rights protected in the European Community as has the European Convention? Neither of the two sources is mentioned in the Nold case or in the Common Declaration, but it is submitted that the fact that in the Nold case reference is made to the general notion of "international treaties for the protection of human rights" appears to leave the way open to a later recognition of other sources.52

Also favourable to the recognition of the right to strike as a fundamental right within the Community is the fact that this right is explicitly mentioned in the Constitutions of two Member States of the Community, namely France 53 and Italy.S4 Fundamental rights laid down in the Consti-

50. See Cour Europeenne des Droits de l'Homme, serie A 1976, Vol. 21. 51. The Dutch ratification is after long delays near at hand: see Ratification -Bill,

Tweede Kamerstukken nr. 8606, 1965. 52. Cf. 0. Kahn-Freund, "The European Social Charter", in: European Law and

the individual, (Ed.) F. Jacobs, (N. Holland, 1976) p. 197-198. 53. See Preambule to the French Constitution of 1946, referred to in the French

Constitution of 1959. 54. Article 40 of the Italian Constitution.

146 Jacobs

tutions of Member States are both in the Nold case and in the Common Declaration recognised as sources of fundamental rights. lt does not matter that only two Constitutions of Member States comprise the right to strike, for the Commission itself holds "that the substantive content of the fundamental rights recognised under Community law must be defined in accordance with the national standard that affords the maximum protection ... the Commission will, on every occassion, align its activities on the optimum standard in question and not on the lowest common denominator of the Standards of fundamental rights achieved in the Member States".ss

All in all there are strong arguments to support the contention that the right to strike is to be considered as a fundamental right, to be recognised as such under Community Law.

But what is the scope of such a fundamental right to strike? Is it to embrace official strikes as weil as wild-cat strikes, political strikes as weil as solidarity strikes, or does it only relate to the issues covered by collective bargaining? Does it relate to disputes concerning rights as weil as those concerning interests? Is it an individual right that the striker enjoys, or is it a collective right for the workers' movement? What types of industrial action are covered by the right to strike and does this also cover the Iock-out? Can Iimits be imposed on it by law or by collective agreement? What Iimits can be imposed on it as regards the possibility of abuses? What is the effect of a strike on the individual employment relationship, etc.?

The main difference between the legal systems of the Member States as to the right to take industrial action relates not so much to its principle as to its precise scope. Nevertheless, it is the harmonisation of the legislation of the Member States in regard to the scope of the right to strike that is needed in order to liberalise the path to Community-wide "concerted international industrial action" which earlier in this article has been shown tobe necessary.su

How can, on the basis of the recognition in principle of the right to strike under Community Law, the harmonisation of national strike law in regard to its scope be effected?

Harmonisation of national strike law in generat

lt is unlikely that the Court of Justice will soon have the occasion to

55. See Bull. of the E.C., Suppl. 5/76, p. 15. 56. See p. 137-139 above.


define the boundaries of the right to strike, for it cannot be maintained that specific Community action is contravening the right to strike and the Community institutions will certainly be wise enough to eschew such a conflict in future.

It has been argued that the whole structure of the Common Market as such is undermining the effectiveness of the strike weapon; but that calls for positive political action and not for corrective judicial action.

A second hypothesis is that the European Treaties of themselves have a harmonising effect on national strike law. So Däubler argues that since Article 117 of the EEC Treaty establishes as an aim of the European Community the improvement of living and working conditions, which aim is to be realised by way of upward harmonisation, and since Article 5 of the Treaty commits the institutions of all Member States to a "gemeinschaftsfreundliches V erhalten" (loyal attitude towards the Community ), which comprises inter alia the commitment to fulfil the aims of the Treaty of their own accord, national legislators and judges have to work in the direction of an upward harmonisation of the law on strikes.57

Elsewhere he submits that Article 3 (h) of the EEC Treaty requires the harmonisation of all national provisions as far as is necessary for the functioning of the common market and that consequently the German Bundesarbeitsgericht is committed to enlarge its (according to Däubler) stringent case law on strikes in the direction of the more strike-friendly legal systems of the other Member States.58

Dubois also regards as desirable the upward harmonisation of the right to strike but does not appear to consider that this results directly from the EEC Treaty.59

The thesis of Däubler is not very realistic. Twenty years of experience shows that national public institutions are only seldom tempted to spontaneously and autonomously fulfil the high ideals of the European Treaties. Furthermore opinions are still divided as to whether upward harmonisation is attained when the legal system enlarges the right to strike, or precisely the contrary.60 Those who would take the latter view could even refer to the opinion of the European Commission, when it says in its recent Green paper on Employee participation and company structure that "industrial confrontation is also wasteful, and if it occurs too

57. W. Däubler, Der Streik im öffentlichen Dienst (Tübingen, 1971) p. 188. 58. W. Däubler/H. Hegge, Koalitionsfreiheit (Baden-Baden, 1976) p. 113;

W. Däubler, Das Arbeitsrecht, (Reinbek bei Hamburg, 1976) p. 132-133. 59. J. P. Dubois, op. cit. note 42, at 152. 60. Gitter, op. cit. note 22, at 130-131.

148 Jacobs

often in a society, every member of that society is the poorer including those who are employees".61

Looking at these problems relating to the thesis of a spontaneous harmonisation of national laws on strikes it seems better to consider what concrete action can be taken by the Community and under what form.

That the Community can take action as regards the law on industrial disputes, given the competences attributed by the Treaties, can hardly be doubted, if one agrees with the close link which in the first chapter of this article has been laid between the creation of the common market and the intensification of the international dimension of industrial disputes.

The establishment of the free movement of goods, services, capital and persons has been identified as the most dynamic force in this process, and although the days are gone when Community action indispensably bad to be justified by the functioning of the common market, the close link in this case justifies such action beyond doubt. 62 As Wedderbum puts it: "Such a freedom of movement for 'labour' is not, however, in any way the social correlative of a freedom of movement for 'capital', partly because it relates to individual movement, whereas rights for 'capital' are essentially rights for collectivised, accumulated capital. The logical correlative of a freedom of transnational movement for 'capital' would be a legal right of transnational, collective industrial action for 'labour'." 63

Given the competence of the Community to take action, one possibility is for the institutions of the Community to establish a Community definition of the scope of the right to strike in order to harmonise national strike law.

But another question is whether it would be wise for the Community to embark on an all-embracing harmonisation of national strike law. In several Member States the legislator has proved unsuccessful in his efforts to regulate the right to strike by statute 64 and in all the contineotat Member States the existing law on strikes consists of a more or less cohesive set of case law. Only in Britain and Ireland is statutory law on industrial disputes ample, but the century-long struggle between common law and statute law in these countries shows that even there the statutory immunities for the trade unions and their officials are never quite safe from

61. Bulletin of the European Communities, Supplement 8/75 p. 24-25 Criticised also on this point by W. Däubler in: "The Employee Participation DirectiveA realistic Utopia?", 14 C.M.L. Rev. 1977, 480-482.

62. See also Gitter, op. cit. note 22, at 130. 63. Wedderbum, op. cit. note 4, at 19. 64. In Italy the Rubinacci Bill was shipwrecked in the 'fifties; in Belgium succes

sive bills devised by Troclet and Major failed in the 'sixties; in the Netherlands, the Polak Bill met the same fate in the 'seventies.


challenge.65 One can, therefore, understand Gitter's doubts as to whether the Community legislator should grasp this particular hot potato.66

Another solution for the Community, if its institutions are unable to define the scope of the right to strike on their own authority, would be to refer the Member States to a body capable of giving authoritative interpretations in this field.

Ideally this would have been the European Court of Human Rights; but as has already pointed out, this is not possible as long as that Court is unable to derive the right to strike from the European Convention of Human Rights.

Alternatively, one could think of the Committee of Experts for the supervision of the European Social Charter.67 This body has build up a considerable experience in interpreting the European Social Charter, including the scope of the right to strike, laid down in Article 6 (4).68

Because the interpretation of the Charter by the Committee of Experts is not directly binding on the Contracting Parties, this very useful source of "case law" in practice fails to produce a sufficiently harmonising effect on the law of the Member States. In order to improve this state of affairs it is suggested that the institutions of the Community might recommend to the Member States that they should follow the case law of the Committee of Experts in defining the scope of the right to strike. 69

The problern with this the suggestion, of course, is, that the conclusions of the Committee of Experts are not generally accepted. Apart from the Committee of Experts, three other bodies are involved in the supervision of the European Social Charter (the Governmental Committee, the Consultative Assembly and the Committee of Ministers) and of them notably the Governmental Committee tends to be critical of the "conclusions" reached by the Committee of Experts. National administrations, judges and academic writers as weil often hold opinions which diverge a great deal from those of the Committee of Experts.70 The work of the Committee of Experts is, however, greatly appreciated by the Consultative

65. See for a recent example the decision of the House of Lords in American Cynamid Co. v. Ethicon Ltd. [1975] A.C. 396 and the controversy about the principles Jaid down in this decision.

66. See Gitter, op. cit. note 22, at 130. 67. See Art. 25 of the European Social Charter. 68. See the Conclusions I, II, 111 and IV of the Committee of Experts. 69. According to the fundamental principles of the "ordre public social" this

reception should be a minimum, not prejudicing national strike law that is more favourable to workers and unions; Cf. Art. 32 of the European Social Charter.

70. The German administration for instance differs with the Committee of Experts on the Jegality of wild-cat strikes, the right to strike for civil servants, etc.; see 0. Kahn-Freund, op. cit. note 52, p. 193.

150 Jacobs

Assembly of the Council of Europe. This body holds that the interpretations of the Committee of Experts should be considered as particularly authoritative legal opinions which should not be overlooked except for imperative reasons. 71

It is submitted that the most practical way to harmonise the strike law of the Member States of the Community is by way of the Council of Europe's institutions in Strasbourg. But a great deal still needs to be done before results can be obtained. Necessary is either a revision by the European Court of Human Rights of its interpretation of Article 11 of the European Convention of Human Rights, or an improvement of the supervisory machinery of the European Social Charter.

Harmonisation of nationallaw on solidarity strikes

If the harmonisation of national strike law in general is going to be a lengthy process, why should not the Community institutions try to undertake some cautious but specific actions of their own accord, for example in the field of the law on solidarity strikes?

This type of action might be considered as opportune because of the already mentioned demands of the international trade union movement and in academic writing; the time for it seems also to be favourable because of the fact that up to now the legal status of solidarity action has not definitively been cleared up under the national law of a nurober of Member States, amongst them Germany,72 the Netherlands 73 and the United Kingdom.74

Like the right to strike in general it is impossible to recognise the right to take solidarity action unconditionally. However, the Community legislator should start by laying down the principle that international solidarity

71. See Ass. Cons. Rapp. Voogd, Doc. 3276 rev. s. 13. 72. In Germany the Bundesarbeitsgericht did not take a definite stand on solidari

ty action in its leading judgement on this issue of Dec. 20, 1973, AP Nr. 34 zu Art. 9 GG (Arbeitskampf).

73. In the Netherlands the very restrictive Hoge Raad judgment of 1960 (NJ 1960, nr. 84) as to strikes in general and as to sympathy strikes in particular, is outdated and therefore the actual legal situation is still undecided.

74. In the United Kingdom under the pre-1970 trade union law there was a controversy between the views of Lord Denning M.R. and Lord Pearce as to the question whether the immunities of industrial disputes also applied to industrial action against third employers (see J. T. Stratford & Son Ltd. v. Lindley 1965 A.C. 269, H.L. (e). In the abovementioned Camellia case (see note 7) the Court of Appeal cautiously avoided an utterance on this point of law under the present Trade Unions and Labour Relations Act 1974.


action is not be regarded as less lawful than national action merely on the ground that it has an international scope. 75

In addition, the Community legislator should try to harmonise the criteria according to which national judges measure the legality of solidarity action. As Pankert had demonstrated 76 there is a widespread tendency in the national legal systems to make the legality of solidarity actions subject to two conditions. The first is that the primary dispute must itself be lawful; the second is that solidarity action must have a fairly close connection with the primary dispute.

The first criterion calls for the establishment of a conflict-of-law rule, because the judge is confronted with a dilemma: Bither he must measure the legality of the original dispute according to the strike law of the state where the original strike takes place, or according to his own national law (the law of the state where the solidarity strike takes place). The suggestion of A. Lyon-Caen 77 that the judge should consider the original strike per definitionem as lawful, appears to be unproblematic only for Britain where the judges seem to be indifferent as to the question of the legality of the original strike. Judges in other Member States might, however, insist on measuring the legality of the original dispute as a precondition of their judgment on the solidarity dispute. But in cases of international solidarity disputes they will discover that each of the abovementioned conflict-of-law solutions has its disadvantages, as emerges from studies by Gitter,7s Knapp and Zöllner. 79 A Community contribution to solving this conundrum would certainly not be superfluous.

As far as the second criterion is concerned, it should be established beyond doubt that a sufficiently "close connection" can be assumed every time that action is undertaken in sympathy with a dispute in which the workers of a foreign subsidiary of the same multinational group are involved. Although the workers might have different legal persans as their employers, both industrial actions are in fact undertaken against the same

75. See the comparable rule in British strike law, that "there is a trade dispute for the purpose if this Act even though it relates to matters occuring outside Great Britain", section 29 (3) of the Trade Unions and Labour Relations Act 1974.

76. See Pankert, op. cit. note 3, at 71. 77. See A. Lyon-Caen, op. cit. note 23, at 294. 78. See Gitter, op. cit. note 22, at 148-149. 79. See B. Knapp and W. Zöllner, "La protection des travailleurs des societes

membres du groupe", in Le droit international prive des groupes de societes (Schweitzerische Beiträge zum E11roparecht, Geneve, 1973) p. 184, 238, 219.

152 Jacobs

multinational management which is ultimately the locus decisionis and which is, at least economically, able to make concessions as regards the strike demands. 8o

This approach, according to which for the judgement of the "close connection" criterion reference must be made to the economic unity of companies, disregarding their eventual formal independence, has for domestic Situations been adopted in rulings of the German Bundesarbeitsgericht 80a and the Italian Corte di Cassazione.81 1t would be useful if this principle could be extended to all intra-Communitary industrial disputes by way of a Community rule.

Finally, there remain the other cases of international solidarity action, which are not confined to the same multinational concern. The legal position of these types of industrial disputes could be harmonised if the Community legislator were able to establish a uniform definition of the "close connection" criterion. For on this point several different definitions are in circulation. The Dutch legislator proposed · as definition "whether the employer against whom the sympathy strike is directed is in a position to deliver a contribution to the solution of the original conflict". 82 The ltalian Corte Constituzionale in 1962 required "that the affinity between the demands of the different groups of workers was such that it might be fundamentally assumed that these claims risk remaining unsatisfied if the workers did not all join in a common action".83 German writers, as usual, are divided on the matter, but a framework for a Community definition of the "close connection" criterion might be furnished by writers such as Hueck-Nipperdey-Säcker, Löwisch, Gitter and Coester, who propose as definition that there should objectively be a chance that the pressure on the adversary might be strengthened by the sympathy strike. 84

But whatever Community-wide definition of the "close connection" criterion is drawn up, it should avoid being paternalistic to the workers, as

80. See 0. Kahn-Freund and W. Zöllner in the study mentioned in note 79, at p. 202-203, p. 219. Also J. M. van der Linden-Spelregels bij arbeidsconflicten (Scheveningen, 1976) p. 44-46.

80a. BAG vom 20-12-1963, AP Nr. 34 zu Art. 9 GG (Arbeitskampf). 81. Corte di Cassazione, 1963, no. 2036; see Pankert, op. cit. note 3 at p. 70. 82. Tweede Kamerstukken 10.110/10.111, series nr. 7, p. 5. 83. Corte Costituzionale, 28-12-1962, Nr. 123, see P. A. Varesi, I Diritti dei

Lavoratori (Milano 1976) p. 250/257. 84. See Gitter, op. cit. note 22, at 150; see M. Coester-"Drittbezogene Arbeits

kampfmassnahmen in den USA, Frankreich und der Bundesrepubliek", (1976) Recht der Arbeit, 292.


can be learned from the fact that in Britain a Conservative Hause of Lords Amendment of this character was speadily repealed. 85

lt is submitted that a standardisation of the criteria according to which international solidarity action is measured is feasible and should therefore be undertaken by the Community legislator.

Counteracting abuses of the free movement principle

With reference to the Espersen resolution, adopted by the European Parliament (see p. 142), it is submitted that measures should be taken in order to prevent "blacklegging" by employers, made possible by exploiting the free movement of capital, goods, services and persons. If national legal systems already had an elaborate legislation against domestic blacklegging it would not have been hard to argue that they could apply such legislation also against blacklegging from the other Member States. But legal intervention to counteract blacklegging only exists in a few Member States. France 86 and the Netherlands,87 for example, have provisions to prevent blacklegging by the engagement of temporary workers. But in general national law does not interfere with blacklegging. Therefore to argue that national legislators can prohibit blacklegging from other Member States while leaving domestic blacklegging untouched, would at first sight seem to contravene the basic principles of the Treaty.

Invocation of the ordre public reservation of Articles 48, para. 3, 56, para. 1 and 66 of the Treaty must fail, if only because they are only applicable in cases which have an individual and not a general or impersonal character.88 The possibility of invocation of the ordre public reservation of Article 36 of the EEC Treaty also seems doubtful.

However, one could argue that if the upholding of the principle of free movement results in the Iimitation of national rights to take industrial action, this would impinge on the social objectives of the Treaty, laid down in Articles 2 and 117, and-provided one considers the right to strike as a fundamental right 89-would also impinge on the general principles of law underlying the Treaty. lt is therefore possible to conclude

85. The Amendment was made in 1974 to section 29 (3) of the Trade Union and Labour Relations Act 1974, mentioned in note 75. It was inserted against the wishes of the Labour Government and was repealed by the Trade Union and Labour Relations (Amendment) Act, 1976.

86. See Art. 124-26, Code du Travail. 87. See Dutch Staatscourant, August 4, 1972, no. 150. 88. See G. Druesne, "La reserve d'ordre public de l'article 48 du Traite de

Rome", (1976) R.T.D.E., 232, 240-241. 89. See p. 144-147 above.

154 Jacobs

that in appropriate circumstances measures taken by the nationallegislator or administration to counteract the abuse of the free movement principles would be justified and would receive recognition from the Court of Justice.

If, on the other hand, one considers the possibility of Community legislation to prevent the abuse of the free movement principle by blacklegging, as A. Lyon-Caen suggests,90 then certainly a good start would be the insertion of a reservation to this effect in Regulation 1612/68 on the free movement of workers. However, there would then still remain the necessity to make comparable provisions regarding the free movement of goods and services.

Statutory enshrinement of the Iex laboris rule

With regards to the participation of migrant workers in industrial disputes in their hast countries, 91 the Community legal order could easily take action to ensure the application of the conflict-of-law rule that as to the effect of participation in strikes in the employment relationship, the judges will apply nationallaw. At the moment a Regulation of the Council on the provisions of conflict of laws on employment relationships within the Community is in preparation. According to the amended Proposal for this Regulation 92 the free choice of the applicable law by the contracting parties will be limited; it will be bound by certain objective criteria and be subject to the minimum provisions in force at the place where the work is carried out. Although the law relating to industrial disputes certainly falls within the definition of "labour laws" in Article 2 of the amended proposal, it is remarkable that provisions conceming the protection of the right to strike do not figure in the Iist of minimum protective provisions, mentioned in Article 8 of the amended proposal.

Insertion of such a clause could still easily be effected and would prevent "contracting out" of the protection that national legislation offers to strikers. But because the Iist of Article 8 of the draft Regulation contains only "minimal" protective provisions (see Article 8, para. 3) it is submitted that the courts will still be prepared to apply foreign law in respect of the effect of the participation in a strike on the employment relationship if that would result in a more favourable treatment for the workers.93

90. A. Lyon-Caen, op. cit. note 23, at 298. 91. See p. 139-141 above. 92. Text published in (1976) Bulletin of Comparative Labour Relations, 280-299. 93. See also A. Lyon-Caen, op. cit. note 23, at 279 and W. Zöllner, in the study

mentioned in note 39, at p. 219.


V. CONCLUSIONS

The law relating to industrial disputes is certainly one of the most thomy issues in the field of labour law. It is therefore quite understandable that the Community has up to now left this matter to national law. But it cannot be denied that the very existence of the Common Market is going to pose new problems for the balance of power between employers and trade unions. This makes the abstention of the Community legislator increasingly problematic. The time may have come for the first wary steps of involvement on the part of the Community legal order in this field.

Within the scope of this article only preliminary tentative Observations can be made. Further research on this matter should be undertaken. Piehl 94 rightly points to the discrepancy whereby whole law schools, sponsored by the State, are busy proposing ever more forms of transnational solidarity of "capital", whereas hardly any research is made on the question of what should be done to make the solidarity strike legally possible.

Y et the idea of industrial democracy was one of the three main pillars of the European Social Action Programme. If this idea is to be enriched by concrete actions on strike law, this will-provided that their tendency is unequivocally in favour of the workers-contribute to the necessary "social face-lifting" of the European Community.

94. See Piehl, op. cit. note 15, p. 61.

MONETARY EVOLUTIONS AND THE COMMON AGRICULTURAL POLICY

by

Guus Braakman *

I. PREFACE

157

In the course of the past eight-and-a-half years the basic prov1s1ons concerning the monetary system of the Common Agricultural Policy (C.A.P.) have been amended a number of times. This series of amendments followed directly from the alterations to currency exchange rates introduced by Member States. The decision-making process underlying these alterations was in some cases characterised by considerations of purely economic nature, whereas in other cases national politics had a decisive influence.

This study aims at a chronological survey of the manner in which the monetary system of the C.A.P., as it exists in its present form, has been brought about. In view of the scope of the study, the author will not go into the detailed rules of this system or the side-effects which it may produce on the common agricultural market.

II. THE CREATION OF THE MONETARY SYSTEM OF THE C.A.P.

lntroduction

The Community institutions were ( and still are) faced with the problern of reconciling the varying agricultural patterns current in the Member States and translating them into terms of a single common agricultural market in order to implement the principles laid down in Article 2 of the Treaty of Rome. To that end, the Treaty provides for the establishment of a common agricultural policy which rests mainly, so to speak, on two supporting pillars, namely the free movement of goods and the realization of the objectives laid down in Article 39, paragraph 1, of the Treaty (i.e. to increase agricultural activity (a), to ensure a fair standard of living for the agricultural community (b), to stabilize markets (c), to assure the availability of supplies ( d) and to ensure reasonable prices for consumers (e)).

* Commission of the European Communities, Directorate Agricultural Legislation. The author expresses his personal views.

© Sijthoff & Noordhoff International Publishers, Alpben aan den Rijn 15 C.M.L. Rev. 1978, 157-186

158 Braakman

For the majority of the products subject to the C.A.P. or to a special trading system arising therefrom {hereafter simply referred to as agricultural products), the Community institutions opted for a system of price support in order to realize the above objectives. In a common agricultural market characterised by a free movement of goods, such a system generally entails fixing annually for the principal products a single target price valid for the whole Community and a single intervention price at which the relevant agencies must buy in the products affered to them. Furthermore, as this price normally has to be fixed at a considerably higher Ievel than the price Ievel of the products concerned on the world market, the system provides for a specific price {which is called threshold price or sluice gate price among other names) to which the price of imported products must be equated by means of an import levy. In order to ensure that Community producers are not prevented from exporting to third countries, provision is also made for the granting of export refunds, both import levies and export refunds being designed to cover the difference between prices ruling outside and within the Community.

One of the further problems facing the Community institutions in establishing the basic requirements for a common agricultural market was the question of the currency in which common prices had to be expressed. Were they tobe expressed in the national currency of one of the Member States, in the currency of a third country or, altematively, in a unit of account (U.A.) which would be independent of the contingent hazards associated with the balance of payments of any given country?

lt was a choice between unwelcome alternatives, but in the end the U.A. was decided upon. Thus, as from the start, a situation was created which was believed to contribute towards price uniformity of the products whose value is fixed in U.A.'s as weil as towards the realization of the monetary union.1

This decision led to the necessity of establishing the relationship between the U.A. and the currencies of the various Member States on the one hand, and of anticipating difficulties deriving from a disturbance of the resultant fixed relationships (cross-rate balance) between the currencies involved on the other band. The manner in which these problems were solved can only be explained against the background of the I.M.F. Agree-

1. Septieme rapport d'activite du Comite Monetaire, (Brussels, 2.2.1965). The decisive argument for this choice was that in the case of a disturbance of the crossrate balance between the different national currencies, the U.A. would automatically allow for maintenance of the agricultural prive Ievel "et garantirait mieux le maintien des mecanismes d'organisation des marches sur le plan communautaire notamment a l'egard de l'exterieur".

Monetary Evolutions 159

ment as it existed at the time and in terms of the good faith which both Member States and Community institutions vested in the functioning of this Agreement.

The Monetary system of Bretton Woods

The primary reason for holding the United Monetary and Financial Conference at Bretton Woods, New Hampshire, on 22 July 1944, was to prevent the participating countries 2 from returning in the post-war years to the anarchy and econoinic warfare characteristic of the 'thirties. However, the war had altered the mutual relations between those countries considerably and a conception of the economic and monetary post-war world had to reflect this new situation. Since especially in economic and monetary matters realism is often sacrificed to considerations of prestige, the acceptance by the European countries, and France and the United Kingdom in particular, of the United States as the dominant power in both the economic and monetary field, must be regarded as one of the most important results of the Conference.

In this role, the U.S. were obliged to relinquish their former isolationism and to develop in an international atmosphere those liberal ideas which governed their internal policy. The participating countries agreed that their future monetary collaboration and the American role therein should be arranged within the framework of a permanent organization, endowed with autonomaus powers which would limit the sovereignty of the governments: the International Monetary Fund.3

The approach to international monetary affairs as advocated by the Americans and as enacted by the Agreement, constitutes the most important part of the Agreement with regard to the subject of the present study. This approach implied a preponderant emphasis being laid on stable rates of exchange with international trade and consequent specialization being considered as the main sources of economic development and progress.

The Fund, therefore, has made it a specific obligation of membership " ... to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members and to avoid

2. Although at the time the Conference was held only 44 countries participated, at present all industrialised countries, except Switzerland, and virtually all developing countries are members of the I.M.F.

3. To the great disappointment of the U.K. the question whether the Fund was going to be an independent, supra-national organization, staffed by international civil servants, or an organization strictly supervised by the participating members, was, at American insistence, decided in favour of the latter alternative.

160 Braakman

competitive exchange alterations" (Article IV, section 4 (a).4 The Fund elaborated this obligation in Article IV, section 1 (a) under the terms of which all members were bound to establish with the Fund a par value for their currency, either directly in terms of gold or indirectly in terms of a U.S. dollar of fixed gold content.

This Article comprised the pivot of a system which would bring unprecedented properity to the countries participating in the I.M.F. Agreement; it implied

- the American guarantee that the dollar price of gold would maintain de jure and de facto the same value as it bad since 1934: one dollar = 0.88867088 grammes of fine gold, and - the American guarantee that the dollar would be convertible, freely and without restriction, into gold or into any other currency falling under the vigour of the Agreement.

The other participating countries were allowed a certain flexibility in maintaining their exchange rates, but bad to ensure that the value of their currency on the exchange markets did not exceed a margin of 1 Ofo upwards or downwards in relation to the par value ( exception being made for futures as banknotes and coins) (Article IV, section 3). A member was not bound to observe the same obligation in regard to the currencies of nonmembers.

Although these provisions were designed to establish a system of fixed rates of exchange, the draftsmen of the Agreement did not want "to impose upon the Fund the duty of perpetuating, in the name of stability, exchange rates which have lost tauch with economic realities. Stability and rigidity are different concepts".5 Consequently, a member was allowed to change the par value of its currency provided that its balance of payments showed a fundamental disequilibrium (Article IV, section 5). Slight changes (not exceeding 10%) bad to be notified in advance, while larger ones needed approval. In the event of a member's acting contrary to the advice of the Fund, provision was made under Article IV, section 6, for the imposition of sanctions.

However, while accepting the international supervision of exchange rates, members set Iimits on the extent to which they were willing to give up their individual freedom for the common good. The Agreement signified its acceptance of this situation by omitting to define the notion of "fundamental dis-equilibrium" and the executive directors of the Fund have duly

4. For the argument that it concerns an obligation, see Gold J., The International Monetary Fund and International Law, An Introduction (I.M.F. Washington D.C. 1965) 26 p., p. 11-12.

5. I.M.F., Annual Report 1948, p. 21.

Public Enterprise in the EEC

This study, und er the jointsponsorship of the Commission of the European Community and Metra Oxford Consulting Ltd. is totally unprecedented in its scope, coverage and contemporary importance. The development of public enterprise in each of the nine member countries of the Community is catalogued and analysed with a wealth of detail which includes a clear connecting text and a large number of statistical tables and annexes.

William Keyser, managing director of Metra Oxford Consulting Ltd. and Ralph Windle of the Oxford Centre for Management Studies directed and edited the work compiled by an international group of scholars working to a common methodology but with streng established reputations in each of the countries concerned.

Although directly focussed on the public enterprises, the work throws considerable light on the crucial developments of the relationships between the public and private sectors in each country, the development of the 'mixed economy' enterprise, the increasing shares of central and local or regional government in 'private' companies and the increasing impact on their general economies of public enterprises as customers, suppliers, Ieaders in technolog.y and sponsors of exports.

As such, the work is an essential element in raising the quality and Ievel of the political and economic debate in Europe about the role of public enterprise, and, in its technical aspects, it deals with the complex of problems to dq with the different definitions and statistical approaches in use of each country. At a time when the questions of control, scope and extension of public enterprise, its financing and profitability are under discussion at both the national and Community Ievel, the work will be invaluable reading to governments, civil servants, managers of national and multinational companies, economists and university staffs and students.

With the academic collaboration of: Prof. A. Jacquemin, Catholic University of Louvain; Prof. H.P. Myrup, Aarhus University and Prof. B. Fog, School of Economics, Copenhagen; Prof. P. Eichhorn, Speyer College of Administration Science, BAD; Prof. J. Virole, University of Paris; Prof. C.M. Guerci, Genoa Institute of Economic and Political Science; Drs. Hans van de Kar, Erasmus University, Rotterdam; Prof. M.O. Donoghue, Trinity College, Dublin.

1978, 1,200 pages (seven binders) Oll. 1,800.00 I$ 835.00 ISBN 90 286 0598 3

Single reports may be ordered at Dfl. 300.00 I $ 140.00 I. Belgium1Luxembourg.132 pages. ISBN 90 286 0618 1

11. Denmark. 88 pages. ISBN 90 286 0658 0 111. Federal Republic of Germany. 208 pages, ISBN 90 286 0648 3 IV. France.176pages.ISBN9028606289 V. ltaly. 194 pages. ISBN 90 286 0668 8

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considered that every reasonable submission by the member concerned must be taken into account. 6

The monetary system of the C.A.P.

Same twelve years later, the above-mentioned I.M.F. regulations constituted the most decisive reason for the vague terms in which Article 107 of the Treaty of Rome, concerning the rate of exchange, was drafted: the future Member States considered it unnecessary to invest the Community institutions with the same (or even fewer) powers than had already been vested in the I.M.F. Consequently, the I.M.F. Agreement was the obvious point of departure when it came to the drafting of the Regulations laying down the monetary ground pattern for the C.A.P.

The first Regulation to be adopted in this field was Regulation No. 129 on the value of the unit of account and the exchange rates to be applied for the purposes of the common agricultural policy.7 This Regulation enacts a recommendation from the Monetary Committee to the Council, according to which, from 1967 onwards, the value of an agricultural product was required tobe expressed in U.A.'s.8

At the drafting of Regulation No. 129, the Community institutions were confronted with the problern of reconciling the relative autonomy of the Member States in matters regarding their rates of exchange 9 with the need

6. I.M.F., Selected Decisions of the Executive Directors and Selected Documents, (third Issue, Washington 1965) p. 17-18. However, only those parity changes which have been officially announced are subject to the judgement of the I.M.F. This results in the extraordinary legal situation whereby in cases where a change in the par value is not approved, Article IV, section 6, comes into force and the member can, for example, be deprived of the Fund's resources. The relevant sanctions do not automatically apply if the member does not change its value de jure, but instead, allows the agreed margin to be exceeded by letting its currency float. In such a case it is assumed that there is no {formal) violation of the rule. See Meyer and Stadtmüller, "Flexibele Wechselkurse in der Währungsordnung", 136 Zeitschrift für das gesamte Handels- und Wirtschaftsrecht, 1972, 35-36.

7. J.O. No. 2553/62, 30.10.1962. Apart from its use in the agricultural sector the U.A. is used in the Community for various other purposes. For an extensive account, see C. v. Ballegooijen, "De Rekeneenheden van de Europese Gemeenschappen", (1975) S.E.W., 43.

8. See report cited under note 1, p. 99-113. The year 1967 was chosen since in that year the establishment of the C.A.P. was supposed to have reached its final stage.

9. Article 107 of the Treaty does not go further than declaring that "each Member State treats its policy with regard to rates of exchange as a matter of common concern", whereas the I.M.F. obligation of not exceeding the 1% Iimits could be interpreted rather liberally.

162 Braakman

to ensure a stable ratio between the U.A. and the various currencies concemed. This reconciliation constitutes the basic requirement for a proper functioning of the C.A.P. (see p. 171 below). The Community institutions displayed much good faith in solving this problem, convinced as they were that the monetary stability characteristic of the early 'sixties would last and that, even in the case of divergencies between the economies of the Member States, the engagements following from the I.M.F. Agreement would be met.

The obvious consequence of this conviction was the adoption of the dollar I gold standard and the principle of fixed exchange rates as laid down in the I.M.F. Agreement, as a foundation stone for the establishment of the C.A.P. This approach is reflected in Article 1, which accords to one U.A. the same gold content as the U.S. guaranteed for the dollar, and in Article 2, which rules that each amount whose value has been fixed in U.A.'s, must be expressed in national currency according to the exchange rate which corresponds to the par value thereof, as communicated to and recognised by the I.M.F. The alternative name for this U.A., the green dollar, resulted from the adoption of these provisions and is perhaps somewhat misleading, for, in fact, the U.A. is not, nor has it ever been, a legal currency unit, but serves only as a means of calculating prices at Community Ievel.

The remaining Articles of the Regulation demonstrated the same confidence in the I.M.F. system by making well-nigh impossible any alteration in the exchange rate of a Member State which exceeds the I.M.F. Iimits. This becomes clear when the following two points are taken into account:

- the Regulation does not make provision for any possibility of changing the value of the U.A. in the event of one or more of the Member States changing their exchange rates, or in the case of contingent disturbances that might arise from alterations on the part of third countries, and - the Regulation introduces the system of an automatic readjustment of sumstobe converted from U.A.'s into anational currency following a parity change in that currency. Readjustment is effected by a percentage amount corresponding to that of the particular parity change concemed.

The practical result of this system is that devaluation (revaluation) in a Member State brings about a proportional increase ( decrease) in the prices of the products or goods when expressed in terms of national currency.

The Regulation did not completely rule out the possibility of the Council's or the Commission's adopting derogations from this rigid system. However, these derogations were only to be applied in cases where


Member States did not observe the I.M.F. rules or where the difficulties arose from non-members of the I.M.F.

Not until 1967 did the Commission, together with a proposal on the fixing of cereal prices in U.A.'s,10 suggest two measures to provide the above system with some more flexibility. These two measures complemented one another and were both accepted by the Council.11

First, conditions to alter the value of the U.A. in the event of one or more of the Member States changing their exchange rate, were determined. The Regulation comprises three different manners in which such an alteration can be effected: automatically, according to the E.P.U. formula and according to a specific Council decision on the matter.12 The Council decides unanimously, on a proposal from the Commission and after hearing the Monetary Committee, within three days from the date of the first announcerpent issued by the Member State which first declares a change; during this period the value of the U.A. is suspended. If no decisive agreement can be reached within the time Iimit stated, the Regulation stipulates that the value of the U.A. shall remain unchanged, except in cases where the E.P.U. formula is applicable.

Second, in those cases where the value of the U.A. does not change automatically, or, in other words, where the cross-rate balance between the currencies of the Member States changes as a result of one or more parity changes, the Regulation provides for the possibility to take limited measures in order to adjust certain agricultural prices "if the particular

10. As these prices had already been fixed in German marks before, the operation carried out by the Commission was a purely formal one. See Proposal for a Council Regulation fixing the unit of account for the common agricultural policy, J.O. No. 116, 17.6.1967, p. 2265/67 (not officially translated into English). See for the Opinion of the European Parliament, J.O., 11.8.1967, p. 12, in which the Parliament gives the proposal the benefit of the doubt until the end of the transitional period.

11. Council Regulation (EEC) No. 653/68, 30.5.1968, on conditions for alterations to the value of the unit of account used for the common agricultural policy, J.O. No. L 123, 31.5.1968, p. 4.

12. The value of the U.A. alters automatically where all Member States alter the parity of their currencies simultaneously, in the same direction and -in the same proportion: in the same direction and in the proportion as the alterations in the parities; -in different proportions: in the same direction as the alterations and in the same proportion equivalent to the smallest alteration in parity. This procedure is called the E.P.U. formula, since it was first used within the framework of the European Payments Union. In the event of every other parity change, the Council decides on a new value according to the procedure mentioned in the text. However, the Council may also in cases where the E.P.U. formula applies, decide upon a different alteration.

164 Braakman

and exceptional nature of the situation . . . makes such measures seem appropriate". Mainly on condition that the principle of the free movement of goods is not affected, both the Council acting according to the same procedure as above, and the Member State(s) whose national currency changes in relation to the U.A., are allowed to take such measures.

The system as described above was completed by a third Regulation ((EEC) No. 1134/68 13) laying down rules concerning the way in which the U.A. must be applied after an alteration to its value, with regard to amounts whose value is calculated in U.A. 's on the basis of elements which in many cases follow from prices on international markets and have been determined before such alterations.

In cases where an alteration to the value of the U.A. takes place, whether followed by an adjustment of agricultural prices on a national Ievel or not,t4 the Commission recalculates the value of the amount's concerned by using the new value of the U.A. and, where appropriate, the new price as it exists on a national Ievel. The same obligation exists in cases where the implementation of the C.A.P. is or could be endangered by "an alteration by a third country of the par-value of its currency, as communicated to and recognised by the I.M.F.".

Finally the Regulation takes account of cases where the above mentioned amounts have been fixed in advance and the transactions to which they apply still have to be carried out after the value of the U.A. has been altered. In cases where the amounts have been fixed in U.A.'s they must be adjusted to the new value thereof, whereas in cases where they have been fixed in a national currency whose relationship with the U.A. has changed, the amounts must be adjusted to this new relationship.

The main difficulty with which the Community institutions were faced in implementing these provisions was the definition of the date which would determine the value of the U.A. or the relationship between the U.A. and the national currency, according to which the re-calculation of the above amounts would have to be effected. Article 6 of the Regulation defines this point in time as being "the date on which occurs the event in

13. Council Regulation (EEC) No. 1134/68, 30.7.1968, laying down rules for the implementation of Regulation (EEC) No. 653/68 on conditions for alterations to the value of the unit of account used for the common agricultural policy, J.O. No. L 188, 1.8.1968, p. 1.

14. The agricultural prices in a Member State do not necessarily change whenever the value of the U.A. changes. A change will only occur in cases where the relationship between the national currency and the U.A. changes as a result of the alteration of either of them (see note 12).


which the amount involved with the transaction becomes due and payable". This definition does not by any means clear up the matter. On the contrary, the vague terms in which it is couched tend rather to pose than to solve the question of the precise date. Although the Commission clarified this situation as regards several products by fixing the dates concerned in a separate Regulation, for many other products the uncertainty still continues. As the Regulation does not contain provisions to alter the amounts themselves, the fact that persons who have obtained advance fixing have the possibility of cancelling that fixing and all relevant documents or certificates in which the amounts appear, offsets this unfortunate situation only to a limited extent.15

III. MONETARY EVOLUTIONSAND THE C.A.P.

Introduction

The monetary system of the C.A.P. never entirely fulfilled the role envisaged for it. The basic provision of this system, that is, the principle of automatic readjustment, was for the first and only time applied in the manner envisaged by Regulation No. 129 to the French and German parity changes of 1969. However, the consequences of this application were too wide-ranging to be offset by the alleviation measures which the system provides for. Hence, other measures constituting derogations from the system had to be devised.

The present chapter will demonstrate that the automatic readjustment could apply to the French and German parity changes only because of the

15. According to the Commission the English text aggravates this indistinctness since the expression "due and payable" is not a correct translation of the other texts. Compal'e e.g. the French: "Le moment de n!alisation de l'operation est Ia date a laquelle intervient le fait generateur de Ia creance relative au moment afferent a cette operation." The Commission expressed this opinion in Case 80/76, North Kerry Milk Products Limited, Dublin v. The Minister for Agriculture and Fisheries, Dublin, (1977) E.C.R. 425. The Kerry case also demonstrates that the task of interpreting Article 6, albeit important, is by no means easy. In this case the question was raised as to which representative rate had to be applied in calculating the subsidy North Kerry was entitled to: the one applicable on the date the products concerned were manufactured or the one applicable on the date they were marketed; or, in other words, on which of the two dates the transaction had to be considered as having been carried out. The Court of Justice ruled that the latter date was applicable. This case, which is the first one in which the Court adopted a position on the interpretation of Article 6, demonstrates the importance such interpretation may have: the amount of money involved was Pd. Stg. 44,687.71 p.

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maintenance of the system of fixed exchange rates as laid down in the I.M.F. Agreement. This will be followed by an explanation of the problems which arose from the adoption of the system of floating exchange rates for the functioning of the C.A.P. Tothat end the three events which accounted for the introduction and the major amendments of the M.C.A.'s, as weil as their origins will be discussed. As regards the M.C.A.'s, this discussion focuses on the manner in which the M.C.A.'s are generally calculated. A practical example of this calculation can be found in the Annex.

French and German parity crises

The monetary system of the C.A.P. was first put to the test in 1969 when both in France and in Germany the pressure on the balance of payments proved too heavy to maintain the existing rate of exchange. In France, the uprising of May 1968 and its aftermath had created a severe monetary crisis. The country bad lost its reserves as the result not only of flight of capital in fear of political upheaval and speculation in anticipation of devaluation, but also because of the absence of foreign tourists. Germany, on the other band, enjoyed large surpluses on its current account. These surpluses were supposed to be financed by capital outflows, which were, if necessary, encouraged by the Government, both long-term and shortterm ones. However, output and employment kept increasing and the question arose as to how long the exchange rate of the German mark (DM) could be maintained, especially in view of the enormous speculative flow of foreign currency into the country (mostly coming from France and Britain).

The questions of devaluation and revaluation respectively were discussed at the Bonn Meeting of the Group of Ten 16 in November 1968. At this meeting not only did the need to adapt both currencies to a more realistic value become apparent, but it also became clear that such parity changes would have severe political and economic repercussions in the respective homelands. In France "grandeur" was at stake, whereas in Germany the fear prevailed that if Germany acted before France and the French followed with a devaluation by a larger amount, the German competitive position would weaken excessively.

In the end, it was France which first gave way to the pressure. Although the elections of June 1969 had calmed down the exchange markets, the outflow of capital still continued and it was President Pompidou who,

16. The Group of Ten is made up of the countries party to the General Loan Agreements, namely: West-Germany, Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States.


albeit completely unexpectedly, decided upon a devaluation of 11,11 Ofo 17

on 8 August 1969. On 29 September Germany followed by letting the DM float without changing the par-value thereof. This decision was prompted by the continuation of the speculative flow of foreign currency into the country. On 24 October political considerations led to the establishment of a new parity for the DM at a Ievel 9.30fo above the previous parity.

Effects on the C.A.P.

In the case of France, the application of the monetary system of the C.A.P. resulted in an immediate increase of the agricultural prices fixed in U.A.'s by the same percentage as the devaluation. However, if this "hausse" bad been allowed to take effect, it would have endangered the effects of the entire operation by reinforcing the tendencies towards inflation and favouring the agricultural population concerned to an undesirable extent.18 This result would have been unacceptable from a national (political) point of view as weil as from a Community point of view as it (probably) would have led to an over-production of certain agricultural products in

17. The percentage was chosen to bring the devaluation of the FF to a round number in terms of grammes of fine gold, from .18 grammes to .16 grammes. Although France obstructed the I.M.F. rules by not informing the Fund in advance of the devaluation, it did communicate a new par value, which corresponded to the new value of the FF, to the Fund.

18. For all products which do not fall under the scope of the monetary system of the C.A.P., a devaluation (revaluation) of the currency of a country does not bring about an increase (decrease) of the prices of those products as expressed in terms of another currency (or U.A.), by a percentage corresponding to that of the parity change concerned. The question as to what extent the increase (decrease) which was aimed at, will actually take place depends firstly upon the elasticities of the imports and exports of the products concerned. In order to reduce the deficit (surplus) in the balance of payments, which usually will be the purpose of the devaluation (revaluation), the sum of these two elasticities must exceed unity. See, also for MarshaiLerner and Robinson condition, Rose, Theorie der Aussenwirtschaft (Verlag Pranz Vahlen GmbH, Berlin und Frankfurt am Main, 1970), p. 65 et seq.

The initial effects of the exchange rate alteration are further attenuated by the so-called "absorption effect". This absorption effect accounts for the manner in which the parity change affects for example the national income (the primary change in the current account involves certain income changes which in turn change the "new" current account), or the export price Ievel (the rise of the import price Ievel will bring about an increase in the price Ievel over the intemal market as a whole, and thus also, indirectly, a rise in the export price Ievel) etc. The absorption approach goes back to Alexander, "Effects of a Devaluation on a Trade Balance", International Monetary Staff Papers, 1952, vol. 2; Alexander, "Effects of a Devaluation: A Simplified Synthesis of Elasticities and Absorption Approaches", 49 American Economy Review 1959.

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other parts of the Community. However, on the other hand, the nonapplication of the monetary system of the C.A.P. or, in other words, the maintenance of the agricultural prices as expressed in national currency at their existing Ievel, would have injured France's agricultural population to the same extent as the application of that system would have favoured it.

For these reasons the Council decided to allow France a transitory period during which the realignment of the French price Ievel to the Community price Ievel had to take place.t9 Consequently, during the marketing year 1969-1970 France was allowed to decrease the amounts of the intervention-or purchase prices by 11.11 Ofo or less, whereas the realignement had to be totally effected by the beginning of the marketing year 1971-1972. In order to prevent France's foreign trade from being affected by these measures, the Council provided for a system of import refunds and export levies, both designed to cover the difference between the price Ievel in France and that in the rest of the Community.

This temporary derogation from the monetary system of the C.A.P. was necessitated by the extent of the parity change in question: the alleviation measures which the system provides for, were not sufficient to offset the consequences of the automatic readjustment. However, it was the communication of a new par value to the I.M.F. or, in other words, the maintenance of the principle of fixed exchange rates, which enabled the gradual adaptation of France's agricultural prices as expressed in national currency, to the Community level.2°

The situation which arose in Germany after the official revaluation of the DM constituted as regards the C.A.P. the precise counterpart of the above French situation. A strict application of the monetary rules of the C.A.P. would have resulted in a 9.30/o decrease in the prices of agricultural products in Germany and this result was politically unacceptable with regard to the German agricultural population concerned.

By analogy with the French decision, Germany also was allowed a transitional period in order to realign the price Ievel of its agricultural products as expressed in national currency to Community level.21 This

19. Council Regulation (EEC) No. 1586/69 of 11 August 1969, J.O. No. L 202 of 12.8.1969, p. 1. The Council adopted this Regulation retro-actively and on the basis of Article 103 of the Treaty. The use of this Article, which deals with conjunctural policy, demonstrates that the measures in question were designed to be temporary.

20. See for an extensive account of the French devaluation, Pierre Baudin, "Politique monetaire et politique agriculture; une le.;on pour l'avenir, la devaluation du Franc", in: (1969) Revue du Marche Commun, 561 et seq.

21. Decision No. 69/375/EEC of the Commission, J.O. No. L 273 of October 31, 1969, p. 35. The decision was based on Article 226 of the Treaty. This Article is a so-called "safeguard clause", which indicates that the measures taken


period, during which a system of import levies and export refunds guaranteed the continued existence of German foreign trade, was shorter than in the case of France and lasted until1 January 1970. Hence, further compensations for the German agricultural population were necessary and during the following three budgetary years Germany was entitled to a system of direct aids to its agricultural population which were to a considerable extent contributed by the E.A.G.G.F.22

Although the difficulties arising within the common agricultural market both from the French devaluation and the German revaluation were solved in conformity with the monetary system of the C.A.P., neither France nor Germany fully complied with the rules of the I.M.F. Agreement on these matters. 23 This once more raised the question as to whether the Agreement was still able to serve as a complementary monetary basis for the implementation of the C.A.P.; or, in other words, in what way were the principle of the free movement of goods and the objectives of Article 39, paragraph 1, of the Treaty tobe safeguarded if Member States abandoned the system of fixed rates of exchange? At the same time these two cases dernonstrafe that the temporary non-application of the monetary system of the C.A.P. resulted from economic decisions of a political nature, taken in a field where the impact of the Treaty of Rome is only partly feit and then only in theory.

Floating of DM and Dutch guilder

The exchange rate difficulties in France and Germany appeared to be the beginning of a lang period of monetary unrest which culminated, in the

are derogations from the basic rules of the Treaty and are authorized to such an extent and for such period as are strictly necessary in order to adjust the sector concerned in which the economic situation has deteriorated, to the economy of the Common Market.

22. Council Regulation (EEC) No. 2464/69 of 9 December 1969, J.O. No. L 312 of 12.12.1969, p. 4. The total loss of income for the German agricultural population resulting from the realignment of the German prices to Community Ievel was an estimated 1,7 thousand million U.A.'s. The E.A.G.G.F. contributed to the costs thereof: 90 million U.A.'s chargeable to the 1971 budget and 60 milIion U.A.'s chargeable to the 1972 budget, whereas a contribution of 30 million U.A.'s chargeable to the 1973 budget was made dependent on the economic situation of that year.

23. Although France acted contrary to the I.M.F. rules in not informing the Fund of the devaluation in advance, it was more the temporary floating of the DM, though a less obvious obstruction of the I.M.F. Agreement (see note 6), which once more raised the question of the reliability of this Agreement regarding the establishment of the C.A.P.

170 Braakman

first instance, in a temporary widening of the fluctuation margins of the DM and the Dutch guilder. In the early 'seventies the U.S. balance of payments position had changed remarkably when suddenly both the European and the American investors found each others markets less attractive. The result was an overall deficit which came to 9.8 billion dollars in the year 1970. The deficit grew stilllarger in early 1971, as a result among other things of the further widening of the differential in interest rates between the United States and European countries. Especially in Germany, which was submitted to a restrictive monetary policy by its Government, there was heavy borrowing from other European countries and by the time the Bundesbank, tagether with four other cent~al banks, reduced its discount rates, speculative motives had become paramount and funds flowed massively into the country.

The result of this inflow was that for the second time in a rather short period of time the DM suffered from heavy pressure. The EEC Ministers of Finance met in Luxembourg on 8 and 9 May, 1971, to discuss possible solutions and, finally, accepted that Germany and the Netherlands, the currency of the latter being commercially linked to the DM, widened their I.M.F. Iimits for a limited period by letting their currencies float. The par value of the currencies concerned as communicated to the I.M.F. was not changed. This decision was taken in agreement with the I.M.F. authorities and must also be seen in the context of the existing problems of the dollar.

Introduction of the M.C.A.'s

Within the framework of the C.A.P. the above decision resulted in the introduction of a system of monetary compensatory amounts (M.C.A.'s). This system was adopted by the Council in accordance with the procedure of Regulation (EEC) No. 653!68 and was designed to serve the same purpose as its step-parents in 1969, that is to temporize temporarily with the consequences of the monetary system of the C.A.P. The Council's opinion that this time also the application of equation measures at the borders to products subject to intra- or extra-Community trade had to be considered as a temporary solution to the problems, is stressed, among other things, by the fact that the consequent Regulation (EEC) No. 974/71 was based on Article 103 of the Treaty.24

24. Council Regulation (EEC) No. 974/71, of 12 May 1971, on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States, J.O. No. L 106, 12.5.1971, p. 1. By the time this Regulation was adopted the transitory period had long since ended (1.1.1970) and hence


Although the above system and the ones adopted in 1969 were similar in purpose, their nature was rather different. This difference follows from the adoption of a system of floating exchange rates in order to solve the balance of payments problems instead of communicating a new par value to the I.M.F. The extent to which both currencies floated beyond par value together with the anticipated short duration of the measure and the risk of speculation arising from a strict application of the principle of automatic readjustment, seemed to justify the decision not to apply this principle to the existing deviation from par value.

The necessity to apply a system of M.C.A. 's to the situation which arose from this decision may be explained by the following example. On 1 August 1970, the beginning of the marketing year 1970/1971 for cereals, the relationship between the FF and the DM still corresponded to the relationship between the par values of both currencies, as communicated to the I.M.F. (1 FF = 0.160 grammes of fine gold and 1 DM= 0,25283 grammes of fine gold). On the assumption that the intervention price for a certain quantity of cereals was 100 U.A., how would the above decision apply to a case where the DM were floating at a Ievel of 50fo beyond its par value?

According to Article 2 of Regulation No. 129 the legal situation remains the same as before, guaranteeing every producer who offers the given quantity of cereals to a French intervention agency 100 U.A. = 351.49 DM.25 However, the real relationship between both currencies did change:

Article 226 could not be used again as a legal basis (as see note 22). Article 115, being also one of the Articles which Germany had invoked to justify the measures taken during the time the DM floated in 1969, could not be used either as this Article only applies if Member States have difficulties in "the execution of measures of commercial policy taken in accordance with the Treaty". Consequently, the two most obvious Articles between which the Council had to choose were Articles 103 and 43. The Council opted for Article 103 and as Morawitz points out, this choice may have arisen from the fact that the procedure of Article 43 includes the Opinion of the European Parliament as weil as of the Economic and Social Committee, whereas the situation which existed at the time required more rapid action, see Morawitz, "Die Freigabe des Wechselkurses der Deutschen Mark", (1971) Europarecht, 1971, 335 et seq. However, the argument of the Commission in preference for Article 103, as developed in the Balkan case, seems to hold water better. In this case the Commission argued that Article 103 was chosen as a legal basis in order to emphasize the transitory character of the M.C.A.'s. See Case 5/73, Balkan-Import-Export GmbH v. H.Z.A. BerlinPackhof, preliminary ruling of 24 October 1973, (1973) E.C.R. 1091.

25. 100 U.A. = 100 X 0,88867088 = 351,49 DM. 0,25283

100 U.A. = 100 X 0,88867088 = 555,42 FF 0,160

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instead of 555.42 FF equalling 351.49 ·DM, at the time of the floating, 555.42 FF equalled 333.92 DM. Given the existence of the free circulation of products within the Community, this situation would have induced every French producer to offer his cereals to a German intervention agency, where 100 U.A. would be converted into 351.49 DM. Afterwards, he could go to a bank and obtain, against the daily rate, 583.47 FF, thus, apart from extra transport costs, realizing a profit of 28.05 FF pro 100 U.A.26 As the levies and refunds, applicable to trade with third countries are also fixed in U.A. 's, this situation would also have induced French producers to effect their transactions with third countries via Germany or any other Member State whose currency has retained its value in relation to the U.A.

In order to prevent the C.A.P. from being shattered by the above consequences, a system of M.C.A.'s was brought about. Regulation (EEC) No. 974/71 which implements this system rules that in the event of a currency of a Member State exceeding its I.M.F. Iimits a system of M.C.A.'s would be applicable to products covered by intervention arrangements as weil as to products whose price depends on the price of the former product. The M.C.A.'s applicable to the first category of products were defined as being equal to the difference between the par value of the currency concerned as communicated to and recognised by the I.M.F., and the arithmetic mean of its spot market rate against the U.S. dollar during a period to be determined. For the second category of products, the M.C.A.'s were declared as equal to the incidence on the prices of the products concerned of the application of the M.C.A. to the price of the product on which they depend. In transactions between two Member States which both applied M.C.A.'s the M.C.A. applicable in one Member State had to be offset by the one applicable in the other Member State. However, this equation gave rise to considerable administrative difficulties and was abandoned in 1973. In that year it was decided that each Member State would compensate for its own "deviations due to trends in its currency situation".

The Regulation provided for a few alleviations to this system, which are still valid. First, no M.C.A. shall be fixed where, in any Member State, the difference referred to above, does not exceed 2,5%. This provision was

26. Also for products which do not fall under a common organization of the market or which are sold on the free market beyond the intervention price, sales into a foreign country after a devaluation of the home currency or a revaluation of the currency of the importing country are more profitable because of the resulting higher price Ievel in the Iatter country. Eventually the market mechanism will adjust this situation by establishing a new price equilibrium at a lower Ievel than the one existing immediately after the de- or revaluation.


a clear derogation from the principle of applying M.C.A.'s as explained above, as it extends the possible fluctuation margin of a currency by 1,5%. Second, M.C.A.'s were not to be applied if the amount of the M.C.A. was negligible in relation to the average value of the product for which it was calculated. Third, M.C.A.'s, once they existed, were only to be recalculated officially in cases where the above difference changes by at least one point from the percentage taken as a basis for the determination of the preceding M.C.A. Apart from this official calculation effected by the Commission, the Regulation also provided for the possibility of recalculating the M.C.A. according to the Management Committee procedure, regardless of the deviation of the currency in question.

Smithsonian meetings

The keynote of the second phase in the eventfullife of the M.C.A.'s is the Smithsonian Agreement of 17 December 1971.

Although in itself rather successful, the floating of the DM and the Dutch guilder did not reduce the pressure on the U.S. balance of payments. The deficit grew larger and larger and created a gap, which, in the end, could no Ionger be bridged.27 After long hesitation, on 15 August 1971, President Nixon announced a package of national and international measures to remedy this situation. The most important measure in the latter category consisted of a temporary suspension of the convertibility of the dollar into gold or other reserve assets.

The American measures had a considerable impact on the monetary situation of most EEC countries. As an immediate reaction and in imitation of Germany and the Netherlands, on 23 August Belgium, Luxemburg and Italy also decided to Iet their currencies float without communicating a new par value to the I.M.F. France preferred a system of multiple exchange rates, under the terms of which it maintained its old parity against the dollar for trade transactions while establishing a floating exchange rate for capital transactions. At the same time, the Benelux countries decided to adopt a system of more or less fixed exchange rates by keeping their currencies within a total fluctuation margin of 1,5% of each other (the so called "worm", which survived until 15 March 1976).

Apart from these reactions at a European Ievel, the American measures also provoked a reaction at I.M.F. Ievel since they constituted a direct threat to the proper functioning of the entire system. During the following four months, many meetings were held in order to avert this threat which culminated in the Smithsonian Agreement.

27. Between 28 June and 14 July, the gap reached the amount of 6 billion dollars.

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Those results of the Smithsonian Meetings which are important for the present subject, can be summarized as follows:

a) the U.S. announced besides a devaluation of the dollar in terms of gold, 28 the maintenance of the inconvertibility of the dollar after this devaluation; b) the countries belanging to the Group of Ten adopted new exchange rates, without changing the par value of their currencies at the I.M.F. These so called "central rates" were mostly adopted by countries which at the same time changed their parities in terms of gold. Only France and the U.K. retained their gold parities; c) the I.M.F. fluctuation margin of 1 Ofo upwards and downwards of the par value of the different currencies was widened to 2,25% in relation to the par value or the central rate, as the case might be. Consequently, the total fluctuation margin of the currencies was extended from 2% to 4,5%, while this so called "tunnel" bad to be maintained by interventions in dollars.

However, sbortly afterwards, the excbange rate flexibility sougbt at tbe Smitbsonian Meetings was, altbougb indirectly, once again restricted. The increasing American indifference towards the inconvertibility of tbe dollar, on tbe one band, and tbe timid revival of tbe European move towards a monetary union, on tbe other band, resulted, on 24 April 1972, in tbe adoption by the EEC countries of a system of more restrictive fluctuation margins between their respective currencies. Instead of the 4,50fo margin following from the Smithsonian Agreement, they agreed upon a total fluctuation margin of 2,25% which was to be arrived at by purcbases or sales of eacb other's currencies: the snake was bom! The upper and lower Ievel of the Smithsonian tunnel continued to be guaranteed by interventions in dollars.

A permanent basis for the M.C.A.'s

Tbe decision by Belgium, Luxemburg and Italy to Iet tbeir currencies float as a reaction to tbe first set of America's balance of payments measures, resulted witbin the framework of the C.A.P. in tbe extension of tbe applicability of Regulation (EEC) No. 974171 to Belgium and Luxemburg, tbe Italian Lira not having exceeded tbe required margin in relation to its par value.

However, first the abandonment of the principle of fixed exchange rates

28. At the Smithsonian meeting the devaluation of the dollar was not officially fixed at 1 gramme of fine gold = Dollars 38; this meant a devaluation of 7.9%. The new parity became official on 8 May 1972, after Congress had given its consent.


and after that the results of the Smithsonian Meetings, and the acceptance by the I.M.F. of the central rates in particular, once more presented the Community institutions with the same question that had first been raised on the occasion of the French and German parity crises in 1969: could the I.M.F. Agreement in its original concept still be considered as a valid complementary basis for the implementation of the C.A.P.; or, in other words, did the results of the Smithsonian meetings necessitate an adaptation of the monetary system of the C.A.P. by adopting a "green" conversion rate which corresponded to the officially accepted centrat rates; or should the gap between the original par values and the centrat rates be covered by M.C.A.'s?

This question became even more relevant when the announced devaluation of the dollar actually took place on 8 May 1972. As Regulation (EEC) No. 974171 ruled that the M.C.A.'s had to be calculated by reference to the arithmetic mean of the spot market rate against the U.S. dollar, obviously the devaluation of the dollar led to a considerable increase in the amounts of the M.C.A.'s.

Although the Commission tried to reduce the impact of the M.C.A.'s by way of a proposal amending the above Regulation, which was submitted to the Council on 16 May 1972, the Member States could not find the political courage to alter the monetary system of the C.A.P. Instead they adopted Regulation (EEC) No. 2746/72 29 in which the status quo of the international rules in force on 12 May 1971, for reconversions from the U.A. into national currency, were maintained. Consequently, the principle of the "green" conversion rate being determined by the par values of the different currencies remained valid and the system of M.C.A.'s was extended to all Member States.

This Regulation must be considered as a mile-stone in the life of the M.C.A.'s as its effect was to integrate the system permanently into the C.A.P. Though this was not the intention, permanency was achieved

- by rendering the application of M.C.A.'s obligatory in cases where deviations from par value occur as envisaged by Regulation (EEC) No. 974171 - by replacing the original legal basis of Regulation (EEC) No. 974171, that is Article 103, by the Articles 28, 43 and 235.

With regard to the financing of the C.A.P., the permanent nature of this integration follows from the fact that both M.C.A.'s granted to exports

29. Reglement (CEE) No. 2746/72 du Conseil du 19 decembre 1972, modifiant le reglement (CEE) No. 974/71 relatif a certaines mesures de politique de conjoncture a prendre dans le secteur agricole a Ia suite de l'elargissement temporaire des marges de fluctuation de monnaies de certains Etats membres, J.O. No. L 291, 28.12.1972, p. 148 (not officially translated).

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with third countries and M.C.A. 's imposed on or granted to transactions within the Community are conceived of as refunds and intervention measures in the sense of Regulation (EEC) No. 729170.30

These provisions were completed by the decision of 21 April 1970 conceming the own resources of the Community, which stipulates that the proceeds from M.C.A.'s levied on imports from third countries are also used for the benefit of the Community budget. 31 Hence, at present all costs and proceeds which result from the application of the system of M.C.A.'s are used for the benefit of or are chargeable to the Community budget, as the case may be.

The decision to maintain the principle of the original par values determining the conversion rate of the U.A. into national currency rather than applying the more realistic central rates ( or in the case of France the new parity) must be explained by the same considerations as held in France and Germany in 1969: application of the new exchange rates for reconversion purposes would have entailed rather abrupt alterations in agricultural prices as expressed in national currency, which were neither politically nor economically feasible.

On the other band, at the time the new exchange rates were adopted, the original idea of the I.M.F. guaranteeing a system of fixed rates of exchange bad not yet been abandoned entirely. This is demonstrated by the fact that almost all countries which switched to central rates adopted new gold parities at the same time.

Co/lapse of the system of fixed exchange rates

About a year after the birth of the snake, the relative monetary stability was disturbed when the protective walls of the tunnel broke down as a result of a second devaluation of the dollar. The underlying balance of payments difficulties of the U.S. mainly arose from a massive flow of funds into various European countries which was started by strong

30. Council Regulation (EEC) No. 729/70, of 21 April 1970, on the financing of the common agricultural policy, J.O. No. L 94, 28.4.1970, p. 13, as last amended by Regulation (EEC) No. 2788/72, J.O. No. L 295, 30.12.1972, p. 1. As the financial participation of the Member States in the Community budget was calculated on the basis of a value of the U.A. which differed from the one used for agricultural purposes, this provision gave use to the so-called "problem of the double rates". From January 1978 this problern no Ionger exists as from then onwards the Community budget is totally financed by own resources.

31. Cf. Article 2 of the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Community's own resources, J .0. No. L 94, 28.4.1970, p. 19.


speculative pressures against the dollar and resulted on 19 February 1973 in a 10% devaluation of the latter.

The American measure caused considerable problems for the Member States in maintaining the snake arrangement and undermined confidence in the dollar even further. The European answer to the American devaluation was that from 19 March 1973 onwards, five out of the now nine Member States, i.e. Germany, the Benelux countries and France, supported by Norway and Sweden, no langer respected the Smithsonian tunnel of 4,5% in relation to and by interventions in the dollar, but continued to respect the snake margin of 2,25% in relation to and by interventions in each other's currencies.

Although Denmark did not formally (re-)join the snake,32 it was prepared to support this solution. At the same meeting Germany announced its intention to revalue its currency by 3% whereas Italy, which had applied a system of multiple exchange rates before leaving the snake entirely on 13 February, and the United Kingdom and lreland, continued to float independently in relation to the dollar.

This evolution was the last decisive step in the complete abandonment of an international system of fixed exchange rates. The following four years, characterized as they were by the oil crisis and its aftermath, demonstrated further deviations from the original par values, on the one hand, and the Iack of a cohesive international monetary pattern to meet such deviations, on the other band.

The first step in this process was made by Germany and the Netherlands, when they revalued their currencies by 5,5% and 5% on 29 June and 17 September 1973, respectively. These revaluations were the prelude to a monetary turmoil which spread out over Europe and in which only Germany, the Benelux countries and Denmark could continue to guarantee relatively stable exchange rates.

lntroduction of representative rates

lt is a strange coincidence that during the same period in which the impact of the M.C.A.'s on the C.A.P. was reduced as a result of the narrowing of the fluctuation margins between the Member States, the idea for what later would become the most important amendment to the system of M.C.A.'s was put forward with regard to the three new Member States.

In order to facilitate the alignment of the agricultural price Ievels in these countries to the Community price Ievel, a conversion rate for the

32. After having joined the snake at the Smithsonian meetings, on 26 June 1972 Denmark decided to withdraw.

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U.A. into the national currencies concerned was adopted which was more in line with the economic realities than the par values of those currencies. Consequently, for the Danish Krone a so called "representative rate" was adopted which corresponded to the central rate agreed upon at the Smithsonian meetings, whereas in Ireland and the United Kingdom the representative rates had to be fixed at a lower Ievel than that of the central rates. 33 The representative rates were designed to avoid the application of M.C.A.'s in transactions between the old six and the three new Member States as weil as between the latter amongst themselves during the accession period. The adoption of representative rates found its justification in the conviction that by the end of the accession period the phenomenon of M.C.A.'s would have vanished completely.

The justification of the introduction of representative rates for conversion purposes appeared to be a rather short-lived illusion. Only three weeks later, the system of M.C.A.'s had to be extended to the three new Member States when the exchange rates of the English and the Irish pound, which have a fixed interrelationship and float together, changed considerably as a result of the 100fo devaluation of the dollar. The result was that with retroactive effect from 1 February 1973, the system of M.C.A.'s was extended to commercial transactions within the entire common agricultural market for cases where the actual market exchange rate of a currency differed more than 1 Ofo upwards or downwards in relation to its conversion rate.34 For the currencies of the "old six" this conversion rate followed from their par value as communicated to the I.M.F., whereas for the currencies of the three new Member States the conversion rate was determined by the representative rates.

So far, the system of M.C.A.'s as originally introduced by Regulation (EEC) No. 974171 had not been subject to fundamental changes: the idea of using the par value of the currencies as the decisive factor in applying the "green" conversion rate was still valid. However, when the devaluation of the dollar and the European answer thereto took place, a basic revision of the above system was necessary.

To that end, Regulation (EEC) No. 1112173 35 uses the agreement between some of the Member States on the maintenance of the snake arrangement as a starting point. lt was decided that for the "snake

33. Council Regulation (EEC) No. 222/73, of 31 January 1973, on the exchange rates to be applied in agriculture for the currencies of the new Member States, O.J. No. L 27, 1.2.1973, p. 4.

34. Council Regulation (EEC) No. 509/73, of 22 February 1973, amending Regulation (EEC) No. 974/71, O.J. No. L 50, 23.2.1973, p. 1.

35. Council Regulation (EEC) No. 1112/73, of 30 April 1973, amending Regulation (EEC) No. 974/71, O.J. No. L 114, 30.4.1973, p. 4.


currencies" the M.C.A. applicable would result from the percentage difference between the "green" conversion rate, as determined by the par value, and the real conversion rate, as determined by the centrat rate of the currency concerned. For countries outside the snake the Regulation defined the M.C.A. applicable as the average of the percentage difference between the relationship between

- the par value of the currency concerned as originally communicated to the I.M.F. and the official parity or the centrat rate, as the case may be, of each of the snake currencies, and - the spot market rate for that currency in relation to each of the "snake currencies" as recorded over a period to be determined.

However, the monetary turmoil following from the oil crisis soon proved to have 'too great an impact on the national economies to maintain the existing exchange rates. As a result the real value of the currencies of most Member States trailed away even further from the par value which determined their "green" conversion rate, and the old question of adapting the "green" conversion rate rather than extending the impact of M.C.A.'s was raised anew.

This time the Member States (successively) opted for the first alternative. However, this choice only emerged after long political discussions on the question of how to translate national price increases into terms of agricultural prices as fixed in U.A.'s. In the end the Council agreed upon the principle of adopting representative rates which were more in line with economic reality than the existing par values. The impact of this decision which considerably reduced the applicable M.C.A.'s, was alleviated as follows:

- for Member States whose currency had depreciated, by extending the percentage deviation which was allowed before the M.C.A.'s are applied (see page 173 above), from 1°/o to 1,250fo. - for all Member States: as the adoption of the new conversion rates has the same impact on agricultural prices and amounts fixed in U.A.'s as a parity change of the currencies concerned, by extending the applicability of Regulation (EEC) No. 1134/68 to such parity changes so (see page 164-165 above).

The representative rates were first introduced in the "old six" when the Netherlands revalued its currency by 50fo. The representative rate was fixed in such a manner that the difference between the old central rate and the par value of the guilder was maintained between the representative

36. Council Regulation (EEC) No. 475/75, of 27 February 1975, on the exchange ratestobe applied in agriculture, O.J. No. L 52, 28.2.1975, p. 28.

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rate and the new central rate. The reason for maintaining this difference was the existence of the "worm" (see page 173 above): the setting of the representative rate at another value would have introduced the M.C.A.'s into the Benelux trade and this would have created considerable administrative difficulties. 37

However, a strict application of the principle of automatic readjustment to this revaluation would have resulted in a percentage reduction of the producers income equal to that of the revaluation. Hence, during a transitional period, the Netherlands were allowed to grant aids to their producers in the payment of which the E.A.G.G.F. participated to the same percentage as had been the case in the event of the German revaluation (see note 22).

After the Netherlands, first Italy and later the other Member States followed suit and by 1975 representative rates were applied in the whole Community.

About a year later, the representative rates were fixed anew as a result of an increase in prices on a national Ievel which, at unchanged rates, would have led to an increase in the differences between Community price Ievels as expressed in national currencies. The Regulation 38 in question reinforced the already existing alleviation of the impact of the M.C.A. system by extending from 1,250fo to 1,50fo the percentage to which a depreciation of a currency in relation to its representative rate must be reduced before the M.C.A. is applied.39 The provisions of Regulation (EEC) No. 1134/68 remained applicable with the single Iimitation that in the event of an advance fixing of prices or amounts, a request for cancellation of the relevant documents or certificates would only be granted if the

37. The "worm" agreement was considered as constituting a regional union between Belgium, Luxemburg and the Netherlands in the sense of Article 233 of the Treaty and hence, between those countries no M.C.A.'s were applied.

Council Regulation (EEC) No. 2544/73, of 19 September 1973, on the exchange rate to be applied in agriculture for the Dutch guilder, O.J. No. L 263, p. 2.

38. Council Regulation (EEC) No. 557176, of 15 March 1976, on the exchange rates to be applied in agriculture and repealing Regulation (EEC) No. 475!75, 0.1. No. L 67, 15.3.1976, p. 1.

39. Originally this provision existed only for the export from Ireland to third countries of products in the beef and veal sector. For these operations the average of the percentage difference had to be reduced by one point. See Regulation (EEC) No. 2497/74, O.J. No. L 268, 3.10.1974, p. 5. Regulation (EEC) No. 475!75, cited above under 36., had generalized this provision to all agricultural products and extended the reduction to 1,25%.


application of the new representative rate was disadvantageous to the party concerned. The provisions of Regulation (EEC) No. 974/71, as distinct from the one mentioned above, also remained valid 40 (see page 172-173).

IV. CONCLUSIONS

The collapse of the I.M.F. system of fixed exchange rates constituted a serious drawback to the European ambition of establishing an economic and monetary union. The chain of events preceding this collapse weakened the economic and political structure so far achieved and restored to a great extent the Member States' autonomy regarding their exchange rates. In the absence of independent EEC rules on this matter, it is difficult to judge whether the way in which most Member States expressed their regained autonomy, i.e. by adopting a system of floating exchange rates, fully complied with Community interests. In other words, can the adoption of floating exchange rates in all cases be regarded as causing the least possible disturbance to the functioning of the common market and as not having a wider scope than is necessary to remedy the difficulties which have arisen? 41

As the existence of a stable cross-rate balance between the currencies of the Member States is a conditio sine qua non for the proper functioning of the C.A.P., the problems arising from the changeover to floating exchange rates were gravest in this area of Community activities. The countervailing power of the M.C.A.'s could not (and cannot) offset these problems entirely, due mainly to the fact that M.C.A.'s cannot be set in advance, but depend on the date on which products cross the border. This involves a certain speculative risk which may very weil induce traders to Iimit their traditional transactions out of or into Member States whose currency is floating. However, the introduction of representative rates and the continuous pressure exercised upon the Member States to bring the value thereof as much as possible into line with the real value of the currency concerned, has reduced this risk considerably.

Besides the trade problems caused by the floating of some currencies,

40. Seepage 172-173 above. 41. This paraphrase of Article 109 is given since it offers a good indication of the

Iimits imposed on the Member States autonomy in relation to Community interests.

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the snake-arrangement also causes difficulties in that it departs from the straight and narrow path to economic and monetary integration. The fact that apart from Germany no other major Member State participates in this agreement transforms the snake into a DM zone; consequently, Germany takes decisions affecting its snake partners at world-level economic and monetary conferences while the latter rarely if ever attend.42

The present study has attempted to explain the sources of the existing divergencies between Member States in relation to the C.A.P. The C.A.P. was chosen as a point of reference because it presupposes a stable crossrate balance between the currencies of the Member States and therefore, from the very start, was intended as a means towards total integration. In the course of this study, it has gradually become clear that the weakening of the original I.M.F. concept increasingly undermined the objectives of the I.M.F. Agreement itseU, that is, international trade and consequent .. specialization as the main sources of economic development and progress. At Community Ievel, the impact of this process, together with the Iack of counterbalancing agreements between the Member States, gave rise to major problems, in particular within the framework of the CAP, and further delayed the realization of the economic and monetary union.

A first incitement to regain lost ground could, therefore, be the adoption by all Member States of a new set of rules on exchange rates, regardless of whether the starting point were a fixed cross rate between the different currencies, a system of controlled floating exchange rates 43 or a combination of both. The hard core of such an agreement would have to be the snake. Eventually, in the areas where the Treaty provides for the establishment of a common policy, the snake might even develop into a currency merger (full monetary integration) among the relevant Member States thus constituting an even better vehicle for the monetary integration of the remaining Member States. 44 Such being the case, the consequent currency unit would be able to fulfill the same role as the dollar under the original I.M.F. Agreement.

42. Cf. Lardinois in Het Financiele Dagblad, 8.12.1977, p. 4. 43. Cf. I.M.F. proposals at Jamaica Conference 1976. 44. Cf. Duncan N. Ndegwa and Robert Triffin, "The international monetary

order", in Reshaping the International Order, A Report to the Club of Rome, (New York 1976) p. 126 et seq. Regarding the introduction of a European currency unit, see C. J. Oort, "Report on the Economic Law of the Member States in an Economic and Monetary Union", 13 C.M.L. Rev. 1976 (Special Issue), 178 et seq.


ANNEX

Calculation of the M.C.A.'s- intra

This Annex translates the application of the system of M.C.A.'s as explained above, into more practical terms by way of an example. This example deals with the same situation as existed between France and Germany in 1971 (see p. 171-172 above). The date for which the M.C.A.'s applicable in both countries will be calculated is 29 September 1977, precisely eight years after the date on which for the first time derogations from the monetary system of the C.A.P. were applied to both Member States.

a) Calculation of the monetary compensatory amounts applicable in France On 29 September 1977 France no Ionger observed the "snake-arrange

ment". Hence, the amount of the M.C.A. applicable on that date has tobe calculated according to the method explained on page 179 above. The Community institutions have determined the period over which the spot market rate of the FF in relation to each of the snake currencies must be recorded as running from the Wednesday of the previous week to the Tuesday of the current week for the M.C.A. valid the following week. In order to calculate the M.C.A. applicable on 29 September, account must be taken of the period from 14 September until 20 September included, since the Regulations concerned indicate implicitly that the M.C.A., after having been calculated, will apply from the Monday following the last day of the above period. (See Table A on following page.)

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The calculation of the MCA applicable to France can be presented as follows:

TABLE A

Date Belgium/Lux. Danish DM Dutch France KR Guilder

14.09.77 0,137565 0,7985 2,1148 2,0013 15.09.77 0,137505 0,7986 2,1195 2,00 16.09.77 0,137490 0,7976 2,1200 2,0017 19.09.77 0,137520 0,7982 2,1203 2,0010 20.09.77 0,137550 0,7989 2,1223 1,9974

Average 14.09.77 0,137526 0,798360 2,119380 2,000280 20.09.77

Relation between representative rate FF and central rate or official parity 0,118801 0,674777 1,83122 1,72292

Percentage difference -15,762 -18,315 -15,736 -16,098

Average of the percentage difference Diminution provided for by Regulation (EEC) No. 974171 (as see page 180)

Difference taken into consideration at the

-16,48

- 1,50

-14,98

preceding calculation -14,5

Difference - 0,48

As this difference does not exceed one point ( see page 173 above ), the M.C.A. applicable during the week of 25 September until1 October 1977 included, remained- 14,50fo.

b) Calculation of the monetary compensatory amounts applicable in Germany

The M.C.A. applicable in Germany on 29 September 1977 is determined by the percentage difference between the representative rate and the central rate of the DM (see page 179). The representative rate applicable was fixed by Regulation (EEC) 878177 on 0,293033 U.A. whereas the central rate was 0,316792 U.A. at the time.


Consequently, the M.C.A. applicable amounted to 7,5°/o of the intervention price of the agricultural product concerned.

In transactions which took place on 29 September 1977 between a French exporter and a German importer of agricultural products -an M.C.A. to the value of 14,50Jo of the intervention price was levied at the French frontier, and -an M.C.A. to the value of 7,50Jo of the intervention price was levied at the German frontier. 4s

Calculation of the M.C.A.'s- extra

As has been pointed out in the introduction, the levy or refund applicable to transactions between a Member State and a third country is designed to bridge the gap between the different price Ievels existing in the countries of both trading partners. The amount of the levy and refund is fixed in U.A.'s and converted into national currency according to the "green" conversion rate. If a Member State whose currency has depreciated or appreciated in relation to its representative rate, decides not to apply the principle of automatic readjustment, the existing national Ievel can be maintained with regard to third countries in two different ways. These two ways can be explained by restricting oneself to the case of imports from a third country into a Member State whose representative rate differs from the real value of the currency of that Member State. The price Ievel of the third country is at a lower Ievel than the Community price Ievel. 1) The import levy applicable to the transaction is reconverted from U.A.'s into national currency according to the "green" conversion rate. In order to translate the price Ievel of the country from which the products are exported into terms of the importing Member State, the amount of this levy must be added to the value of the imported products which results from the multiplication of the price thereof as expressed in the currency of the importing Member State according to the "green" conversion rate, by the percentage to which the currency of that Member State has appre-

45. Council Reg. (EEC) No. 878/77, 26.4.77, on the exchange rates to be applied in agriculture, O.J. 1977 L 106, p. 27. 1 DM = 0,293033 U.A. (representative rate) 1 DM = 0,316792 U.A. (central rate) Consequently, the price of agricultural products in Germany calculated according to the central rate (1 U.A. = 3,15665 DM) is 7,5% below the price calculated according to the representative rate (1 U.A. = 3,412585 DM): 3,15665 --- = 92,5%. 3,412585 Therefore, an M.C.A. of 7,5% of the intervention price must be applied.

186 Braakman

ciated or depreciated, as the case may be. The result of this addition will constitute the total import charge. This system was applied from 1971-1973. 2) The levy must be equated with the M.C.A. applicable in the importing Member State. However, as the levy is expressed in terms of national currency according to the "green" conversion rate, the amount of the levy must first be adjusted to the real price Ievel of the Member State concerned. This operation can be effected in a similar manner to the calculation of M.C.A.'s, that is by multiplying the amount of the levy by a coefficient which takes account of the appreciation or depreciation concerned. This coefficient can be found by subtracting the percentage of the deviation of the currency concerned from one in the case of an appreciation and by adding this percentage up to one in the case of a depreciation: for example, in the case of an appreciation of 5% in relation to the representative rate, the coefficient would be 1-5% = 0,950.

Both methods Iead to the same result and by 1973 the Community institutions changed to the second calculation method. This method has the advantage of avoiding the administrative difficulty of having to fix for each Member State different charges on imports and exports, the value of which varies according to the place of origin or destination of the products being subject to trade with third countries. On the other hand this choice enables the authorities to fix one M.C.A. for each Member State for transactions within and outside the Community. In the above example this calculation method Ieads to a multiplication of the existing import levy by a coefficient of (100 + 15 =) 115 (France) and of (100 - 7.5% =) 92,5% (Germany). In order to find the total import charge for both countries, the results of this operation must be respectively subtracted from and added up to the applicable M.C.A.'s.

GENERAL SOURCES

Dr. J. Heine, "Les dispositions agricoles relatives aux evenements monetaires", Dictionnaire du Marche Commun, 1974, no. 4, 31 et seq.

R. Solomon, The International Monetary System, 1945-1976 (Harper and Row, New York, 1977).

R. Hellmann, Dollar, Gold und Schlange, Die letzten Jahre von Bretton Woods, (Nomos Verlagsgesellschaft, Baden-Baden, 1976).

187

PREPARATIONS FOR DIRECT ELECTIONS IN IRELAND*

I. INTRODUCTION

There is no parliamentary Opposition in Ireland to direct elections to the European Parliament, but rather a broad political consensus about the need to make the institutional structure of the European Communities more democratic and more accountable to the peoples of Europe. In the pre-accession period the Irish Labour Party had opposed membership and campaigned against it in the referendum in 1972 required to amend the Constitution of 1937 to enable Ireland to assume the obligations of membership. However, when the result showed 83.1 per cent of those voting favoured Irish membership of the European Communities, the Labour Party expressly accepted the will of the people and withdrew its formal opposition, although it remained critical of some of the consequences for Ireland of taking this step.t

Outside parliament there remains a small minority opposed in principle to Ireland's membership of the European Communities, which includes both the Official and Provisional Sinn Fein Parties, a voluntary organisation called the Irish Sovereignty Movement and some radical left wing groups.

II. PARLIAMENTARY DEBATE ON THE DECISION AND ACT CONCERNING THE ELECTION OF REPRESENTA TIVES TO THE

ASSEMBL Y BY DIRECT UNIVERSAL SUFFRAGE

Political Reaction to the Draft Proposals

Following the decision at the Paris meeting of the heads of State and government in December 1974-the last of the pure summits-to request the Council of Ministers to act on the European Parliament's proposals for direct elections, and the setting of a target date in 1978 despite express reservations at the time by the United Kingdom and Denmark, the Oireachtas 2 Joint Committee on European Community

* First of a series of articles on preparations for direct elections in the Member States.

1. The formal motion in the Dail approving the terms of the basic Treaties of the European Communities, which was required by Art. 29 of the lrish Constitution, was passed without a division on Oct. 26, 1972. 263 Dail Debates: 259-60.

2. Glossary of Gaelic words used in text: Oireachtas: Parliament Dail: Lower House Seanad: Upper House Taoiseach: Prime Minister Sinn Fein: Literally "we ourselves". There are at present two Sinn Fein parties:

Provisional and Official Sinn Fein which are divided on ideological grounds but seek an immediate end to British rule in Northern lreland.

See also notes 28, 29 and 30.


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Secondary Legislation decided to consider and report on progress towards direct electionsoa

Report of Joint Committee

The first problern which confronted the Joint Committee was whether the draft convention prepared by the Parliament lay within its terms of reference, in that it could examine and report to both Hauses of the Oireachtas on either: (i) "Such drafts, prepared by the Commission of the European Communities and submitted to the Council of these Communities, of regulations, directives, decisions, recommendations and opinions ofthat Council", or (ii) "Such acts of the Institutions of those Communities 0 0 o"

Clearly the draft convention was not a proposal from the Commission, so ruling out the first categoryo Was it an act of an institution which would bring it within the second category? The Joint Committee acknowledged that the matter was not free from doubt, but it referred to the resolution passed by the European Parliament on January 14, 1975 adopting the draft convention and argued that technically this brought the matter within its competenceo

The Joint Committee confined its deliberations to three aspects, namely, (1) proposed Irish representation, (2) method of election, and (3) dual membership of Dail or Seanad and European Parliament.4

(1) Irish Representation The Joint Committee was critical of the proposed size of the Irish representation

in the draft convention, and argued: "When the terms for Ireland's accession to the European Communities were

being negotiated it was appreciated that the very size of the Communities led to a real danger that the national interest of a small country would be swampedo Nevertheless, the Irish people overwhelmingly supported the decision to join on the terms negotiatedo These include slightly over 5% representation in the European Parliament (10 seats out of 198)0 It is now proposed to reduce this to 3o7% approximately (13 seats out of 355)0 Admittedly the principle of giving small states a better ratio of members to population than big states is being maintainedo Once this principle is accepted it ought to be recognised that every country needs enough members to enable it to play its full part, particularly in committeeso Ireland's experience is that ten members in the present Parliament is far too few to enable the country to get its legitimate voice heard at every committee where it ought to be heardo The Joint Committee according-

30 The Oireachtas Joint Committee on European Community Secondary Legislation, hereinafter called the Joint Committee, was established by motions in the Dail and Seanad in July 1973 and reconstituted with broader terms of reference and an enlarged membership in Deco 19770 The writer has been a member of the Joint Committee since its establishmento See generally: 55th Report on "Functions and Work of Joint Committee", March 23, 1977 (Pr!. 6169)0

4o 7th Report of Joint Committee, on "Direct Elections to the European Parliament", June 4, 1975 (Pr!. 4595)0

Direct Elections in Ireland 189

ly believes that there are strong grounds for maintaining our representation at least at its present Ievel and urges that every effort be made to obtain at least 18 seats under the proposed convention." 5

(2) System of Election The Joint Committee considered possible alternative electoral systems, including

(i) Proportional representation by means of the single transferable vote in multimember constituencies (the present system for Irish elections); (ii) Simple plurality in single member constituencies; (iii) Alternative vote in single member constituencies; (iv) Variations on the Iist system of voting.

In its report it favoured the adoption of a Iist system which would be flexible enough to allow the possibility of alteration of the Iist order by voters. lt was considered that the Iist system would have the advantages of (a) linking the members of the European Parliament with national political affairs and (b) approximating to the system most likely to be adopted for all nine countries when a uniform electoral system was introduced in the future. Furthermore, the Joint Committee favoured a single national constituency rather than a number of regional constituencies for direct elections.

lt is interesting to note the rejection of the electoral system based on proportional representation by means of the single transferable vote in multi-member constituencies:

"This method has the merit of being well-known and acceptable in principle to the electorate as it is employed in national elections. The inevitable huge size of any constituencies selected would, however, in the Joint Committee's view, make it wholly impracticable for elections to the European Parliament." 6

lmpracticable or not, that is the method which was finally chosen! lt featured in the first Irish Bill to provide for direct elections, was retained in the second Bill following the change of Government in June 1977, and was never seriously questioned in the debate in both Houses between October and December 1977.

(3) Dual Mandate The composition of the Joint Committee included the ten Irish deiegales to the

European Parliament and it was possible to draw on their practical experience in considering the dual mandate. It was feit that dual membership would be difficult to sustain but that it was desirable to maintain a close link between the members of the European Parliament and the political structure in lreland, so a novel proposal was made on this point:

"Accordingly it recommends that where a member of the European Parliament is not a member of the Oireachtas he should be given a right of audience in the Dail and Seanad and in appropriate committees of both Houses." 7

Government Response to Proposals for direct elections

Following the publication of the Joint Committee's report in June 1975, and state-

5. ld. at 9-10. 6. ld. at 11. 7. Id. at 15.

190 Robinson

ments by the foreign minister, Dr. Garret Fitzgerald, also criticising as totally inadequate the draft convention's allocation of 13 seats for Ireland, a proposal was tabled by the Irish representative at a meeting of Coreper on November 20, 1975 to increase the total size of the Parliament to 384 and give Ireland 18 seats.

There followed lengthy negotiations on this thorny subject, and it was not until the meeting of the European Council in Brussels on July 12 and 13, 1976 that it was agreed there would be 410 seats; with France, Germany, Italy and the United Kingdom having 81 seats each, the Netherlands 25, Belgium 24, Denmark 16, Ireland 15, and Luxembourg 6.

It is customary for the Taoiseach to make a statement in the Oireachtas following a meeting of the European Council. Since the Dail had recessed for the summer, the then Taoiseach, Mr. Liam Cosgrave, made a Statement in the Senate on July 14, 1976.8 He reported with satisfaction on the decision taken about the proposed size of the European Parliament and the allocation of 15 seats, and then also commented on the allocation for Northern Ireland, which had been a matter of particular concern to the Government and opposition in the Republic of Ireland. The shared political judgment was that if the allocation of seats to Britain resulted in a suballocation to Northern Ireland of less than 3 seats, then it would not be possible to have a reasonable prospect of representation by the Catholic minority there in the European Parliament. However, if three seats were allocated to Northern Ireland it was thought to be reasonably likely that one of these seats would go to the SDLP.D On this point the Taoiseach said:

"There was considerable discussion at the Council of the situation in Northern lreland. We urged the case for a minimum of 3 seats for the area. The British proposal, involving 78 seats for each of the four !arger countries, which provided the main basis of discussion at the meeting, was amended to increase this figure to 81, substantially to enable that Government to allocate a third seat to Northern Ireland. This makes it possible to make arrangements for the Northern minority to be represented in the European Parliament, together with representatives of the majority, according to their respective voting strengths." to

The spokesman for the Fianna Fail Party, Senator Brian Lenihan, who was a delegate to the European Parliament at that time, welcomed the progress made by the European Council on Direct Elections, and expressed satisfaction at the allocation of 15 seats for lreland.u

III. CONSTITUTIONAL IMPLICA TIONS OF DIRECT ELECTIONS

The adoption by the Council of Ministers on September 20, 1976 of the Decision and Act laying down provisions concerning direct elections included a recommenda-

8. 84 Seanad Debates: 1337-1343. 9. The Social, Democratic and Labour Party was formed as an anti-unionist and

non-sectarian party. However, its membership is largely Catholic and it is seen as the main party representing the Catholic minority in Northern lreland. Members of the SDLP held office in the power-sharing Northern Ireland Executive from 1st Jan. 1974 until its collapse following the Ulster Workers' Council strike in May 1974.

10. 84 Seanad Debates 1338-9. 11. ld. at 1344.


tion that the provisions of the Act should be adopted by the member States in accordance with their respective constitutional requirements. There was no constitutional barrier in Ireland to establishing the necessary procedures for direct elections because of the manner in which the Constitution had been amended and the terms of section 2 of the European Communities Act 1972.

The constitutional amendment had taken the form of an addition of a new subsection to Article 29 on international relations.12 The first sentence of the new subsection was an enabling statement authorising the State to become a member of the three Communities. The second sentence was as follows:

"No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State necessitated by membership of the Communities or prevents laws enacted, acts done or measures adopted by the Communities, or institutions thereof, from having the force of law in the State."

This constitutional amendment having enabled Ireland to become a member, the European Communities Act 1972 was necessary to achieve that purpose internally. Section 2 provided that the Treaties governing the European Communities and the Acts adopted by the institutions of the Communities would, with effect from January 1, 1973, "be binding on the State and be part of the domestic 1aw of the State under the conditions laid down in the Treaties".

Since the Council Decision on direct elections relied on the authority of Article 21 para. 3 of the ECSC Treaty, Article 138 para. 3 of the EEC Treaty and Article 108 para. 3 of the Euratom Treaty-and was therefore "necessitated by membership ... " -it was binding on Ireland, and no Irish constitutional impediment could be raised to prevent the enactment of the appropriate procedures for full implementation there.

Voting Rights for EEC Nationals

Although it is not strictly speaking a constitutional problem, the decision taken to extend the franchise to nationals of other member States who were resident in Ireland at the appropriate date has certain constitutional implications.

The proposal was contained in the Bill introduced by the Coalition Government in April 1977, was retained in the Bill subsequently introduced by the Fianna Fail Government, and is now part of the Irish law governing direct elections. The first brief parliamentary reference to it was by Dr. Garret Fitzgerald in the course of a debate in the Dail on April 28, 1977. He regretted that other countries might not necessarily make similar provisions for EEC nationals to vote in their country, and he continued:

"Of course, there is a basic problern here: that different countries have different philosophies. In some countries-for example, Italy-people who return home from emigration can vote whereas we require people to be resident here on a certain date in September to vote. These differences in national practice have influenced the approach to the franchise. In our circumstances, being concemed to act in the European manner, it is right that the vote should be extended to nationals of other member States as weil as to Irish citizens." 13

12. See Temple Lang: "Legal and Constitutional lmplications for Ireland of Adherence to the EEC Treaty", 9 C.M.L. Rev. 1972, 167-178.

13. 298 Dail Debates 1829.

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IV. IRISH LEGISLATIVE PROPOSALS

European Assembly Elections Bill1977

The European Assembly Elections Bill 1977 was presented to the Dail by the Coalition Government on April 19, 1977. Prior to that the Minister for Local Government had revealed the intention to create four regional constituencies: a 3-seater for Dublin embracing the County Borough of Dublin, a 3-seater for Ireland Bast, including Dublin county and four adjoining counties; a 4-seater for Ireland North and West and a 5-seater in the South.14 The Fianna Fail Party gave notice that it intended to oppose this framework as amounting to "a gerrymander", and Mr. Lynch promised to establish a commission to re-draw the boundaries if Fianna Fail were returned to power in the forthcoming general election.

Apart from the controversial proposal for the regional constituencies, the main provisions of the Bill were as follows:

- The poll would be taken on the system of proportional representation with the single transferable vote, - nationals of other member States would be entitled to be registered as electors if they satisfied the residence requirement in one of the constituencies and had reached the voting age of 18 years, - candidates could nominate themselves and each candidate would be required to lodge a deposit of i:.1,000, - only persons who were eligible to become members of the Dail would be eligible to be candidates for the European Parliament, which would confine representation to Irish citizens, - the procedure for the registration of political parties would be modified to provide for the registration of parties organised to contest elections to the European Parliament, and the political affiliation of candidates could be shown on nomination papers and ballot papers, - casual vacancies would be filled by appointment by the Dail; and if in the preceding election the vacant seat was won by the representative of a political party, the appointment by the Dail would be made on the nomination of that party.

Otherwise there was provision that the conduct of elections would be on the same general lines as for domestic elections.

Apart from the proposed regional constituencies, the features of the Bill which provoked comment at the time were the size of the deposit, the granting of voting rights to nationals of other member States of the European Communities and the procedure proposed to avoid the necessity for by-elections. Because the electoral

14. The Republic of Ireland is divided into 31 major units known as administrative counties for the purposes of local government. There are 27 rural administrative counties (Tipperary being divided into two) and the four largest cities-Dublin, Cork, Limerick and Waterford-rank as administrative counties. The four ancient provinces are Ulster to the north, Munster to the south, Leinster to the east and Connaught to the west. Six of the counties of Ulster are in Northern Ireland and three are in the Republic. Under the Electoral (Amendment) Act 1974 there are 42 constituencies for the election of 148 deputies to the Dail. See Barrington, "From Big Government to Local Government", (Institute of Public Administration, Dublin 1977) for a critical analysis.


system in Ireland normally produces a very small majority for any government in office, by-elections have had a particular significance at the national level. The prospect of a by-election in a large regional constituency half-way through the life of a government could be a daunting one, and impose a severe drain on the resources of the political parties, so this provision was not contentious.

As it turned out, the Coalition Bill was never debated in the Dail, which was dissolved on the May 25, 1977; and in the general election which followed the Fianna Fail party returned to power.

European Assembly Constituency Commission

In September 1977 the Government lived up to its pre-election promise and established an ad hoc commission to advise on the formation of the constituencies for direct elections.15 The three-man commission was chaired by a Supreme Court Judge, who is also chairman of the Law Reform Commission, and the other two members were ·a senior civil servant in the Department of Local Government and the Clerk of the Senate. lts terms of reference requested that it submit a report not later than mid-October 1977, and that in advising and reporting on the formation of constituencies it should have regard to the following guidelines: 16

- the system of election to be the system of proportional representation by means of the single transferable vote; - the number of members to be elected for any constituency to be not less than three; - there should be reasonable equality of representation as between constituencies; - each constituency should be composed of contiguous areas, and - the desirability of avoiding the breaching of county boundaries; - in the application of these guidelines there should be regard to geographical considerations including the extent of the proposed constituencies.

The Commission worked with commendable speed and reported to the Government on October 4, 1977. Its report was subsequently adopted by the Government and published. The report acknowledges the difficulty of the task of dividing the country into constituencies for the election of 15 members of the European Parliament;

"There is no perfect formula for the 'best' or 'ideal' formation of constituencies. The most that can be done is to devise a scheme which, in addition to meeting certain objective criteria, appears to provide a reasonable basis for the fair conduct of elections and has due regard to social and economic factors, the electorate and density of population as weil as total population." 17

Having considered the guidelines given to it, and submissions from political parties and other interested persons, the Commission concluded in favour of four regional constituencies:

A 4-seat constituency comprising Dublin County and County Borough (Dublin); A 3-seat constituency comprising the remainder of the province of Leinster (Leinster);

15. European Assembly Constituency Commission Report, Oct. 4, 1977 (Prl. 6626).

16. Jd. at 5. 17. ld. at 17.

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A 5-seat constituency comprising the province of Munster (Munster); and

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A 3-seat constituency comprising the province of Connaught and the Ulster counties of Cavan, Donegal and Monaghan (Connaught-Ulster).

The Report received wide general acceptance as recommending a fair and reasonable framework, and the subsequent adoption by the Government of this arrangement for constituencies in its Bill published shortly afterwards helperl to diffuse any political squabbling over the drawing of constituency boundaries.lS

European Assembly Elections (No. 2) Bill 1977

This Bill was presented to the Dail on October 14, 1977 and had passed both Houses by December 8, 1977. Apart from the different geographical configurations of the regional constituencies, the provisions of the Bill were essentially the same as the Coalition Government's Bill which had lapsed with the dissolution of the Dail in May. During the debate there were some technical amendments to the provisions for the conduct of the elections, and a substantive amendment providing that there would be revision of the constituencies at least once in every twelve years to take account of shifts or migration in population.

It was clear that the Government regarded the passage of this legislation as a matter of urgency. The Bill was published only ten days after the Government received the Report of the European Assembly Constituency Commission, and a motion was tabled in the Senate providing for early signature by the President of Ireland under Article 25.2.2. of the Constitution.19 This provision enables the President to sign a Bill on a date which is earlier than the fifth day after the date on which the Bill was presented to him, so the Bill was signed on the day after it was passed by both Hauses and became law as the European Assembly Elections Act 1977 on December 9, 1977.

The urgency was explained during the debate in the Senate as arising because the draft electoral register for the next year was almost completed and regulations would have to be made to amend it. The Minister pointed out that:

"If we fail to do so before the Christmas Recess, we will not have an up-todate electoral Iist. We must still assume that the election will take place in May or June until somebody decides otherwise. lt has not been decided otherwise, so it is probable that we will be using the electoral Iist now being compiled whenever the elections take place within 12 months." 2o

Debate in Dail and Senate

A striking feature of the debate in both Houses on the European Assembly Elections (No. 2) Bill 1977 was the political consensus on the basic principles.21 There was a

18. The Report was welcomed by speakers from both sides of the House during the debate on the European Assembly Elections (No. 2) Bill 1977, and its recommendations were not seriously questioned by any deputy or senator.

19. 87 Seanad Debates 856-7. 20. lbid. 856-7. 21. See generally-300 Dail Debates 1258-1316, 1350-1402 and 1438-1464; 87

Seanad Debates 690-789, 805-856.


shared concern to improve democratic control of the institutions at the European level; there was an aspiration that direct elections would lead to a closer involvement and identification of the people with European matters; there was general welcome for granting voting rights to nationals of other member States and there was a favourable response to the arrangement for regional constituencies.

One matter which was raised in several speeches, and on which views differed sharply, was the question of the proposed salary for members of the European Parliament. Clearly this did not arise from the text of the Bill, but it had become a sensitive issue in itself. When opening the debate in the Dail, the Minister for Foreign Affairs pointed with some irony to the fact that the public had not been particularly interested in the salaries which Irish members on the staff of the Commission or the Council might receive, but that attention had focused on the question when it came to the possibility of elected representatives receiving high salaries.

Some deputies feit that substantial salaries for European parliamentarians were justified, and that Irish people should not be defensive about the size of salary or willing to accept a lower salary than their colleagues from other member States. One younger deputy was more critical on this point:

"I reckon that it will oost the Community about L 1 million per year for Irish representation alone in the Parliament. That is a very hefty price to pay for what will turn out to be not a terribly important assembly. The salaries are certainly an outrage in the Irish context. I know they do not differ much from those paid to continental parliamentarians. The outrage is underlined by the relatively poor salaries paid to parliamentarians here and in the UK ... lt would mean a situation in which a member of the European Parliament, together with expenses and so on, would be paid more than twice the President or Taoiseach of this country and perhaps five or six times the Leader of the Opposition here." 22

Another question raised in the debate was whether there was a possibility of direct elections being combined with local elections in Ireland. In his reply the Minister for Foreign Affairs did not rule out that possibility:

"The target we are talking about here is May-June 1978. The local elections, to the best of my knowledge, are not due until 1979. Therefore, if Europe meets the target this question does not arise. The target date will be set not by us but by the Council, so that if it were postponed it might be postponed until autumn 1978. Although I do not wish to pre-judge on the issue that would seem to indicate that these elections will take place on their own on that issue alone, unless of course they coincide with our local elections. That might be in one sense very convenient but it is not an issue at the moment." 23

V. TECHNICAL ADJUSTMENTS FOR DIRECT ELECTIONS

Following the passage of the European Assembly Elections Act 1977 further procedural and technical steps remained to be taken before Ireland had completed the process necessary to ensure that direct elections oould take place at the target date of May-June 1978. The Minister for the Environment made regulations in draft

22. Deputy Jim Mitehen of Fine Gael-300 Dail Debates 1395-6. 23. 300 Dail Debates 1458.

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which were approved by motions in both Houses in December 1977.24 These Registration of Electors (Amendment) Regulations 1977 provided for the identification on the register of electors of persons entitled to vote in direct elections. There are now three categories of voters on the register: Irish citizens who are entitled to vote at general elections, local elections and European Assembly elections; nationals of other member States who are entitled to vote at local and European Assembly elections and are distinguished by the ietters "LE", and other non-nationals who are only entitled to vote at local elections and are distinguished by the Ietter "L",25

Time was very short indeed to ensure that the register of electors would be ready for possible direct elections to the European Parliament in 1978. The draft register bad been prepared in the normal way prior to enactment of the European Assembly Elections Act 1977 and the amending regulations. Therefore, it did not contain the designation by initials "LE" of persons entitled to vote in the direct eiections. To remedy this the Department of the Environment had to issue instructions to local authorities requesting them to proceed to an investigation of the "L" voters in their area, and where necessary to apply to the County Registrar to have these converted to "LE".26 When this process has been completed the register of electors for 1978 should include all those entitled to vote in direct elections to the European Parliament, and Ireland will have achieved a state of readiness in time for the original target date of May-June 1978, although most political observers believe that this date will be postponed, probably until May-June 1979.27

VI. PREPARATIONS OF POLITICAL PARTIES

As the target date for direct elections began to recede, the political parties in Ireland settled down to coping at a slower pace with the problems of devising the method of choosing candidates, the funding of the election campaign, the preparation of manifestos and the identification of the issues which would be dominant during the election itself.

Fianna Fai/28

Fianna Fail, the party in government, has established a joint committee composed of members of the parliamentary party and the national executive of the party.

24. 302 Dail Debates 1358; 87 Seanad Debates 917-8. 25. Registration of Electors (Amendment) Regulations 1977, S.l. No. 381 of

1977. 26. Normally local authorities have no direct responsibility to investigate whether

electors are recorded correctly on the draft register. This is left to individual electors, and to the political parties to check before a fixed date in Jan. each year.

27. Following the decision taken at the European Council meeting in Copenhagen in April 1978 to hold direct eiections within a four-day period from June 7th to 10th 1979, the Taoiseach stated that the Irish elections would probably be he1d on June 7th.

28. Fianna Fail is the 1argest political party in the Republic. lt evolved from the old Sinn Fein party, was 1ed by De Valera and has a strong republican tradition. lt has held office in periods 1932-48, 1951-54, 1957-73, and 1977-?. Present Dail seats: 84 out of 148.


This joint committee is the first of its kind and includes several government ministers. It has been asked to make recommendations on the approach to direct elections, and in particular on the method of selection, on the question of funding, and on the difficulties of the dual mandate. Devising the method of selection of candidates poses the problern of finding a system which would ensure a balance between some central control and involvement by Iocal branches.

Obviously the external dimension is important, and on January 10, 1978 there was a special meeting of the European Progressive Democrats (EPD) in Dublin to devise overall strategy for the European Parliament elections. There was discussion of a possible joint manifesto, and also about possible sources of funds for the campaign.

Fine Gae/29

This party emphasises the European link in its preparations for direct elections, and points to the formation of the European People's Party (PPE) which has drawn up a common manifesto to be discussed at a special congress in Brussels.

No definite method for choosing candidates had been devised by January 1978, but the matter was under active discussion both in the parliamentary party and the national executive of Fine Gael. Dr. Garret Fitzgerald, Ieader of Fine Gael, is highly regarded for his performance as President of the Council of Ministers during the first half of 1975 and he constantly emphasises at party meetings the importance of developments at the European Ievel.

Labour Party 30

The Labour Party set up a European Affairs Committee consisting of members of the parliamentary party and of the administrative council of the party.31 This committee has examined and submitted amendments to the draft manifesto of the confederation of the socialist parties of the European Community. The committee is assisted by a European affairs adviser, and it has been asked to consider the appropriate selection procedure for candidates and the Organisation and funding of the campaign for direct elections, and to carry out an examination of Community policies and Community funds in order to prepare Labour Party policy statements for direct elections.

All three political parties are availing of the facilities offered by the information

29. Fine Gael evolved from the pro-Treaty party which had approved the AngloIrish Agreement for the establishment of the Irish Free State in 1922, and held office from 1922-32. It was the Iargest party in successive Coalition governments during periods 1948-51, 1954-57 and 1973-77. Present Dail seats: 43 out of 148.

30. The Labour Party is the oldest and smallest of the three main political parties. It is a member of the Confederation of the Socialist Parties of the European Community. Originally opposed to and remains critical of the implications of IreIand's membership of the European Communities. Present Dail seats: 18 out of 148. See generally, Chubb: A Source Book of Irish Government, (Institute of Public Administration, Dublin 1964).

31. The writer is chairman of the European Affairs Committee of the Labour Party which was established in Oct. 1977.

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offices of the European Commission and European Parliament in Dublin. Information seminars have been launched and visits to the institutions of the European Communities are being organised for party officers and workers in the regional constituencies. There is still a noticeable tendency to regard anyone elected to the European Parliament as leaving the country altogether and "going to Europe", thus cutting themselves off from the Irish political stream. Efforts are being made by the political parties to counter this image, and to emphasise the potential domestic role of the European parliamentarians in the !arge regional constituencies in Ireland.

VII. CONCLUSION

As a new Member State, Ireland can express some satisfaction at having completed the constitutional, legal and procedural steps required to prepare for direct elections in time for the original target date of May-June 1978. The postponement of the actual date will provide welcome breathing space for the political parties in working out the appropriate method of selection and coping with problems of funding, Organisation and identification of issues and policies.

Internally, if direct elections take place in 1979 they will coincide with the mid term of the present government, and are therefore likely to focus at least as much on internal Irish politics and assessment of the performance of the government as on the European dimension as such. Furthermore, there could be press;ure to combine them with local elections in 1979, which would dilute to some extent that European dimension.

In itself the establishment of regional constituencies for direct elections could promote an interesting political development at the regional Ievel. Although Ireland is divided into administrative regions for such purposes as health, development, and tourism there are no directly representative regional structures. It is possible to envisage sharp contrast in the issues which would have priority in the ConnaughtUlster constituency-with its small agricultural holdings, and angry fishermen,-to the priorities of Dublin-with high urban unemployment and concern about consumer prices,-and this could generate a healthy regional identity within the European Community framework.

As a people the Irish tend to be politically conscious, and to participate in and even enjoy elections. Some doubt has been expressed about whether there will be an adequate turn-out for direct elections, but once the campaign is under way and the political parties join issue not just on European issues but on the performance of the government internally, it is safe to predict that the lrish poll will be higher than the European average.32

Mary Robinson *

32. See generally, "Euro-Barometer" series, a six-monthly opinion poll compiled by the European Commission, which shows a comparatively favourable Irish rating on European issues. On direct elections, see Euro-Barometer, No. 4, Dec. 1975, 68-75, No. 7, July, 1977, 29-88, and No. 8, Jan. 1978.

* Member of the Irish Senate since 1969. Joined the Labour Party in 1976. Lecturer in European Community Law at Trinity College, Dublin.

199

PREPARATIONS FOR DIRECT ELECTIONS IN ITALY

One of the few important items on which there is little divergence in the viewpoints of all Italian political forces is the construction of Europe. Yet, twenty years after the entry into force of the EEC Treaty, the Italian economy has not been integrated into the European frame; indeed, the regional imbalances which existed then between the northern and the southern part of the country have continued to grow.

Nevertheless, belief in the European ideal-which has, in Italy, illustrious historical roots-has not been tarnished by occasional failures and halts in the process of European integration. Recent opinion polls in the Member States show that a very small percentage of the population is declaredly anti-Common Market.

This positive attitude of the people is, of course, reflected in the Houses of Parliament. In particular, with regard to European elections, four motions were voted,t. both in the Camera and in the Senate, to urge the Government to promote a decision for direct elections; two bills 2 were presented in the Senate, and two in the Camera,a to institute by law the election by direct universal suffrage of the Jtalian members of the European Parliament; finally, on the initiative of the Federalist Movement, a bill4 was presented in the Camera, signed by 200,000 citizens,5 introducing direct elections of the Italian members, and fixing the general features of that election.

lt is, therefore, not surprising that the Italian Parliament was the first to ratify the Act 6 concerning the election of the European Parliament by direct universal suffrage. On February 17, 1977, this Act was adopted in the Camera dei Deputati by 384 votes to 16; on March 24, 1977, it was passed unanimously by the Senate.

The parliamentary debates offer a good opportunity to verify the broad agreement of all political parties not only on the necessity of holding direct elections to the European Parliament, but also on the impact these should have on the future of Europe.

Thus, Senator Pecoraro (Christian Democrat), declared that the new Parliament "wi11 benefit all the other Community institutions .... The Commission, the Council of Ministers, the European Council will have to take into account the new dimension, the different impact, the concrete and authentic significance of the new Parliament, which will necessarily impregnate the other institutions".

The favourable position of the Communist Party was announced by Senator Cala-

1. The first of which was approved by the Camera as early as 1961 ("Atti parlamentari, Camera dei deputati", sitting of Feb. 28, 1961).

2. Bill presented by Mr. Santero and others, IV Legislatura, No. 989 (8 Feb. 1965). Bill presented by Mr. Scelba and others, IV Legislatura, No. 2064 (9 Feb. 1965).

3. Bill presented by Mr. Pedini and others, IV Legislatura, No. 1678 (29 Sept. 1964). Bill presented by Mr. Mussa Ivaldi and others, IV Legislatura, No. 111 (27 June 1968).

4. V Legislatura, No. 706. 5. According to Art. 71 of the ltalian Constitution, the people may, under certain

conditions, exercise legislative initiative. 6. O.J. 8 Oct. 1976, L 278.

@ Sijthoff & Noordhoff International Publishers, Alphen aan den Rijn 15 C.M.L. Rev. 1978, 199-206

200 Baviera

mandrei, who expressed the hope that the European elections would be the first step towards a change in the Communities, in the sense of a democratisation of the decision-making process and a renewal of the structures.7 The general impression received all through the parliamentary debates is one of expectation of positive developments from the European elections, not only with regard to the Community institutions, but also with a view to the beneficial effects of the existence and functioning of the elected European Parliament on parliamentary life in the Member States.

Article 5 of the Act of 1976 stipulates that membership of the European Parliament is compatible with membership of a national Parliament. In view of the possible increase in the time members of the e1ected Parliament will have to devote to their European activities, this may engender problems, particularly for Italian members, who wiiJ have to travel Ionger distances than most of their colleagues to reach the working places of the Institution.

Nevertheless, in the debates of both the European and Italian Parliament, it was feit that, for this first European election, it was in principle not appropriate to prohibit the dual mandate. There were two main reasons for this: on the one hand, the undesirability of depriving either Parliament of some personalities of high national and European prestige; on the other hand, the need to maintain a link between the two Assemblies. This link, constituted by the members common to both, would attenuate or nullify possible elements of friction. Of course, in the context of the future electoral law, several compromise solutions will be examined, such as that of admitting a limited form of dual mandate for Italian members, who would sit in the national Parliament with a different "status" from that of the other members of Parliament (i.e., they would have no obligation to sit in committees, their absence would not be relevant to the rules on the quorum, etc.). However, it would seem that this solution would require changes in the Constitution.

A second possibility could be to allow the dual mandate only for some Italian members of the European Parliament. This solution would seem to retain some of the advantages, and eliminate some of the disadvantages, of the two extreme possibilities, namely the total prohibition or the general admission of the dual mandate.

In the Italian context, it is important to mention a problern which was not solved by the Act on direct elections: the vote of nationals of one Member State living in another.

In fact, the number of ltalian citizens residing in one of the other eight States is calculated at almost 1,800,000, of which 1,456,000 are potential voters. For national elections, an exception is made to the general obligation of residence in favour of nationals living abroad, who retain their voting rights if they are on the electoral registers: but, in order to exercise their right, these citizens are obliged to retum to their home constituency.s Thus, for the general elections of June 20, 1976, only 55,871 such nationals took part in the vote.

Among the numerous bills presented in Parliament to ease the exercise of the

7. Verbatim account of the debates in the Senate, VII Legislatura, 24 March 1977.

8. Law of 7 Oct. 1947, No. 1058, amended by the law of 22 Jan. 1966, No. 1.

Direct Elections in Italy 201

right to vote for Italians resident abroad, it is worth mentioning a recent proposal 9

put forward by Mr. Lauricella and others in the Camera, whose aim is to introduce provisions on the vote of non-residents "for the first direct election of the European Parliament".

This is, obviously, a problern of enormous importance, not only in pure political terms, but also-and especially-for social reasons. The phenomenon of emigration, which has played a great part in the economic development of many European countries, has produced a mass of people who, having lost part of their national identity, have not received, in counterbalance, full acknowledgment as citizens from the host country: they become foreigners abroad and foreigners at home. The EEC Treaty, and the provisions of secondary Community Law, have already facilitated their life and work in the Community, sanctioning the general principle of nondiscrimination (Article 7), the free movement of workers, the right of establishment (Title 111, Chapters 1-2); but, beyond the economic goals of the Treaty, the need to start a process at the end of which migrant workers would be granted full political rights in the host country is being feit by Community bodies.

As far as electoral rights are concerned, the European Commission, taking its cue from point 11 1o of the Final Communique of the European Summit held in Paris on 9 and 10 December 1974, submitted to the Council a report on special rights to be granted to citizens of Member States. In the report, the Commission aired the possibility of conferring voting rights and eligibility "for election at municipal Ievel, together with the right of access to public office dependent on election at this level".tt

In its report on special rights,12 the European Parliament requested the Commission to take into account, among the rights to be recognised as a matter of priority, " ... the right to stand and vote for elections for political office, for Community citizens satisfying special conditions".

lf, therefore, the granting of electoral rights to migrant workers is feit to the necessary in view of European union, then it is all the more necessary and desirab1e to grant such rights for European elections.

Nevertheless, all the efforts made to enact Community rules in this sense have failed. It is to be remernbered that the first Draft Convention 13 proposed, in 1960, by the European Parliament sanctioned (Article 10) the right to stand for election in a country other than one's own. Further, Article 11, para. 2, of that Draft Convention imposed on Member States the obligation to facilitate the exercise of voting rights by nationals resident in other Member States.

Similar provisions are not to be found either in the European Parliament's Draft Convention of 1975, or in the Act as finally approved by the Council in September 1976: given the obstacles and the difficulties that their implementation would have encountered, it was preferred to leave them aside, rather than delay any further the first direct elections.

All the same, the European Parliament has, by means of a separate resolution, stressed its concern for this problem. After having recommended that every citizen

9. VII Legislatura, No. 1648 (18 July 1977). 10. The origin of which was a proposal by the Italian delegation. 11. Bu11. of the E.C. 1975, Supp. 7, p. 29. 12. Report by Mr. Scelba on behalf of the Political Affairs Committee; resolution

in the O.J. 12 Dec. 1977, C 299, op. 26. 13. O.J. 2 June 1960, No. 37, pp. 843-860.

202 Baviera

fulfilling all the conditions necessary to vote, save that of residence, should be granted that right, the European Parliament called upon "the Council of Ministers so to coordinate action taken by the Member States to enfranchise citizens in direct elections as to prevent double voting",14

One will notice that Parliament did not think fit to propose a solution which would have consisted in allowing citizens of a Member State resident in another to vote for the candidates of the host State. This solution, which would have represented the "optimum" from a Community viewpoint, would have clashed with the worries of those who feared that the participation of foreigners in the elections could distort the "natural" election results in a given country.

On the contrary, as can be deduced from the wording of the resolution as quoted above, the European Parliament recognised the impossibility of enacting Community provisions valid in the Nine Countries.

Once the Community had failed to ensure that voting rights of Italian nationals resident abroad could be exercised in the host country, it was necessary for the Italian Government to achieve the same purpose by other means.

Two possibilities remained open. The first consisted in allowing the postal vote, which would have had the advantage of facilitating the franchise of Italian nationals residing in countries other than EEC ones. But the principle of postal voting (which is not allowed by electoral Iaw 15) is very strongly withstood in Italy for various reasons.

It was, therefore, necessary to reach bilateral agreements with the other Member States, whose contents would be to provide polling stations in sufficient number on their territory for Italian residents. Such polling stations, supervised by Embassy or Consulate staff, could eilher be annexed to those reserved for the nationals of the host country, or be situated in consular premises (or eise in specially provided buildings, which could temporarily be granted diplomatic extra-territorial status).

A diplomatic mission, led by a former member of the European Commission, has contacted the relevant authorities of the eight Member States, and it is hoped that the results will be positive.

It is useful to mention some difficulties which have to be tackled in this context. The first is the risk of double voting. Of course, Article 8 of the Act on direct elections 16 states that "no-one may vote more than once in any election of representatives to the Assembly"; but this laconic provision does not seem sufficient to avoid practical problems. For instance, the electoral law adopted on December 8, 1977 by the Parliament of the Republic of Ireland confers the right to vote for Irish candidates on citizens of the other Member States resident in Ireland. An ltalian resident in Ireland could, then, vote under Irish Iaw, and, following agreements between Italy and the Republic of Ireland, under Italian law for the Italian lists.

lt will be noticed that this difficulty would also have arisen if Community obligations had been imposed on Member States to allow the vote of Community citizens on their territory, and if the postal vote system had been retained.

The risk of double voting should not be magnified. It certainly is a real problem,

14. O.J. 7 Nov. 1977, C 163, p. 39. 15. "Testo Unico" No. 361, Presidential Decree of 30 March 1957 and its supple

ment. "Testo Unico" No. 223, Presidential Decree of 20 March 1967.

16. O.J. 8 Oct. 1976, L 278.

Direct Elections in Italy 203

but a proper system of checks by the Consular authorities in the polling stations, and of contacts with the home registers, should reduce its dimension to an insignificant one.

Practical arrangements will have to be made with the local authorities to ensure that elections can take place in satisfactory conditions: public order could be maintained by the local police outside (and perhaps inside) the polling stations.

The number of stations should be as high as possible, especially in those areas where the Italian populations is !arger.

Particular problems are involved in the requirements of the pre-election campaign. If it is necessary for any voter to be acquainted with the programmes of the various parties and candidates, this is all the more true for those who, Iiving abroad, have partly lost contact with the realities of national political Iife.

It would, therefore, be highly desirable for each of the host countries to agree on the principle of allowing bill-posting, electoral meetings, access to media and similar electioneering activities.

As it is in the logic of the European elections that European citizens-wherever bom, wherever resident-should be allowed to vote, so it seems illogical that most migrant workers, who have been called "the first European citizens", should be practically prevented from voting. They are often those who are more directly concerned with the activity of Parliament and the other institutions; resident· in a Member State different from their own, they are naturally brought to a European vision of things, and approve of any step forward towards the realisation of Europe. Everything must be done to help these "doubly European Europeans" to vote for their Parliament.

As is known, Article 138, para. 3 of the EEC Treaty,t7 which provides for a uniform electoral Iaw to be adopted by the Member States on a proposal by the European Parliament and a unanimous recommendation by the Council, has not yet been implemented.

Thus, Article 7, para. 2, of the Act on direct elections ts Ieaves it up to each Member State to enact the electoral procedure applicable for the first European elections.

The reason for this failure lies in the marked differences in the electoral systems of the Member States, which range from various forms of proportional representation (Denmark, Ireland, Italy and the Benelux countries) through the combination of majority system and proportional representation (Federal Republic of Germany), to the single ballot (United Kingdom) and double ballot (France) majority systems.

Mr. Scelba-a former President of the European Parliament-did not hesitate to declare that finding a system acceptable to all would be as difficult as the proverbial squaring of the circle.

As far as Italy is concerned, although it was the first country to ratify the Act on direct elections, the modalities of the electoral law are far from being agreed.t9

For the vote-counting method in national elections to the Camera, the general

17. Art. 21, para. 3 of the ECSC Treaty, and Art. 108, para. 3 of the Euratom Treaty.

18. As weil as the European Parliament's Draft Convention of 1975. 19. Up to now, only in Denmark, France and Ireland has an electoral law been

established.

204 Baviera

principles are laid down in the Constitution, whose Article 56, para. 4, provides that "the number of inhabitants . . . is divided by 630,20 and the seats are distributed in proportion to the number of inhabitants in each constituency according to the overall quotient and taking into account the highest remainders".

Within each constituency, the seats are allocated according to a quota, which is obtained by dividing the total valid poll by the number of seats to be allocated plus two.21

The system of proportional representation is also used for elections to the Senate, for which regional constituencies are set up. Article 57, para. 4, of the Constitution thus reads: "Seats shall be distributed among the Regions ... in proportion to the number of inhabitants of each Region . . . according to the overall quotient and taking into account the highest remainders".

But the fact that the Member States are free to choose their own electoral system does not mean that they will necessarily apply the systems in force for national elections.

Where Italy is concerned, this would, in any case, need adjustments in view of the different number of seats; more generally, the peculiar nature and object of the European elections vis-il-vis the national ones need to be taken into account in the preparation of the law.

Indeed, in a recent cabinet meeting, the Government agreed on the use of the pure proportional representation system; it instructed the Minister for Interna! Affairs to draft the electoral law, in consultation with representatives of the political parties; a Committee was set up accordingly.

The main knots that have to be untied refer to the number and size of constituencies, the way the remainders are taken into account and the possibility of expressing a preferential vote for individual candidates.

Press news 22 relating to an unofficial draft which the services of the Ministry for Interna! Affairs were reported to have prepared provoked, at the end of 1977, reactions from the smaller parties. The draft subdivided the national territory into three constituencies (roughly, the North, the Centre and the South); votes could not be carried over from constituency to constituency, and a preferential vote was not provided for.

In fact, previously (during the discussion in Parliament on the ratification of the Act on direct elections), the Liberal Party bad, in the words of Senator Balbo, asked for the setting up of a single national constituency "in order to allow all political forces to be represented in the European Assembly".

Similar requests were formulated, as early as October 1946, by the Consiglio Nazianale of the Republican Party, in its document on the international position of the party.2a

Without entering into details, and in the knowledge of the eminently political nature of the debate, it is perhaps useful to summarize some of the main technically possible solutions:

20. The number of representatives to be elected. 21. Art. 77 of the "Testo Unico" No. 361. 22. See, for instance, "II Giornale Nuovo" of 11 Oct. 1977: Domenico Bartoli,

"Un calcio agli europeisti". 23. See "La Voce Repubblicana" of 12 Oct. 1976.

Direct Elections in ltaly 205

- a single national constituency, with pure proportional representation and the possibility of expressing a preferential vote; - three !arge constituencies, without carry-over of votes from one to the other, and no preferential voting; - eight to ten constituencies, with carry-over of votes at national Ievel and preferential voting.

Some mixed proposals have also been advanced, to attenuate the risk of "gerrymandering" in the constituencies: for instance, the election of thirty-one members to a single national constituency and of the other fifty to regional or inter-regional constituencies.24 Finally, a system has been proposed 2s which would consist in setting up eighty-one constituencies, and proceeding, as for the elections to the Senate, to the carry-over of the remainders at national Ievel.

Without wishing to indicate a preference for one system or another, it must be stressed that the electoral law should take into account the peculiar nature of the body that is to be elected, in the context of the European Communities. Starting from this viewpoint, one will notice, firstly, that the element of anxiety, which is a characteristic of all elections, will not be present in the European ones. The limited powers of the European Parliament, its Iack of full legislative competence, the less immediate relationship between the expression of the vote and a number of political and factual consequences and repercussions on everyday life, will push the elector to disregard most of the contingent elements of pressure in the mental process which culminates in the electoral choice. This will give a much more "ideal" connotation to the European elections than is normally present in national ones. It will be extremely interesting to notice the results of the elections in the context of the Italian trend towards bi-polarization which appeared so markedly in the political elections of June 20, 1976. The electorallaw should, then, aim to achieve the greatest possible degree of proportionality, in order to indicate as accurately as possible any sign of general political changes.

Furthermore, the great moral significance of the first European electoral consultation must be stressed more than the political importance of the elections. It is essential that these should be feit by the people in their-actual and potentialimportance, and that the interest of the electorate be stimulated, so as to achieve a high turn-out at the polls. The electoral law should, then, include the possibility of preferential voting, which will personalise the choice of the electors, rather than having them confronted with an arid party programme, and with a Iist of candidates already chosen by the powers-that-be of the parties. Preferential voting 28 would greatly contribute towards involving the elector, who would feel much more directly the active role he plays in shaping the composition-and, therefore, in having an impact on the functioning--of the European Parliament.

Thirdly-and also for the purpose of stimulating the interest of the electorsthe electoral law should take account of the need for regional matters and local problems to be raised to European Ievel, ensuring that a certain territorial balance is struck in the composition of the whole of the delegation, and that ethnic minorities are properly represented; in the electoral campaign, themes of local interest will, thus, find their place together with general national and continental issues.

24. E. Jacchia, "/ nodi da sciogliere", in "Alleanza", Dec. 1976, No. 2. 25. E. Vinci, quoted in V. Guizzi's "Features of an ltalian law for the European

elections", in "Sinistra europea" of April-May 1977, p. 24. 26. See D'Amato, "Il voto di preferenza in ltalia", Milan 1964.

206 Baviera

These first European elections amount to a challenge; the benefits that would arise from a success could be rivalled in extent only by the disastrous-perhaps fatal-blow that would strike Europe in case of failure.

The main goal of the electoral law must, therefore, be to ensure that European elections become the cornerstone in the process both of strengthening the present Community, and of democratic evolution towards European union.

F. Saverio Baviera *

* Legal Affairs Committee, European Parliament. The author expresses his own views.

207

CASE LAW

A. COURT OF JUSTICE

113. Case 8177, Concetta Sagulo, Gennaro Brenca and Addelmadijd Bakhouche. Preliminary ruling of 14 July 1977 on request of the Amtsgericht, Reutlingen. (1977) ECR 1495.

Facts

On 21 November 1975 the Amtsgericht Reutlingen on the application of the Staatsanwaltschaft (Public Prosecutor's Office) of 12 November 1975 imposed a fine of DM 100 plus costs of the proceedings and execution on Concetta Sagulo, an Italian national employed as a bookbinder, for infringing the second subparagraph of Article 47 (1) of the Ausländergesetz in that from 24 February to 4 September 1975 she had resided in the Federal Republic of Germany without a passport and without a residence permit. On 28 November 1975 Mrs Sagulo appealed against this conviction.

On 25 November 1976 the Amtsgericht Reutlingen on application of the Staatsanwaltschaft of 22 November 1976 imposed a fine of DM 100 plus costs of the proceedings and execution on Gennaro Brenca, an Italian worker, for infringement of the second subparagraph of Article 47 (1) of the Ausländergesetz in that from "30 February" to 16 June 1976 he had resided in the Federal Republic of Germany without a passport and without a residence permit Mr Brenca appealed against this conviction.

Addelmadjid Bakhouche, a French national of no occupation, after being stationed as a member of the French armed forces in the Federal Republic of Germany from 22 June 1962 to 14 November 1973, was issued on 12 December 1973 with a residence permit valid until 11 December 1974. For non-payment of fines imposed in 15 proceedings for traffic offences Mr Bakhouche was committed to prison where he remained from 27 January to 6 March 1976. Thereupon, because in spite of repeated requests by the competent authorities he neglected to have his residence permit extended he was remanded in custody until 12 March 1976 charged with an offence under the second subparagraph of Article 47 (1) of the Ausländergesetz and was sentenced on 12 March 1976 by the Amtsgericht Reutlingen for this offence to a fine of DM 1 200 plus costs and taking into account the time spent in prison on remand. By summons dated 24 September 1976 the Staatsanwaltschaft now accuses Mr Bakhouche of continuing to reside in the Federal Republic of Germany without a residence permit and of having, in spite of the imposition of a fine on 12 March 1976 and repeated requests by the competent authorities, neglected to apply for an extension of his residence permit which expired on 11 December 1974 and has applied for the main proceedings to be opened before the Amtsgericht Reutlingen for infringement or the second subparagraph of Article 47 (1) in conjunction with Articles 1 and 2 of the Ausländergesetz.

Questions

By order dated 13 January 1977 the Amtsgericht Reutlingen stayed the three

208 Case Law

criminal proceedings and referred the following questions to the Court for a preliminary ruling under Article 177 of the EEC Treaty: 1. Can the special residence document which has declaratory effect and is referred to in Article 4 of Council Directive 68/360 issued as proof of a right of residence for aliens entitled thereto by virtue of Article 48 et seq. of the EEC Treaty be treated as being on all fours for the purposes of administrative and criminal law with the residence permit issued under the German Ausländergesetz (Aliens Law) with the result that such aliens who do not hold the document authorizing residence under the first or second subparagraph of Article 47 (1) of the Ausländergesetz or who hold such a document which has ceased to be valid can be sentenced under Article 5 of the Ausländergesetz for residence or entry without a valid residence permit, or does such a sentence contravene the EEC Treaty? 2. Is the EEC Treaty contravened if an alien directly entitled under Article 48 of the EEC Treaty and the abovementioned Council Directive is issued only with a residence permit under Article 5 of the Ausländergesetz with the possible adverse effects of Article 47 of that Law? 3. Is there an infringement of the prohibition on discrimination laid down in Article 7 of the EEC Treaty or the Ietter and spirit of the Treaty (Article 5) if an alien who under Article 48 of the EEC Treaty or under one of the provisions made in implementation thereof is or originally was entitled to reside in or to enter the Federal Republic of Germany for the purposes set out !herein and whose national passport or document in lieu thereof required under Article 3 of the Ausländergesetz and Article 10 of the Aufenthaltgesetz/EWG (Law on Residence of Nationals of the Member States of the EEC) has ceased to be valid, can be sentenced within the ambit of the German Ausländergesetz under the first or second subparagraph of Article 47 (1) thereof to imprisonment for up to one year or fined up to 360 times his net daily income for an offence, whilst a German national whose identity card required under the comparable Federal or Regional Laws governing identity cards has ceased to be valid can only be fined for a minor offence (Article 47 of the Gesetz über die Ordnungswidrigkeiten (Law on minor offences))-although proceedings are not as a rule taken-up to DM 500 where the offence is committed negligently or up to DM 1 000 where it is committed intentionally? 4. Is the EEC Treaty contravened if an alien to whom Article 48 of the EEC Treaty applies who in the previous year had been fined for an offence against the Ausländergesetz committed intentionally because he had resided in the territory of the Federal Republic without a residence permit is sentenced to imprisonment for a similar offence after the judgment for the previous offence has become absolute?

Opinions and Observations

In his Opinion, the Advocate-Genera/, Mr. Reisch, proposed that the Court should answer the questions as follows: 1. The right of residence arising from Article 48 of the EEC Treaty and the provisions for its implementation exists independently of the issue of a residence permit. Penalties under laws of the Member States for the control of aliens relating to the absence or loss of the substantive right of residence are therefore not applicable where a national of a Member State entitled under Article 48 of the EEC Treaty has no residence permit or it has expired. 2. Member States have a duty to issue nationals of other Member States entitled under Article 48 of the EEC Treaty with a document regarding their right of

Court of Justice 209

residence and complying with the provisions of Council Directive No 68/360. 3. It follows from Article 7 of the EEC Treaty that Member States may not make the penalties on nationals of other Member States entitled under Article 48 of the EEC Treaty for not possessing a valid residence permit more severe than the penalties applied to their own nationals under national law for disregard of their obligations with regard to identity cards.

ludgment

[3] The first, second and fourth questions inquire essentially whether the Member States may apply their general provisions on the entry and residence of aliens and, where appropriate, the penal provisions provided in the case of non-compliance with these provisions to persans enjoying the protection of Community law.

[4] The rights of nationals of a Member State to enter the territory of another Member State and to reside there for the purposes mentioned in the Treaty follows, as the court making the reference rightly states, directly from the Treaty or, as the case may be, from the provisions adopted for its implementation. Nevertheless Community law has not deprived Member States of the power to adopt measures to enable the national authorities to have precise information of movements of population in its territory. To enable the Member States to obtain such data and at the same time to put those concerned in a position to prove their legal position with regard to the application of the provisions of the Treaty two formalities are provided for in Articles 2 and 4 of Directive No 68/360: the persans in question must have a valid identity card or passport and be able to prove their right of residence by a document entitled "Residence Permit for a National of a Member State of the EEC" which must include the statement set out in the Annex to the directive. Under the third paragraph of Article 189 of the Treaty it is for the Member States to choose the form and methods to implement the provisions of the directive in their territory either by the adoption of a special law or regulations or by the application of appropriate provisions of their general regulations on aliens. The Member States are also competent to lay down penalties or to apply the penalties provided for in their general regulations in order to secure observance in their territory of the formalities provided for in Directive No 68/360.

[5] If a Member State executes the directive on the basis of its general regulations on the legal status of aliens, it must naturally not adopt administrative or judicial measures which would have the effect of limiting the full exercise of the rights which the Community law guarantees to the nationals of other Member States. In particular it would be incompatible with Community law for a general residence permit to be required or issued having a different scope from the proof of the right of residence by the issue of the special "Residence Permit" provided for in Article 4 (2) of Directive No 68/360.

[6] The imposition of penalties or other coercive measures is therefore ruled out in so far as a person protected by the provisions of Community law does not comply with national provisions which prescribe for such a person possession of a general residence permit instead of the document provided for in Directive No 68/360, since the national authorities should not impose penalties for disregard of a provision which is incompatible with Community law. On the other hand Community law does not preclude the appropriate punishment for infringement by the person concerned of national provisions adopted in conformity with Directive No 68/360.

210 Case Law

[7] The same applies to the question whether the repeated disregard of provisions which a Member State has adopted in execution of Directive No 68/360 can where appropriate justify increasing the penalties imposed. Community law does not prevent such an increase in penalties which is consistent with general principles of penal law. However this does not affect the obligation of the court to ascertain whether the conditions for such an increase in penalties are fulfilled where there has been a prior conviction on the basis of legal provisions the application of which was not justified under Community law. Even if the force of res judicata does not allow such a prior conviction to be completely nullified its effect cannot be extended in such a way that it is regarded as an aggravating circumstance in connexion with a subsequent conviction which is justified under Community law.

[8] The questions put to the Court must therefore be answered as follows: The issue of the special residence document provided for in Article 4 of Council Directive No 68/360 has only a declaratory effect and for aliens to whom Article 48 of the Treaty or parallel provisions give rights, it cannot be assimilated to a residence permit such as is prescribed for aliens in general and in connexion with the issue of which the national authorities have a discretion. A Member State may not require from a person enjoying the protection of Community law that he should possess a general residence permit instead of the document provided for in Article 4 (2) of Directive No 68/360 in conjunction with the Annex thereto nor may it impose penalties for the failure to possess such a permit The force of res judicata arising from a prior conviction arrived at on the basis of national provisions not in accordance with the requirements of Community law cannot justify an increase in the penalties to be imposed for an infringement of the provisions which a Member State has adopted to secure the application of Directive No 68/360 in its territory.

[9] The third question is as follows:

[10] This question concerns in particular the case where a person who is entitled under Community law to reside in the territory of the country in question neglects to obtain a valid identity card. Since this requirement is expressly contained in Directive No 68/360 the power of Member States to punish infringements of this duty cannot in principle be contested. The court making the reference nevertheless asks in this connexion whether it is compatible with Community law and in particular with the prohibition on discrimination in Arteie 7 of the Treaty to make a person who is subject to Community law liable to the relatively heavy penalties which the general law on aliens provides for such an infringement whereas a national on infringing similar legal provisions is liable only to the considerably lighter penalties which apply to minor offences.

[11] The first paragraph of Article 7 of the EEC Treaty states: "Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited". With regard to the question put by the court making the reference it should be pointed out that the general principle of Article 7 can only apply subject to the special provisions of the Treaty. These special provisions include the regulations and directives, including among these Directive No 68/360, provided for in Article 49 to bring about, by progressive stages, freedom of movement. In so far as this directive imposes special obligations (such as the possession of a passport or an identity card) on the nationals of a Member State who enter the territory of another Member State or reside there, the persons affected thereby cannot be simply put on the same footing as nationals of the country of residence.


[12] There is therefore no objection to such persons being subject to different penal provisions from those applying to nationals who infringe an obligation, possibly having its origin in a law or regulation, to obtain certain identity documents. This conclusion follows all the more forcibly in that several Member States do not impose any such obligation by law on their own nationals so that in these countries there would be no standard of comparison. In the absence of a criterion which in the present case might be based on the principle of national treatment contained in Article 7 of the Treaty it is nevertheless to be observed that although Member States are entitled to impose reasonable penalties for infringement by persons subject to Community law of the obligation to obtain a valid identity card or passport, such penalties should by no means be so severe as to cause an obstacle to the freedom of entry and residence provided for in the Treaty. To this extent it cannot be ruled out that the penalties prescribed in general provisions of laws relating to aliens, having regard to the objective of such provisions, are not compatible with the requirements of Community law which is based on the freedom of movement of persons and, apart from certain exceptions, on the general application of the principle of equal treatment with nationals. If a Member State has not adapted its legal provisions to the requirements of Community law in this sphere it is the task for the national court to use its judicial discretion to impose a punishment appropriate to the character and objective of the provisions of Community law the observance of which the penalty is intended to safeguard.

[13] The answer to the question raised must therefore be that it is for the competent authorities of each Member State to impose penalties where appropriate on a person subject to the provisions of Community law who has failed to ~rovide hirnself with one of the documents of identity referred to in Article 3 (1) of Directive No 68/360 but that the penalties imposed must not be disproportionate to the nature of the offence committed.

The Court therefore ruled . ..

Annotation on Case 8/77

This judgment t makes an important contribution to the case law on the right of entry and residence of Community nationals. Although the question before the Court concerned workers covered by Article 48 of the EEC Treaty, the principles which it laid down are, as is clear from the Court's general approach to cases of this type, equally applicable to the entry and residence of self-employed persons 2.

Proceedings were brought against three nationals of a Member State of the Community for infringing the German legislation governing aliens. Two of them were fined DM 100, plus the costs of the proceedings and the costs of enforcing the judgment, for having resided in the Federal Republic of Germany without possessing a passport or residence permit The third did indeed possess a passport but had refused to carry out the necessary formalities to obtain a residence permit;

1. Judgment of 14 July 1977, (1977) ECR 1495. 2. See J.-C. Seche, "Free movement of workers under Community Law" in The

Social Policy of the European Communities, Special Issue C.M.L. Rev. 1977, 385 et seq., esp. 398.

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for this reason he had been remanded in custody and fined DM 1,200, account being taken of the time spent in custody.

In reply to the questions posed by the German court, the Court confirmed or clarified its previous decisions as regards the scope of the right of entry and residence and the penalties which may be imposed in respect of infringements of national legislation on the control of aliens.

1. The right of entry and residence and the Obligation to possess an identity card or a residence permit

The Court had already held that nationals of Member States derive their right to free movement directly from the relevant provisions of the Treaty, whether it is a matter of the pursuit of an occupation or of entry and residence.

In its judgment in the Royer case, in particular, it had stated that the right to enter a Member State and reside there is granted directly, to any person covered by Community law, by the Treaty or, as the case may be, the provisions adopted for its implementation, independently of any residence document issued by the host Member State, which constitutes merely a "measure serving to prove the individual position of a national of another Member State with regard to the provisions of Community law" a.

In its judgment in the Sagufo case, it adopts the same principle in holding that the residence document provided for in Community directives has a merely declaratory effect and cannot be assimilated to a residence permit such as is prescribed for aliens in general, in connection with the issue of which the national authorities have a discretion.

The consequence is, in particular, that a Member State cannot require a person entitled to this right of residence to possess such a permit instead of the Community residence document.

Community nationals may, however, be required to possess not only the residence document, but also an identity card or a valid national passport, as also prescribed under Community Law, even, according to the Court, if such an obligation is not imposed on nationals. It justifies this difference in treatment on two grounds: first, the host State must be able to obtain particulars giving it exact knowledge of population movements on its territory, and secondly, the persons concerned must have a means of establishing their status with regard to the Treaty.

Starting from this acceptable difference in the treatment of aliens, the Court proceeded to admit a more debatable distinction with regard to penalties in connection with the possession of identity and residence documents.

2. Penalties relating to compliance with the legislation governing the residence of aliens

The Court of Justice has already stated that Community Law does not prevent Member States from applying appropriate and necessary penalties in connection

3. Case 48/75, Judgment of 8 April 1976, (1976) ECR 497. See considerations 31-33 and point 1 of the operative part of the judgment.


with compliance with national provisions on the control of aliens.4 (a) As regards the provisions whose infringement may give rise to such penalties, the judgment in the W atson case ruled that they could include rules requiring nationals of other Member States to report to the authorities of the host State and prescribing that residents providing accommodation for such persons must inform the authorities of their identity; the Court considers such requirements compatible with Community Law. In the Sagufo case the provision at issue concerned the possession of an identity document and a residence document.

Naturally, the Court ruled that the imposition of penalties was precluded in cases of failure to comply with national rules which are incompatible with Community Law, which is precisely the case with the obligation to possess a residence permit. On the other hand such penalties were acceptable with regard to the abovementioned documents, the possession of which is provided for under Community Law. Such a conclusion was not self-evident, in view of the fact that the Court itself had held that the residence document has a purely declaratory effect.

The legitimacy and even, in appropriate cases, the necessity of applying penalties for infringements of Community provisions cannot in itself be contested. As regards the right of entry and residence, such penalties could be applied to persons who do not enjoy this right under Community law. But, ex hypothesi, the obligation to possess a residence document is imposed on Community citizens who enjoy a right of residence, the granting of which is subject to the discretion of the national authorities only in the event of a violation of public policy. The Court, rather than simply applying the principle of equality of treatment between nationals and citizens of other Member States, accepted that the latter could be subjected to criminal provisions not applicable to nationals, even where, as in some States, no obligation is imposed on nationals to possess identity documents. Likewise, a difference in treatment was acceptable as regards the type of penalty impossable. (b) As regards the degree of severity of the penalty, the Court first makes a point, the importance of which goes beyond the realm of the freedom of movement of persons, with regard to the effect on an infringement of Community Law of a previous conviction for an infringement of a national provision which was incompatible with Community Law. Since the previous conviction was, because of this incompatibility, unlawful, it cannot be regarded as an aggravating circumstance in relation to a subsequent conviction itself justified under Community Law.

Since these were measures to ensure compliance with Community Law, the Court could have invoked, as in its judgment in the Watson case, the criterion of the comparability of penalties laid down for national infringements of equal importance. The national authorities could certainly have found penalties of an equivalent severity to those imposed on nationals for failure to possess an identity document, or, in the absence of such a requirement, other permits or documents which the nationals of Member States must possess.

However, the Court, emphasizing the special nature of the penalties applicable to aliens, adopted only the second of the criteria in the W atson case; that is the criterion of proportionality, whereby penalties must be kept within reasonable Iimits and may not become an obstacle to the freedom of entry and residence provided for

4. See the Royer judgment, op. cit. note 3, considerations 41 and 42; Case 118/75, Watson and Be/mann, (1976) ECR 1185, considerations 17 and 18 and point 2 of the operative part of the judgment.

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in the Treaty. It was for the national court, bearing these principles in mind and using its judicial discretion, to impose an appropriate penalty a principle which the German courts have applied in the case in question by releasing the detainees. It is, however, surprising that the Court did not, on this point, go on to take its affirmation of the primacy of the Community Law principle of proportionality to its logical conclusion. Thus, while referring to the need for Member States to adapt any excessive penalties to the requirements of Community law and emphasising the role of the national court in using its discretionary powers to make good any failure by the authorities in this respect, it gave no express ruling on the position where the relevant national legislation is so drawn as to deprive the courts of any such discretion. Here, logically, insofar as the penalties in question may be regarded as disproportionale to the gravity of the offence and therefore contrary to the principles of Community law, it must surely be the duty of the courts to refuse to apply them.s

J. c. Seche*

114. Case 30177, Regina v. Pierre Bouchereau. Preliminary ruling of 27 October 1977 on request of the Marlborough Street Magistrates' Court, London. (1977) ECR 1999.

Facts

On 9 June 1976 a worker of French nationality was brought before the Marihorough Street Magistrates' Court on a charge of unlawful possession of drugs. On 7 January 1976 another London court bad found the same person guilty for the first time of a similar offence.

Bouchereau pleaded guilty and the Court was minded to make a recommendation for deportation to the Secretary of State, pursuant to its powers under section 6 (1) of the Immigration Act 1971. Such a recommendation is not binding on the Secretary of State but is a precondition on the basis of which the Secretary of State is empowered to make a deportation order. In fact, most recommendations made by a

5. It is of interest in this connection that in instructions of 31 August 1977 on the conclusions to be drawn from the judgment, the Minister of Justice of BadenWürtemberg, in which the persons concerned bad been convicted, requested the judicial authorities of the Land not to apply the penalties provided for under German law on aliens to persons possessing neither a residence permit nor the Community residence document. These instructions were subsequently modified on 8 December 1977 so as to permit the imposition of penalties provided that these are in proportion to the offence committed. As regards failure to possess an identity document, the ministerial instructions recommend a prudent attitude until judgment is given in a case pending before one of the Land's higher courts (Europäische Grundrechte Zeitschrift 21 December 1977, 4th year, Vol. 25/26, page 524, and 24 February 1978, 5th year, Vol. 3, page 77). The Minister of Justice of NorthRhine Westphalia has also issued similar instructions.

* Legal adviser to the Commission of the EC. The author expresses his personal views.


court are implemented. However, under English law before a recommendation for deportation may be made written notice has to be served on the defendant informing him of rights attaching to patrial status. At the end of the proceedings which followed notification the parties to the main action raised certain questions of interpretation of Community law which led the Marlborough Street Court to ask the Court of Justice to give a preliminary ruling on the following questions:

Questions

1. Whether a recommendation for deportation made by a national court of a Member State to the executive authority of that State (such recommendation being persuasive but not binding on the executive authority) constitutes a "measure" within the meaning of Article 3 (1) and (2) of Directive No 64/221/EEC. 2. Whether the wording of Article 3 (2) of Directive No 64/221/EEC, namely that previous criminal convictions shall not "in themselves" constitute grounds for the taking of measures based on public policy or public security means that previous criminal convictions are solely relevant in so far as they manifest a present or future propensity to act in a manner contrary to public policy or public security; alternatively, the meaning to be attached to the expression "in themselves" in Article 3 (2) of Directive No 64!221/EEC. 3. Whether the words "public policy" in Article 48 (3) of the Treaty establishing the European Economic Community, upon the grounds of which limitations to the rights granted by Article 48 must be justified, are to be interpreted: (a) as including reasons of State, even where no breach of the public peace or order is threatened; or (b) in a narrower sense in which is incorporated the concept of some threatened breach of public peace, order or security; or (c) in some other wider sense?

Opinions and Observations

In his Opinion, delivered on 28 September 1977, Mr. Advocate-General Warner submitted inter alia the following:

( on the first question):

The word "measure" is not one of precise import. lts interpretation requires a consideration of the context in which it is found. Plainly a recommendation by an official to his Minister would not constitute a "measure" in the present context, for it would have no legal effect. But one cannot assimilate to such a recommendation of the kind here in question, which does have legal effects. To hold that such a recommendation was not a relevant "measure'' would have bizarre consequences. It would mean, for instance, that, so far at all events as the express terms of the Directive were concerned, such a recommendation could be made on the ground of previous criminal convictions alone, even though the deportation order that it envisaged could not. On this, the semantic aspect of the case, if I may so describe it, it is no answer to say (as Counsel for the United Kingdom said at the hearing in answer to questions of mine and of one of Y our Lordships) that a national court must in any event "have regard" to the terms of the Directive. Indeed, assuming that

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"must" here imports a legal obligation, that answer virtually contradicts the submission itself.

In the result I am of the opinion that, in answer to the first question referred to the Court by the learned Magistrate, Your Lordships should rule that a recommendation for deportation made by a court of a Member State to the executive authority of that State constitutes a "measure" within the meaning of Articles 3 (1) and (2) of the Directive if, although not binding on that authority, it has legal consequences.

(on the second question): lt appears from the Order for Reference that the reason why that question is

asked is that, before the learned Magistrate, it was submitted on behalf of Mr Bouchereau that Article 3 (2) meant that previous criminal convictions were solely relevant in so far as they manifested a present or future intention to act in a manner contrary to public policy or public security, and that there was no evidence to support such a conclusion in his case; whereas it was submitted on behalf of the prosecution that Article 3 (2) meant that the Court could not make a recommendation for deportation on grounds of public policy based on the fact alone of a previous conviction, but was entitled to take into account the past conduct of the defendant which resulted in the previous conviction.

I will say at once that, in my opinion, the prosecution was, in that respect, clearly right. Article 3 (2) cannot be interpreted in such a way that it would result in the existence of a conviction being a bar to deportation in circumstances in which the conduct of the person concerned would otherwise justify the step. Nor can it be interpreted as requiring evidence as to that person's intentions.

The question as framed by the learned Magistrate does not however refer to evidence of intentions. lt refers to "a present or future propensity". The real question thereby posed is, I think, whether Articles 3 (1) and (2) read together mean that the conduct of the person concerned, in order to justify his deportation, must manifest a propensity on his part to act in a manner contrary to public policy or public security.

On behalf of the Commission, as weil as, of course, on behalf of Mr Bouchereau, it is submitted in effect that that question should be answered in the affirmative. But on behalf of the United Kingdom Government, as weil as on behalf of the Metropolitan Police, it is submitted that to give an affirmative answer to the question would be to lay down too narrow a test. The United Kingdom Government in particular points out that cases do arise, exceptionally, where the personal conduct of an alien has been such that, whilst not necessarily evincing any clear propensity on his part, it has caused such deep public revulsion that public policy requires his departure. I agree. I think that in such a case a Member State may exclude a national of another Member State from its territory, just as a man may exclude from his house a guest, even a relative, who has behaved in an excessively offensive fashion. Although therefore, in the nature of things, the conduct of a person relevant for the purposes of Article 3 will generally be conduct that shows him to have a particular propensity, it cannot be said that that must necessarily be so.

I accordingly agree with the United Kingdom Government's submission that this Court should adhere to the test that it laid down in the Rutili case, where it held (in paragraph 28 of the Judgment, [1975] ECR at p. 1231) that restrictions cannot be imposed on the right of a national of any Member State to enter the territory of another Member State, to stay there and to move within it unless his presence or conduct constitutes a genuine and sufficiently serious threat to public policy".


I am therefore of the opm10n that Your Lordships should answer the learned Magistrate's second question by saying that Article 3 (2) of the Directive means that a deportation order on grounds of public policy or public security may not be based on the fact alone of the existence of previous convictions but that such an order can only be justified if the presence or conduct of the individual concerned constitutes a genuine and sufficiently serious threat to the requirements of public policy or of public security.

(on the third question):

The Judgments of the Court, particularly in the V an Duyn and Rutili cases make it clear, that, in the result, to quote from the Judgment in the latter case "Member States continue to be, in principle, free to determine the requirements of public policy in the light of their national needs". That freedom is however limited and its exercise is subject to control by the institutions of the Community.

The problern confronting the learned Magistrate in the present case cannot therefore be solved without enquiring whether any specific provision of Community law Iimits, either expressly or by necessary implication, the discretion exercisable by a Member State in circumstances such as those of that case.

In that connexion the Commission referred in its written Observations to paragraphs 1 and 2 of Article 4 of Directive No 64/221. The other parties did not, but the Court invited submissions from them thereon at the hearing. Those paragraphs are in the following terms: 1. The only diseases or disabilities justifying refusal of entry into a territory or refusal to issue a first residence permit shall be those listed in the Annex to this Directive. 2. Diseases or disabilities occurring after a first residence permit has been issued shall not justify refusal to renew the residence permit or expulsion from the territory.

The Annex referred to in paragraph 1 is in two parts. Part A, which is headed "Diseases which might endanger public health" is not here in point. But Part B, headed "Diseases and disabilities which might threaten public policy or public security", lists: 1. Drug addiction; 2. Profound mental disturbance; manifest conditions of psychotic disturbance with agitation, delirium, hallucinations or confusion.

(here follows a review of the state of Member States' laws regarding drug possession and addiction)

Of more importance, I think, than the position in individual Member States is the approach of the Directive itself. Article 4, as its terms evince, applies only to "diseases and disabilities". The effect of paragraph 2 thereof is that no disease or disability whatever, occurring after a first residence permit has been issued, can justify expulsion. The significance of the Annex is that it lists a number of exceptional diseases and disabilities which, under paragraph 1, can justify refusal of entry or refusal to issue a first residence permit. No disease or disability not so listed can justify even that.

The argument put forward at the hearing on behalf of Mr Bouchereau, as I

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understood it, was, in a nutshell, that, if he were a drug addict, he could not be deported on that ground; a fortiori could he not be deported on the "mere" ground that he had been found in unlawful possession of drugs. In my opinion that is a non sequitur. Certainly Mr Bouchereau, at all events if he became a drug addict after the issue to his om his first residence permit, could not be deported on that ground. But Article 4 does not forbid the deportation of a drug addict on grounds other than his drug addiction, unless of course such grounds consist in some other disease or disability. Suppose that a person were at once a scientologist and a drug addict. He could clearly be deported from the United Kingdom on the ground of his association with scientology, though not on the ground of his drug addiction. The unlawful possession of drugs is not a disease or disability, even though it shares with drug addiction a connexion with drugs. So Article 4 does not apply to it and does not exclude is as a ground for deportation. In a Member State where it is regarded as a criminal offence or otherwise as socially harmful, the provisions of the Directive that are relevant in relation to it are those of Article 3.

It remains to consider how Your Lordships should answer the leamed Magistrate's third question. The United Kingdom Government suggests that it would be enough for Your Lordships to say that the concept of "public policy" in Article 48 of the Treaty is not limited to the threatened breach of public peace, order or security. Perhaps it would, but I think that it might be more helpful if Your Lordships were somewhat more specific and added that that concept is not to be interpreted as excluding, as a potential ground for limiting the rights conferred on a worker by that Article, the fact of his having been found repeatedly in unlawful possession of harmful drugs.

Judgment

The first question [6] The first question asks "whether a recommendation for deportation made by a

national court of a Member State to the executive authority of that State (such recommendation being persuasive but not binding on the executive authority) constitutes a 'measure' within the meaning of Article 3 (1) and (2) of Directive No 64/221/EEC".

[7] That question seeks to discover whether a court which, under national legislation, has jurisdiction to recommend to the executive authority the deportation of a national of another Member State, such recommendation not being binding on that authority, must, when it does so, take into account the limitations resulting from the Treaty and from Directive No 64/221/EEC on the exercise of the powers which, in that area, are reserved to the Member States.

[8] According to the Observations submitted by the Government of the United Kingdom in accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, the question referred to the Court raises two separate problems: whether a judicial decision can constitute a "measure" for the purposes of the directive and, if the answer is in the affirmative, whether a mere "recommendation" by a national court can constitute a measure for the purposes of that same directive.


(a) As regards the first point [9] Article 2 of Directive No 64/221/EEC states that the directive relates to all

"measures" (dispositions, Vorschriften, provvedimenti, bestemmelser, voorschriften) concerning entry into the territory, issue or renewal of residence permits or expulsion from their territory taken by Member States on grounds of public policy, public security or public health.

[10] Under paragraphs (1) and (2) of Article 3 of that directive, "measures" (mesures, Maßnahmen, provvedimenti, forholdsregler, maatregelen) taken on grounds of public policy or public security shall be based exclusively on the personal conduct of the individual concerned and previous criminal convictions shall not in themselves constitute grounds for the taking of such measures.

[11] Although the Government of the United Kingdom declares that it accepts unreservedly that paragraphs (1) and (2) of Article 3 are directly applicable and confer rights on nationals of Member States to which the national courts must have regard, with the result that it is not open to a court of a Member State to ignore those provisions on any matter coming before the court to which they are relevant, it submits that a judicial decision of a national court cannot constitute a "measure" within the meaning of the said Article 3.

[12] On that point the Government observes that the fact that the term "measures" is used in the English text in both Articles 2 and 3 shows that it is intended to have the same meaning in each case and that it emerges from the first recital in the preamble to the directive that when used in Article 2 the expression only refers to provisions laid down by law, regulation or administrative action, to the exclusion of actions of the judiciary.

[13] A comparison of the different language versions of the provisions in question shows that with the exception of the Italian text all the other versions use different terms in each of the two articles, with the result that no legal consequences can be based on the terminology used.

[14] The different language versions of a Community text must be given a uniform interpretation and hence in the case of divergence between the versions the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms a part.

[15] By coordinating national rules on the control of aliens, to the extent to which they concern the nationals of other Member States, Directive No 64/221/EEC seeks to protect such nationals from any exercise of the powers resulting from the exception relating to limitations justified on grounds of public policy, public security or public health, which might go beyond the requirements justifying an exception to the basic principle of free movement of persons.

[ 16] It is essential that at the different stages of the process which may result in the adoption of a decision to make a deportation order that protection may be provided by the courts where they are involved in the adoption of such a decision.

[17] It follows that the concept of "measure" includes the action of a court which is required by the law to recommend in certain cases the deportation of a national of another Member State.

[18] When making such a recommendation, therefore, such a court must ensure that the directive is correctly applied and must take account of the Iimits which it imposes on the action of the authorities in the Member States.

[19] That finding is, moreover, in line with the point of view of the Government of the United Kingdom which "is not suggesting that it would be open to a court of a Member State to ignore the provisions of Article 3 (1) and (2) on any matter

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coming before the court to which the articles are relevant" but on the contrary accepts "that the provisions of those articles are directly applicable and confer rights on nationals of Member States to which the national courts must have regard".

(b) As regards the second point [20] As regards the second aspect of the first question, the Government of the

United Kingdom submits that a mere recommendation cannot constitute a "measure" within the meaning of Article 3 (1) and (2) of Directive No 64/221/EEC, and that only the subsequent decision of the Secretary of State can amount to such a measure.

[21] For the purposes of the directive, a "measure" is any action which affects the right of persons coming within the field of application of Article 48 to enter and reside freely in the Member States under the same conditions as the nationals of the host State.

[22] Within the context of the procedure laid down by section 3 (6) of the Immigration Act 1971, the recommendation referred to in the question raised by the national court constitutes a necessary step in the process of arriving at any decision to make a deportation order and is a necessary prerequisite for such a decision.

[23] Moreover, within the context of that procedure, its effect is to make it possible to deprive the person concerned of his liberty and it is, in any event, one factor justifying a subsequent decision by the executive authority to make a deportation order.

[24] Such a recommendation therefore affects the right of free movements and constitutes a measure within the meaning of Article 3 of the directive.

The second question [25] The second question asks "whether the wording of Article 3 (2) of Directive

No 64/221/EEC, namely that previous criminal convictions shall not 'in themselves' constitute grounds for the taking of measures based on public policy or public security means that previous criminal convictions are solely relevant in so far as they manifest a present of future propensity to act in a manner contrary to public policy or public security; alternatively, the meaning to be attached to the expression 'in themselves' in Article 3 (2) of Directive No 64/221/EEC".

[26] According to the terms of the order referring the case to the Court, that question seeks to discover whether, as the defendant maintained before the national court, "previous criminal convictions are solely relevant in so far as they manifest a present or future intention to act in a manner contrary to public policy or public security" or, on the other hand, whether, as Counsel for the prosecution sought to argue, although "the court cannot make a recommendation for deportation on grounds of public policy based on the fact alone of a previous conviction" it "is entitled to take into account the past conduct of the defendant which resulted in the previous conviction".

[27] The terms of Article 3 (2) of the directive, which states that "previous criminal convictions shall not in themselves constitute grounds for the taking of such measures" must be understood as requiring the national authorities to carry out a specific appraisal from the point of view of the interests inherent in protecting the requirements of public policy, which does not necessarily coincide with the appraisals which formed the basis of the criminal conviction.

[28] The existence of a previous criminal conviction can, therefore, only be taken into account in so far as the circumstances which gave rise to that conviction are


evidence of personal conduct constituting a present threat to the requirements of public policy.

[29]] Although, in general, a finding that such a threat exists implies the existence in the individual concerned of a propensity to act in the same way in the future, it is possible that past conduct alone may constitute such a threat to the requirements of public policy.

[30] It is for the authorities and, where appropriate, for the national courts, to consider that question in each individual case in the light of the particular legal position of persons subject to Community law and of the fundamental nature of the principle of the free movement of persons.

The third question [31] The third question asks whether the words "public policy" in Article 48 (3)

are to be interpreted as including reasons of state even where no breach of the public peace or order is threatened or in a narrower sense in which is incorporated the concept of some threatened breach of the public peace, order or security, or in some other wider sense.

[32] Apart from the various questions of terminology, this question seeks to obtain a definition of the interpretation to be given to the concept of "public policy" referred to in Article 48.

[33] In its judgment of 4 December 1974 (Case 41/74, V an Duyn v Horne Office, [1974] ECR 1337, at p. 1350) the Court emphasized that the concept of public policy in the context of the Community and where, in particular, it is used as a justification for derogating from the fundamental principle of freedom of movement for workers, must be interpreted strictly, so that its scope cannot be determined unilaterally by each Member State without being subject to control by the institutions of the Community.

[34] Nevertheless, it is stated in the same judgment that the particular circumstances justifying recourse to the concept of public policy may vary from one country to another and from one period to another and it is therefore necessary in this matter to allow the competent national authorities an area of discretion within the Iimits imposed by the Treaty and the provisions adopted for its implementation.

[35] In so far as it may justify certain restrictions on the free movement of persons subject to Community law, recourse by a national authority to the concept of public policy presupposes, in any event, the existence, in addition to the perturbation of the social order which any infringement of the law involves, of a genuine and sufficiently serious threat to the requirements of public policy affecting one of the fundamental interests of society.

The Court therefore ruled . ..

Annotation on Case 30/77

The questions referred to the Court of Justice in R. v. Bouchereau,t and considered in its judgment above, were as follows: 1. Whether a recommendation for deportation made by a national court of a

1. Case 30/77, (1977) ECR 1999, (1977) CMLR 800. See John A. Usher, (1977) 2 E.L. Rev. 449.

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Member State to the executive authority of that State (such recommendation being persuasive but not binding on the executive authority) constitutes a "measure" within the meaning of Article 3 (1) and (2) of Directive No. 64/221/EEC. 2. Whether the wording of Article 3 (2) of Directive No. 64/221/EEC, namely that previous criminal convictions shall not "in themselves" constitute grounds for the taking of measures based on public policy or public security means that previous criminal convictions are solely relevant in so far as they manifest a present or future propensity to act in a manner contrary to public policy or public security; alternatively, the meaning to be attached to the expression "in themselves" in Article 3 (2) of Directive No. 64/221/EEC. 3. Whether the words "public policy" in Article 48 (3) of the Treaty establishing the European Economic community, upon the grounds of which limitations to the rights granted by Article 48 must be justified, are to be interpreted: (a) as including reasons of state, even where no breach of the public peace or order is threatened; or (b) in a narrower sense in which is incorporated the concept of some threatened breach of public peace, order or ~ecurity; or (c) in some other wider sense?

The first question received an affirmative response from the Court, as was probably to be expected,2 but the submissions of the United Kingdom Government raised an interesting general issue of principle, which is commented upon below. With respect to the second and third questions, the Court's judgment was significant on the one band for conceding that past conduct alone may justify expulsion of a national of a Member State in certain circumstances, and on the other for emphasising that restrictions on the free movement of persons may only be justified in order to safeguard one of the fundamental interests of society.

1. Whether a judicial recommendation that a migrant be deported amounts to a "measure" within the meaning of Article 3 of Directive 64/221

Directive 64/221, it will be recalled, applies to all "measures" concerning, inter alia, entry and expulsion taken by Member States on grounds of public policy (Art. 2). Such "measures" are to be based exclusively on the personal conduct of the individual concerned (Art. 3 (1)), and previous criminal convictions do not in themselves constitute grounds for the taking of such "measures" (Art. 3 (2)).

The first question before the Court was designed to establish whether or not a judicial recommendation to the Horne Secretary, made under s. 3 (6) of the Immigration Act 1971, to the effect that an alien be deported, amounted to a "measure" within the meaning of Article 3 of Directive 64/221. The United Kingdom argued that while a judicial decision (as opposed to an executive act) did not constitute a "measure" within the meaning of Articles 2 and 3 of the Directive, a national court could not nevertheless "ignore" these provisions, since they were directly applicable and conferred rights on nationals of Member States which national courts were bound to protect! The basis of this apparently contradictory argument was the

2. In Case 36/75, Rutili v. French Minister of the lnterior (1975) ECR 1219, (1976) 1 CMLR 140, the Court held that it was for national courts to examine whether individual executive decisions were compatible with, inter alia, the provisions of Dir. 64/221.


view of the United Kingdom Government that to construe "measures" as including judicial decisions, as weil as executive acts, could Iead to proceedings being instituted against a Member State under Article 169 of the Treaty simply as a result of a national court's failure to give full effect to Article 3 of Directive 64/221. This, argued the United Kingdom, "would call in question the independence of the judiciary, considered vital in all the Member States".

Advocate General Warner did not agree. He cited the Court's judgment in Commission v. Belgium as follows:

"The obligations arising ... [under] the Treaty devolve upon States as such and the liability of a Member State under Article 169 arises whatever the agency of the State whose action or inaction is the cause of the failure to fulfil its Obligations, even in the case of a constitutionally independent institution." s

This proposition, he argued, although Iaid down in a case concerning the failure of the legislature to implement Community obligations, was wide enough to apply also to the judiciary of a Member State. Nevertheless, he expressed the caveat that a Member State could not be held to have failed to fulfil an obligation under the Treaty simply because one of its courts had reached a wrong decision. "In the judicial sphere," he declared, "Article 169 could only come into play in the event of a Member State deliberately ignoring or disregarding Community Iaw." (emphasis added).

The Advocate General's caveat may be open to question. lt is "national courts which are entrusted with ensuring the legal protection which citizens derive from the direct effect of the provisions of Community law",4 and, in the case of regulations, which must be given effect without the favour of national legislative implementation,s only national courts. lt would seem to follow that the failure of such a court, even as a result of error of law, to give proper effect to a rule of Community Law, would amount to a breach of the Treaty by the Member State concerned.& There is nothing remarkable in this conclusion. Indeed, it is generally held that a decision of a municipal court contrary to international law of itself engages the international responsibility of the State concerned.7 Whether the national court acts deliberately or as a result of error of law would seem in principle to be immaterial.

3. Case 77 !69, (1970) ECR 237 at 243, para. 15. 4. Case 33/76, Rewe-Zentralfinanz v. Landwirtschaftskammer für das Saarland

(1976) ECR 1989 at 1997, para. 5, (1977) 1 CMLR 533 at 550. 5. See, for instance, Case 34/73, Frate/li Variola SpA v. Italian Ministry of

Finance (1973) ECR 981. 6. E.g., if a national court were, without seeking a preliminary ruling from the

Court of Justice, to hold, incorrectly, that a particular provision of Community Law did not give rise to rights in individuals which national courts were bound to safeguard. The failure to give effect to a rule of Community Law as a result of a court's view of the facts, or as a result of the operation of national procedural rules, themselves consistent with Community Law, could not amount to an infringement of the Treaty.

7. D. P. O'Connell, International Law (1970) at p. 949, citing the view of the panel in the German-Portuguese arbitration of 1930, 13 BYIL 102, and GB v. Netherlands, Moore I. A. p. 4948 (1897). Brownlie, Principles of Public International Law (1973) at p. 436, citing McNair, Law of Treaties (1961) at p. 346.

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This argument was not commented upon by the Court, which contented itself with answering the question put. A judicial recommendation such as that in issue in the main suit must be held to amount to a "measure" within the meaning of Articles 2 and 3 of Directive 64/221, since it was essential that judicial protection be afforded to individuals at all stages of a process which could Iead to the making of a deportation order. The fact that the court's recommendation was not binding on the executive did not preclude its amounting to a "measure' within the meaning of the Directive, for it was a necessary step in the process of arriving at a decision to make a deportation order, and it constituted one of the factors which might justify the executive in making such an order.

2. Whether past conduct alone may justify deportation

The Court answered the second question to the effect that previous convictions were a relevant factor in deciding whether or not to deport a national of a Member State only in so far as the circumstances which gave rise to such convictions were evidence of personal conduct constituting a present threat to the requirements s of public policy. This accorded with its previous statement in Bonsignore v. Oberstadtdirektor Cologne, that "the concept of 'personal conduct' expresses the requirement that a deportation order may be made only for breaches of the peace and public security which might be committed by the individual affected".u The Court, however, added a rider in Bouchereau. Although in general a finding that a present threat to the requirements of public policy existed implied the existence in the individual concerned of a propensity to act in the same way in the future, it was possible that past conduct alone might constitute such a threat. What were the circumstances the Court had in mind? Advocate General Warner suggested one possibility:

"The United Kingdom Government in particular points out that cases do arise, exceptionally, where the personal conduct of an alien has been such that, whilst not necessarily evincing any clear propensity on his part, it has caused such deep revulsion that public policy requires his departure. I agree." to

It seems that an extremely heinous breach of the law leading to conviction in the host State may of itself justify deportation. If so, it may be the case that past conduct outside the jurisdiction may also justify resort to the public policy proviso. Such circumstances, however, will probably be exceptional. The text of Article 3 of Directive 64/221 and the Court's jurisprudence make it clear that the function of Article 48 (3) is primarily preventive, rather than retributive. Thus past acts of a migrant which are likely to provoke public disorder in the host State might be capable of justifying refusal of entry, or even deportation. Again, the host State may legitimately claim an interest in the suppression of serious crime. lt might therefore be justified in refusing entry to a migrant reasonably believed to have committed unpunished crimes outside its territory. What seems difficult to justify is refusal of entry or expulsion on the ground that a migrant has committed a criminal act, however grave, for which he has been tried and convicted, in the absence of a

8. The Court's adoption of the expression "threat to the requirements of public policy" rather than the incongruous "threat to public policy" was at the suggestion of Advocate General Warner.

9. Case 67/74, (1975) ECR 297 at 307, para. 6, (1975) 1 CMLR 472 at 488. 10. (1977) ECR at 2022, (1977) CMLR at 812.


propensity to such behaviour in the future, or apprehension of public disorder. It is not open to Member States to substitute the uncertain yardstick of public opinion for the rigorous requirements of the Treaty.

3. The meaning of "public policy"-a Community concept

The third question posed by the Marlborough Street Magistrates' Court sought an interpretation of the notion of "public policy" in Article 48 (3) of the Treaty. Advocate General Warner thought that little guidance as to the meaning of the phrases "public policy", "ordre public", "öffentliche Ordnung", etc., in the Treaty was to be derived from a consideration of their meanings in the national laws of the Member States; rather, the authors of the Treaty seemed to have left the concept to be defined and developed by Community secondary legislation, and judicial decisions. The Court apparently agreed. Referring to its previous decision in Van Duyn v. Horne Office,H it emphasised three aspects of the notion of "public policy". Firstly, its scope could not be determined unilaterally by a Member State, without being subject to control by the institutions of the Community. Secondly, the circumstances justifying recourse to the concept of public policy might vary from country to country and from time to time. Thirdly, recourse by a national authority to the concept presupposed the existence, in addition to the perturbation of the social order which any infringement of the Iaw involved, of a genuine and sufficiently serious threat to the requirements of public policy affecting one of the fundamental interests of society .12

The migrant is thus armed with considerable protection against arbitrary treatment. The possibility of a purely subject evaluation of the situation is ruled out, and, while national communities are free to safeguard local values, it is only when the most fundamental of these are put at risk that the public policy proviso may be invoked. Mr. Bouchereau, convicted of possessing small quantities of LSD and amphetamines, was considered by the learned Magistrate, in light of the judgment of the Court of Justice, as posing no such threat to the requirements of English public policy.ta

4. Article 4 of the Directive-expulsion for drug addiction

An argument raised briefly in the course of the proceedings, though not dealt with by the Court, is worthy of brief comment. Article 4 of Directive 64/221 provides ihat diseases or disabilities occurring after a first residence permit has been issued shall not justify refusal to renew the residence permit, or expulsion. This provision was cited by the Commission, and it might have founded an argument to the effect that Mr. Bouchereau was a drug addict, and could not be expelled on that ground. In fact, there was no evidence that Mr. Bouchereau was a drug addict, and his first residence permit had been granted after the conviction occasioning the reference

11. Case 41/74, (1974) ECR 1337, (1975) 1 CMLR 1. 12. Cf. the formulation in Rutili, note 2, which referred simply to a "genuine

and sufficiently serious threat to public policy". (1975) ECR 1219 at 1232, (1976) 1 CMLR 140 at 155.

13. John A. Usher, (1977) 1 E.L. Rev. 449, at 452, referring to The Daily Telegraph of Monday, November 14, 1977.

226 Case Law

before the Court. Nevertheless, even bad Mr. Bouchereau fallen squarely within the terms of Article 4 of the Directive, it seems it could not have precluded bis convictions for the unlawful possession of drugs (as distinct from bis drug addiction) being taken into account. "Article 4," pointed out Advocate General Warner, "does not forbid the deportation of a drug addict on grounds other than bis drug addiction, unless of course such grounds consist of some other disease or disability." 14

5. V an Duyn revisited

The Court in Bouchereau cited V an Duyn for the proposition that Article 48 (3) must be construed strictly, and its scope subject to control by the institutions of the Community. But that was not the only proposition enunciated by the Court in Van Duyn, a case in which, it will be recalled, a Dutch national was refused entry into the United Kingdom on the ground that she was to take up employment in a scientology establishment. The United Kingdom Government bad taken administrative measures to Iimit the growth of scientology, but bad not taken steps to make its practice unlawful. The Court declared that "where the competent authorities of a Member State have clearly defined their standpoint as regards the activities of a particular Organisation and where, considering it to be socially harmful, they have taken administrative measures to counteract these activities, the Member State cannot be required, before it can rely on the concept of public policy, to make such activities unlawful, if recourse to such a measure is not thought appropriate in the circumstances." 15

This statement, it will be noted, antedated the Court's emphasis on the application of the principle of proportionality in the administration of Article 48 (3).16

Advocate General Warner expressed the view en passant in Bouchereau that the United Kingdom was entitled to deport scientologists under Article 48 (3). The present writer has always regarded this as open to question.t7 In order to justify refusal of entry, or expulsion, a migrant's conduct must constitute a genuine and sufficiently serious threat to the requirements of public policy. The most reliable criterion as to whether a threat is genuine and sufficiently serious is the Member State's response to such activity when carried on by its own nationals within its territory. If such response amounts to little more than public condemnation of an organisation's activities, can it really be held to be necessary on grounds of public policy to refuse entry, or to expel, migrants who are employees of the organisation in question? Even if refusal of entry is justifiable, it may be more difficult to justify expulsion. It certainly seems legitimate to draw a distinction between grounds

14. (1977) ECR at 2027, (1977) CMLR at 819. 15. (1974) ECR at 1350, para. 19, (1975) 1 CMLR at 17. 16. Emphasised in Rutili, note 2. 17. For a critical discussion of this case, see D. Wyatt, (1975-76) 1 E.L. Rev. 64,

esp. 66, 67. It is submitted that refusal of entry to, or deportation of, a scientologist might be justified on the ground that, while a threat to the requirements of public policy is posed by non-nationals seeking to introduce an alien cult into the United Kingdom, and indeed to use the United Kingdom as a centre for its activities, no such threat is posed by the indigenous population which, left to its own devices, would be unlikely to adopt the cult's practices. This, however, was not the approach of the Court in V an Duyn.

Court of lustice 227

justifying refusal of entry, an essentially preventive measure which at most defeats reasonable expectations, and grounds justifying expulsion, which may have a punitive effect, where it involves the loss of job, home and friends, the interruption of the school careers of children, and inevitable accompanying distress for all concerned. Whereas refusal of entry may be justifiable where a migrant contemplates acts which, though not necessarily criminal, can be shown to strike at vital interests which the host State has taken active steps to protect, expulsion, at any rate in the case of a migrant who has become settled in the host State, ought to be viewed as having the effect of a serious punitive measure, and be reserved for cases where grave breaches of the law are apprehended by the authorities.

Derrick Wyatt *

* Fellow of Emmanuel College, Cambridge.

228 Case Law

THE CONVENTION OF BRUSSELS OF SEPTEMBER 27, 1968 ON JURISDICTION AND THE RECOGNITION AND ENFORCEMENT

OF JUDGMENTS IN CIVIL AND COMMERCIAL MA TIERS

Case Law of the National Courts and the Court of Justice of the European Communities

I. INTRODUCTION

The Treaty establishing the European Economic Community, Article 220, provides: "Member States shall, so far as is necessary, enter into negotiations with each

other with a view to seenring for the benefit of their nationals: ... the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals and of arbitration awards."

As a result of these negotiations the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters ("The Convention") was signed by the original Contracting States (Belgium, France, Germany, ltaly, Luxembourg and the Netherlands) on September 27, 1968 and came into force between them on February 1, 1973. On June 3, 1971, in Luxembourg, these contracting States signed a Protocol concerning the interpretation by the Court of Justice of the European Communities ("The Court of Justice") of the Convention. The Protocol came into force on September 1, 1975.

In accordance with Article 3 of the Act of Accession of the three new Member States of the European Communities, the nine Member States have been negotiating an adjustment to the Convention and the Protocol, taking account of the particular requirements of the legal systems of the new Member States, revising certain provisions and, in certain cases, adding to the substance of the text of the Convention. lt is hoped that the Adjustment Convention will come into force throughout the Community in 1980 or soon thereafter.

It is particularly noteworthy that the Protocol Iimits the opportunities for referring questions for interpretation by the Court of Justice to superior and appellate national courts. The superior courts are bound to make a reference where a decision on a question relating to the interpretation of the Convention is necessary to enable them to give judgment. The result of this restriction is that courts of first instance are not normally entitled to ask the Court for rulings, and this is undoubtedly a matter for regret; the disadvantages of this restriction have been weil exemplified in Belgium where there have been COntradietory decisions by commercial courts on exclusive sales agreements; at least one of these cases has to come before an appeal court before a reference can be made to the Court of Justice for a ruling which will resolve the conflict. Between February 1, 1973 and September 1, 1975 (when the Protocol came into force) the superior and appellate national courts also were unable to seek the guidance of the Court of Justice. lt was not until the second half of 1976 that decisions of the Court of Justice were available to establish an effective and uniform application of the Convention.t

1. However the contracting States, when signing the Protocol, annexed to it a Joint declaration that they were "ready to organize, in CO-operation with the Court of Justice, an exchange of information on the judgments". As a result the Docu-

Court of Justice and the National Court 229

II. THE PRECEDENCE OF THE PROVISIONS OF THE CONVENTION OVER NATIONAL PROVISIONS

It is established that Community Law in the strict sense takes precedence over national provisions in conflict with it, even though such national provisions are enacted subsequently to the relevant Community Law. This is because the Community legal system differs in scope from dassie international law. The Convention is the result of negotiations between Member States of the Community and is an instrument of international law. However the negotiations were necessary under Article 220 of the EEC Treaty and, as the preamble states, the Convention implements the provisions of that Article. It is therefore inseparably linked with the Community legal system and, as the Court of Justice said in Tessili v. Dunlop (cited below) it "must be interpreted having regard both to its principles and objectives and to its relationship with the Treaty". The separate Protocol concerning the jurisdiction of the Court of Justice was, however, signed and ratified separately because some Contracting States feit unable to assume that merely because the Convention was drafted under the mandate of Article 220 this could provide a legal basis conferring jurisdiction over its interpretation on the Court.

In this respect it should be noted that the Pretore of Brescia, in a judgment of October 25, 1975,2 concerning Article 17 of the Convention, held that the law of June 21, 1971, ratifying the Convention, was repealed by Article 413 of the Code of Civil Procedure, amended by law 533 of August 11, 1973 (c.f. the judgment of the Munich Landgericht discussed below in connection with Article 17).

This decision is a source of anxiety with regard to the effect of subsequent national legislation on the application of the Convention in ltaly and possibly in other Member States which adhere to the dualist theory in international law.

III. EXAMINATION OF THE CASES

Much of the case law which follows is summarized in the Synopsis and has been selected as being related to those articles of the Convention which so far have caused difficulty and in respect of which rulings of the Court of Justice have been requested.3

Article 1: The Scope of the Convention

The Convention, subject to the undermentioned exceptions, applies automatically to all civil and commercial matters and the courts must apply the rules of the Convention whether or not they are invoked by the parties. It applies to civil proceedings brought before criminal courts both as regards decisions as to jurisdiction and also

mentation Branch of the Court of Justice intends to publish, probably thrice yearly, a "Synopsis of Case Law", in the six Community languages. The first issue (Part I) is now available and contains summaries of over fifty decisions of national courts and the Court of Justice, made between July 1, 1975 and December 31, 1976.

2. 35 Riv. Dir. Int. Priv. e Proc. no. 3, 547: (1976) 11 Foro ltaliano, I, Col. 250: Synopsis of Case Law no. 34.

3. See note 1 above.

230 Case Law

as regards the recognition and enforcement of judgments given by criminal courts in such proceedings, whether contentious or non-contentious. Also, it applies to civil and commercial matters brought before administrative tribunals and actions concerning labour law. 4

The exceptions are as follows: (1) the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship, wills and succession; (2) bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings; (3) social security; ( 4) arbitration.

Apart from the foregoing, Article 1 gives no further details as to the meaning of the concept "civil and commercial matters" and leaves open the question as to whether the concept is to be defined by national law or is an independent concept.

In Case 29/76 Firma LTU GmbH & Co. KG v. Eurocontro/.5 The Court of Justice rejected the method of referring to the national law either of the State of origin or of the State in wihch enforcement or recognition is sought.

"As Article 1 serves to indicate the area of application of the Convention it is necessary, in order to ensure, as far as possible, that the rights and Obligations which derive from it for the Contracting States and the persons to whom it applies are equal and uniform, that the terms of that provision should not be interpreted as a mere reference to the intemal law of one or other of the States concerned."

This illustrates once again the Court's consistent efforts generally to avoid a simple renvoi to national law of provisions of Community Law or of Community origin.

The Court continued: "By providing that the Convention shall apply 'whatever the nature of the

court or tribunal' Article 1 shows that the concept 'civil and commercial matters' cannot be interpreted solely in the light of the division of jurisdiction between the various types of courts existing in certain States.

The concept in question must therefore be regarded as independent and must be interpreted by reference, first, to the objectives and scheme of the Convention and, secondly, to the general principles which stem from the corpus of the national legal systems.

If the interpretation of the concept is approached in this way, in particular for the purpose of applying the provisions of Title 111 of the Convention, certain types of judicial decision must be regarded as excluded from the area of application of the Convention, either by reason of the legal relationships between the parties to the action or of the subject matter of the action."

The Court has attempted, it seems, a rule of thumb for defining the scope of the Convention by elimination.

The judgment is consistent with previous cases in holding that Community Law,

4. See Jenard Report, Chapter 3, Heading 111. Bulletin of the European Communities, Supplement 12/72.

5. (1976) E.C.R. 1541; Synopsis of Case Law no. 1. See also Joined Cases 9 and 10/77, Bavaria Fluggesellschaft Schwabe & Co KC and Germanair Bedarfsluftfahrt & Co KG v. Eurocontrol (1977) E.C.R. 1517.


even that deriving from Conventions, constitutes an independent system. However, it introduces uncertainty for the court of a State where enforcement is being challenged by referring it not only to the objectives and scheme of the Convention but also requiring it to undertake a comparative law study on the underlying principles in all the nationallegal systems.e

The Court has, however, given valuable guidelines for determining when disputes between a public authority and a person governed by private law may fall within the area of application of the Convention. Thus public law applies where, as in this case, the dispute concerns charges payable by a person governed by private law to a national or international body governed by public law for the use, particularly where it is obligatory and exclusive, of equipment and services and where the rate of charges and methods of calculation are imposed unilaterally on the users.

In the related Cases 9 and 10/77 the Court of Justice ruled that Article 56 of the Convention does not prevent the continued operation of bilateral agreements which are expressed to be superseded by the Convention in Article 55 in relation to judgments which do not fall within the express exclusion of Article 1 of the Convention but which have been excluded by previous interpretation by the Court of Justice of theterm "civil and commercial matters". The Court emphasized that it can only rule on the meaning of the words as used in the Convention and that their use is an independent concept without reference to the meaning of the words in different national Iaws; it also emphasized that this may Iead to differing interpretation being made of the same words in the Brussels Convention and in bilateral agreements which fall to be interpreted by the national courts.

With the exception of the judgment by the Pretore di Brescia,1 a number of national judgments confirm that Iabour law falls within the scope of Article 1 of the Convention.s

Article 5: Special Jurisdiction

Article 5 of the Convention provides as follows: "A person domiciled in a Contracting State may, in another Contracting

State, be sued (inter alia): (1) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred; (5) as regards a dispute arising out of the operations of a branch, agency or

6. See P. Leleux, "Jurisprudence relative a l'application de Ia Convention du 27 septembre 1968 sur Ia Competence Judiciaire et l'Execution des decisions on matiere civile et Commerciale", (1977) C.D.E. 148.

7. See note 2 above. 8. Cour d'Appel of Aix-en-Provence of May 10, 1974, Dalloz-Sirey, Jur. 1974,

p. 760; Cour Superieure of Luxembourg, Oct. 8, 1975, Saar/urst Brauerei AG., Osiris SARL v. Armand Engels, Synopsis no. 5; Tribunal d'lnstance of Angers, Nov. 4, 1975, Sion v. Soc. Nino, Dalloz-Sirey, Jur. 1976 p. 202 with note de Droz at p. 204, Synopsis no. 9; Conseil de Prudhommes of Vannes of Dec. 19, 1975, Laforger v. Naturana-Miederfabriken, Dalloz-Sirey Jur. 1976 p. 203 with note de Droz at p. 204, Synopsis no. 6. See also Jenard Report, op. cit. note 4, at p. 49.

232 Case Law

other establishment, in the courts for the place in which the branch, agency or other establishment is situated."

This Article provides an exception to the general rule in Article 2 that persons domiciled in a Contracting State shall be sued in the Courts of that State. Paragraphs (1), (3) and (5) have so far been litigated in national courts and been referred to the Court of Justice.

In Article 5 para. 1 the "obligation" referred to is the obligation in dispute. The ltalian and German versions are unequivocal on this point, and in order to clarify the French and Dutch texts, the draft Adjustment Convention amends the French text to show clearly that it is the Obligation "qui sert de base a Ia demande".

In contracts of sa1e the place of performance of the obligation to pay the purchase price may differ from that of the Obligation to deliver the goods. Furthermore the place of performance may be determined by agreement between the parties or, failing this, according to the law applicable to the contract. Thus in a number of decisions, cited by Leleux,9 Dutch courts 1o assumed jurisdiction in order to find in favour of plaintiffs domiciled in the Netherlands against foreign purchasers in defauJ.t of payment of the purchase price of goods delivered. Under Netherlands Law, as also under ltalian Law, debts or sums of money are payable at the address of the creditor, and as a result, a non-Dutch contracting party must, if he wishes to escape this jurisdiction, take great care to insert an appropriate jurisdiction clause in the contract.

The Utrecht District Court u also ruled in a case in which the vendor relied on the fact that there was no contract in order to challenge the Court's jurisdiction. The Court held, justifiably, that this did not constitute an exception, since the vendor's arguments related to the substance of the matter.

The Cour d'Appel of Paris, held, in a judgment given on June 14, 1975,12 that the French courts had no jurisdiction to give a ruling on an application for payment for the return of stocks of machinery, since under French law payment of a sum of money must normally be carried out at the defendant's address, in this case in Germany. This case illustrates that the obligation in dispute should be distinguished from the body of contractual obligations. It concerned an agency agreement relating to machinery, which the parties had terminated by mutual agreement on the understanding that the manufacturer of the machinery had undertaken to take back the stocks of machinery remaining in France; these stocks had been sent back to Germany and the manufacturer had refused to pay for them. The agency agreement itself was thus no Ionger in dispute, but the performance of a new obligation arising out of the mutual agreement to terminate the contract.

In its judgment of November 11, 1974,13 in a case in which the enforcement of a decision by a French court was challenged, the Genoa Court of Appeal recognized the jurisdiction of the French court, which had held that the contract of sale in

9. Op. cit. note 6, at p. 149. 10. Court of Appeal, Arnhem, May 14, 1975; District Court, The Hague, Aug. 21,

1973; District Court, Zwolle, May 22, 1974; District Court, Almelo, Nov. 6, 1974: cited in 22 Netherlands International Law Review 1975, 337 et seq.

11. Feb. 6, 1974, loc. cit., at p. 341. 12. (1976) Revue critique de droit international prive, 117 with note by C. Droz:

Synopsis no. 8. 13. (1975) Riv. Dir. Int. Priv. e Proc., 352.


question was void, and ordered the Italian firm concerned to pay damages in default of payment for the goods. The Genoa Court of Appeal held that, in accordance with the agreement between the parties (the solution would have been the same under Italian law), payment for the goods should have been effected in France. It is noteworthy that the Genoa Court of Appeal rejected the defendant's argument that the goods were to have been delivered in Italy, since this was not the obligation in dispute. The Court of Appeal considered that the application by the French company for payment of damages following the avoidance of the contract was just compensation for the unperformed obligation, i.e. the obligation to pay for the goods. The Court of Appeal therefore considered that jurisdiction to decide on the consequences of the failure to perform an obligation was determined by the place of performance of the original obligation.

The Italian Corte di Cassazione applied Article 5 para. 1 in a case 14 in which a German firm had supplied goods to an Italian firm but had neglected to instal them in accordance with the agreement between the parties. The German firm had challenged the jurisdiction of the Italian court before which it had been sought to avoid the contract and obtain damages from it, and the Corte di Cassazione, having dismissed the possibility of an exception based on Article 17 of the Convention (the clause conferring jurisdiction would not meet the conditions laid down in that Article), confirmed the jurisdiction of the Italian court on the basis of Article 5 (1) on the grounds that, in a case of this kind, the place of performance of the obligation to deliver the goods was the place where the installation process was to take place, and not the place where the machinery was delivered to the carrier for shipping.

In Tessili v. Dunlop, Case 12/76 of October 6, 1976 15 a German company brought an action, in the German court appropriate to the company's place of business, against an Italian company for annulment of a contract as a result of the defective quality of goods delivered under it. The defendant challenged the jurisdiction of that court on the ground that jurisdiction in an action for indemnification for defective goods should be determined according to the place of delivery of those goods; it appeared in this particular case that the place of delivery was the factory in ltaly. However, under German law, the place of performance in such cases, i.e. where the quaJ.ity of the goods is called into question, is the place where the goods are situated. The Oberlandesgericht, Frankfurt, therefore considered applying Article 5 para. 1 by reference to the substantive rules of the Iex fori. It requested the Court of Justice merely to interpret Article 5 para. 1 without otherwise stating the circumstances surrounding its request.

The Court did not seek to interpret the concept of "obligation" although Advocate General Mayras examined this concept at length in his opinion, because the place of performance varies according to the particular type of obligation. He considered it appropriate first to define the legal relationship or the contract out of which the main action has arisen (in this case international sale of goods) and secondly, in the case of a bilateral contract, to distinguish as to whether the facts are considered from the point of view of one contracting party or the other (in this case the seller or the buyer). He finally reached the conclusion that in cases like that before the Court the Obligation in question is the principal obligation of the vendor, namely to deliver the goods not only at the time and place agreed, but in accordance

14. Oct. 20, 1975, (1976) Foro ltaliano, I, col. 1631. 15. (1976) E.C.R. 1473; Synopsis no. 10.

234 Case Law

with the terms of the contract; he considered that only this solution was compatible with concentrating disputes in a single jurisdiction and avoiding the needless splitting up of the different types of the defendants obligations. The Court observed " ... the determination of the place of performance of Obligations depends on the contractual context to which these Obligations belong".

With regard to the law to be applied in order to interpret Article 5 para. 1 the Court did not follow its own reasoning in Eurocontro[16 but said that "the place of performance of contractual Obligations cannot be understood otherwise than by reference to the substantive law applicable under the rules of conflict of laws of the court before which the matter is brought".

By way of precaution, in the earlier part of its reasoning when dealing with the interpretation of the Convention in general, the Court said:

"The Convention frequently uses words and legal concepts drawn from civil, commercial and procedural law and capable of a different meaning from one Member State to another. The question therefore arises whether these words and concepts must be regarded as having their own independent meaning and as being thus common to all the Member States or as referring to substantive rules of the law applicable in each case under the rules of conflict of laws of the court before Which the matter is first brought.

Neither of these two options rules out the other since the appropriate choice can only be made in respect of each of the provisions of the Convention to ensure that it is fully effective having regard to the objectives of Article 220 of the Treaty. In any event it should be stressed that the interpretation of the said words and concepts for the purpose of the Convention does not prejudge the question of the substantive rule applicable to the particular case."

The application of Article 5 para. 1 to exclusive sales concessions, particularly in relation to the Belgian law of July 27, 1961 as amended by the law of April 13, 1971, has, caused much controversy in Belgium 17 and gave rise to many conflicting judgments prior to the reference to the Court of Justice in Ets. De Bloos v. Societe Bouyer (Case 14/76).18

In this case a Belgian exclusive concessionaire brought an action against the French grantor, before the Belgian Courts, for a declaration of dissolution of the contract and for damages under the Belgian law of July 27, 1961, as amended by the law of April 13, 1971, on the grounds of the grantor's unilateral revocation of the exclusive sales concession of indefinite duration.

The Court of Justice observed: "As stated in its preamble, the Convention is intended to determine the inter

national jurisdiction of the courts of the contracting States, to facilitate the recognition and to introduce an expeditious procedure for securing the enforcement of judgments."

These objectives imply the need to avoid, so far as possible, creating a situation in which a number of courts have jurisdiction in respect of one and the same contract.

Because of this, Article 5 (1) of the Convention cannot be interpreted as

16. See note 5 supra. 17. See Leleux, op. cit. note 6, at 153. 18. (1976) E.C.R. 1497; Synopsis no. 14.


referring to any obligation whatsoever arising under the contract in question. On the contrary, the word "obligation" in the article refers to the contractual

obligation forming the basis of the legal proceedings. This interpretation is, moreover, clearly confirmed by the Italian and German

versions of the article. It follows that for the purposes of determining the place of performance

within the meaning of Article 5, quoted above, the obligation to be taken into account is that which corresponds to the contractual right on which the plaintiffs action is based."

lt is submitted that the immediately preceding paragraph is, in effect, saying that the Obligation on which the action is based is the principal obligation on the part of the defendant. The Court then goes on:

"In a case where the plaintiff asserts the right to be paid damages or seeks a dissolution of the contract on the ground of the wrongful conduct of the other party, the obligation referred to in Article 5 (1) is still that which arises under the contract and the non-performance of which is relied upon to support such claims.

For these reasons, in disputes in which the grantee of an exclusive sales concession charges the grantor with having infringed the exclusive concession, the word 'obligation' contained in Article 5 (1) . . . refers to the obligation forming the basis of the legal proceedings, namely the contractual Obligation of the grantor which corresponds to the contractual right relied upon by the grantee in support of the application.

In disputes concerning the consequences of the infringement by the grantor of a contract conferring an exclusive concession, such as the payment of damages or the dissolution of the contract, the obligation to which reference must be made for the purposes of applying Article 5 (1) ... is that which the contract imposes on the grantor and the non-performance of which is relied upon by the grantee in support of the application for damages or for the dissolution of the contract."

lt is submitted that, in the majority of cases relating to a contract, it is a breach of the defendant's principal obligation under that contract which gives rise to the plaintiffs claims for damages or rescission or both.

Thus a plaintiff, who wishes to commence an action under Article 5 para. 1 needs to - determine the principal contractual obligation of the defendant - establish the place where that principal contractual Obligation should have been performed.

He will then have identified the court before which he may sue the defendant. In answer to the Cour d'Appel's question as to the Obligations, under Articles 2

and 3 of the Belgian Law of July 27, 1961 (amended by the law of April 13, 1971) to pay "fair compensation" and "additional compensation", the Court did not distinguish between the different situations giving rise to these two types of compensation. It said "In the case of actions for the payment of compensation by way of damages it is for the national court to ascertain whether, under the law applicable to the contract, an independent contractual Obligation or an obligation replacing the unperformed contractual obligation is involved." It is submitted that in this context the "national court" is the court, having jurisdiction under Article 5 para. 1, of the place of performance of the principal obligation to ensure exclusivity. This court applies its own rules of private internationallaw to determine which law is applicable

236 Case Law

to the contract. See also the comments by Leleux.19 In Article 5 (3): the term "harmful event" is not per se sufficiently definite to draw

the distinction between the place where the act giving rise to the harm took place and the place where the harm was suffered. The authors of the Convention intentionally left this point ambiguous without wishing to provide an indication one way or the other.

The Court of Justice had to draw this distinction in Handelskwekerij C. J. Bier B.V. and Fondation Reinwafer v. Mines de potasse d'Alsace (Case 21!76) of November 30, 1976.20 Bier and Reinwater, established in the Netherlands, brought an action against the Mines de potasse before the Rotterdam District Court for damages in respect of harm which they alleged had been caused to the nursery gardens run by the first plaintiff in the N etherlands as a result of the pollution of the waters of the Rhine by residuary salts discharged into the river by the defendant at Mulhouse.

The District Court had accepted the objection put forward by the defendant that it had no jurisdiction, on the ground that jurisdiction depended on the place where the event giving rise to the darnage occurred; on appeal, the Appeal Court of the Hague asked the Court of Justice whether Article 5 para. 3 should be regarded as referring to "the place where the darnage occurred" (the place where the darnage took place or became apparent) or "the place where the event having the darnage as its sequel occurred" (the place where the act was or was not performed).

Since both interpretations can be derived from Article 5 para. 3, the Court considered that the special jurisdictions provided for in Article 5 resulted from "the existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings". Using this as a basis, the Court stated that in quasi-delictual matters, "the place of the event giving rise to the darnage no less than the place where the darnage occurred can, depending on the case, constitute a significant connecting factor from the point of view of jurisdiction". It deduced from this that it did not "appear appropriate to opt for one of the two connecting factors ... to the exclusion of the other", and as a result held that Article 5 para. 3 allowed the plaintiff a choice between the court either of the place where the darnage took place or of the place where the event giving rise to the darnage took place. It gave as a further reason for its decision that to decide in favour only of the place of the event giving rise to the darnage would "in an appreciable number of cases, cause confusion between the heads of jurisdiction laid down by Articles 2 and 5 (3) so that the lauer would, tothat extent, lose its effectiveness". To decide, on the other hand, in favour only of the place where the darnage occurred, which was the course proposed by Mr. Advocate-General Capotorti in his opinion would prevent an appropriate court from having jurisdiction where the place where the event giving rise to the darnage did not coincide with the domicile of the person responsible.

The approach to Iitigation between parties from different Member States, particularly in matters related to, for example, pollution and product liability, is likely to be profoundly influenced by this judgment.

Article 5 para. 5 does not, at first sight, appear to give rise to difficulty, however

19. Op. cit. note 6, at 154. 20. (1976) E.C.R. 1735; Synopsis no. 15.


the Court of Justice was asked to interpret it in the De Bloos case 21 in which the Court distinguished the essential characteristic which it considered the concepts of branch and agency and of "other establishment" should possess.

It considered that the criterion with regard to each of these three concepts was that of Subordination, that is to say "the fact of being subject to the direction and control of the parent body".

The Court did not indicate what "a dispute arising out of the operations of a branch etc." should be taken to mean. It is submitted that one of the fundamental objectives of the Convention is to eliminate the categories of excessive jurisdiction based in particular on the plaintiff's domicile. This should have the effect of limiting the application of Article 5 para. 5 to disputes in which third parties are involved, usually as plaintiffs, in order that, having dealt with the branch, agency or establishment, they are not required to sue the parent body at the place in which the latter is situated. There still remains a degree of uncertainty as regards cases in which the grantee of an exclusive sales concession is to all intents and purposes subject to the direction and control of the grantor. However, if the grantee of such a concession brings an action against the grantor, this provides a clear indication that the element of Subordination is not present.

Article 16: Exclusive Jurisdiction

Article 16 provides that inter alia in matters relating to rights in rem in, or tenancies of, immovable property, the courts of the Contracting State in which the property is situated shall have exclusive jurisdiction.

The judgment of the Arrondissementsrechtbank, Amsterdam, First Chamber B 22

of November 25, 1975 rejected a plea that it did not have jurisdiction in a case relating to part payment of the purchase price of immovable property situated in France where the defendant was domiciled in the Netherlands, on the grounds, which it is submitted are sound, that the action did not relate to a right in rem in immovable property.

The judgment of the Tribunal d'instance of Aix-La-Chapelle 23 of October 24, 1975, in a matter relating to tenancies of immovable property held that Article 16 para. 1 applied also to actions for the payment of rent, on the ground that such actions were capable of calling provisions of national law relating to the tenancy itself into question. This view is contrary to that expressed in the report 24 by the committee of experts which drafted the Convention.

The aspect of this decision which is particularly worthy of criticism is that although the question of the interpretation to be placed on Article 16 para. 1 had been raised before the court hearing an appeal, it refused to submit the question to the Court of Justice for the surprising reason that it was not aware of judgments in which another interpretation had been adopted and despite the interpretation by the Committee of Experts, which it implicitly rejected, and the views of German academic writers.

The Court of Justice, on a reference from the Hoge Raad der Neder/anden, in the

21. See note 18 supra. 22. Synopsis no. 21. 23. (1976) N.J.W., 487. 24. See Jenard Report, op. cit. note 4, p. 60.

238 Case Law

case of M. T. E. Sanders, Arnhem v. M. R. van der Putte, Noordwijkerhout gave a ruling on Article 16. The dispute was between the Dutch lessee of a business in Germany and the Dutch lessor who hirnself leased the shop from a third party subject to the contractual terms in the head lease. The Court of Justice ruled to the effect that the exclusive jurisdiction, in matters relating to tenancies, of the courts of the Contracting State in which the property is situated does not apply to those parts of the contract concerning the lease of the business, carried out in the leased premises.2s

Article 17: Jurisdiction by Consent

Article 17 of the Convention provides that if the parties, one or more of whom is domiciled in a Contracting State, have, by agreement in writing or by an oral agreement confirmed in writing, agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction.

Agreements conferring jurisdiction shall have no legal force if they are contrary to the provisions of Articles 12 of 15,26 or if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 16.

If the agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention.

The provisions of this article may create problems for international commercial custom where oral contracts are frequently confirmed by telex unilaterally, and where the documents are negotiable or transferable and thus the parties cannot be predicted.

This Article has given rise to a number of decisions by national courts, some of them relating to the requirements as to form which must be fulfilled to ensure the validity of a clause conferring jurisdiction. This is particularly important when such clauses are inserted in printed general conditions of sale on order forms, invoices, etc.

Though these aspects of the article have now been considered by the Court of Justice, two national decisions, concerning other aspects, are worthy of note.

In a judgment of the Munich Landgericht of June 10, 1975 27 it was held that the scope of Article 17 was not limited to disputes between distributors of goods. This court at the same time held, that the convention took precedence over a subsequent amendment to the German code of civil procedure (c./. the judgment of the Pretore of Brescia discussed above in connection with the precedence of the Convention over national provisions).

In a judgment of June 25, 1974,28 the Cour d'appel of Rouen dealt with the relationship between Article 17 and Article 6 of the Convention. Under Article 6 para. 2 the defendant in an action on a warranty or guarantee or in third party proceedings may be sued in a Contracting State other than that of his domicile be-

25. Judgment of 14 Dec. 1977 (not yet published). 26. Concerned with matters relating to insurance and instalment sales and loans. 27. (1975) Recht der Internationalen Wirtschaft, 694. 28. Dalloz-Sirey, Jur. 1975, 341 and note by Droz.


fore the Court seized of the original proceedings. The Cour d'appel of Rouen rejected the argument, based on a clause conferring jurisdiction and relied upon by the guarantor, that it lacked jurisdiction on the ground that the clause was framed in such a way that it covered only principal claims. It appears on the basis of an a contrario argument that the court would have upheld this contention if the clause had referred also to actions on a guarantee.

Article 17 provides two possible forms of valid agreement concerning jurisdiction: a written agreement or an oral agreement confirmed in writing. The Court of Justice has stated that the conditions laid down in Article 17 are to be interpreted strictly, since the effect of an agreement as to jurisdiction is to exclude the jurisdiction determined by the general principle laid down in Article 2 and the special jurisdictions in Articles 5 and 6 of the Convention. The Court held that it was therefore the task of the court seized of the proceedings to examine whether the clause conferring jurisdiction upon it had in fact been consented to by the parties, and whether this consent bad been shown in a clear and precise manner.

In Estastis Salotti di Colzani Aimo e Gianmario Colzani v. Riiwa Polstereimaschinen GmbH. (Case 24/76) 29 submitted to the Court by the Bundesgerichtshof, a German company, Rüwa, bad submitted written tenders to the defendant Italian company for the supply of machinery. These tenders referred expressly to the conditions of sale printed on the reverse side, which contained a clause conferring jurisdiction on the courts of Cologne. A contract resulting from these tenders and signed by the two parties was drawn up on Rüwa's headed paper, on the reverse of which were also printed the general conditions of sale; under the terms of this contract, Estasis ordered "machinery as offered for sale in accordance with your Ietter of ... (Ietter containing the written tenders)".

The first question submitted by the Bundesgerichtshof was whether the requirement that agreements must be in writing laid down in Article 17 was fulfilled where a clause conferring jurisdiction was included in the general conditions of sale printed on the reverse side of a contract signed by both parties. The Court replied that by itself, merely printing on the reverse side of a contract drawn up on the business notepaper of one of the parties a clause conferring jurisdiction as part of the generat conditions of sale of that party did not fulfil the requirement laid down in Article 17; one could not be certain in such cases that the other party bad actually consented to the clause derogating from the normal provisions of the law. However, the Court conceded that this was not true where the actual contract signed by both parties referred expressly to generat conditions containing a clause conferring jurisdiction.

The second question submitted by the Bundesgerichtshof related to the position where the parties referred expressly in the actual contract to a previous Ietter offering goods for sale, which in turn referred to general conditions of sale attached to that offer and containing a clause conferring jurisdiction. The Court held that a system of references to a prior document was permissible provided that they were expressly made and "can ... be checked by a party exercising reasonable care", and "if it is established that the general conditions including the clause conferring jurisdiction have in fact been communicated to the other contracting party with the offer to which reference is made". However, the Courtheld that indirect or implied references to earlier correspondence were not permissible.

Galeries Segoura SPRL v. Rahim Bonakdarian (Case 25/76) 30 involved a verbal

29. (1976) E.C.R. 1831; Synopsis no. 24. 30. (1976) E.C.R. 1851; Synopsis no. 25.

240 Case Law

contract between Segoura, a limited partnership having its registered office in Brussels, for the purchase of a consignment of oriental carpets from Bonakdarian, a company having its registered office in Harnburg and was also submitted to the Court of Justice by the Bundesgerichtshof. On the day on which the verbal contract was concluded, Bonakdarian sent to Segoura two documents described as "confirmation of order and invoice", which bore a reference to "the conditions referred to on the reverse". These conditions contained a clause conferring jurisdiction on the courts of Hamburg. Bonakdarian subsequently sued Segoura before the Harnburg court for payment of the baiance remaining due. The court considered that Article 17 of the Convention had not in this case been complied with, and declined jurisdiction. The Court of Appeal upheld this judgment, and Segoura appealed on a point of law to the Bundesgerichtshof.

In its first question, the Bundesgerichtshof asked what the situation would be if, at the oral conclusion of a contract of sale, a vendor states that he wishes to rely on his geneml conditions of sale and if he subsequently confirms the contract in writing and attaches to this confirmation his general conditions of sale. The difficulty here lies in proving that the subsequent confirmaton in writing is nothing more than confirmation and that at the time the oral contract was concluded there was proper agreement on the Clause concerning jurisdiction. The Court replied that it cannot be presumed that one of the parties waives the advantage of the provisions of the Convention conferring jurisdiction. It cannot therefore be accepted that a purchaser, by agreeing in a contract concluded orally to abide by the vendors' generat conditions, must be deemed to have accepted any clause conferring jurisdiction which might appear in those general conditions. In such a case, written confirmation of the contract by the vendor alone is ineffective.

In its second question, the Bundesgerichtshof asked what would be the position in the case of a contract of sale concluded orally but without reference to the existence of general conditions of sale. The Court considered that subsequent notification of general conditions was not capable of altering the terms agreed between the parties, unless those conditions were expressly accepted in writing by the purchaser. The Court thus found that in the circumstances under consideration, a valid agreement conferring jurisdiction had not been concluded. However, it conceded that such an agreement would have been sufficient where a continuing trading relationship existed between the parties, provided also that it was established that the dealings taken as a whole were governed by the general conditions of the party giving the confirmation and those conditions contained a clause conferring jurisdiction. To sum up, the Court considered that in the case of contracts concluded orally, the written agreement of the purchaser was necessary in order to give effect to notification by the vendor of the general conditions of sale accompanying written confirmation by the latter. The fact that the purchaser did not raise any objection did not constitute agreement.

Articles 25-49:31 Recognition and Enforcement of Judgments

Articles 26, 29 and 31 were referred to in Joseph De Wolf v. Harry Cox BV 32

(Case 42/76) before the Court of Justice concerning the exclusive nature of the

31. Arts. 26, 28, 29, 31, 37 and 3,8 are reproduced in an annex below. 32. (1976) E.C.R. 1759; Synopsis no. 39.


provisions of the Convention relating to the enforcement of judgments. De Wolf obtained a judgment in default from the luge de Paix of Turnhaut for 23.50 Fl on an invoice of April 24, 1973, the costs of formal notice to pay by authorised process server, 500 Belgian francs damages by way of penalty, legal interest on these sums and finally 913 Belgian francs in respect of the costs of the action. On failing to receive payment De Wolf brought a new action before the Kantonrechter of Boxmeer, Cox's place of domicile. The Kantonrechter mistook the purpose of Article 26, by relying on it as a mere stage in the procedure for enforcing a foreign judgment and decided in favour of De Wolf on the ground that, given the insignificant amount of the claim, the normal application of Article 31 would in the Netherlands entail higher costs than those involved in bringing fresh proceedings. The Procureur General of the Hoge Raad brought an appeal against this judgment on the ground that Article 31 of the Convention had been infringed. The Hoge Raad then asked the Court of Justice whether in view of Article 31, a plaintiff who has obtained a judgment in his favour in a contracting State may, instead of applying for an order for enforcement in accordance with Article 31 in the State in which enforcement is sought, apply to the court in that State for a judgment against the other party on the same terms as the judgment delivered in the original State.

The Court of Justice unequivocally rejected the possibility of following this course of action and held that the enforcement procedure provided for in the Judgments Convention was exclusive. The Court recognized that Article 29 provides that under no circumstances may a foreign judgment be reviewed as to its substance. The Court argued from this that if an application or a review as to substance were deClared admissible, the court before which the same matter had been brought and concerning the same parties would be required to decide whether the application was wellfounded, which might Iead that Court to contradict the previous foreign judgment and "therefore to fail in its duty to recognize the latter". The Court also based its reasoning on Article 21 of the Convention relating to "lis pendens", which requires that the second court seized decline jurisdiction in favour of the court first seized, in order that the courts of two contracting States do not rule on one and the same dispute. The Court added that to accept the duplication of main actions might result "in a creditor's possessing two orders for enforcement on the basis of the same debt". The Court considered that the argument based on court costs was not admissible, although it requested the contracting States to ensure that the costs of the procedure under the Convention were fixed so as to accord with the concern for the simplification of formalities expressed in Article 220 of the EEC Treaty and reiterated in the preamble to the Convention.

In Case 43/77, referred by the Tribunal d'Anvers, the Court of Justice, on November 22, 1977 ruled that the expression "ordinary appeal" in Articles 30 and 38 is to be interpreted in the framework of the system of the Convention and not by reference to the law of the State of origin of the decision appealed against Iior to the law of the State where recognition or execution is sought. An "ordinary appeal" is any appeal which can Iead to the annulment or modification of the decision to be recognised or executed, where that appeal to linked, in the State of origin to a period fixed by law which runs as a result of that decision.

Article 28, in conjunction with Articles 13 and 14 is the subject of Case 150/77 Societe Betraud v. Societe Paul OTT KG referred to the Court of Justice by the Cour de Cassation, Paris in December 1977.

242 Case Law

IV. THE DEVELOPMENT UNDER THE CONVENTION

This examination of the case law under the Convention refers briefly to certain 1977 cases but is mainly concerned with cases decided prior to December 31, 1976. It is of necessity selective and is limited to those articles on which the Court of Justice has also shed some light.

The Index of the first issue of the Synopsis of Case Law indicates that, in the eighteen months which it covers, thirty one articles of the Convention and the Protocol were judicially considered in whole or in part. The statistical information on applications for leave to enforce judgments are incomplete except for the 126 applications reported by Luxembourg. The total number of applications in the six Contracting States must be considerable. Some articles were more frequently the subject of Iitigation than others for example: Article 1 in ten cases Article 3 in six cases Article 5 in twenty two cases Article 17 in seventeen cases

It is probable that there have been many more cases concerning the Convention than those reported to the Court in time for the first issue of the Synopsis.

By the time the new Member States accede to the Convention, it seems reasonable to anticipate that many more Articles will have been the subject of rulings by the Court of Justice and many legal uncertainties removed. In preparing for the future, it is useful to refer to the House of Lords, Select Committee on the European Communities, session 1976-77, 45th Report, which examines the Convention and the preliminary draft Convention on the accession of the United Kingdom and other States to the Convention.

A. McClellan *

ANNEX

Article 26 A judgment given in a Contracting State shall be recognised in the other Con

tracting States without any special procedure being required. Any interested party who raises the recognition of a judgment as the principal issue in a dispute may, in accordance with the procedures provided for in Sections 2 and 3 of this Title, apply for a decision that the judgment be recognised.

If the outcome of proceedings in a court of a Contracting State depends on the determination of an incidental question of recognition that court shall have jurisdiction over that question.

Article 28 Moreover a judgment shall not be recognised if it conflicts with the provisions of

Section 3 (Insurance), 4 (Articles 13 to 15, Instalment Sales and Loans) or 5 (Ex-

* Legal Adviser, Commission of the European Communities. The writer expresses his own views.


clusive Jurisdiction) of Title II or in a case provided for in Article 59 (Certain Obligations to third States).

In its examination of the grounds of jurisdiction referred to in the foregoing paragraph, the court or authority applied to shall be bound by the findings of fact on which the court of the State in which the judgment was given based its jurisdiction.

Subject to the provisions of the first paragraph, the jurisdiction of the court of the State in which the judgment was given may not be reviewed; the test of public policy referred to in Article 27 (1) may not be applied to the rules relating to jurisdiction."

Article 29 Under no circumstances may a foreign judgment be reviewed as to its substance.

Article 30 A court of a Contracting State in which recognition is sought of a judgment given

in another Contracting State may stay the proceedings if an ordinary appeal against the judgment has been lodged.

Article 31 A judgment given in a Contracting State and enforceable in that State shall be

enforced in another Contracting State when, on the application of any interested party, the order for its enforcement has been issued there.

Article 37 provides that an appeal against the decision authorising enforcement shall be lodged with the national Courts listed in the Article in accordance with the rules governing contentious matters. The appeal judgment may only be contested by an appeal in cassation or in Germany by a Rechtsbeschwerde.

Article 38 The court with which the appeal under the first paragraph of Article 37 is lodged

may, on the application of the appellant, stay the proceedings if an ordinary appeal has been lodged against the judgment in the State in which that judgment was given or if the time for such an appeal has not yet expired; in the latter case, the court may specify the time within which such an appeal is to be Iodged.

The court may also make enforcement conditional on the provision of such security as it shall determine.

105

ANNOUNCEMENT

University studies on European integration. Results of the 9th bibliographical survey.

With a view to establishing better co-operation between researchers interested in the problems of European integration and to provide more documentation in this field of research, the Garnmission of the European Communities decided in 1976 to continue the work undertaken by the European Community Institute for University Studies and entrusted the organization of the ninth survey to the Centre for European Studies of the Catholic University of Louvain. The latter has just completed this research and the results are given in a recent publication called "Etudes Universitaires sur !'Integration Europeenne - University Studies on European Integration - 9-1977".

This publication lists doctorate theses and university research worksin progress or completed since 1973-connected with European integration in all its implications. The studies have been placed according to their content (historical, political, legal, economical, social, cultural, ... ) under one of the headings in a classification plan. Under the different headings, the works are mentioned in alphabetical order of authors' names. In addition to information of a "technical" nature giving the co-ordinates of each study (university, faculty or research centre, estimated or actual date of completion, bibliographical references), a brief description of the content is given if this has been provided by the author.

In addition to the Iist or research works, the publication contains two indexes. The first index is a directory of addresses. It gives the universities, faculties, centres and institutes which have referred to the studies mentioned in the publication, and should enable researchers wishing to obtain further details on certain studies to get directly in tauch with the authors and research directors referred to in the publication.

Anyone wishing to mention a study falling within the scope of the next survey (which should result in the publication "Etudes Universitaires sur !'Integration Europeenne - University Studies on European Integration -10-1978") or to obtain the bulletin 9-1977 should write to: Centre d'Etudes Europeennes c/o Michel WIRTGEN or Marlene DAUVEN Place de l'Universite, 1 B - 1348 - LOUV AIN-LA-NEUVE BELGIUM Tel.: 010/41.81.81. ext. 4292.

AMSTERDAM

13th INTERNATIONAL COURSE

IN EUROPEAN INTEGRATION

Europa Institute - U niversity of Amsterdam

8 September 1978- 30 April 1979

For graduates in law andin economics, with separate programmes for each discipline.

This Course, conducted in English, provides lawyers and economists with a thorough theoretical and practical understanding of the complex problems of European integration.

The academic programmes consist of lectures and seminars on major subjects such as: (law) common market law, competition policy, doing business in the common market, international legal and economic relations between the common market and the rest of the world; (economics) theory of economic integration, economic policies of the EEC, economic and monetary union, external economic relations.

A Iimited number of scholarships is available. For detailed information, write to the Registrar of the Course: NUFFIC, P.O.Box 90734, 2509 LS The Hague, the Netherlands.

ANNOUNCING THE

JOURDALOF [OmPARATIUE [ORPORATE lAW

ROD SE[URITIES REiiUlATIOß General Editors

ROBERT H. MUNDHEIM and NOYES E. LEECH, University of Pennsylvania Law School, Philadelphia

STEPHEN R. MILLER, Dechert Price & Rhoads, Philadelphia

Board of Advisory Editors Olga Aikin (England); Modesto Carvalhosa (Brazil); W. Douglas Hawes (USA); Alain Hirsch (Switzerland); Klaus J. Hopt (Federal Republic of Germany); Katsuro Kanzaki (Japan); Friedrich Kübler (Federal Republic of Germany); T. Peter Lee (England); Morris Mendelson (USA); Barthelemy Mercadal (France); Paulo

Fernandes de Sa (Brazil); Misao Tatsuta (Japan).

Aims and Scope The Journal is a mechanism for the exchange of ideas and information about practices and theories of the structure, operation and regulation of the processes

of capital formation and the capital markets throughout the world.

The major theme of the Journal is the interdisciplinary (that is, law, economics, corporate finance) and comparative approach to a subject of burgeoning inter-

est, namely the internationalization of the securities markets.

Legal perspective is supplied by academicians, practitioners and government officials. Specialists in corporate finance and economics supply critical background. The practices of various national systems are described in detail and

compared with one another.

Publiestion Schedule and Subscription Information 1978: Volume 1 in 4 issues. First issue: January 1978. Subscription price for Volume 1: US $35.00/Dfl. 87.50

Orders and requests for a specimen copy may be sent to:

NORTH·HOLLAND PUBLISHING COMPANY P.O. Box 211 • Amsterdam • The Netherlands.

52 Vanderbilt Avenue • New York, NY 10017 • U.S.A.

A total information package providing the key to all past, present and projected legislation of the European Economic Community:

Ouide to EEC--Legislation General Editor:

ALFRED E. KELLERMANN

T.M.C. Asser Institute, The Hague

Published by

NORTH-HOLLAND PU BUSHING COMPANY P .0. Box 211, Amsterdam, The Netherlands

"Has the Commission any idea how a resident of the Community can get to grips with the countless acts and announcements published in the Official Journal of the EEC if no subject index exists?"

This is the written question No. 38170 which the Honourable Mr. Gerlach, Member of the European Parliament, asked the Commission of the European Communities (15 April, 1970).

The Guide is an unrivalled reference work which contains an up-todate collection of titles and source references covering all 20 years of EEC-Legislation from 1958 to 1 January 1978. lt is systematically arranged to give both easy access to the detailed information as weil as a general view of EEC-Legislation. The Guide is kept up-todate by means of supplements and through a telex-service. Most of the rules, established within the institutions of the European Economic Community, are published in the Official Journal of the European Communities, thus the Guide forms a complete legal companion to the Official Journal. The Guide contains a detailed classification scheme and also includes a chronological and an alphabetical index (keywords, countries). II does not contain a collection of texts.

The usefulness of the Guide has been enhanced by the Iransialion of the contents-list and the alphabetical index into French and German. Anyone who comes into contact with the law of the European Communities will find this publication most useful.

Publication Schedule: The first 20 years of Community legislation (1958 - 1.1.1978) will be published in BOOK-form ( 2 Volumes of approximately 1100 pages each) and will appear in June 1978.

Updating: Cumulative supplements in BOOK-form (yearly) or on MICROFICHE (2 tim es per year) will be provided.

Subscribers may also opt for an ADDITIONAL TELEX SERVICE which reduces the time-lag for up-to-date information to 3 days only!

For detailed information, please request the fully-explanatory brochure on the Guide, by returning the form printed below.

---------------------~-Guide to EEC-Legislation Send to NORTH·HOLLAND PU BUSHING COMPANY

attn. H. de Brouwer, P.O. Box 211, Amsterdam, The Netherlands

llike to receive detailed Information on Kellermann's Guide to EEC·Legislatlon. Piease send me your brochure.

Name ----------------------------------------

Address -------------------------------------

COMMON MARKET LA W REVIEW AIMS

The Common Market Law Review is designed to function as a medium for the understanding and implementation of Community Law within the nine Member States, and for the dissemination of legal thinking on Community Law matters. lt thus aims to meet the needs of both the academic and the practitioner. For practical reasons, English is used as the language of communication.

EDITORIAL POLICY

The editorswill consider for publication manuscripts by contributors from any country. Articles will be subjected to a review procedure. The author should ensure that the significance of his work will be apparent also to readersoutside his specüic expertise. Special terms and abbreviations should be clearly defined in the text or notes. Accepted manuscripts will be edited, ü necessary, to improve the general effectiveness of communication. If editing should be extensive, with a consequent danger of altering the meaning, the manuscript will be returned to the author for approval before type is set.

SUBMISSION OF MANUSCRIPTS

Manuscripts should be submitted, tagether with a covering letter, to one of the Editors. At the time the manuscript is submitted, written assurance must be given that the article has not been published, submitted or accepted elsewhere. The author will be notüied of acceptance, rejection or need for revision within eight to twehre weeks. Authors are requested to submit two copies of their manuscript, typed and double-spaced, tagether with a summary of the contents. Manuscripts may range from 3,000 to 10,000 words. The title of an article should start with a word useful in indexing and information retrieval. Short titles are invited for use as running heads. The author should identüy hirnself in print, with a short statement as to his current affiliation. All references and notes should be numbered in a single sequence in the order in which they are cited in the text, and should be typed, single-spaced, on aseparate sheet.

OFFPRINTS

The author will receive one free copy of the issue concerned and twenty-five offprints of his article. He may also order any quantity of additional offprints, with a minimum of 100 copies, at forty cents (Dfl. 0.40) per page per copy. This order must be submitted through the Executive Editor at the time of delivery of the corrected galley-proofs for print.

ANNOUNCEMENT

INTERNATIONAL SUMMER COURSES IN LEGAL ASPECTS OF EUROPEAN INTEGRATION

1. General Course (14-25 August 1978) The course is meant for lawyers, legal advisers in enterprises and civil servants who are regularly confronted with problems raised by the EEC Treaty, and who have been practising law for a number of years, rather than for lawyers who have recently graduated from university.

The main subjects are: - The functioning of the European Communities; - the Court of Justice; - principles of economic law of the EC; and - the relationship between national and community law.

2. Follow-up Course (21-25 August 1978) To meet the growing demand on the part of past participants of courses in European Integration a "follow-up" course is organised.

This course will concentrate on the following fields of Community Law: - Judicial remedies on the EC; - the Legal Aspects of Competition Policy; - the Company Law and Right of Establishment; - the Common Commercial Policy; and - the Law of Industrial Property.

3. Specialised Course on Common Agricultural Policy (CAP) (21-25 August 1978) Apart from the two week courses a one week course is organised this year on the Common Agricultural Policy (CAP).

lt is meant for graduates who are confronted with aspects of the CAP in their works.

The subjects covered will be: - Objects and means of the CAP; - the common market organisations (case studies); - crop products; - trade in agricultural products; - the structural part of the CAP; and - economic and financial costs.

General information on all courses The courses are organised by the "Europa 1nstituut" of the University of Amsterdam and the Netherlands Universities Foundation for National Cooperation (NUFF1C) and will be given in Amsterdam. Requirements for admission: course 1. and 2.: Participation is open to experienced lawyers,

course 3.: Graduates dealing with CAP.

Language of instruction: English Tuition fee: course 1. : Dfl 750.-

course 2. and 3.: Dfl 450.-Further detailed information can be found in the prospectus of the course, to be obtained from: The Registrar of the International Summer Courses in Legal Aspects of European Integration/ISCLA NUFFIC PO Box 90734 2509 LS The Hague, the Netherlands, tel (070) 574201 ext. 143.

COMMON MARKET LA W REVIEW AIMS

The Common Market Law Review is designed to function as a medium for the understanding and implementation of Community Law within the nine Member States, and for the dissernination of legal thinking on Community Law matters. It thus aims to meet the needs of both the academic and the practitioner. For practical reasons, English is used as the language of communication.

EDITORIAL POLICY

The editorswill consider for publication manuscripts by contributors from any country. Articles will be subjected to a review procedure. The author should ensure that the significance of his work will be apparent also to readersoutside his specific expertise. Special terms and abbreviations should be clearly defined in the text or notes. Accepted manuscripts will be edited, if necessary, to improve the general effectiveness of communication. If editing should be extensive, with a consequent danger of altering the meaning, the manuscript will be retumed to the author for approval before type is set.

SUBMISSION OF MANUSCRIPTS

Manuscripts should be submitted, tagether with a covering letter, to one of the Editors. At the time the manuscript is submitted, written assurance must be given that the article has not been published, submitted or accepted elsewhere. The author will be notified of acceptance, rejection or need for revision within eight to twelve weeks. Authors are requested to submit two copies of their manuscript, typed and double-spaced, tagether with a summary of the contents. Manuscripts may range from 3,000 to 10,000 words. The title of an article should start with a word useful in indexing and information retrieval. Short titles are invited for use as running heads. The author should identify hirnself in print, with a short statement as to his current affiliation. All references and notes should be numbered in a single sequence in the order in which they are cited in the text, and should be typed, single-spaced, on aseparate sheet.

OFFPRINTS

The author will receive one free copy of the issue concemed and twenty-five offprints of his article. He may also order any quantity of additional offprints, with a minimum of 100 copies, at Torty cents (Dfl. 0.40) per page per copy. This order must be subrnitted through the Executive Editor at the time of delivery of the corrected galley-proofs for print.