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Brussels, 11 October 2000

Free movement of capital: Commission decides to refer UK to Court concerning BAA

The European Commission has decided to refer the United Kingdom to the Court of Justice because it considers that certain provisions introduced during the privatisation of the British Airports' Authority (BAA) constitute unjustified restrictions on the free movement of capital and the right of establishment within the Internal Market. The Commission has already referred cases concerning investment restrictions in Portugal, Italy, France, Belgium and Spain to the Court and is pursuing infringement procedures against certain other Member States.

At the time of the flotation of the British Airports' Authority in July 1987, provisions were inserted in the Articles of Association of the company for a special share to be held by the Secretary of State for Transport. Among the powers associated with the special share are those on the material disposal of assets and the modification of specified sections of the Articles of Association of the company. A provision is also included (protected by the special share) preventing any one person, or group of persons acting in concert, from controlling equity of more than 15% of the company. Should such an interest be acquired, directors are required to demand a reduction in this interest and ultimately empowered to affect a disposal on such terms as they may determine.

After the Commission adopted a Communication on intra-EU investment (OJ C220of 19.7.1997- see IP/97/477), a questionnaire was sent to all Member States requesting detailed information on practices followed in this area. On the basis of the United Kingdom's reply, the Commission considered that the special powers granted to the UK Secretary of State for Transport in the Articles of Association of British Airports' Authority plc. constituted barriers to the free movement of capital in violation of Article 56 of the Treaty, and to the right of establishment (Article 43). The EC Treaty permits Member States to restrict capital movements and establishment on grounds of public security, public order and public health (Articles 46 and 58), essential interests of security connected to defence (Article 296) and the exercise of public authority (Article 45), but no such justifications have been put forward for the taking of special powers in the case of BAA. As has been noted in the Communication, even if some of the measures concerned do not discriminate explicitly against non-nationals, they can nevertheless have a restrictive effect on capital movements and establishment.

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