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Brussels, 12 October 2006

Free movement of capital: Commission calls on France to modify its legislation establishing an authorisation procedure for foreign investments in certain sectors of activity

The European Commission has decided to ask France formally to modify Decree 2005-1739 of 30 December 2005, which creates an authorisation procedure for foreign investments in certain sectors of activities that could affect public policy, public security or national defence. The Commission is concerned that some of the provisions of this decree could discourage investment from other Member States, in contradiction with EU Treaty rules on the free movement of capital (Article 56) and the right of establishment (Article 43). The Commission's request takes the form of a 'reasoned opinion', the second stage of the infringement procedure laid down in Article 226 of the EC Treaty. The first stage of the infringement procedure, the 'letter of formal notice', was issued in April 2006 (see IP/06/438). In the absence of a satisfactory reply from France within two months of receiving the reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice.

Decree 2005-1739 regulates the authorisation procedure for foreign investment in certain sectors of activities that affect public policy, public security or national defence. The scope of the authorisation procedure is more extensive for investments originating from third countries, but this is authorised by Article 57 of the Treaty, as this measure already existed prior to 31 December 1993.

However, because indirect investments are also submitted to authorisation, the procedure foreseen for third-country investments could create a restriction on investments by companies that are legally established in the European Union, but that have shareholders established in third countries. Such a restriction to investment is considered incompatible with the free movement of capital and the freedom of establishment.

This requirement imposed on European companies owned by third country investors also contradicts the principle of Art 48, which establish that companies established in Member States should be treated like nationals of Member States.

Therefore, the Commission asks France to modify its decree in order to remove its incompatibility with the provisions of the Treaty governing the freedom of capital movement and the right of establishment.
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