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Brussels, 4 June 1997

Free movement of capital and right of establishment: intra-Community investment

In a communication it has just adopted, the European Commission has clarified the legal significance of the Treaty provisions on capital movements and the right of establishment (Articles 73b and 52) in relation to intra-Community investment. Restrictions which apply exclusively to investors who are nationals of other Union Member States will be judged to be incompatible with the Treaty, except on grounds provided for in the Treaty i.e. public policy, public security, public health and defence. Even non-discriminatory restrictions will be accepted only if they are justified by imperative requirements in the general interest based on objective, stable and transparent criteria and if there are no other less restrictive means of pursuing the same objectives. The Commission will examine, with the help of its close and constant contacts with the national authorities, the existing and future measures in the Member States, particularly in connection with privatization programmes, and will ensure that the fundamental freedoms can be fully exercised. According to Mario Monti, the Member of the Commission responsible for the single market and financial integration, employment-promoting growth must be underpinned by a sustained expansion of investment as well as by stronger economic and financial integration in the single market. Intra-Community investment more than doubled between the second half of the 1980s (ECU 17 billion per year on average) and the first half of the 1990s (ECU 37 billion), but the increase would have been even greater if all the restrictions had been eliminated.

The "guidelines" adopted by the Commission are designed to reduce the risk of differing legal interpretations, so enabling Member States to shape their policies in accordance with Community law and within a framework of transparency and mutual trust. They also seek to inform those concerned of their rights under the Treaty regarding intra-Community investment and thus enable them to exercise those rights in practice.

In the Commission's view, some of the national measures designed to control investment, whether enshrined in general laws governing, for example, exchange controls and limited companies or introduced under privatization programmes, may impede investment from other EU countries.

It should be emphasized that an enterprise's move from the public to the private sector is by no means at issue, this being a matter for the Member States alone; it is the detailed arrangements of privatization operations that may be responsible for creating obstacles to the freedoms guaranteed by the Treaty.

The communication identifies two categories of measure:

(a) Discriminatory measures

The Commission considers a ban on investors from another Member State acquiring more than a limited number of voting shares in national companies and/or an obligation to request authorization for the purchase of shares beyond a given threshold to be discriminatory measures. Such restrictions are contrary to Articles 73b and 52 of the Treaty unless they are covered by the exceptions permitted, i.e. on grounds of public policy, public security, public health and defence.

(b) Restrictive but non-discriminatory measures

These are measures which a Member State takes and which lay down the same conditions for the nationals of other Member States as for its own nationals. The Court of Justice has recently confirmed that measures likely to impede or discourage the exercise of the basic freedoms must at all events be justified by imperative requirements in the general interest. They must be suitable for securing the attainment of the objective they pursue and they must not go beyond what is necessary to attain it.

This category includes the general authorization procedures to which any investor acquiring a stake in a domestic company above a given threshold is subject. Such measures could be applied in such a way as to keep control over companies in national hands or to restrict an investor's freedom regarding important decisions concerning a company's management. Furthermore, they entail an element of uncertainty that may discourage investors.

The Commission considers that the "national interest" argument, frequently cited as justification for such measures, cannot be accepted. This concept is not sufficiently transparent since it can cover both economic and non-economic criteria and can therefore introduce an element of discrimination. Restrictive measures can be regarded as being compatible with Community law only if they are based on a set of objective, permanently stable and published objectives and can be justified by imperative requirements in the general interest. At all events, the principle of proportionality will have to be observed.

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