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Brussels, 28 July 1999

Free Movement of Capital: infringement procedure against the United Kingdom

The European Commission decided to send a reasoned opinion to the United Kingdom. It considers that certain provisions introduced during the privatisation of the British Airports' Authority are incompatible with Community law on the free movement of capital (Article 56) and the right of establishment (Article 43). The Commission has also pursued infringement procedures in similar cases against Portugal, Italy, France, Spain and Belgium. In the absence of a satisfactory response within two months following the receipt of the reasoned opinion, the Commission could decide to refer the matter to the European Court of Justice.

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 this special share are those on the material disposal of assets and the modification of specified sections of the Articles of Association. 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.

Subsequent to the adoption by the Commission of the Communication on intra-EU investment (OJ C220/15 of 19.7.1997) a questionnaire was sent to all Member States requesting detailed information on practices followed. On the basis of reply of the United Kingdom authorities to this questionnaire, it was considered that the special powers given to the Secretary of State in the Articles of Association of the British Airports' Authority plc. constitute barriers to the freedom of capital movements (direct investment from the EU, and, in certain circumstances, portfolio investment from EU and non-EU countries) in Article 56 of the Treaty, and the right of establishment (Art. 43). Although the Treaty permits Member States to restrict both freedoms on grounds of public security, public order and public health (Arts. 46 and 58) and defence (Art. 296), no justification is presented for the particular powers in the case of the company in question. Neither are any clear and transparent criteria established for the exercise of such powers. As has been noted in the Communication, the fact that the powers concerned do not introduce an explicitly discriminatory feature against non-nationals does not eliminate their restrictive character on the freedoms involved and does not guarantee their non-discriminatory application.

No reply has been received to the letter of formal notice sent on 3 February 1999 to the UK authorities.

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