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Brussels, 28 July 1999

Free movement of capital: infringement proceedings against France

The European Commission has decided to bring an action against France before the European Court of Justice. It believes that certain provisions of French legislation concerning investments in Elf Aquitaine are incompatible with Community law on the free movement of capital (Article 56) and the right of establishment (Article 43). The Commission has also initiated infringement proceedings against Portugal, Italy, Spain, Belgium and the United Kingdom in similar cases.

Under the Privatisation Act (93-923 of 19 July 1993), Decree 93-1298 of 13 December 1993 converted ordinary shares held by the French State into "specific shares" to which special powers were attached These include:

  • prior approval by the Minister of Economic Affairs for any acquisitions of shares which would take holdings above the thresholds of one tenth, one fifth or one third of the capital or of the voting rights;

  • the right to appoint two representatives to sit on the company's board;

  • the right to veto any decisions assigning or putting up as guarantee the majority of the capital of four subsidiaries of the parent company.

In its communication on certain legal aspects concerning intra-EU investment (OJ C 220, 19.7.1997), the Commission stated that under Community law all restrictions on the free movement of capital and on the right of establishment, such as authorisation procedures for investments in privatised companies, must apply in a non-discriminatory manner, must be justified by imperative requirements in the general interest, must be suitable for securing the attainment of the objective pursued and must not go beyond what is needed to attain it.

The Commission considers that the use made by the French State of these special powers with reference to the objective of protecting national interests creates uncertainty for investors as regards the terms on which shares in the company can be acquired. As the Commission explained in its abovementioned communication, Community law requires that the authorisation procedure be justified by imperative requirements in the general interest and be based on a set of objective criteria, be stable over time and be made public. The present arrangements for the exercise of the special powers available under the French legislation do not satisfy these requirements.

The arguments put forward by France in its replies to the Commission's letter of 15 May 1998 and its reasoned opinion of 11 December 1998 failed to produce any additional points to those already made in earlier correspondence and the same was true of subsequent contacts with the French authorities following receipt of their observations in response to the reasoned opinion.

No legislative instrument or draft has yet clearly demonstrated that the authorisation procedure is appropriate and proportionate. What is more, while they purport to amend the existing legal framework in order to make it compatible with Community law, France's most recent proposals make no sufficient progress in terms of the suitability and proportionality of the mechanism and are still not satisfactory as regards the criteria for applying the authorisation procedure.

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