Category: Article

Scottish Independence and EU Membership

Amanda Spalding
PhD Candidate at King’s College London

The referendum on Scottish Independence is due to take place on the 18th of September.  One of the most politicized and contentious issues raised by this referendum is the question of how and whether Scotland would qualify for EU membership if it were to secede from the United Kingdom. The Scottish government has argued that a simple Treaty change would be sufficient, whereas the UK government has warned that the process would be long and complex. In this article, I shall attempt to give an overview of both positions.

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Does the UK – Italy Treaty violate European law? Reflection in the light of new tax transparent funds introduction

Marco Guerra, LLM University of Milan; LLM Student, King’s College London
Alin Fouladvand, MSc Risk and Finance, London School of Economics

Introduction

On July 17, 2012, the Finance Bill 2012, amending the Corporation Tax Act 2010, introduced the Tax Transparent Fund (hereinafter, the “TTF”), a new authorised collective investment scheme structure. The aim of the TTF is to attract overseas investment into the United Kingdom and positively reinforce the UK’s reputation as a world-class financial centre. Up to now, several investors have preferred to invest through Common Contractual Funds in Ireland, Funds Common de Placement in Luxemburg or Fundsen Voor Gemene Rekening in Netherlands or, outside of Europe, through exempted limited companies in Cayman Islands.

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New Guidelines for State Aid to Energy Infrastructure – A Helpful Move Toward Europe 2020?

 Robert Miklós Babirad

  

1        Introduction

On April 9, 2014, the European Commission adopted in principle new State aid guidelines, which will now encompass the application of State aid to energy infrastructure within the European Union.[1]  In 2008 the present Community guidelines on State aid for environmental protection[2] were established, which extended in duration through 2014.[3] The focus of the 2008 Guidelines centered upon the improvement of performance with regard to environmental concerns.[4]  Energy issues were addressed to the extent that they related to the support of environmental or climate related goals, but energy infrastructure failed to be specifically or adequately considered.[5]  This article will begin with a brief overview of Europe’s 2020 energy and climate goals.  The Commission’s inclusion of specific guidelines for energy infrastructure will then be assessed as well as their helpfulness with regard to achieving the goals of Europe 2020 and with respect to the Single Market.  In conclusion, it will be suggested that by extending the present Guidelines, specifically into the area relating to energy infrastructure, there will be an overall positive impact upon Europe in attaining its 2020 energy and climate objectives while minimizing any accompanying market distortions.

 

2        Europe’s 2020 Climate and Energy Goals

The goals of Europe 2020 include creating an EU wide policy for energy, which seeks to provide for energy services and products that are uninterrupted while fostering European innovation, technology, the development of a market for energy that is integrated and the overall attainment of Europe’s climate and energy goals as a whole.[6]  Europe 2020 also provides that by the year 2020, there will be an increase in the efficiency of energy by the EU’s Member States of 20% and with respect to emissions that are connected with global warming, a reduction of 20%.[7]  The European Union’s energy and climate objectives also provide for the goal of attaining 20% of Europe’s energy derivation from renewable resources by this time.[8]

  

3        Controversy Concerning State Aid In The Energy Sector

There is a concern as to whether extending the 2008 State aid environmental guidelines into the area of energy infrastructure will actually aid in the securing of Europe’s 2020 climate and energy objectives or instead result in a negative and measurable disruption of market forces.

Article 107(3)(b) TFEU permits the promotion of “an important project of common European interest” even where competition may be potentially distorted.  However, a concern is always present with regard to the conflict between unaltered competition in a market based economy and that of subsidies being applied through the granting of State aid, which may result in the internal market being disrupted.

It is important though to note that policy objectives have also always played a crucial role alongside competitive concerns.  Dr. Townley suggests that even agreements under Article 101 TFEU have been upheld by the Commission where they were even only “theoretically” based upon the larger policy objective of ensuring the supply of energy and this has occurred despite concerns regarding the integration of the Single Market or economic efficiency being negatively impacted.[9]  The Commission’s decisions in International Energy Agency are offered by Dr. Townley as support for the value, which has been attributed by the Commission to the certainty of availability with respect to particular goods of importance.[10] State aid becomes an essential instrument for the provision of a secure and reliable energy supply and attainment of European climate and energy objectives where energy operators on the market are unable to otherwise provide an adequate and modern energy infrastructure and supply; and also acts as an important device for overcoming failures both with regard to the market and existing regulatory schemes.[11]

The application of State aid as an instrument for achieving policy may therefore be employed, but must operate in tandem with the goal of minimizing distortions of the Single Market.  The Commission’s proposed Guidelines for energy and particularly energy infrastructure do not appear to be an unreasonable extension of policy making through the application of State aid, but rather a logical progression toward the attainment of Europe’s climate and energy goals.

Extending the guidelines to energy infrastructure becomes necessary, particularly because of the intended purpose of the rules, which is to aid in the creation of a European energy market that is integrated and able to meet Europe’s 2020 energy and climate objectives.[12]  Additionally, there is a focus on providing State aid to energy infrastructure projects that will enhance the flow of energy across Member State borders and encourage the establishment of energy infrastructure in those areas of Europe, which to date have experienced a lesser degree of overall development.[13]

Revised guidelines developed specifically for State aid to energy infrastructure become particularly essential when it is considered that for renewable energy resources to be used to their full potential while reducing expenditures, new facilities that are enabled to store the energy must be provided for that have the ability to convert “intermittent supplies of these energy sources” into an energy supply that is secure.[14]  Guidelines for State aid to energy infrastructure can aid in the effective attainment of this objective.

 

4        The  Helpfulness of the Guidelines for State Aid to Energy Infrastructure

A key aspect of the new guidelines is that they extend the 2008 environmental rules for assessing the application of State aid into the energy field and now specifically include rules for supporting energy infrastructure.[15]  This is an important step by the Commission, which resolves an existing failure to address State aid for the development of energy infrastructure.

The need for State aid guidelines for energy infrastructure is evident through the Commission’s acknowledgment that the generating of electricity has experienced a transition within Europe from a supply that was previously continuous and “relatively stable” to one that is now from a greater number of “variable sources,” which provide production on a smaller scale.[16]  As a result, the EU has had to find new ways to secure adequate energy production and supply.[17]  The establishment of guidelines for State aid to energy infrastructure is one manner of helping to address this challenge.

The Commission also notes that failures of both a regulatory and market nature have the potential to create a lack of sufficient investment in “generation capacity,” without the application of State aid, which may be used to ensure adequacy of the energy supply and the employment of renewable energy within the EU’s Member States.[18]  These acknowledgements by the Commission are important, because they recognize the changing nature of how energy is being supplied throughout the E.U. and the need for State aid and accompanying guidelines for energy infrastructure if market and regulatory failures are to be corrected and adequate energy production is to be ensured.

The Guidelines also encourage an avoidance of using State aid as a subsidy for fossil fuels, which would have the potential to result in harmful environmental effects.[19]  This is an important move by the Commission toward encouraging the development of an energy infrastructure that will foster the use of renewable energy and aid in the overall achievement of Europe 2020’s energy and climate goals.

The burden is also placed upon the Member State to provide reasoning as to why State aid is necessary for “adequate capacity” and why this cannot be met by the market.[20]  This is a positive aspect of the Guidelines in that an undue reliance on State aid is discouraged and market forces are instead supported.  However, the Commission provides that factors to be considered in the assessment should include a consideration of “the impact of variable generation,” and this will extend to that which is available in neighbouring Member States, the availability of interconnectors, projects that may be in the planning stages or already under construction and any additional factors with the potential to “cause or exacerbate the generation adequacy problem.”[21]

The difficulty is that the Commission fails to explain the scope of these broad factors, which must enter into an assessment of whether State aid should be granted to energy infrastructure.  Factors that have the ability to result in a failure to generate sufficient energy need to be more clearly defined if this provision of the Guidelines is to be interpreted meaningfully.  The Commission also neglects to provide for the extent that energy generation facilities in neighbouring Member States must be considered in the assessment.  Additionally, it is problematic that projects, which have not been completed, as well as those that are under construction and which may not come to fruition, are to be considered as viable factors in the State aid assessment.  As a result, State aid may be needlessly granted or incorrectly denied to the development of energy infrastructure in a Member State.

The Commission also provides that State aid to energy infrastructure should not provide for the undertaking to be remunerated for energy being sold, but rather compensation should only be provided through State aid for the actual availability of the energy provided by the undertaking.[22]  This is a positive ideal, but requires greater clarification by the Commission. The cost charged by an operator for “availability” may be inflated and thereby enable an energy operator to benefit from the State aid, which it is in receipt of, while also obtaining a profit through inflating its cost for the “availability” of the infrastructure.  A misapplication of State aid could subsequently result under this provision if greater oversight is not provided by the Commission in how aid will actually be dispensed with regard to this provision.

It is beneficial to Europe 2020’s energy and climate objectives that the appropriateness of State aid to energy infrastructure will be evaluated in terms of whether the measure encourages “adequate incentives” to operators and generators for the use of technology that is sustainable.[23]

The Commission also provides that the measure receiving State aid should possess a design that enables other undertakings, which are able to “effectively contribute to addressing the generation adequacy problem” to be able to take part in the measure, but only where this is “physically possible.”[24]  This is a positive aspect of the Guidelines that should encourage the improvement of cross-border energy flow and support less developed regions.

It is also noted that the measure, which is receiving the State aid should avoid the creating of “negative effects on the internal market” or measures that would “unduly strengthen market dominance.”[25]  The Commission appears to be taking concerns with regard to competition into account as well as limiting potential market distortions through the inclusion of these provisions.  These guidelines in particular help to alleviate concerns regarding the Commission enabling an excessive dependence on State aid subsidies for the development of energy infrastructure.

It is also interesting to note that market distortions through the application of State aid are minimized by the new Guidelines, which support market based tools for encouraging the use and development of renewable energy through the application of certificate schemes as well as the Commission’s endorsement of market premiums.[26]  A particularly positive aspect is that a tradable permit scheme for energy infrastructure must exceed the mandatory environmental standards, which have been established.[27]  Additionally, an undertaking that has poor performance with regard to environmental standards for energy production will receive a reduction in their allowances under these schemes, which are provided for in the Guidelines.[28]

The Commission’s endorsement of tools that are based on the market with regard to trading schemes are a positive step in continuing to support competition and market based tools alongside the application of State aid to energy infrastructure.[29] The incorporation of a trading scheme assessment into the guidelines will also aid the climate objectives of Europe 2020 in that allowances for harmful emissions and the associated costs to energy infrastructure will foster the development of a European energy infrastructure that pursues the use of technology that is efficient and based less upon carbon and fossil fuels.[30]

The employment of a tradable permit scheme under the new guidelines for energy infrastructure serves as both an endorsement of market based tools for achieving EU objectives as well as an important aid for the attainment of Europe 2020’s energy and climate goals.  It is also important to note that the EU Emissions Trading System (ETS) is a long-standing instrument of EU environmental policy, which the new guidelines will continue to build upon in their future application.

 

5        Conclusion

The extension of the 2008 State Aid Guidelines on Environmental Protection into the area of energy infrastructure will enable the European Union to more effectively achieve its 2020 energy and climate objectives.  Critics may suggest that competition will be unduly distorted by the measure.  Ambiguities are certainly present in the new guidelines, which will need to be eventually clarified by the Commission, so as to prevent State aid from being needlessly dispensed or incorrectly denied to energy infrastructure applicants in a Member State.  However, the Commission effectively addresses concerns with regard to the Single Market by endorsing market based tools throughout the new 2014 Guidelines and generally succeeds in ensuring that market disruptions are minimal and greater gains are achieved toward the EU’s energy and climate objectives through a more effective application of State aid with regard to energy infrastructure throughout the European Union.

[1]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[2] Community guidelines on State aid for environmental protection OJ 2008 C82/01

< http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52008XC0401(03):EN:NOT> Accessed 11th of March 2014.

[3] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 2.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[4] Ibid.

[5] Ibid.

[6] Commission Communication, A Strategy for Competitive, Sustainable and Secure Energy COM (2010) 639 final, p. 2, 5-6.

< http://europa.eu/legislation_summaries/energy/european_energy_policy/en0024_en.htm> Accessed 11th of March 2014.

[7] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1842.

[8] Ibid. at p. 1843

[9] Townley, C. Article 81 EC and Public Policy (Hart Publishing, Oxford, 2009), p. 169.

[10] Ibid, at p. 165; See also: Commission decisions, International Energy Agency (1994) and International Energy Agency (1983).

[11] Commission Paper, Draft Guidelines on Environmental and Energy Aid for 2014-2020 OJ 2013, p. 52.

<http://ec.europa.eu/competition/consultations/2013_state_aid_environment/index_en.html> Accessed 11th of March 2014.

[12] Ibid.

[13] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[14] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1843.

[15]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[16] Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 52.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid. at p. 53.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Ibid. at p. 54.

[25] Ibid. at pps. 54-55.

[26] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[27]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 55.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[28] Ibid. at pps. 55-56.

[29]Schleich, Joachim, Karoline Rogge, and Regina Betz.  “Incentives for energy efficiency in the EU Emissions Trading Scheme.” Energy Efficiency 2, no. 1 (2009), p. 1.

[30] Ibid. at p. 2.

Expulsion of the Roma from France; A breach of EU law?

Andrew Seow Xian Wen

 

Ideal application of EU law

Freedom of movement for EU citizens is enshrined in Articles 21 and 45 of the TFEU.[1] Before the Treaty of Maastricht in 1992, only the free movement of workers was facilitated, but this gradually expanded to involve all EU citizens. The CJEU decreed that freedom of movement for all citizens is “the destiny of the EU”,[2] and henceforth the modern trajectory of EU law has been towards that goal. Therefore, expulsions may be the most draconian measures that a state can take against foreign citizens and must be assessed comprehensively before being legitimately adopted.[3]

However, enforcing Articles 21 and 45 TFEU in a straightforward way is nullified by Article 5 TEU which places migration issues (concerning the movement of EU citizens) in the hands of the national court. [4] This means that the EU can only issue directives, which set out the purpose member states must work towards. Directive 2004/38, the Citizens Rights Directive” (CRD) makes clear that two conditions must be met before an expulsion of foreign EU citizens is warranted.[5] In general, the conditions for denial of free movement are that migrants (EU citizens moving across the EU)

i)                    Must have insufficient resources to sustain themselves such that they become a burden to social assistance services

ii)                  Be a sufficiently serious threat to public security.

These factors must be assessed with the principle of proportionality, and on an individual basis.[6]

The Directive aims to balance unfettered EU citizen migration within the Schengen area against the strain on social assistance systems that a flood of immigrants would bring to host countries. At present, policy-makers have attempted to strike a balance by imposing that citizens must achieve self-sufficiency in a reasonable timeframe (3 months) in order to stay in a host country without restriction. However, it might be argued that EU law is not applied evenly across the board, and may very well be skewed against the Roma.

 

Reality 1: EU law is skewed against the Roma

Faced with persecution back in their home countries of Bulgaria and Romania, some Roma have fled to France.[7] However, because they are not formally schooled and cannot obtain work permits in France, the Roma, unable to fulfill the conditions set out in the CRD, cannot prove ‘sufficient resources’ by employment. Many take to recycling glass, playing music on the street, or begging. For the authorities, this ‘deviant’ manner of obtaining income does not count towards fulfilling the conditions of “self-sufficiency”.[8] Additionally, if construed very widely, France may deem repeated thefts, begging, or illegal occupation of land to be ‘sufficiently serious threat to public security’ whereby two grounds to expel Roma are fulfilled.

There was an additional catch for the Roma in the seven years preceding 2014: temporary restrictions applied to Romania and Bulgaria (‘transitional measures’) meant that Roma must apply for work permits in order to be gainfully employed in France and stay beyond 3 months.[9] With the French government’s systematic programmes of expulsion in place, it seems impossible that the very individuals they are trying to expel will be granted work permits to stay on. Hence we see that the ‘transitional measures’, combined with the CRD conditions, when applied to the realities of the Roma, disproportionately affect them in terms of free movement into France.

 

Reality 2: French implementation does not fulfill the Directive

The conditions for expulsion in the 2004 Directive were drafted with a high threshold, and must all be fulfilled before expulsion can be administered. However, three French sources of law clearly violate the spirit of the Directive. They not only lower the standard for determining who is a threat to the public, but also make it possible to expel foreign EU individuals on the basis of one condition.

Firstly, in July 2010, the French passed Immigration Bill [No. 542] (2010 Immigration Bill) which lowered the threshold of what constitutes serious threats to public security, by conflating ‘aggressive begging’, ‘illegal land occupation’; and ‘repeated theft’, with a serious threat to public security.[10] The Bill introduced a judicial process that disregards the principle of proportionality by individual review and it potentially constitutes an infringement of fundamental human rights vis-à-vis ‘collective expulsion’.[11] Protesters[12] believed that the Bill disproportionately affected the Roma, who take to begging, theft, and squatting through a combination of personal beliefs, unfortunate circumstances, and the inability to obtain work permits due to discrimination.

Secondly, in October 2010, the French pledged to ensure the correct transposition of the 2004 Directive. As the original deadline had long passed, and the Commission set an additional deadline for France who begrudgingly met it within 1 hour of the new deadline.[13] Although this new Law No. 2011-672 on Immigration, Integration and Nationality (2011 Immigration Law) used similar wording to the Directive and was thought to advance the law in its spirit, it became clear that two Directive Articles were transposed inappropriately.

i)                    Article 27 of the CRD which transposed into Article 39(3) of Immigration Law set out that an order to leave the country (OQTFs –obligation de quitter le territoire français) may be issued to genuine, present serious threats even if the Roma stayed for less than 3 months.[14] Human Rights Watch (HRW) states their view that this is clearly against the wording of the directive as there should not be any conditions limiting foreign EU stay.[15] While such security concerns obviously apply to all individuals in a host country, this article, read together with the 2010 immigration bill, means that those Roma who have stayed less than 3 months can be legitimately expelled for squatting, and ‘aggressive begging’ – a disproportionately severe punishment.

ii)                  Article 14 of the CRD transposed as Article 22 of Immigration Law stated that an EU citizen may be expelled if he constitutes an ‘unreasonable burden on the social assistance system’ and this applies to citizens that have stayed for less than 3 months in France. When the European Parliament questioned the appropriateness of Article 22, it was clarified that this provision only applies in ‘clearly repetitive cases where applicants’ sole purpose of renewing the stays of less than 3 months is to circumvent the conditions for residence’ laid down in the directive.’[16]

On the evidence, 80% of the incoming Roma from Bulgaria are reliant on social support services in those countries,[17] and France’s fear of them taking advantage of the system is hence not unfounded. However, this is no reason to contravene EU Directives and attempt to expel them. Rather, these Roma clearly represent a humanitarian problem akin to refugees and must be assisted to the fullest extent as EU citizens. Deported Roma could face more extensive persecution and human rights violations of violence upon their return to Bulgaria and Romania as rule of law is less prevalent.

The two transpositions show a clear watering down of the procedural safeguards and are inconsistent with the requirements of the Directive. The inadequate transpositions mean that the Roma do not have guaranteed time to establish an economic presence or prove self-sufficiency, but rather can easily be thrown out due to lowered standards of what constitutes a security breach, or when the French Conseil d’Etat decides that such immigrants are potentially reliant on social services.[18]

Thirdly, the French Civil code conflates a dependency on social assistance services with a threat to public order.[19] France would allow for an immediate expulsion upon discovering an alien’s threat to public order or ‘abuse of law’, where abusing the social services would constitute a threat to public order. Combined with the requirement for a work permit ‘transitional measure” the effective transposition of the directive into French law transforms the test into a single step one with no need for individual review. As a result, desperate and poor EU citizens are prevented from finding work, and are subsequently expelled because they need state support rather than retained because they need help.

Reality 3: Half-hearted implementation

It is submitted that the watering down of the safeguards combined with an anti-Roma sentiment – President Sarkozy reportedly state that the Roma were to be ‘systematically evacuated’[20] – means that the law will be implemented to target rather than to protect the Roma.

HRW examined 198 OQTFs in 2010 and 2011 and found they embodied 4 traits implying a clear disregard for proportionality.[21] It was found that the OQTF’s were in standardized form, and virtually identically completed with no evidence of any social welfare assistance received. Additionally, there was a pro-forma declaration attached where the Romani stated they were begging and had no medical insurance. The rights of these people were clearly not taken seriously and the protections implemented were either half-hearted or not implemented at all.

However, there are cases where some courts threw out OQTFs because there was no proof that the Romani in question were security threats. This might show some extent of proportionality where individual assessments are made when it comes to OQTFs but these cases (wrongly so) are the exception rather than the norm.[22] Point in case, a draconian second mechanism exists to compliment the OQTF – a prefectoral order to remove persons to the border, (arrêté préfectoral de reconduite à la frontière, or the APRF)[23], which is issued in line with the provisions of the 2010 Bill to deem foreign citizens as security threats. It only allows a 48 hour appeal period after which persons are forcibly removed – an almost irrefutable burden.  It was held to be valid in EU law when used in clearly repetitive cases’ but arguably has much wider application in reality. Indeed in 2009, 10,000 Romani were expelled,[24] followed by 11,000 in 2010, and 13,241 in 2011.[25] It is highly doubtful the law was applied in the spirit of the Directive in all these cases.

 

Conclusion

Immigration is a highly sensitive issue and not only potentially depletes a country’s social services, but is a key political topic that if addressed against the wishes of the general population can spell the end for a politician. France has clearly breached EU law by misapplying the Directive, and by infringing the principles of proportionality and human rights by allowing ‘collective expulsions’. Although commentators have suggested taking France to task under the Treaty to face economic sanctions,[26] this overlooks the well-founded French concern that Roma present in France are an actual burden to social services, and that incoming Roma would add to this burden.

The EU politicians must reframe the Roma plight under the lens of “Development and Humanitarian Aid” rather than “Migration”. This would not only underscore the emergency of the situation, but would most importantly, eliminate improper transposition since EU law directly applies and must be enforced to the letter.

 

[1] Treaty on the Functioning of the European Union – Articles 21 and 45

[2] C 184/99 Rudy Grzelyczk v Centre public d’aide sociale

[3] Barnard, Catherine, The Substantive Law of the EU: The Four Freedoms, (3rd edition, Oxford University Press, 2010) at 226

[4] Treaty on European Union – Article 5

[5] C 413/49 Baumbast and R v Secretary of State for the Home Department

[6] Diana Mahoney, Expulsion of the Roma, 37 Brook. J. Int’l L. 649 2011-2012 at 663

[7] Suzanne Daley, Roma, on Move, Test Europe’s ‘Open Borders”, N.Y. Times, Sept. 17, 2010.

[8] Mahoney n6 668

[9] Mahoney n6 661

[10] Immigration Bill [No. 542], available: <http://www.hrw.org/en/news/2011/02/07/open-letter-french-senators-immigration-bill>

[11] Quinn Bennett, Please Don’t Be Our Guest: The Roma Expulsion from France under European Union Law, 40 GA. J. INT’L & COMP. L. 219(2011) 241

[12] Ibid 228

[13] Human Rights Watch <http://www.hrw.org/news/2011/09/28/france-s-compliance-european-free-movement-directive-and-removal-ethnic-roma-eu-citi>

[14] Ibid [5]

[15] Ibid [6]

[16] “Parliamentary questions E-008463/2011, EU Parliament, 22 September 2011

[17] Report by Thomas Hammarberg, Commissioner for Human Rights of the Council of Europe, 9 February 2010, p. 14.

[18] Mahoney n6 663

[19] Ibid 672

[20] Owen Park & David Toke, The Politics of a Multi-level Citizenship, Global Society, 27:3, 360 (2013) at 367

[21] HRW n12 [14]

[22] Ibid [17]

[23] Ibid [29]

[24] Claire Suddath, “Who are Gypsies, and why is France deporting them?” Time, 26 August 2010, available: <http://content.time.com/time/world/article/0,8599,2013917,00.html>

[25] HRW n12 at [38]

[26] Bennett n11 244

Free movement of capital and Golden Shares in Volkswagen: unexpected twist or foreseeable outcome?

Jelena Ganza, PhD Candidate, Dickson Poon School of Law, KCL

Pursuant to the so-called ‘loyalty to the EU principle’ enshrined in Article 10 EC, Member States are obliged to remove national barriers to free movement of capital (Article 63 TFEU). However there are certain national barriers which the Member States sought to retain in spite of the foresaid obligation. These barriers are the so-called ‘golden shares’[i]  which allow State to retain control over former SOE’s. Typically, the special ‘golden’ share (hereafter: GS) aimed to remain property of State, granting it with special powers and allowing to exercise control over company’s management which could only be exercised by a majority shareholder. In order to be acceptable under the then EC law GS had to be justified on grounds of exceptions laid down in the Treaty[ii], meet legal certainty and proportionality requirement – an imperative that could not be easily satisfied. The EU Commission has long acknowledged that there is no place for unjustified GS and sued erring Member States in the Court of Justice of European Union (CJEU). The CJEU has evaluated the legality of GS in fifteen cases and only in one instance their application has been justified.[iii] These condemning judgments are of declamatory character therefore it is up to the national Government to choose how to comply.

Compliance obligations stem from the CJEU’s judgments – depending on the wording of the operative part and summary the State’s Government could employ different compliance strategies. Firstly, the Member State could repeal GS, thus entirely eliminating the infringement of the Treaty. Compliance by repeal could be seen as acting in line with the sincere co-operation principle as it eliminates the breach of the Treaty in its entirety and therefore effectively complies with the judgment. Secondly, the Member State could attempt to meet the justification criteria so that overruled GS could pass the justification test. Since passing the justifying GS is a challenging task, in practice the Commission was never satisfied with ‘compliance by amendments’. Following such amendments GS retained their dissuasive powers for foreign investors and subsequently impeded capital movements. As a result, any justification attempts of overruled GS inevitably triggers further infringement proceedings on amended GS or even sparks further infringement procedure for non-compliance with the original judgment. Therefore, any ‘compliance by amendment’ could be seen as acting contrary to the sincere co-operation principle under Article 10 EC. The above finding has been tested by analysis of Italian cases[iv] which revealed that GS are of obstinate character and governments could be reluctant to repeal them while tampering with the justification test instead.

Generally GS judgments clearly established which provisions were illegal leaving the Member State with indication as to which GS have to be repealed or amended. However, as the following analysis will show, sometimes the Member States are left with a GS ruling with a seemingly dubious compliance obligations stemming from it. Such was the case with the CJEU’s landmark ruling on C-112/05 Commission v Germany[v] which is one of the most famous and longest-running cases in Community history. In this case the Commission challenged one of the oldest instances of GS, the so-called ‘Volkswagen Law’ (the Law) implemented in 1960’s exclusively for the automobile company Volkswagen. It must be stressed, that the Law differs considerably from other GS in other States in one respect: it did not reserve special powers for the sole benefit of the Member State per se but rather used provisions of national company law to treat State authorities as ordinary private shareholder.

The Law created a legal framework which indirectly benefited the State of Lower Saxony – major shareholder with 20% stake. The Law limited the voting rights for all shareholders to 20% of the total share capital, while at the same time increased the majority required for approval of resolutions by general shareholder meeting from 75% to 80%. The set percentage thresholds were by no means accidental, but rather aimed to correspond with Lower Saxony’s stake in Volkswagen The combination of the ownership ceiling and increased majority provision allowed for Lower Saxony to exercise control over Volkswagen that would normally be available only to a shareholder owning 25% of the shares.   Additionally, the Law allowed for Lower Saxony to appoint two directors to the company’s supervisory board for as long as it retains any shares in the company, thus explicably granting the authorities with special power to assign directors. However, neither increased majority, nor voting right ceiling referred to Lower Saxony as a sole beneficiary of the Law. In the strictest sense any other shareholder owning 20% of Volkswagen’s shares could benefit from these provisions. However, it is clear that the Law was created for the sole benefit of Lower Saxony – the 20% minority stakeholder.

In spite of the fact that the Commission asserted that all three paragraphs of the Law infringe the Treaty individually, both Advocate General and the CJEU analysed the increased majority and the voting right ceiling together in order to assess their combined deterring effect on capital movements.[vi] At the joint examination of cumulative effects of the Law the Court went on to link the effects of the increased majority and the voting right ceiling, stating that provisions supplemented each other, creating a legal framework which enabled Lower Saxony to exercise considerable influence on the basis of its investment.[vii] The Court came to the conclusion that the combination of the foresaid provisions constitutes a restriction on the movement of capital.[viii] The Court ruled that by maintaining in force provision on directors’ appointments, as well as voting right ceiling in conjunction with increased majority provision, Germany has failed to fulfil its obligations under Article 63 TFEU.

Germany had to comply with the judgment by choosing its compliance strategy – to repeal or amend the Law. While choosing the strategy the Government referred to the judgment and proceeded with amending the Law by removing some overruled provisions.[ix] In the Government’s view the judgment anticipated two necessary amendments: to the director’s appointment right and the deterring system. The Government concluded that since the interplay or interaction between the two provisions of the Law infringes the Treaty, by removing only one component of the system the interaction between the two provisions will be eliminated effectively terminating GS so there would be no necessity to repeal the remaining provision. Therefore, the compliance strategy anticipated amendment to the Law by repealing the voting right ceiling (which was also contrary to German law on stock companies) and provision on director’s appointments, yet the increased majority provision remained in force. Subsequently, the Government choose to follow the wording of the ruling without going further than strictly necessary. Effectively, Germany has complied with the judgment while at the same time Lower Saxony’s 20% stake allowed it to continue its influence over Volkswagen.

Commission was not satisfied with such compliance strategy and threatened to sue Germany for non-compliance with the original GS ruling under Article 260 TFEU. Germany defended its compliance strategy emphasising that it had no obligations to amend overruled Law beyond the requirements of the judgment. Germany insisted that the judgment required for abolition of the legal framework and subsequent amendment met that requirement. Commission pushed for removal of increased majority provision, but Germany resisted.

The ambiguity of compliance obligations stemming from Commission v Germany has been further deepened by judgment of District Court of Hannover[x]. The District Court assessed the wording of the CJEU’s judgement and concluded that neither the increased majority provision nor the voting rights ceiling is contrary to the Treaty per ce. [xi]   According to the District Court only the joint effect of the said provisions constitutes the breach of the Treaty.[xii] However, in spite of the District Court’s finding, the EU Commission urged Germany to repeal the remaining provision of the Law in order to fully comply with ruling on C-112/05. Germany, on the other hand, sought to convince the Commission that such interpretation of compliance obligations stemming from the said judgement is erroneous. Germany insisted that repealing one of the two provisions of the Law is sufficient to facilitate full compliance. The government proposed to submit a joint application for interpretation of the CJEU’s judgment in order to resolve the differing views on compliance obligations.  Yet the Commission declined Germany’s offer stating that there are “no doubts as to the meaning or scope of the 2007 Judgment”.[xiii]

The above interpretative challenges led the Commission to refer the matter to the CJEU in 2012 under Article 260 TFEU suing Germany for non-compliance with judgment on C-112/05, stating that it is apparent that each of the three contested provisions of the Law infringed Article 63 TFEU individually. The resulting judgment on C-95/12 Commission v Germany, delivered on 22 October 2013 was the first of its kind in the existing body of GS case law since no other Member State had to such great extent resisted the Commission’s views on necessary compliance obligations. In C-95/12 the CJEU ruled that the Commission’s complaints should be dismissed. Such an outcome of the judicial proceedings could be seen as a surprise for some, yet for others, it would appear to be anything but a surprise.

First, even though the judgment on C-112/05 could be seen as missing the opportunity to outlaw the increased majority provision of the Law, the judgment on C-95/12 merely concerns the alleged non-compliance with the GS ruling and not the potential illegality of the foresaid provision. In C-95/12 the Court has evaluated German compliance strategy and came to a conclusion that it has fully complied by removing one of the two provisions which constituted an illegal system. The outcome of C-95/12 also appears unsurprising once the ruling by the District Court of Hannover is taken into account. The District Court has rightfully observed that the CJEU has evaluated the two provisions of the Law as two pieces of one whole therefore removing one part of the system would result in its ineffectiveness. Lastly, the outcome of the case C-95/12 has been predicted by Advocate General when he concluded that the judgment on C-112/05 is not “particularly ambiguous” and it is “regrettable” that the parties had contrasting views on its interpretation and could not agree on the necessary compliance measures.[xiv] Advocate General’s opinion has predicted doom for the Commission’s claims, confirming that in order to determine the necessary compliance strategy Germany had to refer to the operative part of the judgment and not to the broad interpretation of assumed illegality of all three provisions of the Law as suggested by the Commission.[xv]

Even though the outcome of the judgment C-95/12 could have been predicted, it should be emphasised that the increased majority provision of the Law could once again become subject to further judicial review. The retained provision of the Law has the potential for being in breach of free movement of capital. However, the Commission would have to initiate a separate infringement procedure to prove that. The above analysis of German compliance strategy demonstrates the inherent obstinacy of GS. If, in line with the sincere co-operation principle, Germany would have opted to repeal all the contested provisions, there would not be any interpretational issues of the judgment and the increased majority provision would not retain the potential for being taken to the CJEU on separate proceedings in the future. This analysis once again demonstrates that when it comes to compliance with GS judgments, the best possible compliance scenario would be repealing GS altogether rather than amending them. The controversy of the Court’s judgment on C-112/05 is likely to re-appear in the future if the Commission would choose to refer the matter to the Court. The extent to which Germany’s compliance with the ruling could be seen as acting in line with ‘sincere co-operation’ principle under Article 10 EC could also be questioned, especially if legality of the retained provision would be tested by the Court.

 

Key terms: Golden Shares, Compliance, Free Movement of Capital

Legislation:

Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties (Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand) of 21 July, 1960, BGBI. I 1960, at 585 and BGBI. III at 641, amended 6 September 1965, BGBI. I at 461 and 31 July 1970, BGBI. I at 1149.

Draft law Amending the Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties (Gesetzentwurf der Bundesregierung, Entwurf eines Gesetzes zur Änderung des Gesetzes über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand)

 

Cases:

C-112/05 Commission v Germany;

C-95/12 Commission v Germany;

Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 52/08, Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 61/08.

 

 

 

[i] On the subject see Jelena Ganza for KSLR European Law Blog: ‘A Continuing analysis of the Never-Ending Story: Golden Shares after Italian elections’, (10 June 2013) and ‘Italian Golden Shares – a Never-Ending Story?’, (January 2013).

[ii] public health, policy and security, see Article 55 EC, Article 56 EC, Article 223 (b) EC, Article 65(1)(b) TFEU

[iii] Commission v. Italy, C-58/99, judgment of the CJEU of 23 May 2000; Commission v. France, C-483/99, 4 June 2002; Commission v. Belgium, C-503/99, 4 June 2002 (justified); Commission v. Portugal,  C-367/98, 4 June 2002; Commission v. United Kingdom, C-98/01, 13 May 2003; Commission v. Spain, C-463/00, 13 May 2003; Commission v. Italy C-174/04, 02 June 2005; Joined cases C-282/04 and C-283/04, Commission v. Netherlands, 28 September 2006; Federconsumatori v. Commune di Milano, C-463/04 and C-464/04, referred to the Court for preliminary ruling, 6 December 2007; Commission v. Germany, C-112/05, 23 October 2007; Commission v. Spain, C-274/06, 14 February 2008; Commission v. Spain, C-207/07, 17 July 2008; Commission v. Italy, C-326/07, 26 March 2009; Commission v. Portugal , C-171/06, 8 July 2010; Commission v. Portugal, C-543/08, 11 November 2010

[iv] ibid n (i)

[v] Commission v. Germany note iii above

[vi] Opinion of Advocate General Ruiz-Jarabo Colomer, delivered on 13 February 2007 in Case C-112/05 Commission v Germany [76]-[81]

[vii] Commission v. Germany [51].

[viii] Commission v. Germany [56].

[ix] See Deutscher Bundestag (25 September 2008), Gesetz zur Änderung des Gesetzes über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand (Law amending the Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties), BGBl. 2008 I No 56, p. 2369

[x] Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 52/08, Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 61/08.

[xi] Judgment 21 O 61/08 (n x) at Reasons I 2 (k)

[xii] Judgment 21 O 61/08 (n x) at Reasons I 2 (k)

[xiii] Advocate General (2013), Opinion of Advocate General Wahl, delivered on 29 May 2013, Case C 95/12, European Commission v Federal Republic of Germany, [12].

[xiv] Advocate General (2013) [24]-[25].

[xv] Advocate General (2013) [26].