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European Union

Commission adopts Communication on intra-EU investment

On July 19 1997 the Commission published a Communication on certain legal aspects concerning intra-EU investment. The Commission examined the compatibility of national measures which restrict cross-border investment with Article 73b (capital movements) and Article 52 (right of establishment), to conclude that:

  • discriminatory restrictions which apply exclusively to investors from other member states (eg prohibitions on buying more than a certain amount of voting shares in domestic companies) are contrary to Articles 73b and 52, unless covered by one of the exceptions in the Treaty; and
  • non-discriminatory measures which apply to all EU nationals (eg general requirements to obtain authorization before investing in a domestic company, or the rights usually attached to 'golden shares', such as the rights of national authorities to veto major decisions or to name directors) are only permitted if they are applied in a non-discriminatory manner, are justified by imperative requirements in the general interest and are proportionate.

The Communication will form the basis of a dialogue between the Commission and the member states whose aim will be removing obstacles to intra-EU investment.

Late commercial payments

On July 10 1997 the Commission adopted a Communication summarizing the action taken by EEA countries against late payments in commercial transactions. The problem of late payments afflicts many small and medium-sized European firms, causing cash-flow difficulties, undermining competitiveness and profitability, hindering intra-EU trade and the development of the internal market. The Commission found that many countries have not taken action against late payments and that, although the problem is relatively minor in some states (such as Norway), the same cannot be said for other states (such as Portugal). The Commissioner invites comments from interested third parties, with a view to proposing, before the end of the year, a Directive aimed at reducing late payments.

Insurers' insolvency margin

As required by the Third Life and Non-Life Insurance Directives, on July 28 1997 the Commission approved a report on the solvency margin mechanism for insurance undertakings. Under the present regime, insurance companies must comply with rules laying down the amount of the minimum guarantee fund and the 'solvency margin' (ie the equity capital and other elements which they need to have at their disposal to cover the risks inherent to insurance activities).

In its report, the Commission expressed general satisfaction with the way the mechanism works. However, it found that a number of risks are at present inadequately covered (including reinsurance risk, long-term risks, investment risks in non-life insurance and the risk connected with rapid changes in operating conditions).

Moreover, it concluded that, in a number of areas, greater harmonization is needed at the European level, particularly as regards the list of elements included in the solvency margin and there is a need to readjust the minimum guarantee fund. To address these concerns, the Commission intends to propose amendments to the existing Directives during the course of next year.

Boeing/McDonnell Douglas merger cleared

On July 30 1997 the Commission approved the merger between Boeing and McDonnell Douglas following a second-phase investigation and on the basis of last-minute concessions from Boeing.

The Commission's investigation was controversial because it involved two non-EU based firms. At one point threatened to bring the EU and the US close to a trade war.

The Commission maintained, however, that it had power to investigate the merger, given its impact on competition within the Community. One of the major concerns related to the sole-supplier agreements entered into by Boeing with three major airlines (American, Delta and Continental airlines) for a period of 20 years.

The Commission approved the merger after Boeing agreed not to enforce the exclusivity clauses in these supply agreements, to maintain Douglas Aircraft, a manufacturer of civilian aircrafts within the McDonnell Douglas group, as a separate company for 10 years, and to license to third parties new technologies acquired through government-supported research.

Commission begins second phase proceedings

On July 29 1997 the Commission announced that it has initiated a second phase investigation into the proposed purchase by Siemens of shares in Elektrowatt, now belonging to Credit Suisse Group.

The Commission is concerned about the considerable overlaps between the activities of Siemens and Elektrowatt (in particular in the building control, fire and security, energy meters and payphones sectors) and about the high market shares of the parties (amounting to around 50% or more in some member states). As regards payphones, the Commission found that the merged company would have a 40% market share in Germany. At the EEA level, the merger could create a joint dominant position for Siemens/Elektrowatt and Schlumberger in the market for electricity meters.

The Commission has four months to decide on the merger.

Michael Reynolds
Allen & Overy

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