The Law of the European Economic Community: Enterprises, Economic Competition and the Economic Function of the State in the Process of Economic Integration 9789630513302, 9630513307

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The Law of the European Economic Community: Enterprises, Economic Competition and the Economic Function of the State in the Process of Economic Integration
 9789630513302, 9630513307

Table of contents :
The Law of the European Economic Community
The Law of the European Economic Community
Contents
Introduction
The enterprise, the economic competition
and the economic operations of the State in the pragmatic
economic policy of the EEC; the premises in the principles
The legal system of the economic integration in general: the Community law (European law) and its sources
The enterprise (company) in the integration through the integration of company law
The economic competition in the integration by integrated legal structure
International cartels and monopolies 146
The State in economy (public enterprises
and the economic competition; other direct economic
operations of the State; immunity)
General and critical synthesis of the function of Community law and its institutions
List of sources

Citation preview

The Law o f the European Economic Community Enterprises, Economic Competition and the Economic Function of the State in the Process of Economic Integration

The Law of the European Economic Community Enterprises, Economic Competition and the Economic Function of the State in the Process of Economic Integration By

F. Mâdl, LL.D. Professor of Law at the Eötvös Lorand University of Budapest (Hungary)

Akadémiai Kiadô, Budapest 1978

A revised edition o f the Hungarian original AZ EURÔPAI GAZDASÂGI KÖZÖSSEG JOGA a vàllalatok, a gazdasâgi verseny és az dllam gazdasdgi szerepének integrâciôs szabdlyozàsàban Published by Akadémiai Kiado, Budapest

Translated by DR. J. DECSÉNYI

Translation edited by DR. L. VÉKÂS

ISBN 963 05 1330 7 © Akadémiai Kiadô, Budapest 1978 Printed in Hungary

Contents

Chapter I I n tro d u c tio n ....................................................................................................................................

9

The p r o b le m ......................................................................................................................... 1 -5 W hy?....................................................................................................................... The ta s k .................................................................................................................................. 6—7 The scope of this s t u d y .......................................................................................

9 9 11 11

Chapter II The enterprise, the economic competition and the economic operations of the State in the pragmatic economic policy of the EEC; the premises in the principles ...................................

13

§1 §2

§ 3 On the general economic and historical prem ises.............................................................. 8 - 1 0 The premises in figures and in larger historical interrelations......................... 11 On the function of the economic policy of the E E C ...................................... § 4 More general socio-economic interrelations - references to political economy in the economic policy o f the E E C .............................................................................................. 12 On the relations of economic and competition p o lic ie s................................ 13—7 Property - forces of production - alternatives to the free market competi­ tion in the notion of the economic policy of the E E C ................................... 1 8 -9 West-European economic concentration - an answer to the American challenge?............................................................................................................. § 5 Notion and structure o f the competition policy in the economic policy o f the EEC 2 0 -1 The notion of the competition p o lic y ............................................................... 2 2 -9 Structure of competition p o lic y ........................................................................ Chapter III The legal system of the economic integration in general: the Community law (European law) and its s o u r c e s .................................................................................................................................. Community law and the sources o f Community law; legal a c ts ...................................... 3 0 -1 Why to look for the general picture of Community l a w ? .............................. 3 2 -3 Community law v. municipal (national) laws and the question of priority 3 4 -4 1 Legal instruments: the sources of law and other legal acts ............................ 4 2 -3 By whom and how Community law is made - the organizational side of legislation............................................................................................................. 44 EEC legislation and so v e reig n ty ........................................................................ § 7 Developments, main fields o f regulation and the harmonization or approximation o f law in the genesis o f Community l a w ................................................................................ 4 5 -6 Results in the fields of regulation ..................................................................... 4 7 -9 Approximation of the municipal (national) regulations................................. § 8 Community interests in the channels o f public international la w .................................... 50 Expansive trends and the farther background................................................... §6

13 13 15 15 15 16 23 25 27

34 34 34 36 39 46 50 5? 53 54 58 58

5

Chapter IV The enterprise (company) in the integration through the integration of company la w ............

59

Problems and s o u r c e s ......................................................................................................... 5 1 -2 Problems ............................................................................................................. 53 S o u rc e s ................................................................................................................ § 10 The enterprise in the other member state: establishment and recognition o f enter­ prises in the E E C .................................................................................................................. 5 4 -6 Establishment and recognition of enterprises in the Rome T r e a ty ............... 5 7 -8 The establishment programme and reality........................................................ 5 9 -6 2 Recognition of companies and legal p e r s o n s ................................................... 6 3 -5 Scope of the preferred enterprises.................................................................... § 11 For a better movement o f the enterprises in EEC: approximation o f the municipal (national) regulation o f companies..................................................................................... 66 The legal rationale of approximation .............................................................. 6 7 -7 0 Publicity - validity of assumptions of obligations - nullity of companies . 71-2 Formation of the company and its capital s to c k ............................................. 7 3-5 Mergers and interest protection.......................................................................... 7 6 -7 Balance sheets - annual accounts and reports - p u b lic ity ........................... 78-81 Organizational structure of enterprises, rights and duties of the elected and managing bodies, the question of workers participation................................ § 12 The European Company (Societas Europae) - a new legal institution o f the West European economic integration ........................................................................................ 8 2 -5 The European Company in statu n a s c e n d i...................................................... 86 On the Statute of the European Company in general....................................... 8 7 -9 4 Europeanisms in the Statute: peculiarities and relevances.............................. 95 On some institutions of the S t a t u t e ................................................................. §13 The European Commercial R e g iste r................................................................................. 9 6 -8 Ideas and r e a lity .................................................................................................

92 92 98 99 105 106 106

Chapter V The economic competition in the intégration by integrated legal stru ctu re.............................

109

§9

§ 14 Sceptical overture and the instruments o f the law o f co m p etitio n ................................ 99 Sceptical o v e r tu r e ............................................................................................... 100-1 The law of competition in the strict sense of the term (anti-trust law) and its instrum ents.............................................................................................. 1 0 2 -3 General analysis of the development so f a r ................................................. . . §15 Cooperation contracts and c a r te ls .................................................................................... 1 0 4-6 Confusion and reality about the notion of the cooperation contract and the c a r t e l ............................................................................................................ 1 07-13 The cooperation contract in practice ............................................................... § 16 Agreements in restraint o f trade - the cartel.................................................................. 11 4-6 The cartel in legislation...................................................................................... 1 1 7-8 Cartel regulation in general c o n t e x t.................................................................. 119-20 Cartel legislation and practice in figures and the scope ................................. 1 2 1 -3 Competition policy and anti-trust law in practice: (a) Extent of the pro­ hibition of cartels; degree of the perceptible effect of cartels........................ 1 2 4-5 Competition policy and anti-trust law in practice: (b) Main lateral arms of the legal channels................................................................................................. §17 Concentration and dominant market position (m o n o p o ly)........................................... 1 2 6 -8 Optimal s iz e ? ........................................................................................................ 129-30 The forms of concentration................................................................................ 1 3 1 -3 The dominant position in EEC legislation.........................................................

6

59 59 62 63 63 65 68 72 77 77 78 81 84 87 38

109 109 Ill 113 117 117 123 129 129 137 141 142 150 156 156 161 163

134-8 139-45

Dogmatic problems of the Regulation in the controversy of theory and p r a c tic e ............................................................................................................... Results in facts: Parturiunt montes e t . . . ? ....................................................

Chapter VI International cartels and monopolies.............................................................................................

166 170

182

To the problem .................................................................................................................... 1 4 6 -7 Why this problem ?.............................................................................................. § 19 The problem as demonstrated by examples and r e a lity ................................................. 148 The typical instance: the International Quinine Cartel ................................. 149-50 Organization of the world market by states - private cartels and mono­ polies ................................................................................................................. 1 5 1 -2 International economic associations................................................................. § 20 The answer o f the law to the challenge (from the genesis to public international law) 15 3-4 In g e n e ra l............................................................................................................ 155 The g e n e sis......................................................................................................... 1 5 6-9 The answer of public international law ........................................................... § 21 International cartels and monopolies in the law o f the EEC 160-1 Framework of the regulation............................................................................ 1 6 2-5 The answer of theory ........................................................................................ 166-72 The reality of p ractice........................................................................................

186 189 192 192 195 196 202 202 203 209

Chapter VII The State in economy (public enterprises and the economic competition; other direct eco­ nomic operations of the State; immunity) .................................................................................

223

§ 18

§ 22

§ 23

§ 24

§ 25

§ 26

§ 27

182 182 184 184

The direct economic operations o f the State - function and the problems o f the public enterprises in the economic integration in general 223 173 Introductory re m a rk s ...................................................................................... 223 1 7 4-5 The pragmatic policy of the EEC in the issue of direct state operations and public enterprises................................................................................................ 225 Forms o f public enterprises: the struggle o f forms and ty p e s ......................................... 228 1 7 6 -8 Public enterprises of the member s ta te s ......................................................... 228 179 Interstate enterprises.......................................................................................... 232 180 The common denom inators.............................................................................. 235 Direction and control o f the public enterprises with specialregard to the economic competition principles o f the E E C .................................................................................... 238 1 8 1-2 Compromise and scope of the EEC re g u la tio n .............................................. 238 1 8 3 -6 Contents of the d o g m a tic s.............................................................................. 241 1 8 7 -8 Practical difficulties now and to m o rro w ...................................................... 245 New pathways and the interstate public enterprises in the E E C ................................... 251 189-92 New pathways, worries old and new, therapyandremedies in general 251 1 9 3 -5 The joint e n te rp ris e ......................................................................................... 262 196 The interstate public enterprises..................................................................... 267 1 9 7 -8 The immune-reaction or what is going to happen to thes i c k ? ..................... 271 The State in economy v. state im m u n ity ........................................................................ 276 199 The general interrelations of im p o rta n c e ....................................................... 276 200-1 The historical metamorphosis of im m unity.................................................... 279 Immunity and integration................................................................................................... 280 280 2 0 2 -3 Disputes on Community and interstate enterprises andim m u n ity ................ 2 0 4 -7 The Court of Justice of the EEC and im m u n ity ........................................... 281 2 0 8-12 The European Convention on Immunity - the generalization of relative im m u n ity ............................................................................................................ 285

7

Chapter VIII General and critical synthesis on the function of Community law and its in stitu tio n s............

290

The function o f Community law in general-theoretical p ro je c tio n ............................. 290 213 Concentration and the strength of contemporarycap italism .......................... 290 2 1 4 -5 On the function of Community law in the general theoretical context of political e c o n o m y .............................................................................................. 291 § 29 The economic function o f the capitalist State-as arguedwith jurisprudence............... 295 2 1 6 -8 From jurisprudence and political economy to the reality of the economic function of the modem capitalist State and the E E C ................................... 295 219 On the legal instruments in general................................................................... 300 § 30 Community law as a comprehensive system o f the economic function o f the con­ temporary capitalist State developed for and by the economic integration.................. 301 220 On the system and the growth of the forces of p ro d u ctio n ........................... 301 2 2 1 -6 The system and its institutions p u r e ................................................................. 303 §31 Critical e p ilo g u e ................................................................................................................. 308 §28

*** List of s o u r c e s .................................................................................................................................

8

310

Chapter I Introduction



The Problem

1 -5 2 §

Why?

The task

6- 7

The scope o f this study

§1

The problem

1 -5

Why?

1 A book on EEC law in Hungary by a Hungarian author in the mid-seventies? Why and to what end? Obviously, there are both subjective and objective reasons for the treatment of any problem and thus for the writing of every book. 2 To start with the less important motives, the personal ones, the author must confess that he has always been attracted by what was new and dynamic in the development of law. He has always been fascinated by the new legal expressions of new historical situations; by the need to confront our traditional legal categories with processes pregnant with new and changing economic, social and international relations, with processes whose tensions and exigencies burst the bounds of the traditional legal categories, and compel the elaboration of new legal formulae and new legal systems. To grasp in this context the laws of the evolution of law itself is indeed a thrilling intellectual experience. Hence the previous works of the author on the nascent legal mechanism of economic integration. For this —to repeat a commonplace —is the area where, before our very eyes, a new legal world is being bom of modem industrial revolution, and the complex of international economic and political relations. A jurist investigating this subject feels somewhat as Goethe did on seeing the French Revolu­ tion bringing about a new social order. It is indeed, as he said, a great thing to be present at the birth of a new world. It was this kind of attitude which led the author first of all to study the new legal phenomena of the international economic integration of the CMEA countries (Council for Mutual Economic Assistance)1, and then to spend a few years studying EEC law with a view to writing this book. 3 The subjective motives mentioned hint also at one of the objective reasons for writing this book, namely that it is high time socialist jurisprudence, too, made a critical study of EEC law and subjected it to rigorous theoretical analysis. Socialist jurisprudence cannot ignore the fact that in one half of Europe — of absolutely vital interest to us — a new system of norms has come into being, a legal system that calls See in the List of Sources: Màdl 1, 2, 7, 9, 12 and Màdl-Sôlyom.

9

itself European law or Community law. We cannot ignore the fact that this system has begun to function; that its organizational, legal and procedural institutions have begun to operate with a view to providing a new kind of answer to the contradiction between capitalist relations of production and the development of the forces of production, and with a view even to replacing to some degree these nations’ earlier legal systems — so that the projection of the EEC countries’ relationship to the socialist world, too, is now, in some respects, a function of this new legal system. Socialist jurisprudence has to take note of this development, and subject it to thorough critical analysis. We must and can work out our position on a series ofitheoretical problems. To name just a few of these: the contradiction between the development of the relations of production and of the forces of production, or rather, the attempts in the so-called supra-national regulation system of European economic or Community law to resolve this; the role of property relations and their apology in the legal solutions ‘abstracted’ on the Commu­ nity level; the general laws operating in this new legal system of international capital flow with special regard to the other forces and factors of international political and economic relations (the socialist and the third world, peaceful coexistence, the unity of world economy, etc. ); how general laws are reflected in concrete institutions; from sovereignty and investment protection, through international economic associations, to systematic legal protection against international monopolies and cartels (an issue of consequence to the socialist world, too); and, a ‘reassessment’ of the concept of state immunity. 4 Among the objective positions, however, there are also several highly significant practical considerations, the most important ones being the following, (i) There seems to have started a movement toward the normalization of relations between the two European economic integration systems, the CMEA and the EEC (here reference can be made to the meetings of the leaders of the two organizations; the new UN status of the two integrations; the CMEA’s proposal in February of 1976 of an Agreement on the principles regulating CMEA-EEC relations2 ; these and similar events are known well enough from the daily press), (ii) The East—West trade of the CMEA countries, particularly of Hungary may, with slight simplification, be called trade with the EEC. (iii) Economic contacts between East and West are not only ever growing, but are also undergoing qualitative changes: contracts for large-scale cooperation; the establish­ ment of international or joint venture companies; the operation of Hungarian and other companies as enterprises in the EEC; joint technological, transport and power systems in certain areas — all these permit us to speak not only of economic contacts between East and West but of economic cooperation, (iv) Notwithstanding the development of the EEC and CMEA as systems of economic integration, we find as facts the general internationalization of technological and economic processes, and an ever higher degree of international economic cooperation. From these too, it follows that both the CMEA and the EEC must be open to the outside world — as indeed a number of CMEA documents have repeatedly emphasized — for an opposite course 2A statement, eg., on this and also on the talks of A. Weiss, the President of the Executive Committee of the CMEA, and A. Thorn, the President of the Council of the EEC, has been released in Luxemburg and generally published by the media on February 17,1976.

10

would conflict with the laws of world economic development. The European Security Conference, too, has pointed out that economic cooperation also in this sense is one of the essential elements of future action and peaceful coexistence. The second half of the 20th century, then, forecasts a new law of economic development. For while the socialist and then the third world’s world markets, have disrupted the old homogeneous capitalist world market, and these three, with their discrepant laws of international development, have developed along divergent lines — indeed, for some time with little regard for one another — their cooperation under later 20th century conditions of international technological, political and economic development also brings about a new kind of unity of the world market. 5 In view of all the above, it is precisely this new kind of unity which lends increasing significance to familiarity with the respective regulation systems not least of all for the purpose of creating channels of communication between the various systems, and of perfecting those already in existence. To illustrate the situation by an example and to take just the Franco—Hungarian economic relations: for Hungarians, the task begins with a knowledge of French company law (among other things, because Hungarian companies have enterprises in France, and must, thus, know what rules apply there), and extends, through a study of the rules of economic competition in the EEC, to the involvement in the UN’s work for a more developed international trade law (UNCITRAL), a scheme initiated by Hungary, on exactly the considerations mentioned above. It is these same considerations that have inspired recent socialist economic policy statements emphasizing the need for a more thorough analysis of the EEC, and have inspired also the resultant noteworthy studies in the area.3 §2

The task

6- 7

The scope o f this study

6 Socialist jurisprudence too has dealt with aspects of the above problems.4 This book, however, is in this legal orbit the first venture at a more comprehensive analysis and is thus exposed to all the pitfalls of a pioneer undertaking. What, then, is the pre­ cise purpose of this book? Its comprehensive character notwithstanding, it concentrates essentially on one larger complex of issues, namely, on how enterprises come to be, act, and compete on the integrated market. With a little more elaboration this subject-matter touches on* *Nyers, Czeitler, Gyulai, Hedri, Kozma, Palänkai, Sulyok, further, R. Nyers: ‘Jôvedelmezôség és jövedelemelosztäs’ (Profitableness and distribution of profits). Lecture delivered in the political academy of the Hungarian Socialist Workers’ Party on May 21, 1970; published in the daily press, in Népszabadsàg, and in Magyar Nemzet, on May 22, 1970; this lecture particularly emphasizes the importance of the study of the European Economic Community. The need for the scientific analysis of EEC policies has been given prominence also by the Hungarian long-range scientific research scheme, in the research topic ‘Kôzéptâvü vilâggazdasagi prognôzis’ (Medium-range prognostication in world economy), a review of which may be read in Gazdasàg- és Jogtudomâny, 1972, Nos pp. 259-66. 4 Besides the studies of the author of this book see Meznerics, Valki 1, 2, EEC Encyclopedia.

11

the following principal problems: the kind of integration and scope of activity reflected and favoured by the integration’s company law regulations; the trends brought about by the regulation of economic competition within the integration, and their bearing on cooperative contracts, on cartels and monopolies, on international cartels and international monopolies; the scope given by integration regulations to direct state and EEC economic operations (public enterprises, subsidies, government contracts, etc.) and their function in the relation of the capitalist economy to the capitalist State. But, though these are the issues, their analysis had to have a scholarly beginning and conclusion. It is for this reason that I felt obliged —before plunging to the heart of the issues mentioned above —to give an overall picture of the framework within which the new mechanism for integrating these phenomena operates; more precisely, the EEC’s economic premises, and the premises in its economic policy; and the general system of legal instruments which the EEC employs in these concrete areas, too. Without a short outline of Community law as a whole, we would, at best, have had an incomplete picture, and would, time and again, have had to digress from the vertical analysis of the particular institutions and discuss the general Community law connotations each time separately, disrupting thereby both the process of the vertical analyses and the coherent picture of the Community law instruments. 7 As regards conclusions drawn from such a work, it seemed reasonable to transpose the particular theoretical statements resulting from the concrete analysis of the various issues to a general theoretical picture of the whole, in our case that of the Community law. By doing this in the present book, the author leads the reader to a level where the perspective offers somewhat more than a vertical analysis of the particular issues at hand. The aim of presenting a critical assessment of EEC law would not, it is believed, excuse a failure to explore - to the degree necessary for scholarship - the particular institutions in all their concrete and unique reality as positive law, and to give an insight into their operation. For, as long as we have no clear idea of the concrete content, and are unable to reformulate it creatively, and thus see beyond its individual and accidental elements, all abstract varying of theoretical categories will, in fact, be but empty formalism, at best a pleasing logical game, which our predecessors justly condemned, saying that the business of bad philosophers was useless idleness. It was precisely this kind of reproach that the author wished to avoid at all costs. He has done too much travelling and too much research for this study to run the risk of losing sight of the essence, concrete manifestations and functions of particular institutions and problems in the forest of purely theoretical statements. It was thus that the book came to acquire the elements it has: a critical analysis of the concrete institutions and of their theoretical basis; and in the last chapter, an attempt to synthesize into a system the various theoretical conclusions. The purpose of the closing chapter is to give an evaluation of the relevant peculiarities of capitalist legal development in terms of more general politico-economic and legal categories; to formulate the laws that operate in the factual economic and legal processes described; and, to weld into a coherent system the essence and conclusions of the preceding chapters.5 s Finally, it should be mentioned that the author closed the Hungarian manuscript of this work basically around the turn of 1974 and 1975; of the more recent developments of 1976 only some insertions could be built in.

12

Chapter II The enterprise, the economic competition and the economic operations o f the State in the pragmatic economic policy o f the EEC; the premises in the principles

§3

On the general economic and historical premises

8 -1 0 11

The premises in figures and in larger historical interrelations On the function o f the economic policy o f the EEC

§4

More general socio-economic interrelations — references to political economy in the economic policy o f the EEC

12 13- 7 1 8 -9

On the relations o f economic and competition policies Property - forces o f production - alternatives to the free market competition in the notion o f economic policy o f the EEC West-European economic concentration - an answer to the American challenge?

§5

Notion and structure o f the competition policy in the economic policy o f the EEC

2 0 -1 2 2 -9

The notion o f competition policy Structure o f competition policy

§3

On the general econom ic and historical premises

8 -1 0 The premises in figures and in larger historical interrelations 8 No authentic idea can be conveyed of the extent to which the law of the EEC, and within it the integration-conform statutory regulation of the enterprises, competition and the economic operations of the State are the offspring of actual economic processes, their protective and promoting channel system, unless we have grasped these processes numerically, in the figures of statistics and thereby in their actual reality. It is one of the methodological principles of the Marxist theory of political economy, and in general of the Marxist approach, that for a scientific generalization our approach should in all cases be from a thorough study of the facts and figures. A good example which may be quoted is the ‘Capital’, where in one of the postscripts the generalized law of methodology may be read. Marx, namely, “troubles himself about one thing: to show, by rigid scientific investigation, the necessity of successive determinate orders of social conditions, and to establish, as impartially as possible, the facts that serve him for fundamental starting points ” 1 9 In the Hungarian edition of the present book a long chapter, incorporating about hundred statistical tables and even more analyses of these tables, tried to live up to the axiom mentioned.2 (For reasons of space they had to be omitted here.) lMarx 1, p. 18. 2See in Chapter entitled “Productive forces, economic situation, industrial structure, enterprise concentration and other economic interrelations in the Common Market viewed from the aspects of economic competition - premises in figures” , in Màdl 13,pp. 23-63.

13

Here we can merely refer to the principal facts and interrelations. The first of these facts is that as regards such general indices as national income, productivity, invest­ ments, capital exports, the development of the forces of production (technology, research and development, electronics, in general the key-industries; power generation, modem communication and transport systems, in general the scientific-technical revolution) there is at least a close correlation between integration and the strengthen­ ing of the position of the EEC in world economy. Although the position of the EEC in these fields has, as compared to pre-integration times, improved, still the economic pressure of the USA in terms of figures continues to be very strong. Another remarkable fact confirmed by figures is that as compared to the strongly concentrated structure of American industry the West European industrial structure was disproportionate. From the closing years of the ‘fifties onwards, however, a capital concentration began to unfold itself in the EEC alarming for many now already in the West. The presence of American economy in Europe was one of the challenges to which the Common Market was meant to be an answer. Even when, as testified by statistics, American presence is not decreasing, still West Europe has gathered strength both at home and abroad, moreover in the United States, too. The European and world-wide cooperation of EEC enterprises is in a state of expansion, their technological standards on the increase and so also their participation in world trade and the number of their affiliations abroad. While the EEC has for all these introduced comprehensive legal structures, for a larger market and such more appropriate for the integration, the EEC and its member states have, for the solution of economic difficulties, for the accelerated economic development, had recourse to a number of direct State-Community economic opera­ tions. Among these factors, even in the light of figures noteworthy, we have to reckon the State-Community enterprises, the State-Community contracts, development schemes, subsidies, regional development programs, measures of credit and taxation policy, etc. 10 As regards the larger historical premises here, too, we have to go back to literature, and in it among others to Hungarian Marxist writings in economics and jurisprudence.3 Issues such as the motives in world politics of the birth of the EEC, the effects of the Second World War, the political role of the United States of America, the contradictions of the capitalist order of society and economy, the contradictions between the socialist and capitalist systems of society and economy, to mention those of outstanding importance only, have gone through in-depths analysis. The present work is forced to presuppose the knowledge of the essence of the pertinent literature of all these issues, since from a detailed discussion of these problems we have had to abstain for want of space.

In particutar see: Gyuki, Kozma, BtUnkm, V A i 2.

14

11 On the function o f the economic policy o f the EEC 11 The economic policy of the EEC needs a more profound discussion. First, because this policy is the expression of the concept in which dominant social and political forces of Western European capitalism react to the given economic, social, political and legal conditions, formulate them consciously, sum up in a more or less coherent system the lessons drawn in favour of capitalism, and then transpose them into a theoretical guide of general economic management. Secondly, in particular for the purpose of the present work, because economic policy on this understanding is the premise of all that the European Economic Community —with the dimensions and orientation of integration in mind - has done for an integration-oriented movement and restructuralization of the enterprises, in issues of their concentration, the econom­ ic competition, and in the direct economic operations of the states by applying economic and legal tools particularly in the forefront of the present work. We have to discuss this premise specially and thoroughly, which by the way is also structurally in the front. Although the principles of economic policy are relatively segregable from their legal formulation and their instruments, the unity of all these cannot be ignored even on the plea of a separate discussion of economic policy. If e.g. economic competition is as the totality of the actual economic processes regarded as the volume and drift of the water flowing in a channel, then the law of competition will become the channelling system, le. its bed and locks; competition policy, on the other hand, is the design and schedule of construction of the system of channels. Certainly, we shall acquire a more adequate knowledge of the unity as a whole, if we see in what consisted the technical and building plans of the founders of the Common Market, and what trends of development are characteristic of these plans defining the economic and legal policy of the Common Market today. Consequently by the economic policy of the EEC, as the theoretical archetype of the law of the integration and of the system actually unfolded, the complex of the opinions is understood in which the purpose of the law of the EEC (with special regard to the portions of the law here analysed) has been formulated in a theoretical or political generalization.

§ 4 More general socio-econom ic interrelations - references to political econom y in the econom ic policy o f the EEC

12 On the relations o f economic and competition policies 12 As a matter of course economic policy, in both theory and practice, comprises a large number of objects. In the case of the EEC, too, it comprises all its elements from customs union through agrarian policy, industrial policy, energy policy, transport policy, monetary and competition policy to the idea of a monetary and economic union. To the sources of these policies belong all the essential manifestations of economic policy and theory having as its goal the creation of the West European capitalist eco­ nomic integration, hereincluded the Rome Treaty, the Euratom Treaty, the European Coal and Steel Community Treaty, and all the Community legal normatives and indi­ vidual measures of Community law which give expression to this economic policy.

15

This book, however, concerns itself with the enterprises, the economic competition and the direct economic operations of the State. In reality it discusses the productiveeconomic units active in economy (in this understanding the State, too, whenever it appears in this character) and also under what conditions of competition in the market these units operate in the integrated market. This is therefore competition policy in a wider sense, a policy which embraces the process of global competitiveness of the EEC enterprises, the granting of equal chances within the EEC, the competitiveness of the economy of the EEC against American economy. Here belongs competition policy also in a narrow meaning (the policy concerning the restriction of cartels and monopolies). There is even an inkling of customs policy in it, rather much of industrial policy, moreover of interrelations of greater moments such as the role of the State in the formation of the so-called free market movement of the enterprises, the alternative of market and state control in the economic processes in general. Well, this wider concept of competition policy partly amounts to economic policy already. This is why in the literature and in the documents of the EEC these designations and categories are often overlapping. The chapter on economic policy is devoted to competition policy in the wider sense, manifesting itself also on the level of the generality of economic policy; to the policy of economic competition, from which then the mechanism of community law of the enterprises, the competition of the enterprises and economic operations of the State is a legislative and practice-formed extrapolation. 13- 7 Property -forces o f production - alternatives to the free market competition in the notion o f the economic policy o f the EEC 13 As regards the notion and nature of the principles of the competition policy of the Common Market, this is as a matter of course part and parcel of different more general processes, as e.g. international political and world economical processes, the creation and the way of functioning of the Common Market. It is furthermore part and parcel of the theoretical formula of political economics which postulates the present day factors of economic development in the modem bourgeois political economics and in terms of commercial law. Here, however, instead of a theoretical and historical analysis in economics, as indicated by the title of this section, we intend to seek the theses of principle of the competition policy of the Common Market as they appear in the pragmatic formulation of the pertinent sources. Sure, this portrayal of theses arid principles is not the terrestrial replica of some classical theory of bourgeois political economy, nor the visualization of a definite theory of the modern economics or theory of the State. In the concrete practice of the economic policy of the Common Market it is particularly obvious that this policy — while, of course, based on and protecting the capitalist relations of production - is an economic Real­ politik adroitly adapting itself to the general or smaller vibrations in the world political situation, if by Realpolitik the tactical adaptation to these facts and power relations is understood, where the decisive consideration will eventually become the endeavour to achieve the optimum economic goals under the conditions of the political mechanism and within the framework of the capitalist social and production relations rather than

16

the consistent observance of some sort of a theory. In the economic and political literature this is called the state monopolist economic policy of developed capitalist countries. 14 Naturally in the economic policy of the EEC there are theses which refer to general theoretical interrelations and such of political economy. In general, however, these theses are rarely unfolded and incorporated in some sort of a coherent system of theories. Thus, e.g., to penetrate at once into the depths, there are by no means insignificant references to the property structure, Le., the questions of production relations, still, even of these there are no discussions to be found in economics or jurisprudence at any length. This, seemingly, is the forbidden tree of the literature of the Common Market to which, it would appear any scientific approach might be harmful. Its safety is protected by silent respect. In certain basic interrelations nevertheless the statement suggests itself, that the Common Market relies on the order of production existing in the member countries. This is done by the Rome Treaty when in Part Six, ‘General and Final Provisions’, in Article 222 of a single sentence it declares that “this Treaty shall in no way prejudice the system existing in Member States in respect of property” . Indirectly, this thesis is implied in several other provisions, so in Articles 67—73 on the free movement of capital, or Articles 59—66 on services. We may dispense with bringing forward evidence, since hardly anybody needs to be convinced against an adverse proposition, to the effect that the Common Market as an international economico-organizational formation is, as regards the production relations, fundamentally built upon private property. In like way on the other side it is also natural that the property structure is, even partially, usually never changed by an international convention. It is worth while, however, to take note that this tacitly built-in corner-stone has its legal foundation in the charter of the European Economic Community. This sounds even more to the point in a writing like that of Groeben (one of the top theoreticians of the Common Market and for a long time member of the Commission of the EEC and in charge of competition policy), viz. in the chapter on ‘The social system’ of the work ‘The European Economic Community as the motor of social and political integration’, a study on the philosophy of the Common Market programme. Here the author, though only in 10—15 lines, makes the statement regarding the social, political and ownership order of the EEC that the Community has been built on a social order where the individual economic rights will have to be protected. This will say that the EEC both vertically and horizontally widens the scope of the freedom of economic activity: “The European Economic Community fills the scope of operation of the principles of individual and enterpreneurial freedom and their intensity in a new and larger space with new and richer contents.” The same writing formulates the same under the heading ‘Programme for Europe’ in the following manner: “One of the principal objectives of the Europe Programme is that we mould our common destiny according to the principles of free democracy, human rights and social justice” .4 The principle of ‘economic freedom’ has been formulated also by the Commission at a prominent place, when it has submitted a policy-making document on competition policy as part of the economic 4 Groeben 4, pp. 10-1 and 23.

2 Madl

17

policy of the Community to the European Parliament. Namely in the section of the ‘End of competition policy’ the Commission makes it clear that it intends to achieve such declared objectives as a viable economic and social order for Europe, the increase in productivity, the satisfaction of needs and welfare by way of economic freedom (author’s italics) guaranteed for everybody. The correctives of this economic freedom can at most be the warning signs and measures of the operative rules related to the very mechanism, that is an ‘efficient social and distribution policy’.5 Hallstein, one of the fathers of the Common Market and signatory of the Rome Treaty, a rather active character of the literature of European economic integration, writes: “The basic law and philosophy of the European Economic Community is clearly that of market economy. Its leit-motiv is to bring genuine competition into play in the undivided Community area. Where this philosophy resorts to compulsion to this end, such compulsion is applied to ensure freedom. For freedom is not the natural state of man any more than peace. Compulsion is therefore primarily directed against those powers which are out to restrict that freedom, and not against the citizen of Europe wh·; is to be granted now freedoms.” 6 15 What we don’t find, however hard we are looking in the theses of the competition policy or economic policy of the Common Market, is the question whether the present stage of development of the productive forces and the means of production are in contradiction and in what kind of contradiction with the property relations or what relationship exists between these at all. That there is such a question of contradictions and relationship we may infer indirectly at most from the recogni­ tion of the need for an active role of the State in certain key branches of economy (industries representing a high degree of productive forces, such as atomic energy, electronics, aircraft manufacture, etc.), among others because here there is a case of investments and economic risks of a scale what under the conditions of the free market mechanism private industry or private enterprises normally cannot undertake without the risk of financial bankruptcy. In this connexion it is worth while to refer to disputes at the birth of the Euratom Treaty on the matter of the ownership of fissile materials. The gist of the problem is hidden in the circumstance that the industrial exploitation of atomic energy involves needs for research work and investments of a volume, further risks (obligation of indemnification) of an extent which mainly in the initial period capitalist private enterprises could hardly take upon themselves. From the nature of atomic energy as a means of production follow requirements which have swept away the earlier established principles of the liability for damages. There are reasonable doubts whether at any damage of atomic origin the exploiters of the plant may plead extraneous causes beyond their control, or whether the statutory limitation of claims for damages may remain the period of two or three years usual for traditional dangerous manufacturing plants, when radiation injuries may manifest themselves considerably later, or whether any upper limit can be set to the liability when damage of an order of several millions is apt to arise. The modification of the traditional theses has become justified and so also a policy implying that any plant using atomic energy should for the covering of possible liabilities for damages in 5Commission: Competition policy and economic policy, pp. 21 - 3. 6Hallstein 4, p. 842.

18

beforehand make allocations to a fund for risks; moreover, for damage in excess of this cover, provision should be made for the intervention of the State as guarantor in order that the enterprise might meet its financial obligations arising from the nature of the modern means of production without running the risk of financial ruin. These interrelations in a striking manner indicate the very obvious contradictions in which the means of production and the production relations find themselves, contradictions for the resolution of which the law of the capitalist world has had recourse to the expedients already hinted at, and also to many others.7 At the debate on the Euratom Treaty, however, not a word was said of this essence of the contradictions. What was debated on was whether the ownership in fissile materials should be vested in the State, Le. whether community ownership should be recognized in them, or should the particular enterprises be allowed to dispose of them as their own property at their own discretion. The debate on ownership, however, was not continued on account of the contradictions referred to. In the debate the arguments given for the maintenance of community ownership were borrowed mostly from the realm of security and mainly strategic considerations were adduced. Mention was made of the fact that until 1964 fissile materials in the United States were state property in like way on security and strategic considerations. Private enterprises had been handed over fissile materials only for use, therefore the United States would not supply fissile materials to Europe if under European law they remained in private ownership. It was for this reason that French and Belgian opinions were in favour of actual state monopoly (in the one sense or the other without a real state ownership); in principle the position taken by Italy was also in favour of full state monopoly, whereas the Federal Republic of Germany would have been satisfied with appropriate economic and administrative control on otherwise privately owned fissile materials. Luxemburg cast her vote for the principle of complete freedom. The result of the debate was eventually given a definite shape in Articles 86-91 of the Euratom Treaty, which in an explicit form lays down the following two conditions: (a) Special fissionable materials shall be the property of the Community; (b) member states, persons or enterprises shall have the widest rights of the use and consumption of special fissionable materials in their possession, subject to their obligations resulting from the provisions of this Treaty (Article 86). Even if the debate may for the time being be regarded as closed, nevertheless two conclusions suggest themselves already at the present moment. First, like what has become the policy of the United States, the West European large enterprises, too, will push forward their demands with yet greater vigour in regard of the settlement of ownership in fissile materials in a way, however, that as in some respect general guarantor (in the form of e.g. the liability insurance mentioned before, or research and other subsidies) the State should be in the background.8 Secondly, in like way as 7For details see: Màdl, F : Az atomenergia békés felhasznaläsa és az anyagi felclôsség(The peaceful exploitation of atomic energy and tort liability). Âllam- és Jogtudomàny, 1963, pp. 230 et seq. 8The Community extends subsidies rather profusely from the Community budget and plans the infusion of further large-scale funds (see General Report 1971, p. 326; the case referred to is one of a subsidy of 100 million units of account for investments extended in 1972).

2*

19

before in the discussions on ownership, and as borne out by the earlier debates, the open exposure of the contradictions of the means of production and production relations will in all probability be by-passed.9 16 A further thesis of political economy, which may be discovered, although implicitly only, among the statements of theoretical nature of the various sources, relates to the possible alternatives of the free market competition. Even if we may hear of enterprises or entrepreneurs giving prominence to considerations of public interests or to more general social interests, these by themselves are unable to persuade the other enterprises constituting the overwhelming majority to a similar attitude. It is even objectively impossible for them to enforce by this way, from their own position, some sort of a coherent economic policy, with any pretence to all-economic effectiveness. The enterprises, however, are not saintly organizations and, in the absence of any external intervention, the tendency of the big fish eating up the small fry will prevail. This is what may be read in the relevant statements, and what has been illustrated by the example of American practice, in particular in the phase of 20th century American economy where the so-called market-regulating role of the State trying to keep a check on the further spread of the monopolies was not effective. In another formulation this sounds as follows: if in a capitalist economy economic competition cannot be maintained in the particular branches of industry any longer, ie. if the market mechanism will fail to force the enterprises to a policy doing justice to the interests of national economy in the capitalist meaning, then the second alternative can only be State control.10 However, as the train of thought goes on, the Common Market relies on the initiative of the economic units, ie. large and small enterprises, on their active and expansive now Europe-wide activities, rather than on the economic activities of the agencies of the State or the Community.11 To this attaches the statement raised to the status of a thesis that, in the United States in the last decades, in particular since the New Deal, and in Europe for a long time already, the active economic policy of the State, its interference in the economic processes has become a generally established axiom of the modern ca­ pitalist State and economy. The question as to what extent this axiom has proved to be efficacious will be attempted to be analysed and answered in several respects in the present work. When the Common Market concept of an economic policy was for its ‘interventionist’ tendencies exposed to attacks, mainly on the part of the most reactionary capitalist circles, then Hallstein stood up in defence of the Common Market policy: “The European Community already found in existence this vast influence exercised by public authority. . . But there is no justification for making European integration responsible for it and therefore criticizing this integration as ‘dirigist’. Since European integration places under Community control what it finds in the powers of national governments, the reproach, in so far as it is justified, should be addressed to the national policies . .. The substance of the State intervention merged in the Community is of great importance. The modem science of economics is focussed on three central issues. Because of the connexion which exists between 9Hararich, pp. 51. et seq. I °Groeben 2, pp. 106-7. II Groeben 3, p. 2.

20

economic science and the economic policy of governments and which makes economic science a political science, the main issues of economic and social policy in our day are the following: the guidance of national economies based on the division of labour (by means of the price mechanism and the competitive system); the distribution of incomes (especially the concern to achieve and preserve full employment); the assurance of steady expansion (especially with regard to business cycle policy). The process of bringing the national systems together affects all these issues directly or indirectly. Who would then deny that the efforts of the public authorities to master these problems are political? As such they are guided and propelled by the political impulses of our civilization and of our age.” 12 In the following discussion the author makes it clear that the function of the State to control and influence economy is not only part of the economic history of Europe and must therefore be taken as granted, but follows also from the notion of customs union, if customs union is applied to present day economy. Thus, e.g.f a relevant document of the League of Nations reads as follows: “For a customs union to exist it is necessary to allow free movement of goods within the union. For a customs union to be a reality it is necessary to allow the free movement of persons. For a customs union to be stable it is necessary to maintain free exchangeability of currency and stable currency. This implies, inter alia, free movement of capital within the union. Where there is free movement of goods, persons and capital in any area, diverse economic policies concerned with maintaining economic activity cannot be pursued.” 13 Hence the nature of the thesis of state activities in certain respects of economic policy follows notionally from the customs union. The thesis is candid and clear in expecting the State of capitalist economy to restrict its activity merely to curing the disorders in capitalist economy, among others the difficulties in the market and development by way of either expanding the market or by partially controlling or manipulating the market. Here the assumption and belief are that such an interventionist and manipulative state economic policy would solve the contradictions and crises in which liberal capitalism would have gone bankrupt. This is an economic policy where the demand for saving capitalism from finding its ruin in its own inherent laws has become conscious in the capitalist way of economic and legal thinking. An altogether different question is the extent, or extreme limit, of state intervention in the economic policy of the Community, which sounds as the next element in the trend of thought of present-day capitalist political economy. Within a State itself public law interference follows in the last resort from state sovereignty. Within any special country the competences of the economic departments of the administration have not been defined in all their details. The point of departure is the understanding that all competences follow directly from state sovereignty, or in other words, from the constitution. Actually, the extreme limit lies fairly far away. Hallstein, e.g.t writes: “To tell the truth quite bluntly, today the competence of an economic department ends where economy ends.” Both the European Coal and Steel Community and the European Economic Community are bodies outside internal 12Hallstein 4, pp. 841-2. 1 3Hallstein 4, p. 843

21

sovereignty, therefore their interferences of a public law nature, their prerogatives of economic control, “their maxims of economic policy had to be summed up in a catalogue” . These are embodied by the Treaty of the European Coal and Steel Community and the Rome Treaty.14 17 The so to say closing thesis of the former ones has been formulated by Predöhl He makes it clear that neither state nor community intervention can go too far in the relation ‘of power and legal laws’ for such an intervention would create counter-forces which might run counter the objectives —as defined in the Treaty - of the member states and the Common Market.15 Theoretically this is perhaps the formulation penetrating to the greatest depth, even if it is partly hazy and ends as the apology of the given social and economic conditions. What Predöhl writes gives expression to the thesis that under capitalist conditions the laws of economy are the determining factors and that without jeopardizing its own fate the sovereign power cannot interfere in these laws beyond a certain depth. It is quite natural therefore to add one of the relevant statements of the latest document on the industrial policy of the Commission, restated in the report on industrial policy of 1972,reading: “Farbe it from the Commission to carry into effect industrial development by public law actions and interventions of a Community level. Only the autonomous initiative of the industry and economic competition can be the elementary and irreplaceable foundation of expansion. The Community does not intend to replace the earlier hampering factors by new bureaucratic ideas or ramified authoritative structures or its excogitated paragraphs and by this increase the national administrative systems with further burdens. The industrial policy of the Community can be directed only to the permanent study of the economic processes, the reinforcement of incentives in line with the economic ends and it should intervene only in case of need where there are hitches in the mechanism of operation, when hindrances have emerged.” 16 In order to complete this picture it appears to be worth while to make yet another observation, even when the historical period is relatively short for accepting it as absolutely safe. What suggests itself, at least from what has been set forth before, the European Economic Community would have state intervention restricted rather than expanded. It acts on the hypothesis that the mechanism of a liberalized market competition serves the ends of the Common Market economic policy better than increased state interference. This trend is in any case suggested by the circumstance that whereas in the treaties of the European Coal and Steel Community the idea of a strong state influence or Community influence and intervention predominates, in the Rome Treaty and mainly in its operation both are receding. The Treaty of the European Coal and Steel Communities guarantees such competences to the organiza­ tion as occasional price fixing, the regulation of the distribution of products and of wages on a Community level, the approval by the Community of certain investments, the building up of money funds for the compensation of the structural transformation of the coal and steel industries, and also the distribution of these funds on a Community level. All these are absent in the European Economic Community, where1 14Hallstein 2, p. 9. 15Predöhl p. 20. 16 Industrial Policy 1970, p. 15; Competition policy and economic policy, pp. 1 1-3.

22

economic policy has as its goal the gradual abolition of state intervention, or, when such an intervention appears to be necessary, its replacement by coordination on a Community level.17 18-9 West-European economic concentration challenge?

an answer to the American

18 A further, theoretically established and recurring statement, more directly of theoretical origin, on the development of the forces of production or rather in association with it and on the ground of the exigencies of development, presumes the inevitable internationalization of concentration on a scale larger than the earlier in certain branches of industry. Schuman, under whose name the European Coal and Steel Community has entered history, sets out from the thesis that the stage of economic development of the forces of production, the best possible exploitation of certain inventions, of certain raw materials and their exchange on the best possible conditions, the accelerated development of new branches of industry, the better facilities for investments associated with this development and also the expansion of the markets of these industries, inevitably bring about the need for mutual economic interdependence. It is Schuman to whose name in capitalist West Europe the formulation of the economic policy following after the War attaches, according to which “in economy without the risk of economic disadvantages and backlog nobody can detach oneself from the outside world with impurity, in particular from the economy of countries geographically adjacent or in the neighbourhood” .1718 This thesis, with the advance of the idea of integration, tends to gain in strength proportionately to the development of the West-European, or in general of capitalist economy, after the Second World War. The thesis recurs in several documents of the West European economic integration and is also one of the policy-making theses of the Commission’s document on economic and competition policy inasmuch as it declares that in the age of the second industrial revolution, in what is called scientific-technical revolution, the number and weight are continually growing with respect to certain branches of industry such as cybernetics, automation, atomic energy, aircraft production, etc., where compared to the facts of world economy, before all to the enormous superiority of American economy, and recently to the growing role of Japan, competitive action cannot be carried through unless by means of a greater economic concentration and potential, or in other words by the creation of the European Economic Community.19 In modern capitalist world economy developing under the conditions of the scientific-technical revolution the want of competitiveness stands out in particularly sharp contours. “Europe’s industry, in particular her heavy industry, is dangerously lagging behind world standards. .. . The larger market may not only mean the simple summation of the actual capacity, but also qualitatively raise to a higher level the 17 For details see the relevant chapters of the present work, and as regards the declaration of the principles: Hallstein 2, pp. 8 -9 . 18 Schuman, pp. IX et seq. 19 Commission: Competition policy and economic policy, p. 13.

23

division of labour, the development of technology, the formation of the concentra­ tion. It will prove true that two plus two is here not four, but five.”2 0 The document of the Commission relating to enterprise concentration, of which the document itself states that it has been drawn up by inviting the representatives of science, takes position to the problem in the following trend of thought. In order to guarantee the benefits of technical development and mass production under the actual economic conditions for the close to two hundred millions (with the new accessions 252.5 millions) living in its territory the Common Market demands enterprises of a larger scale.2 1 To this end several European enterprises have to expand beyond their present dimensions either by developing with an aid of their own resources or through merger with other enterprises. Furthermore the range of operation of viable small and medium enterprises has to be extended through a variety of contracts, loose associations or an appropriate taxation and credit policy. Ever since the birth of industrialism the association of enterprises or the concentration of capitals is not a novelty, it has been pointed out, still actually West Europe is in a new situation. This is the case not only because of the American challenge, but also for the very reason that so far the economic units of the member states of the Common Market were on the average used to their national confines. Now what is wanted is that they adapt their economic power, organization and operation to European standards. Even beyond the development of the forces of production the mere existence of the Common Market will by itself develop to an expansive driving force. The Common Market stands for a new economic structure and under the circumstances of this structure profitableness as well as research and development, supply and economic competition will have to be assessed on new terms. The modern means of production and the expanding market will of necessity trigger off concentration, this, however, must not lead to the destruction of market competition or the order of open-market economy.2 2 19 Seemingly it cannot be argued even on theoreticel grounds that for an economic unit with dimensions of West Europe, under the actual conditions of the means of production and the capitalist world market, and mainly of the operation of the powerful American monopolies, the organization of European industry is in general disproportionate and some of the economic units underdimensioned. Whenever the Commission, in agreement with the opinions sounded by West-European political economy and jurisprudence, as regards enterprise concentration, states that the European economic structures in many cases do not correspond to the new orientation of the world, the American mammoth concerns and the upwards striving Japanese industrial giants will in all cases be in mind and this will be stated also in the official documents of the Commission, either as an example, or as the pressure exercised by them. The same document will also state that for the elasticity of research and development, market organization and re-grouping, financial conditions and for many other reasons the Americans are in the world, and also in Europe, in a preferred competitive position. Owing to their larger capitals and technological capacity these 2 0Hallstein 2, p. 5. 2 ‘ According to the Regional-Bericht 1973, p. 9, the population of the ‘nine’ amounted to 253,543,000 in 1970, the rate of increase being 0.82 per cent between 1950 and 1970. 2 2Commission: Enterprise concentration, pp. 5. et seq.

24

large-scale enterprises enjoy, in an open or clandestine form, preferences in taxation and also other benefits in the various countries, and as regards recourse to the money market their potentialities are almost unlimited. This means that in the event of the insufficiency of means of their own for financing investments these concerns may easily have access to credit at the various credit banks, or if they decide to issue shares they will always find partners in the money market ready to supplement the necessary funds.2 3 It is a fact that the figures and statistical analyses in a sufficiently unarguable manner demonstrate the differences existing in these dimensions. Still the question remains to be answered whether this is the sole and decisive condition of an expanded re-production and of a best technologically-based economy and, further, whether the concentration on an American scale is decisively nurtured by the striving after power of big capital, by world market imperialism. Burdened with this contradiction, namely that for modem production in general enterprise empires of the American style could be dispensed with, empires whose creation is ‘difficult’ and once created might cause ‘difficulties’ only to the state and Community economic and competititon policy, all that West-European capital and economy can do is but to treat the trouble symptomatically, viz. to respond to the American challenge with the same means, to strive for greater concentration. This is what Japan does. Moreover, even examples from the socialist world have been quoted (Fiat-Lada cooperation). The case has ceased to be only the question of optimum enterprise and has changed over to market struggle for world domination, financial potential, long-range enterprise planning, to interference in processes of world economy, among others to interference for the inner security of the given enterprise empires and, in the various repercussions of the case, also to a struggle for the better supply or dominance of the consumers of the parent country (for supplying them with products of better quality). It would be hard to predict whether or not from all these any more benefits could be derived for the simple citizen, the last member in the consumers’ chain and the national and human interests of the various peoples, more than if West Europe did not run race with the growing internationalism of the concentration. All what is certain is that on the scale of values of economic competition this is rather beneficial for the enterprise empires and the big capital in their background, whereas the bill is to be footed by the moderately-sized enterprise, and also that it is merely a theoretical alternative that West-European capitalist economy would keep out of this race.

§5

N otion and structure o f the com petition policy in the econom ic policy o f the EEC

2 0-1

The notion o f the competition policy

20 What follows to be discussed after the review of these theses of a general nature is the competition policy of the Common Market as part and parcel of the economic policy, as formulated by a document of the Commission.2 4 In the formulation of 2 2Ibid., pp. 7 et seq. Commission: Competition policy and economic policy, p. 17. 2 4Commission: Competition policy and economic policy, p. 3.

25

Western legal terminology it has also received the designation of the Community constitution of economic policy (Wirtschaftsverfassung). This is also the closing passage of the document of concentration and competition policy to the formulation of which the parliament of the Community was invited with the request “that as to the great issues of the development of the constitution of economic policy and the economic order of the Community the Parliament should lay stress on the issues outlined in the document” .25 Contrary to the earlier practice and theoretical concept as regards this Wirtschafts­ verfassung, and within it, the competition policy in the narrower sense, the opinion is fairly prevalent that “this must be a constructive economic policy and it cannot remain restricted to some sort of a tidying up policy,”26 a policy which in other connexions was often referred to as the position of a liberal capitalism as regards economy, when the role of the State was an extremely passive one and therefore the State bore the stamp of the ‘night watchman State’ (Nachtwächter-Idee des Staates).2 7 The means of controlling an economic policy in this meaning is competition policy, or its legal application and enforcement through the operation of the legal institutions o f economic competition. This competition policy has to extend to the various forms of relations of consumers, companies and employees, that is to the mechanism which is a coherent totality of these forms.2 8 An active competition policy so conceived “stands for an organized market economy with the required market-conform interventions through Community and public law means”.29 If now an attempt were made on the grounds of the various documents and positions taken to sum up active competition policy as understood in the previous sense, then the following elements of this policy could be established. 21 What we set out from is that the general liberalization of the circulation of commodities is a world-wide process on account of which the bringing about of a customs union was a relatively easy affair. The truly new and at the same time hard phase is the harmonization of the divergent policies of the member states of the Community and to advance in this harmonization along the path of the concept fitted to the dimensions of the Community. One of these policies is competition policy. With regard to agrarian policy, industrial policy, social policy, etc. competition policy is but one of the partial policies contituting economic policy as a whole. On the other hand this is of vital importance, because what in competition policy is exactly involved is the structural and policy-making method or philosophy of general economic management and of influencing as a whole.30 This is therefore the decisive link, states the Commission. As a matter of fact “after the customs union it is competition policy "Ib id ., p. 23. 2 6Groeben 3, p. 7. 2 7Several analyses may be found in the literature on the theory of State, and so also with growing frequency in Western literature on the bourgeoisie’s abandoning the night-watchman State concept (e.g. see Wenger, p. 83). 2 8Groeben 4, pp. 10-1. "H allstein 2, p. 11. 30 General Report 1969, p. 42.

26

that is the most important factor of the gradual coalescence of the national markets” .31 This is the means by which an equality of chances and potentialities (égalité des chances, Chancengleichheit) can and must be guaranteed for every citizen and every economic unit of the Community.32 It is not hard to recognize in this reasoning the recurrence of the motive of appealing to human rights. All these call for a coordinated schedule of action adjusted to the dimensions of the Common Market, and not only as sounded in the domain of a narrowly interpreted law of competition, but for the legal structure of economic competition in the general meaning of the term. Namely, competition law in the narrower meaning of the term would only extend to cartels, to certain features of unfair competition (infringement of patents, fraudulent imitation of trade marks, etc.) and at most to the defence against ‘exaggerated’ enterprise concentration, Le. monopoly. What the point in question is, is considerably more: namely that the particular economic units and their services should be allowed free movement in all member states of the Common Market on in all respects uniform conditions of fiscal, customs, company law and economic policy. If economic competition and its legal manifestation are understood in this general sense, then the analysis will have to comprise all questions which turn up in the structure of competition policy following below. A departure from this principle would throw out problems also because the corresponding sources grasp economic competition and its law in this general meaning.33 2 2 -9

Structure o f competition policy

22 The notion of competition law in the wider meaning of the term will become straightforward as soon as we begin with a problem traditionally outside the domain of competition law, viz. with the problem of fiscal policy and the law of taxation. The Commission has stated that the facts distorting the unfolding of competition on a Community level in the most critical manner arise from the differences in the tax burdens of the various countries. No full-value general European inland market will come into being until inequalities in tax burdens have ceased in the countries of the Community. Owing to the differences in taxation, there will remain considerable differences among others also in the price levels. In the procedures of tax compensa­ tion between the countries the segregated national economies will operate partly unchanged. According to the Commission, one of the major and politically significant objectives of the present times is the lifting of the tax boundaries.34 This reform of tax­ ation has to extend not only to the turnover tax: it has to imply questions as the move­ ments of subsidiaries as well as their parent companies, and also those associated with

31 Commission: Competition policy and economic policy, p. 5. 32Ibid., p. 3. 3 3Apart from the provisions on competition of the Rome Treaty and the ECSC Treaty the summary relies in the first place on the following documents: Commission: Competition policy and economic policy, pp. 5 et seq.; Commission: Enterprise concentration, pp. 7 et seq.; Industrial policy 1970, pp. 26 et seq.; Groeben 3, pp. 6 et seq. 34Commission: Competition policy and economic policy, pp. 5 -6 .

27

the merger or establishment of enterprises abroad.35 The Commission has been concerned with these problems, as stated in 1975, for long; first to prepare directives to implement the first stage of economic and monetary union and, second, to prepare a general tax harmonization. But, as the Commission says, “none of the measures envisaged for the first stage has so far been adapted” ; preparations and “wide-ranging consultations with the governments and both sides of industry” are going on.35a 23 The different subsidies which have become established in the particular member states for many years is yet another factor which again is almost a typical category of competition law, a factor which in the whole territory of the Common Market as catalyst shapes the conditions of competition in different ways. With these conditions the particular countries may considerably distort the operation of the terms of competition policy as specified in the Rome Treaty, or may even obstruct their enforcement.36 As the Commission states, for the formulation of uniform conditions of economic competition the Community has to succeed in persuading the particular member states to abandon their separate policy of state subsidies, in part at least, and where for reasons of general economic problems the continuation of this policy is necessary, it should be adapted to the Community level, that is, to the structural and regional programme of the Community. In the opinion of the Commission it is essential that a remarkable progress should be achieved in the approximation of competition policy and regional policy and regional policy within the Community, before all in the medium-range programme and medium-range plans. The development scheme of the ship-building industry and the motion-picture industry may probably serve as an example here.37 The Council and the Commission was working in 1974 on the rules of coordination applicable to regional aids, and the Commission was expected to outline the “new approach by the beginning of 1975” (the expectations were met on 26 February, 1975).37a 24 For the competition policy and for considerations of equally effective condi­ tions of economic competition the state-run enterprises, the state or public enterprises of the member states of the Community may operate as distorting factors. Since here we have a case of economic units in state ownership or directly under state control, state-owner acts might artificially improve, or distort, beneficially or prejudicially, the competitive position of the economic units in question. To a greater or lesser degree 3 5Commission: Enterprise concentration, pp. 8 -9 . 3 5^GeneralReport 1974 (published in 1975), pp. 87-8. 3 6There is an almost inextricable maze of subsidies; without the subsidies for agriculture there are about 450 varieties known. In the ‘sixties the Commission subjected most of them, about 400 (292 till 1965) to a scrutiny; in thirteen cases the Commission withdrew the subsidies, in another sixty cases the subsidies were adapted to principles approved on a Community level; a hundred and twenty subsidies serving regional and structural-political ends were after a partial modification of the term found to be in agreement with the regional political objectives laid down in the Rome Treaty and other Community instruments. See Commission: Competition policy and economic policy, p. 7. 3 7Ibid., p. 7; for the subsidies see infra Chapter VII. *n*General Report 1974, p. 85; 1975, p. 86; for details of the implementation see infra Chapter VI, Article 25.

28

the operation of enterprises owned or controlled by the State may be subordinated to ends of domestic economic policy, which again may to a greater or lesser degree be conflicting with the objectives of economic policy as defined by the Rome Treaty. Since in conformity with Article 222 the Rome Treaty shall in no way prejudice the system existing in member states in respect of property, there remained only to declare that in competition policy state enterprises cannot enjoy a preferred position, and as regards the prohibition of discrimination and the postulate of an equality of chances in general no distinction can be made between state-owned or privately owned enterprises. From the community law of competition here the Common Market expects a system in harmony with the exigencies of economic competition.38 25 Among the factors distorting economic competition mention should be made of the unequal development of the so-called economic laws of the particular member states and also their institutions of unequal contents. These factors involve the different system of norms governing the establishment of enterprises, the operation of enterprises, industrial property, unfair competition, conditions of delivery, standards, industrial technical conditions. This manifoldness of norms not only does throw obstacles in the way of the dynamic movement and establishment of enterprises in other member states, but, at the same time, the new terms of operation, competition and technology represent difficulties (in certain respects of starting and expanding their operations) for once established enterprises, too. It is therefore understandable that one of the main objectives of competition policy is to bring about the harmoni­ zation or unification of the particular national systems.39 26 For unfolding an economic competition in agreement with the new dimensions there is need for both better and harmonized possibilities of association (founding and merger of companies) and cooperation as well as uniform prohibitions preventing the competition-distorting measures of certain economic units, together with the elimina­ tion of existing such measures by means of uniform organizational and legal institu­ tions. The Commission has repeatedly given assurance of its positive appraisal of any cooperation or specialization which serve research purposes, technological develop­ ment and through them the modernization of re-production.40 Competition, cooperation, either beneficial or prejudicial, are, however, not only questions of market behaviour but also questions of the economic structure and the order of size of the enterprises. Even though the Commission on the one part is in favour of the creation of larger economic units within certain branches of industry, on the other part, the Commission emphatically advocates the setting up of the barriers and conditions guaranteeing the continuation of competition, not only in the mutual relations of large concerns, but also with regard to the viability of medium and small enterprises.4 1 3*Commission: Competition policy and economic policy, p. 9 and Articles 37 and 90 of the Rome Treaty; for details on state enterprises see infra Chapter VII. 39Commission: Competition policy and economic policy, p. 8; Commission: Enterprise concentration, p. 9; for the particular institutions see infra Chapters IV and V. 40 Commission: Competition policy and economic policy, p. 12. 41 Commission: Enterprise concentration, p. 9.

29

For the better cooperation of the small and medium enterprises, in a dynamic form adjusted to a larger market, the European Economic Community would encourage the generalization of contract systems serving this end, Le. the exemption of these contracts from the prohibition of cartels. It is the opinion of the Commission that the various contracts for cooperation and specialization do, similarly to concentration, not conflict with economic cooperation within the Community provided they do not go beyond the objectives and framework of economic policy as understood in the sense mentioned before. On the other hand any ‘cooperative’ organization should be suppressed which for both technological progress, better supply of the public, or for any other demonstrable considerations is unjustified and would bring about an increase of profits in a form prejudicial to national economy, and in general lead to the distortion of the conditions of market economy. So the Commission.42* 27 One of the points of departure mentioned earlier was that the demands defined by the modern means of production, and the struggle with the American and partly Japanese mammoth corporations, further the necessity of supplying a market of 200—250 millions instead of one of 10-50 millions in the various branches of industry called for the formation of European large companies. This was thought to be especially important in the case of certain key branches of industry. The need for the formation of large European companies was substantiated especially by the circum­ stance that although during the last decade there was a rapid boom for enterprise associations in the territory of the Common Market, these were mostly such con­ centrations where American enterprises had the decisive role, as they bought up, or placed under their control, European enterprises. This bears testimony to the fact that in this field European enterprises have chances to exploit if, by the elimination of the different obstructive factors, their mobility came close to that of the American enterprises. According to Community policy, the way out of the quandary would be to bring the process of concentration to a positive trend for the European enterprises rather than banning the Americans from the European market by administrative and protectionist means, what would in all likelihood be partly impossible, partly fraught with harmful consequences for European economy.4 3 There are several reasons which plead for the improvement of the chances of industrial concentration on the part of European enterprises. The difficulties in the way of concentration extend from the cumbrous credit terms of small and mediumsize enterprises to drawbacks of mediocrity such as the influencing of the demand, the poorer chances of the organization of sales, the acquisition of government contracts, export deals, training, technological development within the plant.44 All these argue in favour of the promotion of large-scale concentration on more general lines in addition to the encouragement of a more efficient cooperation of small and medium enterprises or in favour of facilitating their mobility on a larger scale. This, however, also implies that the drawbacks referred to before have to be reduced also by such means as a reform of taxation, research and specialization 42 The opinion of the Commission has been summed up by Groeben 3, p. 6. For a detailed analysis see infra Chapter V. 4 3Commission: Enterprise concentration, p. 8; Industrial policy 1970, pp. 2 6 -7 . 44 Commission: Enterprise concentration, pp. 10-1.

30

agreements, the revision of the government policy of contract-making for the benefit of small and medium enterprises, possibly certain subsidies for the adaptation to larger markets, and so on. It is the official conviction, so to say the ‘official creed’ that a structure of concentration and economic competition has to, and can, be built up so that the parallel running of aggrandizement of the ‘big’ as well as their competitionmotivated activities and the development of the small ones would be guaranteed.4 5 This would mean the realization of the competition policy as formulated by the Rome Treaty in this field.46 The various documents still repeatedly revert, so to say with a bad conscience, to the thesis that too large sizes are perhaps not always necessarily desirable, moreover, that from the point of view of industrial administration and national economy a too large-scale monopolization might be fraught with too many problems. Technological development and the better satisfaction of the interests of consumption can be achieved also by way of cooperation or mergers on a moderate scale. In addition to the gradual elimination of the (as may often be read) ‘psychological difficulties’, company law, taxation and also economic obstacles of mergers, it remains the special function of the Commission and the Court of Justice to prevent the creation of such associa­ tions that distort the overall economic picture of the Common Market, tend towards the domination of the market and, for economic and other vital reasons, are in like way undesirable. Although in certain branches of industry oligopolistic structures appear also to be desirable, still, as is stated, even here competition has to be guaranteed, since without competition the oligopolies might succeed in gaining uncon­ trollable power over the market.4 7 28 It is yet another essential element of competition policy that for the develop­ ment of better conditions for a wholesome competition in the medium- and long-range programmes the Common Market, in certain cases the particular states (still coordinat­ ed by the Common Market) might be compelled to have recourse even directly to a number of operative actions. As pointed out by the document of the Commission on competition policy this involves that in certain issues the Community will have a greater unity to act outwardly than before. This applies to the formation of concrete economic relations with third states, to the uniform or coordinated regulation of the activities of enterprises of third states in respect of certain preferences or limitations and cartels. Similar demands turn up also when it comes to take position in matters of dumping practices or customs manipulations. There is no question of the Common Market closing the gates to the establishment of economic operations of enterprises of third countries. All what is needed is that the member states of the Common Market coordinate their policies or adopt uniform practices. In these matters the Common Market should take action as such, Le. in a form manifesting itself in certain resolu-

4aIbid., p. 11. 4 6For a detailed analysis of the problems of European large enterprises or monopolies see infra Chapters IV-V I. 4 7Commission: Competition policy and economic policy, p. 19.

31

tions of the Commission or injudicial decisions.48 Namely, protectionism as occasion­ ally dictated by trading policy might lead to economic seclusion, finally to a backlog in trade and the impairment of competitiveness. So far the unity of action and consistent practices of the Common Market as public law unity were shown in connexion with the Kennedy Round which was really the only concrete manifestation of an all-round, outwardly effecting market policy of a truly comprehensive nature.49 The document would welcome the launching of concrete, many-sided, internal actions. The elaboration of a credit and budget policy, and so also of a taxation system on a Common Market scale appears to be the most urgent. By way of a uniform or coordinated credit policy, taxation system and a similarly coordinated budget policy, or in other words the proper compilation of the Common Market estimates (when reference should be made also to the various subsidies) the Common Market may contribute to the formulation of the conditions of a uniform competition policy. The direct actions of the Common Market may take on also other forms, as e.g. in the case of the several short- and medium-range schemes of regional development. These may be financed directly from Community means. The means may be derived from the funds of the European Investment Bank at the disposal of the Commission of the EEC. The preferential treatment and reinforcement of the various credit, budget, subsidy, taxation and other indirect or direct actions on a Community scale are believed to be preferred to actions on a state level, because at present there is a far too large number of economic factors effectively operating, Le. also in the member states so that the aU-Community effects of individual State actions or even the microeffects of these individual actions will, also because of the presence of stronger macro-mechanisms in the Community, Le. also in the member states hardly be measurable, and thereby the achievement of the goal set for these very actions will also become open to doubts.50 Furthermore, the internal Community actions have to extend also to other rela­ tions. For example, accommodation to a larger market may call for an entirely new approach to questions of manpower policy. Capitalist economic policy cannot do without some sort of a manpower policy intent to reduce the pressure coming from the labour movement. Owing to the transformation process in the industrial and economic structure within the EEC, a number of social difficulties of economic and political repercussions, greater than those occurring at present, would be apt to arise were the Common Market unable to exercise an influence doing justice with regard to its interests in this field. A man-power policy lacking the required intensity has already confronted the Common Market with unexpected lessons. Thus e.g. a rather precarious situation has been brought about by the ‘desertion’ of 500 000 employees from the textile industry during the past ten years notwithstanding the development of this branch. On the other hand, in spite of the considerable improvement of the techno­ logical standards and productivity during the same ten years 1 600 000 new hands were required in the heavy industry and power industry. The Common Market is aware of the fact that in order to reduce the noxious effects of such and similar movements to 4 8See Chapter VI. 4 9Commission: Competition policy and economic policy, p. 10. 5 0See Chapter VII.

32

the minimum and to reinforce their positive implications, a complex and many-sided man-power policy is required, before all on the part of the European Economic Community, yet also on the part of the states and the particular economic sectors, moreover also of enterprises. In other words, the internationally organized capital cannot dispense with the management of the power reserves of the ‘other social partner’ - as the working class is called by them. For this reason the prognostication of the man-power situation has to be drawn up by sectors of economy. In view of the drop of man-power requirements in certain branches of industry and also oecause of the need for the redistribution of the man-power there may be equally need for the organization of training schemes, aids for the ch mge of domicile, the elaboration of a system of indemnities for wage shortages, and the planning of the social funds of the Community in association with these issues. All these partly coincide with the regional development policy and therefore the Commission would have the Community actions designed and enforced in this connexion in the best possible coordination.5 1 The industrial policy of the Common Market extends to the several schemes for the industrial exploitation of inventions (patents) and innovations (annual meetings of appraising experts mutually reporting in these fields, mutual circulation of informa­ tion), to the organization of joint and coordinated research programmes of public research institutes, to the elaboration of managerial methods and the development of staff training, or in a more general form, to the study to what extent could by working out appropriate programmes the training system in any special member state be improved with a view to the exigencies of practice and modem economic develop­ ment.525 3 29 It is more or less in these terms that the ‘competent’ sources give expression to the essence of the competition policy of the Common Market. What has come to fruition of all these in the mechanism of European economic law? A critical answer to this question will, in its principal interrelations at least, be given in the following chapters. As a foretaste let us say: difficulties, contradictions, faith and doubts have come forth in profusion. What may help to grasp the essence is —though only that of concentration, yet not for the economic competition as a whole —a statement of the official ‘minister of competition’ of the European Economic Community (the head of the Directorate for Competition of the Commission), according to which, owing to the force of concentration ‘there will be need for some sort of a new social order’ and that for the time being ‘it may be of some help if the employees, too, could take part in the management of the big companies, for by this they could mitigate the social draw­ backs of concentration’.53 Is this candid talk, or merely the frightening of the citizens - épater le bourgeois?

S iIbid., pp. 122-3; Industrial policy 1970, pp. 28-31. 5 2Industrial policy 19 70, pp. 31-5. 53Published by Spiegel, 1972, No. 6, January 31. The periodical discusses the European situation of concentration on twenty pages. 3 Madl

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Chapter III The legal system o f the economic integration in general: the Community law (European law) and its sources

§6

Community law and the sources o f Community law; legal acts

3 0 -1 Why to look for the general picture o f Community law? 3 2 -3 Community law v. municipal (national) laws and the question o f priority 34-41 Legal instruments: the sources o f law and other legal acts 4 2 -3 By whom and how Community law is made - the organizational side o f legislation 44 EEC legislation and sovereignty §7

Developments, main fields o f regulation and the harmonization or approximation of law in the genesis o f Community law

4 5 -6 4 7 -9

Results in the fields o f regulation Approximation o f the municipal (national) regulations

§8

Community interests in the channels o f public international law

50

Expansive trends and the farther background

§6

Community law and the sources of community law; legal acts

30-1

Why to look for the general picture o f Community law?

30 The author has set himself the task to analyse the new legal regulating system of the economic integration (otherwise known as ‘European law’, or ‘Community law’, or ‘European economic law’) in a definite field. As will be seen from the following chapters this is, among others, the field of the organization and legal re-structuralization of the enterprises, the field of cooperation and of struggle of enterprises and other economic entities in the market. Community law is the framework of their coopera­ tion and struggle, or in general, of economic competition. We shall see Community law, its concrete elements and institutions ‘in full action’, without studying at any special ‘action’ each institution, or source of law as such and as set into the totality of the new system of regulation. The main purpose the present work has been written for is not the presentation of abstract generalities or the embarking on the abstract analysis of theses of theory or the critique of these theses on the ground of the theory of law, e.g. to ascertain whether or not there is anything what may be called ‘European economic law’ or more particularly a branch of law under this name (a Rechtszweig as the continental term goes), and if indeed there is such a thing what its boundaries in the system of laws, or its criteria are. Naturally, these questions too may become the subject matter of rather exciting critical discussions in the realm of the theory of law. The objective of the present work, however, is to grasp the concrete institutions of reality and their form of manifestation, or their principal traits. It is intended to ascertain in a concrete form the legal mechanism making up the given processes of

34

integration, what laws or trends may be detected in the genesis of the static and the dynamic elements of this mechanism. In the course of this discussion there will be often talk of the different kinds of the sources of Community law and their priority, the direct or indirect prevalence of these sources, their constitutionality and interpre­ tation, the approximation of the regulating systems of municipal law affected by the integration, and so on. To facilitate an exploration of our subject, a brief analysis of the system of sources of Community law, some of the principal traits of this system will, in the form of an introduction, be given without, however, a claim to developing it into a theoretical analysis of the monographic kind. A brief analysis appears to be justified the more because in conjunction with the vertically directed analyses of the discussed concrete institutions we may obtain a scientifically more exact picture of what we are explor­ ing, namely what is considered or what qualifies for economic integration on the scene of modem bourgeois legal development and legal thinking. 31 After these preliminary remarks what we may with all certainty accept as logical is that in the present chapter the following questions will have to be discussed: (a) the priority of Community law over municipal law; (b) the sources of Community law; (c) the legislative organs and the process of legislation; (d) the principal scopes of regulation of Community law; (e) the approximation of the municipal laws and their unification by way of Community normatives and agreements; (f) borrowed plumes on the hat of ‘Europe’—Community interests in universal legal frameworks. As has been expressed throughout this work, and in general in the present chapter, the law of the EEC in like way as the process of integration governed by it, are in a state of permanent flux. The achievement of the objectives set in the basic treaties and conventions takes place by stages. The particular institutions of law and organizational conditions unfold themselves in a graded form. Like in nature, conception, birth and growth of the legal institutions and Community law, are a protracted process. The basic treaties and conventions consider the system of integration as a whole bom definitively only after the establishment of measures foreseen in the concrete transi­ tional provisions, so that ‘maturity’, the ‘programmed’ ends can unfold themselves within the integration, through it and the acts of its own. Article 8 of the Rome Treaty provides for this transitional period of twelve years split into three stages of four years each, for the actions to be taken in each of these stages and the conditions to be guaranteed, whereas special provisions have been taken up in the articles relating to the formation of the various institutions. Therefore, the picture drawn of Commu­ nity law here cannot either in general or as regards the various institutions be some sort of an anti-pantho-rhei picture, a standing picture of an otherwise strong motion, a picture namely by which a quasi-textbook would present the law as effective at present A work which is the result of researching into the movement and principal trends of development in Community law, and whose purpose is to show even the constant and established elements of the system as part of the general laws and trend of development, cannot draw a picture of that kind. It is on this understanding that the present work studies Community law and its institutions, though on the present level of legislation and legal practice, in their movement and development. Although the point of departure is a standing picture: what the Community law’s stage of 3*

35

development at the birth time of this book is, but then it is meant to put the particular figures and objects of this picture in motion and to convey an idea of the path and conditions they have reached so far, as well as to show what their actual principal traits and motions are, and what changes are predictable. 3 2 -3

Community law v. municipal ( national) laws and the question o f priority

32 The legal concept and the set of instruments of the West-European economic integration have been endowed by the contracting parties with the force of priority and direct operation in the three basic treaties, viz. (i) the European Coal and Steel Community Treaty, (ii) the European Atomic Energy Community Treaty and (iii) the Rome Treaty. Bypassing the issues discussed in legal literature1 of this problem of many facets, and also some of the practical issues of minor importance, in the following we shall give attention to the actual legal situation and to its premises of legal policy of by far greater importance. In general, and in a large number of concrete interrelations, the Rome Treaty declares that “Member States shall take a ll. . . measures which are appropriate for ensuring the carrying out of the obligation arising out of this Treaty or resulting from the acts of the institutions of the Community”.2 A constitutional act of outstanding importance of the institutions of the Community is the regulation, which “shall have general application. They shall be binding in every respect and directly applicable in each Member State” .3 Two other constitutional acts are the directives and the decisions, which are in like way binding on the members of the Community and their enforcement can be argued only on the plea of their conflicting with the Rome Treaty. Their enforcement cannot be prevented on the ground of provisions of municipal law departing from them.4 Similar fundamental provisions have been taken up in the Euratom Treaty5 and the ECSC Treaty.6 The circumstance that as for validity and force ratified treaties have priority before regulations of municipal law governing the same subject is by itself not a novel or abnormal phenomenon in general international law. What may be regarded as a novel feature is that as clearly indicated by the peculiarities of the sources of law to be discussed subsequently or as follows from the contractual provisions referred to before, this thesis has been transferred by the basic treaties also to the norms created and to be created by the Community institutions, to the huge complex of these norms ramified into a complicated system and in permanent flux. A further principle of extreme importance of Community law is that, unless the Community sources of law provide otherwise, the legal norms of the Community are directly binding, they have to be applied by the municipal and Community law enforcement agencies irrespective

‘ Larger works dealing, with the subject are those of Goldman 4, pp. 589 et seq.; Ipsen 2, pp. 2 5 5 -3 1 4 \ Brinkhorst-Schermers, pp. 103 et seq. 2Rome Treaty, Article 5. 2Ibid., Article 189. AIbid.f Article 189. 5Euratom Treaty, Articles 161-2, 192. 6ECSC Treaty, Articles 14-5.

36

of any intermediate stage or act, such as e.g. ratification.7 This extensive priority and direct operation of Community law has repeatedly been confirmed by the Court of Justice of the EEC so to say as a constitutional principle in several issues on the relations between Community law and the municipal legal systems. This principle prevails also when it comes to apply Community law by a national forum.8 Moreover, what has not been expressed by the basic treaties in this formulation, the Court of Justice of Community has expressly declared that in matters defined in the treaties the contracting parties have waived their sovereignty and immunity, manifesting them­ selves in the enforcement of their municipal law and jurisdiction,9 in favour of the Community law and jurisdiction. This is one of the focal principles of the integration and of Community law.10 Hence this formula holds for all sources of law: the tieaties establishing the EEC, the acts of the legislative agencies of the Community, and mutatis mutandis for the judgements and opinions of the Court of Justice, provided, however, that the corre­ sponding sources of law do not rule otherwise (e.g. in matters of military security, war material production, or in situation of crisis,1°a or unless something else follows from the nature of a provision having the force of a source of law). In this connexion the principle included in Article 177 of the Rome Treaty is of particular significance, viz. that the Court of Justice of the Community has competence for the interpretation of the Rome Treaty and any of the acts of the Community agencies and for expressing its opinion in disputes on the validity of the acts of the Community agencies. In disputes arising within this domain the municipal courts of law have to consult the Court of Justice of the Community for its preliminary ruling. This competence of the Court of Justice and also the circumstance that the municipal courts of law are bound to accept and apply the opinion of the Court of Justice are some of the focal elements of the priority of Community law.

7See the declaration of this principle for the two most important directly effective sources of law, viz. the regulations and decisions {Rome Treaty, Article 189; Euratom Treaty, Article 161; ECSC Treaty, Articles 14-5). 8For this practice of the Court of Justice of the EEC and its other domestic forums see the detailed analyses of cases by Brink hö rst-Schermers, pp. 103 et seq. 9For the question of immunity see Chapter VII, Articles 2 6 -7 of this work. 1 °See judgement 6/1964 of the Court of Justice in Costa v. Enel {Recueil de Cour, vol. X, p. 1158). loaThe Rome Treaty, by Articles 223-6, authorizes the states for reasons of security, to manufacture arms, ammunition and war materials, further, within a scope substantiated by situations of crisis (internal disturbances affecting public order, war, international tension con­ stituting a threat of war, serious difficulties likely to persist in any sector of economic activity or difficulties which may seriously impair the economic situation during the transitional period) to initiate or institute measures running counter the Rome Treaty or the provisions governing competition. In this sphere therefore the priority of Community law is seriously impaired and in the interests of the defence of the whole system, Community law will have to retreat. The role of the Commission and in general of the EEC is restricted to the coordination of governmental measures and to making attempts so to say to control such measures and as far as this can be done to adjust them to the Rom e Treaty (Articles 225-6).

37

33 Of the premises of legal policy, at least three of the important ones will have to be reviewed. (a) With respect to the Common Market we have the case of an economic, political and legal phenomenon, one of whose properties is that, in addition to declaring the integration of the economic policies, and presenting the static formula of this objec­ tive, the treaties establishing the EEC presuppose the performance of a number of multiple operative and normative acts of a public law character. Unlike the treaties of a general nature which - to mention a single kind only, viz. those protecting industrial property - come to life in the practice of the national courts of law with their creation and ratification almost automatically, the treaties establishing the EEC are by themselves non-viable. Without the almost boundless series and complex effect of integrated acts of the state organs and the Community organs, or without the so to say self-generating development in the manner of a living organism, the treaties establishing the EEC, which are teleological in nature and defined only in their principal traits, far extending even in the temporal order of all these, would have remained dead and the integration an idea incapable of living. (b) The present capitalist interests, before all, big capital and the capitalist states, have expected and do still expect from the integration that it will permit much more for the complex and in the temporal order far-extending many joint state acts to become the victims of the traditional legislative mechanism and the sources of international law. International law, in the traditional meaning, presupposes for each novel joint act of states of a legal effect, for any new norms, etc. the negotiations of the states concerned, the elaboration of draft agreements, their protracted signing and ratification process. For the joint state acts which had been required for the establish­ ment of the integration, a set of expeditious legal instruments, with expeditious sources of law incorporated in them, were needed. It is this premiss which finds expression in the direct operation and enforcement of Community law. Capitalist development, big capital and the states content themselves with the legality of international law and as they state, the general framework of ‘constitutional state­ hood’. This framework stands for the EEC treaties in the creation of which the member states take part still as subjects-at-law proceeding within the traditional legislative framework of international law and in the usual manner extremely anxious of their rights. On what is beyond this they exercise their influence in a by far more indirect form and not as the subjects of classical international law. Namely, all that is behind the direct effect of Community law is the objective necessity following from the essence of integration on the one part, but on the other the growing contingency of the safeguard of national interests, the more direct and therefore more marked predominance of the interests of the stronger states and groups of capitalists, in general, the interests of international capital. (c) Another premiss is the corollary of the earlier two, namely that, in regard to the temporally far-reaching Community legislative actions carrying into effect the integra­ tion, the states have set up and made a constant organizational machinery - which is relatively segregated from them — the subject and prime mover of the directly effective EEC complex. As for its organization and jurisdiction this machinery is a

38

relatively coherent, legally - in its details - institutionalized and expeditious system of the agencies of the Common Market. We shall discuss this machinery and its methods of operation, by laying stress on its principal elements, subsequently.11 34-41

Legal instruments: the sources o f law and other legal acts

34 In accordance with the great number of possible aspects of analysis, the sources of law and other legal acts may be classified in a variety of ways. According to the one, so to say prima facie, classification there are the sources of law (the ‘fives’ and the ‘threes’ to be discussed later12 ) directly created by the agencies of the Community, and there are the international conventions signed by the member states for the carrying into effect of certain elements of the process of integration. Although the latter are signed by the member states as subjects of the general international law (Le. by the right and privilege of every State to sign treaties under international law), still they qualify also as sources of Community law by two criteria: (i) the objects of these conventions are each an element in the making of the integration, and (ii) by Article 220 of the Rome Treaty, before all for the approxima­ tion of the municipal systems of commercial and private law, and for the gradual unfolding of Community law, the member states have undertaken the signing of such conventions. A distinctive mark of the second classification is the norma potentia of the particular Community acts, Le. the actual limit of the effectiveness of these norms and of their legal enforceability. On this consideration there are the legal acts (i) which by their legal-peremptory properties are in fact provisions of Community law, full-value norms, leges perfectae (made by the legislative authorities of the Community, contain­ ing provisions of general validity for facts at issue of a general character, having a claim to direct enforcement, or enforceable at law, and falling under the so-called constitu­ tional supervision of the Court of Justice), and (ii) those not full-value norms which are nevertheless legal acts (so-called Formalakte) regulated by the three treaties. Since these two main kinds of legal acts will be discussed in detail separately,13 here we shall briefly mention only the Community legal acts on the other side of the line of partition, viz. all ‘other legal acts’ (sonstige Rechtshandlungen, autres actes juridiques)f which strictly speaking are not of normative contents, being in want of most of the properties referred to above, still are parts of the sources of the body of EEC legal instruments. 35 The subject matter and principal features of ‘other legal acts’ may be specified as follows (for details see the professional literature14 ). The ‘Conference of the Representatives of the Member States United in the Council of the European Economic Community’ is an institution established in practice, not yet brought under regulation by the Rome Treaty. The same applies also to the 11 See 12 See 13 See 14See

paragraphs 4 2 -3 of this work. paragraph 36 of this work. paragraphs 36-41 of this work. 'Sonstige Rechtshandlungen’, Ipsen 2, pp. 467 et seq.; Meibom, pp. 583 et seq.

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decisions of the Conference. This in this sense extraneous institution, however, has a significant role in marshalling the process of integration. Normally, the Conference drafts the measures and casts them into a more mature form for debate in the Council, or reconciles the acts of the member states in matters where by virtue of the fundamental treaties jurisdiction has been reserved for the states, still where life notwithstanding demands a mutually reconciled practice. Such cases are e.g. the appointment of the members of the Commission or of the judges of the Court of Justice,15 the amendment of the treaties,16 the acceleration of the process of integration beyond what has been foreseen in the fundamental treaties, a case coming close to the amendment of the Treaty, or, in general, any other such issue relating to the integration where the representatives of the member states handle integration and its organizational machinery so to say from the outside.17 An institution also established by practice — by the meeting of the Heads of Government of the Community in Paris 9 -1 0 December 1974 —is that “the Heads of Government decided to meet, accompained by the Ministers of Foreign Affairs, three times a year and, whenever necessary, in the Council of the Communities . . . to ensure progress and overall consistency in the activities of the Communities and in the work on political cooperation” . One of the very important acts of this very first meeting was on the majority vote or Luxemburg agreement issue, which is surely a very important legal act coming from an institution not institutionalized by the Rome Treaty.17a The setting-up of the ‘European Council’ — now the recognized term of the mentioned regular meetings —of course resulted in a series of important acts, essentially political in nature, to what the General Report 1975 states that “the European Council has . . . proved itself capable of providing the inspiration hoped for” , and that this ‘inspiration’ becomes translated properly also into the activity of the ‘Council proper of the Community’.17b As is known, in the Rome Treaty the EEC integration has been formulated so as to take place in legally thoroughly regulated stages, in the system of conditions defined by the article of transition. The creation of the conditions of each stage arid its valid declaration, whence several further comprehensive legal changes are forthcoming, have been made by the Rome Treaty, the specific unique legal act of the Council,18 which from the aspect of classification again comes within the sphere of ‘other legal acts’, notwithstanding the fact that it is one of the most important of all possible Commu­ nity legal acts. Other legal acts’ of importance are further those concerned with internal organiza­ tion and service (such as the statutes of certain agencies, the service regulations of the employees, the creation of new internal administrative divisions, decision on the approval of budgetary acts, decrees on the use of the official languages of the 15Rome Treaty, Articles 158, 167\ Euratom Treaty, Articles 127,139. 16Rome Treaty, Article 236; Euratom Treaty, Article 204;£*C5C Treaty, Article 96. 17 For the study of this domain see Ipsen 2, pp. 468 et set7. 17aThe Communiqué on the meeting is mentioned in General Report 1974, pp. 297 et seq.; to the majority vote issue see infra paragraph 44. 17bTo the developments in this field see General Report 1975, pp. 18-9. 18Rome Treaty, Article 8.

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Community, and the extent of such use),19 the so-called government contracts, or in the present instance Community contracts (legal transactions affecting the provision of the material conditions for the operation of the various organs),20 the various programmes which by timing the appropriate measures so to say lay down the plans of the particular phases of the process of integration for various spheres (the Rome Treaty imposes the obligation on the Commission and the Council to prepare pro­ grammes and to effectuate them, e.g. for the gradual and general removal of the obstacles in the way of the freedom of establishment or the unhampered flow of services,21 issues which will be discussed in several chapters of this work).2 2 The same domain also includes the Euratom programmes envisaging investments for the genera­ tion of atomic energy,2 3 or the ECSC manufacturing programmes of an imperative nature, programmes which might come into consideration for accomplishment in situations of a shortage of products, or in situations of shortage economy.24 36 If now the practice of judicature of the Court of Justice is ignored,25 the Rome Treaty26 recognizes five sources of law (this is the group of the ‘fives’ mentioned above) in the strict meaning of the term, which are Community legal acts of the character of sources of law and are defined also formally. The principal source of law of these five sources or acts is Article 189 frequently invoked also in the literature. Accordingly, the five forms are: (i) the regulations; (ii) the decisions; (iii) the directives; (iv) the opinions, and (v) the recommendations. —In addition to these five forms, there are other legal acts which have the power of norms, even though void of designation; they will be dealt with under (vi) infra. 37 (i) The regulation (règlement, Verordnung) is the most developed form of the direct Community sources of law: regulations are enacted by the representative organ of the Community (the Council) and the executive organ of the Community (the Commission) by procedures laid down in the Treaty. The regulations are promulgated as decreed, their provisions extend to all legal relations coming within the purview of the regulations and to all subjects of identical relations. The regulations are enforce­ able at law, their lawful application is judicially supervised.2 7 The regulation is a full-value legal norm, which creates obligations and rights, and which is provided with sanctions for all concerned by the dispositive command of the factual conditions at12* 19Merger Treaty 2, Articles 5, 6, 12, 16; Rome Treaty, Articles 8, 153, 203, 206,217 \ Euratom Treaty, Article 190. 20 See Rome Treaty, Articles 210-1 which define the legal personality of the EEC, whereas Articles 211 and 181, further, Articles 172 and 177 of the Euratom Treaty and Article 51 of the ECSC Treaty bring under regulation the concrete legal situation and rights in the deals in question (purchase, contraction of credits and their extension, subsidies); Article 183 of the Rome Treaty and Article 155 of the Euratom Treaty declare that in the civil law disputes in question no immunity is vested in the Commission. 21 Paragraphs 54 and 63 of this work. 2 2See infra Chapters IV and V. 2 3Euratom Treaty, Article 40. 2 4ECSC Treaty, Article 59. 2 sSec paragraph 27 of this work. 2 6The same in the ECSC Treaty (Article 161) and, because of the simpler.organization, only three in the ECSC Treaty (Article 14). 27Rome Treaty, Articles 164 et seq.; Articles 173, 189, 191.

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issue. At the same time the regulations institute rights entitling the parties to claim judicial assistance. As to their formal constitutional level or degree there is no constitutional difference between regulations promulgated by the Council or the Commission. The right of the Commission to create regulations, too, may be derived directly from the Rome Treaty. If, however, the Commission issues a regulation by authority received from the Council and not by authority vested in it by the Rome Treaty, this regulation with regard to general legal properties is also a regulation in the definition of the Treaty, still as for its contents it has to be adjusted to the authority of the Council.2 8 The passage “Regulations shall have general application. They shall be binding. .. and directly applicable .. .” signifies, as for its content, the priority of Community law and the legal fact that no municipal command or measure is needed for the application of the regulation. Formally, it may be understood also as a conflict rule, which declares that in the event of a conflict of municipal and Community law the latter will apply. 38 (ii) The decision (décision, Entscheidung) as defined by Article 189 is a specific source of law. What it has in common with the regulation is that it may apply to several addresses (the member states and other subjects-at-law of the EEC), that it is an act instituted by the Council and the Commission in a definite procedure and in a definite form, and that it is directly effective in respect of the addressees and binding on them. These are the features which lend a certain character of a source of law to the decision. On the other hand regulation and decision differ from each other in that if a decision applies to several addressees, these are in all cases individually defined or definable, that the question of their territorial or regional validity does not emerge (decisions are effective within spatial limits defined by the individual case following from the individual character of the act and not in the entire territory of the EEC). It is on these considerations that as regards decisions the question is not one of sources of law in the general meaning of the term, but of one of the essential forms of Community legal acts. A decision whose addressees appear in abstract generality and cannot be identified individually, and which is valid in the whole territory of the Community, can only be a regulation or in the definition of the ECSC Treaty a general decision.2 9 In connexion with the decisions the following points should be noted: (a) Since the Rome Treaty has, in agreement with its principles of organization and operation, appointed the Commission its executive organ and has conceived the accomplishment of the integration as the operation and result of a mass of executive acts, the majority of the decisions comes from the Commission (vertically, this will become particularly conspicuous in the following discussions on the law of competition of this book, inasmuch as the Commission is the authoritative organ bringing into relief the Commu-2 2 8See § 3 of Article 48 (authority vested in the Commission on measures it may institute for the free movement of workers); Article 87 authorizes the Council to put into effect the principles set out in Articles 85 and 86 on the law of competition; by virtue of this provision the Council promulgated its Regulation No. 19/1965 and by authority conferred by this regulation the Commission promulgated its Regulation 67/1967. (For details see Chapter V o f this work.) 2 9Articles 14-5 of the ECSC Treaty.

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nity policy of competition and has recourse among others to a long series of concrete individual decisions for the enforcement of the provisions of the law of competi­ tion).30 (b) Practice gives an extensive interpretation to the potential individual definiteness of the addressees of the decisions (thus for the purpose of the right to institute an action for a Community subject-at-law, and only for it, a regulation by principles of procedural law concretely not directed against this subject, still factually affecting it, may be regarded as an individual decision; if this were not the case the subject-at-law would be deprived of the possibility of procedural defence).31 (c) Judicial practice has also confirmed that contrary to opposing interpretation a legal act formally born as individual decision cannot in relations to third persons produce the legal effects of a general decision or regulation.32 39 (iii) Besides the decision in the first place the directives (Richtlinien, directives) are the legal means to which the Council or the Commission, as indicated by experience, overwhelmingly the Council clads the ideas of integration of the funda­ mental treaties in concrete commands, exclusively addressed to the member states, on the understanding that the member states take the corresponding municipal legislative action in the order of their domestic law-making procedure themselves. The directives point at the course to be taken: they designate concrete agenda and ends of integra­ tion. It is on this ground that the municipal and dispositive mechanism of the member states gets under way and acts in a manner concerted by the directives. The result is the uniform realization of the aim of the integration in question, the approximation of the municipal legal orders to the integration by the preservation of the national legislative competence.33 The chapter of the present work on company law and several other chapters (e.g. on the law of competition and taxation) will offer an illustrative picture of how these directives appear in a concrete form and how they live on.34 Of the legal-dogmatic properties of the directives stress may be laid on the following points: (a) addressees of the directives are the states. Consequently they have no general effect, and no rights and obligations can be derived from them for the citizens and other subjects-at-law of the Common Market; (b) the obligations bind the states to taking the corresponding legislative actions; (c) a State cannot repudiate its obligation to take the necessary action or actions on the plea that the municipal law of the State provides otherwise. In point of fact it is exactly the purpose of the directive to bring about a transformation of the municipal law, and among others it is for this reason that the directives have priority over the municipal law; (d) since it is the constitutional-legal criterion of the directive that it leaves it to the municipal legislator to choose the concrete legal form and action, per definitionem the directive could not fully or in detail go to the length of bringing the matter under regulation itself. Still for the satisfactory achievement of the end the directive may define this end, which in practice even may amount to its offering a ‘regulation’ worked out in all its details, Le. 30 See Chapter V, paragraphs 119-20, 139-42 31Rom e Treaty, Article 173. 32For the relevant practice of the Court of Justice of the EEC see Ipsen 2, p. 45 3. 33Rome Treaty, Article 189. 34See Chapters IV and V.

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to a specimen provision of law. In this case the right of the member state and its freedom of choice will be hardly more than a certain kind of Community law ratification, which differs from ratification in general in that it cannot even be rejected by the legislator, or in other words his right of choice has dwindled to a mere nominal one; (e) in any case, however, it remains an issue of municipal law, even for a directive going into the minutest details, to decide - in conformity with the constitu­ tional order — what measures, an act of legislation, government decree, an adminis­ trative or judicial act, have to be instituted. It is the duty of the member state to apply the means which is in point of fact adequate for the achievement of the definite end. 40 (iv) Opinions and (v) recommendations (Stellungnahmen, Empfehlungen, recom­ mendations, opinions) are though by virtue of Article 189 void of binding force, still they remain constitutional legal acts, Le acts brought under regulation by the Treaty, capable of eliciting fairly definite legal effects. Such legal effects among others imply that the member states are bound to study them and to take note of them,35 that in certain cases the Community organs are under an obligation to communicate their opinions or recommendations (moreover, the failure to do so may entail judicial procedure). An action on the part of these organs is essential because the legal validity of the further acts of the subjects-at-law concerned might depend on this action.36 There are, however, recommendations and opinions to which the issuing organs may under the Rome Treaty attach consequences of substantive or procedural law. By this the acts in question, even when the desideratum given expression in them is not enforceable, may nevertheless jut out from the domain of the complete lex imperfecta over the group of normative phenomena, of which the at least minimum presence of the norma potentia is the characteristic feature.37 Moreover, as a sort of inconsistency or contradiction in the legal acts regulated by the fundamental treaties and conven­ tions, there are even certain opinions which made obligatory the full measure of legal coercion. If e.g. the Commission on the basis of the ECSC Treaty qualifies a certain investment as undesirable because of the noxious consequences it may entail, this opinion will become obligatory. The given enterprise cannot for financing the project resort to resources other than its own. A violation of such an opinion will entail judicial procedure.38 3 5This follows from Article 5 of the Rome Treaty. 3 6Rom e Treaty, Article 170 (upon request of a member State the Commission has to give its opinion whether or not the other member State has met its obligations); Article 228 (in the event of agreements with third persons, le. subjects at international public law, so states and interna­ tional organizations, the Court of Justice may pronounce its opinion as to whether or not the agreement to be concluded is reconcilable to the Rome Treaty; if this opinion is to the contrary, for the conclusion of the agreement a special procedure as laid down in Article 236 will be needed); ECSC Treaty, Article 54 (for investment the opinion of the High Authority may be applied for). 37Rome Treaty, Article 91 (anti-dumping‘obligatory* recommendations); Article 102 (the same for the repeal of internal, municipal measures of the member states obstructing competition) etc., are provisions of a similar form (Articles 115, 169, 170). What is implied in these provisions is that the non-observance of recommendations entails counter-action, further, acts which may persuade to the observation of the recommendation. "E C S C Treaty, Article 54 (5).

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41 (vi) At several places the Rome Treaty decrees obligations of action or disposi­ tion, or binds or authorizes the Community agencies to take measures which (a) do not appear in the catalogue of legal acts in the interpretation of Article 189; and which (b) may nevertheless entail a variety of legal effects, when resorted to. By a perhaps not exaggerated technical simplification these acts may be given the designation of ‘other legal acts’. Although the Rome Treaty has called them to life, and it has endowed many of them with far-reaching effects, still it has failed to give them a name or to assign them to the category of the one or the other formal act. Instead of exploring the reasons in the background of this omission39 it may be more to the purpose briefly to convey an idea of the weight of the cases concerned. Pars pro toto let here stand the following examples: (a) Article 7 of the Rome Treaty makes it the duty of the Council to “lay down rules regarding the prohibition o f . .. discrimination” . Here as is known the case is that of the suppression of any discrimina­ tion hampering the free movement of the enterprises and the free flow of services, as discussed in detail in the present work,40 i e of one of the fundamentally essential elements of the integration. As may be seen from the passages quoted below, the Council and the Commission have on the plea of instituting a regulation applied a wide range of legal acts, both formal and informal ones, (b) By Article 20 of the Rome Treaty it is the obligation of the Council to “determine the duties in the common customs tariff’. As is known the common customs tariff, the customs union, is one of the sine qua non of the Common Market, decreed by an informal legal act. What has happened in reality? The Council has met its obligation by a regulation as for its weight not wholly indifferent.4 1 Still even this regulation has been surrounded by a number of preparatory and executive legal acts, (c) In conformity with Article 41 of the Rome Treaty the Council determines the application of the rules of competition to the production of and trade in agricultural products. The sections of the present work on the law of competition will offer an idea of the large number and variety of legal acts to which recourse is had when it comes to interpret and apply the Community law of competition.42 Among these there are ‘informal’ ie. non-constitutional acts which notwithstanding the vital importance of the matter they deal with are clad in a haze of silence.43 All this allows of a general conclusion. Namely that although it is a con­ tinually demonstrated and voiced characteristic of the EEC that it has a constitutional 39 Literature speaks of the slovenliness of formulation, haphazard action and also of the fact that the parties failing to come to a uniform standpoint adjourned the dispute, see Ipsen, 2, p. 462. 4 0See Chapter IV. 41 The comprehensive and bulky regulation of the Council is the one numbered 950/1968 (Customs Union, Regulation of) which declares that “Setting out from that the EEC is based upon a customs union and implies the approval of common customs duties. .. the Member States as from the 1st July, 1968 apply common customs duties to goods coming from third countries, except for products [certain agricultural products —author's addition] enumerated in Annex II to the Rome Treaty and as from the 1st July, 1968 abolish customs duties between the Member States” . The closing chapter of the Customs Union Regulation declares that any provisions included in it are obligatory in each element and are applicable in each member state directly. 4 2See Chapters IV and V and the legal sources and other legal acts discussed in them. 4 3Matters settled ‘informally’, e.g., include several secretly (by internal decisions without formalities) exempted cartel agreements. See Cartels, pp. 10-6.

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mechanism worked out in a differentiated manner, that its acts are under the rule of legal order, whenever there is a case of vital interests or a decisive act, the EEC will take the action it deems necessary, be it pre-channelled or not and consequently lawful or not, because it not only will not die, but not even ‘suffer’ of its own formal legality. 4 2 -3

By whom and how Community law is made - the organizational side of legislation

42 The legislative organs and the process of legislation means a rather manifold problem of public law and sociology which can be formulated in this way: by whom and how Community law is made. Of course, this question also applies to that part of Community law which is dealt with by the present work to an institutional depth. To become submerged in this problem, or in its vast literature, or only to carry out a critical analysis of the principal issues, would lead too far and to a domain well beyond the scope of the present work. In addition to what has been said of those making Community law, the following tasks have been left to the present section: to make known that so far as the organizational structure of the EEC and its decision-making process is concerned (Willenbildung) there are also several Hungarian works available at present which deal with the problem of these aspects;44 partly in order that readers, logically sensing the need for adequate information, might not come to naught, a brief outline will be given of the organizational pattern of the Community and the most neuralgic problem of the formation of Community law, Le. that of sovereignty, will be placed in the lime-light. 43 It is part and parcel of the organizational pattern that by the Rome Treaty authority and organizational rights are distributed among the Parliament (Assembly, Assemblé, Versammlung), the Council, or in everyday parlance, the Council of Minis­ ters (Conseil Rat), the Commission (Commission, Kommission) and the Court of Justice.45 The committees (Economic and Social Committee) are consultative or­ gans.46 The European Investment Bank, which in addition to its direct economic activities performs certain authoritative or public functions of economic policy, has a negligible role in the process of development of Community law.4 7 For the purpose of the above four organs the Euratom Treaty is on a par with the Rome Treaty,48 whereas the ECSC Treaty substitutes for the Commission a relatively higher organ. Le. the High Authority (Haute Autorité, Hohe Behörde).*9 As regards the organizational pattem in this connexion three main points should be remembered, although other questions - like that of the way of designating the members of the different organs, the extent to which these are by virtue of the law4 4 4See Palànkai (in particular pp. 4 31-3), and Valki 4. 4 5Rome Treaty, Articles 137-92. " Ib id ., Articles 193-8. 4 7Its functions and organization are defined by Articles 129—30 for the Rom e Treaty and the Protocol attached to it. For the operation of the Bank, its role in economic policy, and in particular in regional development see Chapter VII. 48Euratom Treaty, Articles 107-70. 49ECSC Treaty, Articles 8-45.

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independent, to what extent they represent their respective governments, or what rights and obligations they have —are similarly of interest. (i) At the creation of the Common Market one of the organizational and legal principles was to develop the organs of the three integrations, viz. the ECSC, the Euratom and the EEC, into a uniform organizational-legal order, or in other words, so to say to reproduce in this unified constitutional structure the model of the political organization of bourgeois democracy. Essentially, the process set in as early as 1958. The First Merger Treaty came into operation simultaneously with the Rome Treaty. The First Merger Treaty was in like way signed in Rome on March 25, 1957. It declared that the Parliament of the European Economic Community would take over the powers and competences which the Euratom Treaty vested in the corresponding organ of Euratom, while the Court of Justice of the Community would function as the court of both organizations, while a united Economic and Social Committee would take the place of the two committees of the same name. As regards the organs of highest importance, viz. the Council and the Commission in Euratom, the Second Merger Treaty of 1965 provided that a single Council and a single Commission for the three communities should be established. The merger took place actually on July 1, 1967,50 after the removal of several contradic­ tions, difficulties, and serious differences which manifested themselves in various forms. A prerequisite of the bringing about of the organizational integration was that the process of the planned and gradual economic integration would attain the minimum level prescribed by the Rome Treaty; this was eventually attained by 1967-1968. Yet beyond this there were momentous differences in the organizational and legal struc­ ture of the three integrations. By way of example it may suffice to point out the following. The Rome Treaty lays an embargo on cartels only when these in the one sense or the other are capable of dominating the market (marktbeherrschende Wir­ kung).5 1 On the other hand the ECSC Treaty expressly authorizes cooperations in limiting competition on the understanding that such cooperations would stabilize the market and are apt to contribute to the ensurence of lower prices.52 In the Common Market structure powers and competences are distributed among several organs, whereas in the ECSC powers and competences are mostly concentrated at the High Authority. All three integrations had a status of their own in respect of the fiscal authority of their own states.53 It was of particular importance that the principle of direct state interference in the branches of industry in question was an essential element of the principles of operation of the ECSC, an element which the European Economic Community wants to go beyond in both principle and practice. At the same time the ECSC in many issues in matters of the enforcement of the Treaty, relied on the active function of the joint Court of Justice whereas in the Common Market it is the non-judicial organs that are more pragmatical, and cooperate more effectively in providing the various institutions and measures of the Common Market with a legal 50Merger Treaty 1, Articles 1 - 5 \ Merger Treaty 2, Articles 1-19. 51 Rome Treaty, Articles 85 -6 . 5 7ECSC Treaty, Article 60. 5 3To this see Hecke, pp. 22 et seq.

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structure. For any new investment of importance in both Euratom and the ECSC the particular economic organizations, enterprises, firms, etc. are bound to notify in a form as defined by the treaties, whereas the Rome Treaty is in general void of such obligations.54 It remains a fact that the ECSC Treaty from the very outset provided that the economic policy relating to the coal and steel industry had to be integrated into the economy of the member states as a whole, i.e. into the economic policy of the member states as relating to their economy as a whole.55 And yet the Rome Treaty (as related to the economy of the member states as a whole) declared that the EEC Treaty did not affect the ECSC Treaty.56 This was though merely a formal contradic­ tion, still the difficulties already mentioned and many others, differences and contra­ dictions, brought also the idea into existence that for the merger of the three Communities really the Rome Treaty should be restated and that the European Economic Community should be subordinated to a new, uniform legal charter. Nevertheless, for pragmatical reasons and also for such of legal policy the idea was dropped. It was generally thought that there were anyhow plenty of difficulties and problems in the process of integration, which warned against the process of a comprehensive re-codification.5 7 The majority was — in the face of the reality of a strengthening unity — against exaggerating the difficulties forthcoming from the organizational and legal anomaly of the three different treaties. It was pointed out that the controversies and differences were mainly due to the circumstance that the three treaties had been signed at different times. Because of the enormous power the member states had placed in the hands of the constitutional bodies of the EEC and because of the decisive influence they would have in shaping the economic and social structure of the Community, it became especially necessary to bring about unity on an organizational level. After such and similar discussions eventually the integration of the executive organs and machinery of the three organizations took place. In the international conference referred to before, the French delegates, many of them legal and practical experts, already outlined what may be termed the comparative constitution of the organiza­ tional structure of the European Economic Community. In this understanding, the Council of the EEC largely corresponded to the French senate or the German Bundesrat; the parliament of the Community was on a par with the houses of representatives of France and the other member states; the Commission, the executive organ of the Community was conceived as some sort of a gouvernement européen?* the Court of Justice, the counterpart of the supreme courts of judicature of the member states, had as its function the enforcement of the economic normatives and those of the economic policy of the Community and the safeguarding of its lawful operation. In this way the pattern of the political organization of the State in bourgeois democracies viz. the formal Montesquieu-ean distribution of the state 5 4For this problem see ibid., p. 27. 5 5ECSC Treaty, Article 2. 5 6Rome Treaty, Article 232. 5 7For this problem see Steindorff 1, pp. 140-1. 5 *See the noteworthy analysis by Dehousse, in Fusion européenne, pp. 24 8 -9 .

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powers into branches (a critical approach to this will be given its turn later on) would become reproduced in the EEC power structure, when in this traditional division of power the power-competencies were distributed among the legislature (incorporating direct and indirect representative elements), the executive organs and the judiciary.59 (ii) It is one of the axioms of the organizational structure that whereas the Council is the representative organ of the governments, the other three organs, viz. Parliament, Commission and Court of Justice, are institutions of the Community as such, whose function is to embody the qualitatively new public law unit,/.e. the European Eco­ nomic Community, called to life by the Treaty, represent it and act for and on its behalf. Among others this finds expression in the circumstance that in the Parliament of the EEC the members represent their political parties and not their countries as such. The seats are distributed among the members proportionately to the representa­ tion of their parties in the respective national legislatures, (so, e . g there are also communists in the Community Parliament). The members perform their activities in the Community Parliament in conformity with their party or political affiliation. Rules and limitations concerning the composition of the Commission are governed by regional considerations rather than such (representation. Accordingly three members at most can be of the same nationality (on the assumption of —before the new accessions —fourteen members, Luxemburg may have a ‘representation’ beyond the ‘right of representation’ cut to her size. As regards the membership of the Court of Justice there are no limitations of the nationality whatever.60 (iii) What has to be remembered is that at the creation of the organs of the Community the Treaty and recently the Act of Accession (entering into force on 1 January 1973) ordered the economic weight of the member states, Le. a single aspect only, to be applied as criterion of their participation in the Community. On this understanding France, the Federal Republic of Germany, Italy and the United King­ dom have thirty-six members each in the Community Parliament, Belgium and the Netherlands fourteen members each, and Luxemburg six, Denmark and Ireland ten members each. In the Council which has of course nine members now the ratios of votes are similarly tailored to the mentioned ratio (four votes for bigger, two for the medium-sized member states and one for Luxemburg).61 The representation of the small countries in a rather larger proportion than their actual weight suggests a tendency which manifests itself in several interrelations. This tendency gives ex­ pression to a policy which prevents anyone of the larger member states to bring about a legal act solely against the will of the others even when the Rome Treaty requires a qualified majority only and not the unanimity of votes.6256 5 9See infra Chapter VIII. 6 °The sources are Articles 137-88 of the Rome Treaty. 6 'Ibid., Articles 138, 148. With the accession of the United Kingdom, Ireland and Denmark the original set-up and composition of the Parliament and the council was of course modified (as described now above), viz. by the Act of Accession and the Regulation due to the non-adherence of Norway (see Bulletin der Europäischen Gemeinschaften, 1975, No. 1, ρ. 77, and the same periodical, 1973, No. 1, pp. 6 -7 ). 6 2Article 111 of the Rome Treaty, e.g. provides that at the end of the transitional period the foreign trade policy of the Community will pass over from the competence of the member states to 4 Madl

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44

EEC legislation and sovereignty

44 We have thus come to the question of sovereignty, a question that can be bypassed in no way. The question of sovereignty has been thrust into prominence by the circumstances: (i) that the states may have a say in the matter only by their economic weight, Le. in what finally will become Community law binding on them; and (ii) that in decisions passed by a majority of votes —notwithstanding their possible opposition granted by their economic weight —norms or measures will become effective which are opposed by one State or the other. Obviously it is impossible to ignore the question of sovereignty in a general discussion of the birth and development of Community law as it is impossible to bypass the problem of immunity in a discussion concerned also with the application of Community law.6 3 If we go into the matter to any length and look at the issue ‘effective mechanism of integration v. sovereignty’ in its wider bearings, then we shall find the following. In the beginning, Le. in the years following upon the Second World War, even before the European Coal and Steel Community appeared on the scene, the idea of a more complete political union hoped for by a considerable fraction of the ruling circles (so also by French big capital at that time stronger than German capital) was soon thrust to the background. In the following process the bourgeois idea of sovereignty and the national State thwarted not only the creation of a European Community of Defence stillborn already in the form of a project, but also all other attempts at some sort of a political union. Political realism, making allowance for the facts as they were, re­ stricted the ambitions and objectives of rivalling big capital which was extremely anxious of its interest, decisively to the integration of production and market pro­ cesses on an enterprise level, by assuming nevertheless that a corresponding legal mechanism and guarantees do exist. In this way first the European Coal and Steel Community was bom, to be followed by the more general Rome Treaty, formulating economic integration. Even the Rome Treaty was given a construction which permit­ ted the so-called supranational organs of the Community by majority decisions to formulate the principles of economic policy of the states taking part in the Communi­ ty and their enforcement in each state with a binding force only after certain stages of transition had been passed and on condition that the economic policy had been formulated as defined by the Treaty. Although the signatories to the Rome Treaty adopted this policy, still its enforcement stumbled upon a number of legal difficulties and such of legal policy, so that in many respects the complete carrying through of this policy has still to be waited for. The first, and sor far most serious legal and at the same time political crisis of the Common Market sprang up in the matter of sovereignty and its emanations in 1965-1966. A complete union of economic policy would have been achieved had the*6

that of the Council; during the process of transition the Council passes its decision by a unanimity of votes, thereafter by a qualified majority; however, on the assumption o f the majority votes being cast not only by the bigger member states. This means that, e.g. France, Italy, the Federal Republic of Germany and the United Kingdom in conjunction cannot outvote the others. 6 3See infra Chapter VII.

50

Council of the Community been vested with the right to decide on certain funda­ mental questions, so e.g. on certain still unsettled issues of agrarian policy, and (by a qualified majority after the period of transition) on the matter of the admission of other countries.64 The crisis came to a head in the issue of the rights of the Council as a so-called supranational organ. According to the one position taken in the matter the Council, as specifically formulated by the Rome Treaty, would exercise the right vested in it by the Treaty as from the stages of transition specified by the Treaty, Le. on the principle of a qualified majority vote, to determine certain questions of economic policy with validity for the Community as a whole. This would have meant that by this way the Council would have been free also to amend resolutions earlier passed by unanimous vote. Accordingly the Council would have risen, many thought, above the sovereignty of the member states. The crisis (la crise du 30 Juin 1965) came to a head on this issue. Before all France took a decided stand against the policy to increase the powers of the Council. Although, as has been seen, it was evident that even in this case the smaller member states would have retained a prominent role, since with their votes they could have determined the majority, and although in the Rome Treaty the possibility of taking a majority position was restricted from the very outset, the opposite interest nevertheless unanimously turned down, with a decided ‘No’, the idea of the Council acting with these powers. The long drawn-out dispute was finally settled by the accords de Luxembourg, on January 29, 1966. Accordingly it was thought desirable that the executive organ of the Community, the Commission should before any Community decision planned in matters of economic policy consult the governments concerned. All opinions or decisions in the matter should be published only after the governments of the member states had received and studied them. The Luxemburg ‘compromise’ at the same time declared that in the event of controversies efforts should be made for reaching a decision on the ground of unanimity in the competent organ of the Community. This has become a practice for many years.65 By this compromise that time, however, the underlying issue was circumvented only. Namely the makers of the Rome Treaty thought in earnest that the Council of the Community should pass resolutions also by a majority vote and by this its powers would prevail against, if so termed the sovereignty of the member states. Legal literature openly raised the question. A prominent French writer e.g. wrote that there were in fact only two practicable ways to go. The one, which tended towards the further strengthening of the federal structure, was what the authors of the Rome Treaty had in mind at birth, the other was the expedient whose partisans, by recognizing the benefits following from the federal mechanism of the Rome Treaty, nevertheless wanted to preserve the complete sovereignty of the member states in this6 6 4Rome Treaty, Articles 43, 236. 6 5Europe-unie, pp. 175-9. (“Lorsque, dans les cas de décisions susceptibles d'être prises à la majorié sur proposition de la Commission, des intérêts très importants d'un plusieur partenaires sont en jeu, les membres du Conseil s'efforceront, dans un délai raisonable, d'arriver à des solutions qui pourront être adoptées par tous les membres du Conseil dans le respect de leurs intérêts mutuels et de ceux de la Communauté, conformément à l'article 2 du Traité. ") For the problem and the development of practice see Lagrange 2, pp. 27 et seq. 4*

51

respect too, as a matter of course on the understanding that the cooperation of the member states should be developed to top level.66 Obviously for the defenders of the second way, at least at that time there was no legal compromise. In general this was what the so-called official French legal and political public opinion believed. Tacitly this was then the dominant opinion, de facto recognized even by its opponents, and also the actual political practice: no effort was spared to bring about the settlement of fundamental issues by adopting a unanimous position. An idea of the generality and the depth of the crisis is among others conveyed by the opening announcement of Zweigert to the German periodical Europarecht which was launched at the time of the crisis. As the author wrote, it might appear queer to start a periodical on European law at a time when the European Economic Community was heading for its greatest crisis. It might appear as if the periodical had come to bury the Common Market. If this were the case, if nothing else the periodical could at least organize impressive obsequies for it. Namely the process of integration of the EEC had made progress to a length that its dissolution would give rise to a number of legal problems. Naturally Zweigert did not continue his opening announcement in this way. What he meant was rather that instead of rapidly achieving the coming into existence of a political community, the Community should con­ centrate on realities and it was this to which Europarecht would contribute.67 It was this to which the French in their defence of sovereignty reacted when they wrote —as e.g. the wording of Lagrange goes - that the work once begun had to be continued with patience; one had to be aware of the fact that the clock could not be turned back; this meant that France could not take a step backward; she was condemned to progress and to seek the solution of the problems by making strides forward.6869 If to this ‘being condemned to progress’ we add that evidently what was meant by this progress was not an adjustment to all the important demands of real social development, Le. not as defined by the socialist interpretation of the term, but rather a case of the pressure exerted by the social and economic contradictions of WestEuropean capitalism; of the internal and external defence of European capital; of the intertwining and apologetic system of action of European capitalist and political activity; or of the survival and consolidation of the organizational and legal mechanism brought about as the expression of all these — then by inference it can be stated that there may hardly be a chance for a near-by success of an appeal against the condemnation referred to. If we do not intend to tread the path of theoretical lucubrations supported by reality partly only, or not at all, then we have to take note of this contingency also from the critical position of socialist jurisprudence. In any case the opinion as if the legal mechanism of the integration of the EEC implied the destruction of sovereignty —as stressed some times by strong critics6 9 —is surely an 66Lagrange 2, p. 29. 67L. K. Zweigert: Zum Geleit. Europarecht 1966, No. 1, pp. 1 -3 . 68Lagrange 2, ρ· 29. 69 Bûza-Hajdù, pp. 96 et seq.

52

exaggeration. Yet, on the other hand, it will not suffice to say that the jurisdiction of the legislative organs of the Community do not bear national marks of sovereignty, that no new State comes into being, so that sovereignty a contrario rests unrestrictedly with the member states.70 What we really face as regards political interrelations is the fact that the ‘share’ of the Community organs in the distribution of public power as regards economic policy in the territory of the Community is already a substantial one and tends to expand continually. This is being manifested also in the new develop­ ments of the majority vote issue discussed just here. As stated by the French themselves, namely that the ‘EEC was condemned to progress’, this progress in this issue evolved, evolved and ended up, in the 1974 summit-meeting of the EEC Heads of Government passing the following decision on this subject matter: “In order to improve the functioning of the Council of the Community, they consider that it is necessary to renounce the practice which consists of making agreement on all ques­ tions conditional on the unanimous consent of the Member States, whatever their respective positions may be regarding the conclusions reached in Luxemburg on 28 January 1966.” 70a It has to be seen, of course, how this rehabilitated Rome Treaty is going to work in the practice, although the Commission meant a year later, that “there was an increase during the year (1975) in the number of decisions adopted by a majority vote” .70b §7

Developments, main fields o f regulation and the harmonization or approximation o f law in the genesis o f Community law

4 5 -6

Results in the fields o f regulation

45 What has been set forth in the previous chapter will become especially obvious if an attempt is made simply to assess what has come into being quantitatively of all what is called Community law. While for details the reader is referred to the sources,71 it may not be superfluous to mention a few facts and circumstances in order to have a picture with the modicum of a pretence to completeness, (a) The sources of law and the legal acts of the European Economic Community, as published in the Official Journal of the Community in several languages, fill thick volumes, (b) In like way the judicial practice of the Court of Justice and of the national judiciaries of the member states in Community cases have been collected in numerous volumes, (c) Thousands of employees, administrative and such learned in law, do work in the organizational machinery of the legal acts of the Community from the headquarters in Brussels and Luxemburg down to the corresponding organs of the member states, (d) As is known the publishing capacity for Community law periodicals, other publications in law and jurisprudence is extremely large and expeditious. The fact that interest in them is 70 F * /* /l,p . 92. 70aThe decision is reprinted in General Report 1974, p. 298. 7obSee thereto: General Report 1975. p. 20. 71 Among the comprehensive treatments in literature reference may be made to Goldman 4, pp. 16 et seq.; Ipsen 2, pp. 446 et seq.; among the official sources of information mention may be made of the relevant sections of the General Reports 1967—1975.

53

partly due to the boom in this field has little to say. In many of the publications there is a marked tendency to put out something spectacular, (e) Characteristic of the weight of the matter is the growing interest in the problem forthcoming from the socialist countries.72 (f) The following chapters of the present work will inform the reader how reality manifests itself in details in Community law, and also how this law operates. What may be gathered from this information is to the effect that both reality of operation and efficacy are by no means insignificant. 46 The scope of regulation of Community law, Le. its objective ‘jurisdiction’ extends to all elements of the process of integration. This is equally valid for both legislation and the practical application of Community law. By relying on relevant comprehensive elaborations of the subject-matter7 3 the domains calling for legislation and legal practice of any significance may be described as follows: the organization and operation of the European Economic Community; the various stages of the process of integration; the priority of Community law and the general principles of its own; interpretation; the customs union, free movement of persons and enterprises, services and capital; the law of economic competition (cartels, monopolies); subsidies; dumping; State and Community enterprises; unification of fiscal law; co-ordination and harmonization of the various economic policies and the formation of a uniform economic policy.74 4 7 -9

Approximation o f the municipal (national) regulations

47 When the scope of regulation of Community law and its results is studied in another cross-section, a word has to be said also of what is called the approximation of laws (Rechtsangleichung).7 5 In this other cross-section it will be seen that integration has, as has already been made clear in connexion with the directives, by creating directly new and directly effective Community provisions of law,76 put on the agenda the gradual approximation of the municipal legal systems. What does approximation of laws exactly mean? Which are its means? Where can there be an approximation of laws? What are the developments so far? Putting aside the discussion of the terms used, Le. harmonization or approximation, by referring to the relevant legal writing76a, let us face the real substance.7 7 2In the List of Sources, only of Hungarian works, the following authors are quoted as such dealing with the EEC, or mostly with it: Czeitler, Gyulai, Hedri, Kozma, Palànkai, Sulyok, Valki 1; a special sign of attention is the Hungarian edition of a big sample of legal materials produced by EEC legislation (EEC Encyclopaedia). 7 3For the monographic treatment see in the List of Sources: Brinkhörst-Schermers, Goldman 4, Green, Ipsen 2. 7 4 Economic policies in literature and practice occurred according to the following, relatively segregating branches: trade policy, financial policy, agrarian policy, transport policy, energy policy, social policy, regional policy, research-technological development policy, industrial policy, policy of aid for the developing countries and constitution policy. 7 s For the monographic treatment see Groeben 2, Ipsen 2, Rodière 2, Schwartz 2, Zweigert. 76 See supra, paragraph 39. 7 6aAnalysing this problem Stein says: “The Treaty employs three different terms: ‘approxima­ tion’, ‘harmonization’ and ‘co-ordination’; a comparison of the four authentic texts of the Treaty

54

The economic integration of the Common Market relies, (i) on the customs union, (ii) on the so-called ‘four freedoms’ (the free movement of commodities, services, persons and capital in the whole territory of the integration), (iii) economic competi­ tion, and (iv) on a common agrarian, transport and foreign trade policy, or in general the coordination of the economic policies of the member states.77 The translation into reality of all these is served by the sources of law and legal acts which have been discussed earlier. The task calls, however, for a very complex and also quantitatively very big legislation, which to institute directly in the form of a completely new Community law and in a short time is almost impossible. This would namely mean that in the given territories the effective complexes of municipal rules would be superseded by an entirely new and uniform Community law. This could not, and would not even be undertaken by the legislation of the European Economic Community. Therefore the Rome Treaty had by the side of direct Community legal acts recourse to the idea of an approximation of laws. Article 3, among the fundamental principles and purposes of the Common Market, refers to “the approximation of their respective municipal laws to the extent necessary for the orderly functioning of the Common Market”. This approximation of laws in reality means that the member states develop the municipal institutions of law, by the concerting activity of the Communi­ ty organs as outlined below, for the achievement of the ends of integration to a for its content uniformly appropriate system of rules. Therefore this does not mean a unification of law in the strict meaning of the term, although in certain cases approximation may appear also in this form. Essentially the approximation of laws implies that the member states preserve their legal order and their legislative compe­ tences, still mould their system of rules affected by the integration so as to render it suitable for the uniformly identical social and economic content, for the social and economic objectives formulated by the Community organs. 48 A certain clarity will be lent to the picture if the methods and means of approximation are surveyed. While the principal scopes of the approximation of laws, and even the schedule of this approximation, have been laid down in the Rome Treaty, its actual effectuation — the general process of harmonization — takes place by way of the directives, regula­ tions, recommendations, opinions and international agreements78 as outlined above. Owing to the operation of legislative economy and other factors, the various author­ ities, and so e.g. the Common Market Parliament, have on several occasions censured the tardiness of the approximation of laws as scheduled.79 Expeditious legislative activity would have called for the elaboration of several and already realized concrete programmes of approximation. It is namely part and parcel of the method of approximation in definite fields to elaborate concrete programmes and schedules.*7

leads to the rather astonishing conclusion that there is no meaningful difference between the three terms.” Stein, p. 28. 7 7All these have been defined as fundamental mainstays by the Rome Treaty in Part One on Principles (Article 3). 78See infra Articles 24-40. 79For the documentation stelpsen 2, p. 692.

55

publish them and by stages carry them out by recourse to the legal means indicated in the programme. Even if so far no comprehensive programme has been formulated, notwithstanding the promise made by the Commission to Parliament, several partial programmes have been bom and started on the path to realization. Such are e.g. the approximation of the fiscal laws, the approximation of customs law, the approxima­ tion of municipal laws governing the money market, or the approximation of company law recurrently discussed in the present work.80 Another aspect of approximation is the procedure brought under regulation by the Rome Treaty, le. the procedure to be applied at instituting the legal acts serving approximation by the organs of the Community. Accordingly, a directive of approxi­ mation cannot be issued or a legal act instituted only by a unanimous decision of Council, and this on the motion of the Commission in consultation with the Parlia­ ment and the Economic and Social Committee. The only exception is the domain of economic competition where the Commission may by way of direct negotiations take other actions too for influencing the member states for the purpose of approximation; if the actions taken remain futile in the last resort the directives of the Council passed by a qualified majority will appear on the scene.8 1 The principal means of approximation is the directive. This legal act is for its nature most directly in agreement with the for its content uniform Community law to be brought about by approximation. The directives define the binding end and content, whereas the corresponding changes and amendments of municipal law take place by way of municipal legal acts le. within the national framework. In addition to the directives, in particular in civil and commercial law (company law, the law of industrial rights, arbitration), as a supplementary means recourse may be had by Article 220 of the Rome Treaty to international agreements. Since these serve the performance of contractual obligations and the achievement of the integra­ tion they have received the designation of Community law agreements.82 In like way as a supplementary, and even exceptional expedient the Rome Treaty mentions under the heading of approximation alternatively regulations, further opinions and recommendations.8 3 At several places ‘commands’ of approximation are given without the mention of the means.84 The reason is, first, the uneven, haphazard legislation, and secondly, possibly the circumstance that in reality nobody wanted to lock up integration in the stocks of too rigid legality. In the age of present-day capitalism it is not the extension of legality that is characteristic of Western legal systems. As regards approximation what is namely essential is that on the one hand the opinions or the recommendations may by virtue of their definition be means of approximation in the strict meaning of the term, and at their effect action may be taken for the modification of municipal law in the sense suggested by them, while on the other, with the regulation, ‘the approximation or harmonization of law’, in reality 8 °For details see: Groeben 2, pp. 362 et seq.; and Establishment, General Programme of. 81 See the chapter of the Approximation of Laws of the Rom e Treaty (Articles 100-2); the Luxemburg Agreement enters here, too, as regards the action of the Council by qualified majority. 8 2See Schwartz 2, p. 504. 8 3Articles E. G. 27, 43, 49, 118 of the Rome Treaty. " Ib id ., Articles 51, 75, 99, 111, 117.

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a Community law, uniform and of a binding force on all, has been created directly, by bypassing, excluding or oppressing the municipal law. 49 When now the various official catalogues, tables and statements, or those of legal literature, are ignored, two sentences will suffice about the scope of the approximation of law.8 5 First, the scope of approximation has to embrace all parts of the municipal law affected by the integration, or in other words, the case is one of a wide scope. Secondly, according to the annual reports, when their relevant chapters are synthetized, officially the approximation of law will appear broken down by the following sectors: customs and foreign trade law, free movement of employees, freedom of establishment and free movement of services, money market, economic competition and circulation of goods, social law, agriculture, transport and communication.8 6 A picture of the developments and results will in a vertical analysis be offered in the particular chapters of the present work. When now the situation is surveyed horizon­ tally, just for a quantitative judgement and a more real feeling, according to a summary ending in 1970, the following legislative and other legal acts could be recorded in the process of approximation: 126 directives have been published, further 165 had been awaiting publication; 10 regulations had been promulgated, whereas five more had to be waited for; the corresponding ratio of recommendations was 22 : 3. Further 20 acts were considered without having been given a designation yet that time. Only in 1970 the Commission submitted 33 draft directives to the Council for approval and publication.8 7 The number of ‘Community law conventions’ was two (the recognition of companies, execution of judgements). Several conventions or regulations, e.g. those on the European Company, the merger of enterprises, the law of bankruptcy, were and are awaiting for being initialled. Let alone the vast harmonizing Community law activity the Commission and the Court of Justice perform, the General Report of 1973, e.g. brings a table of a total of 1087 cases, in the course of which the Court accomplishes a very substantial Community law attitude.873 All this indicates that the scheme of approximation of laws of the European Economic Community assumes considerable proportions, notwithstanding the tardiness of the process, the contradictions of content (sovereignty), methodology and dogmatics (the inconsistent application of forms). Owing to the amount and system of directly Community rules, Community law has reached a stage where it can be discussed as a specific, new, relatively segregated legal system and as such made subject to critical cognition and analysis.

8 5For details see: Ipsen 2, p. 692. 8 6 For example, see Chapters II, VII of General Report 1969; Article 5 of General Report 1970; Chapter VH of General Report 1971. 8 7See ‘Tabelle über Arbeiten zur Rechtsangleichung’ in General Report 1969, pp. 98—104; the same in General Report 1970, pp. 59-63. 8 78General Report 1973, p. 480; in 1973 the Court heard more than 200 from the total.

57

§8

Community interests in the channels of public international law

50

Expansive trends and farther background

50 The expanding tendency or growth of ‘European law’ finds expression in the con­ ception according to which certain agreements or conventions or other legal material of a normative nature bom within the ‘greater West Europe’ or mote closely, within e.g. the Council of Europe, and outside the European economic communities are regarded as belonging to European or Community law. Under the heading mention may be made of the ‘European’ convention on procedure in matters of patents, the European Con­ vention on State Immunity, the draft convention of OECD on the protection of foreign investments, the European Convention on Establishment.88 The inclusion has, beyond the intention of a scientific and territorial strengthening of European law at possible costs, also an objective element. Notably, that the interests turning ifp in the legal framework of a so-called ‘larger Europe’ are really Common Market interests on goods board are essentially Common Market goods transported, moreover in vessels which themselves are steered by the Common Market; compared to non-member states the Common Market is the ruling great power. On the organizational and formal side this manifests itself in the circumstance that at the elaboration of conventions and their putting into operation the countries of the Common Market have strong superiority over participating non-member states. Since this is the actual situation, since in the number of questions no regulation by Community law in the strict sense of the term has been enacted, because the demands of the Community anyhow ‘subsist’ in the framework of a ‘Greater Europe’, and since at the particular concrete institutions for the exploration of the corresponding interrelations the wider international background has to be considered anyhow, in the present work, at the respective places, attention will be given to the conventions made outside the European Economic Community.*

*8This ‘inclusion’ is touched, though in disagreement with it, also by Ipsen 2, p. 697.

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Chapter IV The enterprise (company) in the integration through the integration o f company law

§9

Problems and sources

5 1 -2 53

Problems Sources

§ 10

The enterprise in the other member state: establishment and recognition o f enterprises in the EEC

5 4 -6 Establishment and recognition o f enterprises in the Rome Treaty 5 7 -8 The establishment programme and reality 5 9 -6 2 Recognition o f companies and legal persons 63-5 Scope o f the preferred enterprises § 11

For a better movement of the enterprises in the EEC: approximation o f the municipal (national) regulation o f companies

66 The legal rationale o f approximation 67-70 Publicity - validity o f assumptions o f obligations - nullity o f companies 71 - 2 Formation o f the company and its capital stock 73-5 Mergers and interest protection 76- 7 Balance sheets - annual accounts and reports - publicity 78-81 Organizational structure o f enterprises, rights and duties o f the elected and managing bodies, the question o f workers participation § 12

The European Company (Societas Europae) - a new legal institution o f the WestEuropean economic integration

8 2 -5 86 87 -9 4 95

The European Company in statu nascendi On the Statute o f the European Company in general Europeanisms in the Statute: peculiarities and relevances On some institutions o f the Statute

$ 13

The European Commercial Register

9 6 -8

Ideas and reality

§9

Problems and sources

5 1-2

Problems

51 From the ideas of economic policy summed up in Chapter II its stands out clearly that the Common Market integration cannot, and does not even want to, subsist either without the Common Market scale of enterprising dynamics or without a concentra­ tion of the enterprises of a high degree. The principal reasons and the determining factors of this general re-structuralization have been presented in an elaborated form1 (see also the relevant chapter of the Hungarian edition of this book); we here skipped 1See supra paragraphs 2 2 -9 , in particular paragraph 27.

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the numerical data of the structure of industrial enterprises, further those of USA v. West Europe v. USA.2 For the Common Market scale of enterprise dynamics and a concentration of a higher degree, however, the need is considered also for an organizational-legal mechanism which would transcend the particularisms of the municipal legal systems. When now the enterprises are embedded in the integration, ie. instead of in the economies of six, or at present already nine states, in a single larger system, now in a state of taking shape, then the multifarious organizational-legal systems of conditions will have to become interconnected, moreover new switching and controlling systems may have to be installed. In other words, without the integration and re-structuralization of the mechanism of company law, a truly inte­ grated circuit will come into being not at all, or only at the expense of considerable difficulties. Besides, if larger power centres are with their higher potentials capable of producing what incidentally the integrated circuit stands for, they will nevertheless have to reckon with difficulties almost permanently. The first steps have therefore been taken in building up this integrated organizational-legal circuit with the aid of European company law (this is what it is in general called), moreover on several levels of the structure there are sections completed or near to be completed. Since we have already spoken of the instruments available for the Community law and of the order of legislation in which it comes into being (in Chapter III), in the present chapter we shall enlarge upon the discussion of the vertical set-up of European company law. 52 The question we shall have to answer therefore concerns the legal obstacles the EEC has to pull down and the organizational-legal means it has to build up in its endeavour to create a European company law in the meaning outlined above. If within this, issues of major importance should so to say structurally and for the purpose of this chapter be delimited, the following summary of topics will appear in their outlines: (a) the enterprise in the other member state and, within it, (aa) the free establishment of enterprises and (bb) the mutual recognition of them; (b) the approximation of the municipal company laws; (c) the European large enterprise; (d) the European Commercial Register. Although the issues themselves may be delimited with sufficient clarity (the case being one of the established categories of commercial law), and the answer may appear as simple as possible — at least this is what Ivo Schwartz, a prominent lawyer and specialist of the Common Market and the head of the management of this scope in the Commission, holds —in reality the case is one of highly differentiated problems calling for a solution from a complexity of aspects: the marshalling of the divergences of the municipal systems into the integrated circuit of the Common Market insists not only on intense comparative analyses of law but also on extensive investments in the sphere of legal engineering.3 The difficulties, viz. the re-opening of the discussion of almost completed provisions of law and draft agreements (only formally not yet in operation), have been added to, on the entry of the United Kingdom into the Common Market, by the wholly different approach and the system of different legal categories of common law. It is of little help that at the development of the long-range 3SeeMddl 13, Articles 27-3 1 , 3 2 -5 , 3 8-44 and 4 5 -9 . 3Schwartz 1, p. 120.

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schemes of codification ab ovo certain allowances had already been made for the entry of the United Kingdom and the alignment of common law to Community law. In the United Kingdom the legal literature and the legal press have paved the road leading to this access and the concomitant adjustment of the two legal systems for many years already. A single example only: in the United Kingdom there had been, issued a periodical on European law, the Common Market Law Review, many years before Europarecht was launched in the Federal Republic of Germany.4 An enormous mass of comparative studies have been written on this extremely complex and ramifying process of approximation and codification, in both its preparatory stage and its progress. No efforts have been spared to sift this mass and reshuffle it, merely with the intention to spread what has been found valuable. The temptation is great to enter this thicket of writing with a critical mind. Instead we shall, however, merely refer to the principal sources of this literature.5 At this place we have to explore the vertical setup, i.e. to enlarge on the study of concrete institutions of integration, with one additional comment, however on something belonging to this ‘Problems’ section and offering something new. This ‘something new’ is really a special new vista emerging with a fragile appearance in the sea of storms, currents, undercurrents and plain waters of capitalist economic integration in general, and the integration by an integrated Company law in particular. In vista is the way as recently literature and Community policy-making people look at the ‘Company’ as subject of Community legislation. Economic and social tensions are ‘intercepted’ or at least realized consciously, and, many think, they should be channeled into the European company structure so that an effective machinery would evolve with the end-effect of a possible equilibrium of the social interests and strata involved. What does this seemingly sophisticated and apologetic language mean? It covers the understanding that companies are to be viewed not only as economic and profit-making units but also as social institutions, that “interests of society are increasingly related to wider considerations than economic efficiency”, and that in this phenomenon one of the central issues is the worker, “the ‘enterprises’ employees in relation to the decision-making structure” in the economy, and that “there should be a Community legislation concerning the role of employees in relation to the decision­ making structure” . This understanding is now formulated in a comprehensive way by the paper of the Commission (the ‘green paper’ of 1975): Employee Participation and Company Structure in the European Community. The whole is a very sophisticated reaction to the social contradictions and class struggle of our time in the developed capitalist countries. It carries so many reservations (that it is ‘difficult’, ‘intricate’, ‘interest-influenced’, ‘oriented to find solutions,’ eta), but also develops the basic elements of the contradictions. One of them is in this connexion Hhe democratic imperative’ that those who will be substantially affected by decisions made by social and political institutions must be involved in the making of these decisions, so in particular employees on the one hand, and “the need for institutions which can 4Europarecht was first published in 1966, at a time when the Common Market Law Review was already three years old. 5See Börner; Ipsen 2; Leleux 2; Lutter 1, 2; Rodière 1, 2; Schwartz I; Seidel, etc.

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the numerical data of the structure of industrial enterprises, further those of USA v. West Europe v. USA.2 For the Common Market scale of enterprise dynamics and a concentration of a higher degree, however, the need is considered also for an organizational-legal mechanism which would transcend the particularisms of the municipal legal systems. When now the enterprises are embedded in the integration, Le, instead of in the economies of six, or at present already nine states, in a single larger system, now in a state of taking shape, then the multifarious organizational-legal systems of conditions will have to become interconnected, moreover new switching and controlling systems may have to be installed. In other words, without the integration and re-structuralization of the mechanism of company law, a truly inte­ grated circuit will come into being not at all, or only at the expense of considerable difficulties. Besides, if larger power centres are with their higher potentials capable of producing what incidentally the integrated circuit stands for, they will nevertheless have to reckon with difficulties almost permanently. The first steps have therefore been taken in building up this integrated organizational-legal circuit with the aid of European company law (this is what it is in general called), moreover on several levels of the structure there are sections completed or near to be completed. Since we have already spoken of the instruments available for the Community law and of the order of legislation in which it comes into being (in Chapter III), in the present chapter we shall enlarge upon the discussion of the vertical set-up of European company law. 52 The question we shall have to answer therefore concerns the legal obstacles the EEC has to pull down and the organizational-legal means it has to build up in its endeavour to create a European company law in the meaning outlined above. If within this, issues of major importance should so to say structurally and for the purpose of this chapter be delimited, the following summary of topics will appear in their outlines: (a) the enterprise in the other member state and, within it, (aa) the free establishment of enterprises and (bb) the mutual recognition of them; (b) the approximation of the municipal company laws; (c) the European large enterprise ;(d) the European Commercial Register. Although the issues themselves may be delimited with sufficient clarity (the case being one of the established categories of commercial law), and the answer may appear as simple as possible — at least this is what Ivo Schwartz, a prominent lawyer and specialist of the Common Market and the head of the management of this scope in the Commission, holds —in reality the case is one of highly differentiated problems calling for a solution from a complexity of aspects: the marshalling of the divergences of the municipal systems into the integrated circuit of the Common Market insists not only on intense comparative analyses of law but also on extensive investments in the sphere of legal engineering.3 The difficulties, viz, the re-opening of the discussion of almost completed provisions of law and draft agreements (only formally not yet in operation), have been added to, on the entry of the United Kingdom into the Common Market, by the wholly different approach and the system of different legal categories of common law. It is of little help that at the development of the long-range 3SeeMddl 13, Articles 27-3 1 , 3 2 -5 , 38 -4 4 and 4 5 -9 . 3Schwartz 1, p. 120.

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schemes of codification ab ovo certain allowances had already been made for the entry of the United Kingdom and the alignment of common law to Community law. In the United Kingdom the legal literature and the legal press have paved the road leading to this access and the concomitant adjustment of the two legal systems for many years already. A single example only: in the United Kingdom there had been, issued a periodical on European law, the Common Market Law Review, many years before Europarecht was launched in the Federal Republic of Germany.4 An enormous mass of comparative studies have been written on this extremely complex and ramifying process of approximation and codification, in both its preparatory stage and its progress. No efforts have been spared to sift this mass and reshuffle it, merely with the intention to spread what has been found valuable. The temptation is great to enter this thicket of writing with a critical mind. Instead we shall, however, merely refer to the principal sources of this literature.5 At this place we have to explore the vertical setup, i.e. to enlarge on the study of concrete institutions of integration, with one additional comment, however on something belonging to this ‘Problems’ section and offering something new. This ‘something new’ is really a special new vista emerging with a fragile appearance in the sea of storms, currents, undercurrents and plain waters of capitalist economic integration in general, and the integration by an integrated Company law in particular. In vista is the way as recently literature and Community policy-making people look at the ‘Company’ as subject of Community legislation. Economic and social tensions are ‘intercepted’ or at least realized consciously, and, many think, they should be channeled into the European company structure so that an effective machinery would evolve with the end-effect of a possible equilibrium of the social interests and strata involved. What does this seemingly sophisticated and apologetic language mean? It covers the understanding that companies are to be viewed not only as economic and profit-making units but also as social institutions, that “interests of society are increasingly related to wider considerations than economic efficiency”, and that in this phenomenon one of the central issues is the worker, “the ‘enterprises’ employees in relation to the decision-making structure” in the economy, and that “there should be a Community legislation concerning the role of employees in relation to the decision­ making structure” . This understanding is now formulated in a comprehensive way by the paper of the Commission (the ‘green paper’ of 1975): Employee Participation and Company Structure in the European Community. The whole is a very sophisticated reaction to the social contradictions and class struggle of our time in the developed capitalist countries. It carries so many reservations (that it is ‘difficult’, ‘intricate’, ‘interest-influenced’, ‘oriented to find solutions,’ etc.), but also develops the basic elements of the contradictions. One of them is in this connexion Hhe democratic imperative’ that those who will be substantially affected by decisions made by social and political institutions must be involved in the making of these decisions, so in particular employees on the one hand, and “the need for institutions which can 4Europarecht was first published in 1966, at a time when the Common Market Law Review was already three years old. sSee Börner; Ipsen 2; Leleux 2; Lutter 1, 2; Rodière 1, 2; Schwartz 1; Seidel, etc.

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respond effectively to this imperative” on the other, but as to Community legislation “in some ways, there is a degree of tension between these two” imperatives. “Changes which are desirable from a broad economic and social point of view may appear to be more difficult to implement if those concerned, particularly those with vested interests in existing systems and structures, are to participate in the decision-making. However, for sophisticated industrial societies, there is no alternative, if they are to retain a democratic character.” It is an open question, however, how far the EEC is inclined or compelled to go today and in the more distant future. This Commission-paper amounts to that mentioned fragile vista emerging on the high-sea. What it does beyond putting the whole problem into this special prospect —is a description of what has been done generally on employee participation, and what materialized therefrom in the company law legislation. As to the latter, this chapter is meant to treat this development too. In the general ‘channel’, in the so-called ‘social action programme’ we find the Council directive of February 1975 on economic redundancy, a Commissionproposed directive on the retention of the rights and advantages of employees in cases of mergers, takeovers and amalgamations; a proposed action programme for employees, aimed at ‘humanization of their living and working conditions’; and this is all, for the time being, at least, what EEC has done in this general channel; the ‘green paper is probably less than the ‘green light’ suggested by the same document.53 53 Sources 53 The sources of the establishment of enterprises and their mutual recognition are beyond the Articles 54, 132, and 220 of the Rome Treaty, incorporated in the ‘General Programme of Establishment’ compiled in 1961 with a view to pull down the barriers of the freedom of establishment6, and the EEC convention of 1968 on the mutual recognition of juristic persons.7 The measures purposing the approximation of the company lqw of the member states, mostly by invoking paragraph 2 of Article 58 of the Rome Treaty, promise uniform protection and a uniform legal status in the member states as far as publicity, dissolution, the rights and obligations of the executive organs, the amount of the capital stock, the ascertainment of the balance sheet, merger, etc. are concerned. The sources of the measures so far instituted are the directive of 1968 on publicity, the obligations of the managerial organs and nullity,8 and four other proposed directives which are still suffering delay (the General Report of 1974 pressed for their adaption in 1975)83, viz. the proposal for (i) a second directive of 1970 on protective ar­ rangements relating to the capital stock and shares,9 (ii) for a directive in like way of 1970 on the uniform statutory regulation of company mergers within the same couns a See (also for the citations above) Employee participation and company structure, opp. 1 et seq. 6Establishment, General Programme of, 7Legal Persons, Recognition o f • Company Law Directives 1. *aGeneral Report 1974, pp. 72 -3 . 9 Company Law Directives 2.

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try,10 (iii) for a directive on the ascertainment of the balance sheet, the report to the shareholders, and the publication of the relevant deeds,11 (iv) for a directive of 1972 on the organizational structure, organs of companies limited by shares (sociétés anony­ mes, Aktiengesellschaften), the duties and competences of these organs.1213 Transcending the approximation of company law within a member state and appearing in the guide of uniform Community law are the conventions and Community normatives which institute a uniform law extending beyond the boundaries of the member states to govern international mergers13, the European Cooperation Grouping,14 and the European Company (Societas Europae), hereineluded the procedure of incorporation in the European Commercial Register.14 a

§ 10

The enterprise in the other member state: establishment and recognition o f enterprises in the EEC

5 4 -6

Establishment and recognition o f enterprises in the Rome Treaty

54 Establishment and recognition connote a complexity of interrelated issues. In the enterprise integration the freedom of establishment is the alpha, the freedom namely that the enterprises of the member states freely build company headquarters and freely operate in the form of companies in each of the member states and that they enter any other member state at all. Recognition is the omega, namely that the legal life (legal personality) of the economic units is recognized in the other state in the same way as in their own. The two issues will therefore be treated in conjunction in this section. The framework for establishment and recognition has been provided by the relevant provisions of the Rome Treaty, the general programme of establishment,15 the convention on the mutual recognition of companies and legal persons,1617and the many measures (close to one hundred directives, draft directives, recommendations and memoranda) which have been formulated for the gradual introduction of the programme of establishment.1 7 10 Company Law Directives 3. 11 Company Law Directives 4. 17 Company Law Directives 5. 13 Here the organs of the EEC were in process of drafting a convention of the nature of that on the recognition o f legal persons (this is on what Schwartz writes; Op. cit.r pp. 121-3), which has been completed by the Commission and presented to the Council during 1974, see: International merger, further, General Report 1974, p. 72. 14 See: Cooperation grouping 14 aEuropean Company, see Articles 8 et seq. 15 See Establishment, General Programme of. 1· See Legal persons, recognition o f 17 For accurate enumerations see in Rechtsangleichungs-Massnahmen the chapters ‘Arbeiten zur Beseitigung der Beschränkungen der freien Niederlassung vom 1. Januar 1958 bis zum 31. Dezember 1969* and ‘Arbeiten zur Rechtsangleichung vom 1. Januar 1958 bis zum 31. Dezember 1969’ (pp. 4. et seq.).

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55 The principal framework is the Rome Treaty. The Rome Treaty in the part on the Principles, in Article 3(c) declares that for the objectives specified in Article 2 (common market, the approximation of the economic policies, the harmonious development of economic activities, etc.) the parties abolish “as between Member States, the obstacles to the free movement of persons, services and capital” . The reverse of the same is Article 7 which declares the prohibition of any discrimination affecting legal institutions within the realm of economic policy. This general prohibition of discrimination may, however, be read and interpreted only in conjunction with the special provisions of the Treaty. Articles 52, 54, 57 and the other Articles of the Rome Treaty on establishment and recognition go in their regulation much further. Article 52, one containing the general provisions governing the establishment of commercial companies and natural persons, could at most declare that the restrictions on the freedom of establishment should be abolished gradually. Similarly, Article 220 of the Rome Treaty provides for the recognition of the legal personality of the enterprises within the entire territory of the Community, the transfer of their seats, and their merger. The article suggests negotiations of the parties for the appropriate legal settlement of these questions and the approximation of the relevant municipal laws. Nothing more has been said by the Rome Treaty on these issues. The provisions of the Rome Treaty (Article 220) by which the legal status of the nationals of the member states, the participation of the commercial companies in the capital stock, should within three years be made subject to uniform conditions, do not affect the dynamic movement of the companies as such, their activities extending to the whole territory of the Community, the legal ways and means of their movement and operation. What exists therefore is the triplicity of the principles, the methods of their en­ forcement and the putting of this enforcement in the time schedule. In this sense the case is one of a visibly many-sided, yet in the initial steps relatively watertight skeleton regulation of a large-scale scheme. 56 After the principles have been made clear there remains only to complete the picture with a brief summary of the methods of enforcement and the time schedule. As regards the schedule as far as establishment is concerned four intertwining ele­ ments of significance may be distinguished in the provisions of the RomeTreaty. (i) In conformity with paragraph 1 of Article 52 by the end of the transitional period any restrictions affecting the establishment of the legal persons of the member states have to be removed. For its scope somewhat limited, yet equally of importance, is Article 221 by which at the end of the first period of three years equal rights will have to be granted to the nationals of each member state as regards their participation in the capital stock of enterprises, i e. within the scope of the purchase of stock or shares. On the other hand no time limit has been set in Article 220, according to which the parties may settle such issues as the recognition of enterprises, the transfer of their seat or international merger, by way of negotiations, (ii) By paragraph 1 of Article 54 the Council will before the first stage ends lay down a general programme for the abolition of obstacles in the way of the freedom of establishment, (iii) By paragraph 2 of Article 54, as the enforcement of the general programme of establishment, before the end of the first stage of the transitional period, the Council has to issue directives 64

and continue to issue them sine die until the programme has been completed, (iv) Sub-paragraph (a) of paragraph 3 of Article 54 has been formulated as follows: “The Council and Commission shall fulfil the duties by according, as a general rule, priority treatment to activities in regard to which freedom of establishment makes a particularly valuable contribution to the development of production and trade.” As regards the methods of the implementation of the principles the Rome Treaty speaks of the means of implementation. In addition to the general programme issued in the subject of establishment these means are the directives (Article 54). As regards recognition nothing definite has been pronounced in Article 220, still Article 100 with general validity decrees the application of the directives whenever there is a case of the approximation of the legal systems. As a matter of course considerably more may be done here. This has in fact happened when the member states have signed a convention on the recognition of enterprises. As regards the directives it is commonly known that by virtue of Article 189 of the Rome Treaty these are instructions addressed to the governments of the member states and binding on them. It is the function of the governments to enforce the measures laid down in the directives, in their municipal laws, or in other words organize the enforcement of the directives (e.g. by making preparations for the promulgation of municipal legislation of a modifying charac­ ter).18 5 7-8

The establishment programme and reality

57 The Council has complied with the provision of paragraph 1 of Article 54 of the Rome Treaty, and formulated a general programme of establishment in the first stage of the transitional period. According to its internal structure the programme issued in 196219 essentially is split up into two sections, viz. (i) into the substantive provisions of the programme which in detail define the general principles of establishment as laid down in the Rome Treaty, and, (ii) into a schedule defining the dates on which the particular categories of the freedom of establishment set in. (a) When in this dual arrangement first the substantive parts are made subject to an analysis, when problems of the establishment of enterprises not in the strict meaning of the term are set aside,20 and so also the sphere of preferred enterprises discussed specially below,2 1 then the principal provisions may be summed up as follows: (aa) Titles II and III partly repeat and detail the provisions of the Rome Treaty already discussed (Articles 101—2). In accordance with these provisions, any municipal and legal administrative measure obstructing establishment has to be abolished, and so also any discrimination to the prejudice of the enterprises of the member states, except, however, when on considerations of public policy or for any other reason the Rome Treaty recognizes a practice departing from the principle set forth above. In particular Title III goes into details when it enumerates the limitations (more than 1 eFor the directives in general see supra Chapter III, Article 39. 1 ’ See Establishment, General Programme of. 20 Such are, in Titles V—VI, the recognition of diplomas, enterprise minimum standards within the sphere of the protection of the interests of third persons, etc. 21 See infra paragraphs 63-5. 5 Madl

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twenty) which have been applied by the member states to the prejudice of aliens, who are henceforth prohibited. The most important ones at that time in force were: the restriction to bind economic-enterprising activities to a preceding residence, or the special financial and other burdens imposed on such activities; the limitation or complete blocking of the sources of purchases by means of a price policy or other administrative measures; restrictions of the participation in commercial companies or its complete exclusion, restrictions on the competences of the foreign shareholders; limitation of the ownership in chattels or real estate; restrictions in the acquisition of ownership in industrial property, or disposal of them, or rights of use of them; any prescriptions or practices which prevented experts or executives of enterprises of a member state from accepting managerial posts in the commercial companies operating in other member states. (bb) Title V discusses the interrelations of aids and the freedom of establishment. Accordingly any aids extended by a member state which might be apt to distort the conditions associated with establishment have to be discontinued simultaneously with the general recognition of the freedom of establishment in the territory concerned. It is of interest by itself to note that the programme of establishment touches also on the issue of municipal aids, in particular in a sense that these might be apt to prevent the establishment of enterprises in countries other than their own. Consequently the Rome Treaty promises the gradual discontinuation of any aids, although as regards the general estimation of the aids reference is made to Article 92 of the Rome Treaty.22 (b) The second part of the programme deals with the time schedule to be observed for the introduction of the freedom of establishment. This time-table has been laid down in Title IV and is built up of five stages. Title IV, in its provisions (the quinquepartite schedule in the system adopted by the statistical service of the United Nations for the international standard classification of economic activities)2 3 specifies the dates on which within the particular categories the freedom of establishment and economic activities become effective, Le. the dates on which the agencies of the Community and the member states insitute liberalizing measures within the particular categories for the gradual expansion of the freedom of establishment. By waiving the enumeration of the many hundreds of items or sectors merely two summarizing remarks will be offered: (aa) in accordance with the programme by the end of the transitional period establishment must be made generally free; (bb) the programme schedules for the last two years of the transitional period the sectors which during the preparatory stage were qualified by certain member states as fairly delicate (agriculture, air and water traffic, medical and other sectors of the hygienic service, forestry, etc.).

22 According to Article 92 of the Rome Treaty the question of subsidies has to be settled in a comprehensive manner, before all in agreement with the exigencies of economic competition; this disposition applies to subsidies in restraint of establishment. 2 3International Standard Industrial Classification of All Economic Activities (ISIC), published by the Statistical Office of the United Nations. Statistical Papers, Series M, No. 4, Rev. 1, New York 1958.

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58 Reality confesses to momentous results of the programme: (a) In want of figures extending to everything it is almost out of the question to offer a complete picture of the numerical results. There are, however, certain commonly known cases, where there can hardly be talk of a ‘result’. Among these cases are e.g. the migration of millions of guest workers and employees within the Community (the liberalization of establishment applies also to them), the temporary or lasting establishment of small economic entrepreneurs in the member states estimated at several hundreds of thousands, hereincluded engineers, agents, etc. . Mention may also be made of the fact e.g. that during the past decade Italian icecream makers have taken over the icecream industry of the Federal Republic of Germany almost up to 100 per cent. Purchases of real estate by nationals of the one member state in another show an abruptly rising curve. The purchases of real estate have increased to an extent that the acquisition of property in the Italian lake districts or other beauty spots of the country mainly by nationals of the Federal Republic of Germany and the Netherlands has become a topic of the daily press. This may also be recorded as a ‘result’. As regards the free movement and establishment of enterprises there are also significant figures available. Between 1962 and 1968 inter-Community mergers, formations of associations and establishments of subsidiaries totalled 2598. If now similar actions initiated by enterprises of third countries, often originating from one of the member states of the Community, are added to this figure a total of 7167 could be obtained. If subsidiaries formed in another member state only, ie. only typical cases of establishment are taken into consideration, between 1962 and 1968 over 2000 cases were on record, not included action taken by enterprises of third countries. If also the data of enterprises of third countries are considered a figure close to 6000 will be obtained. If not only the absolute figures are considered, but also the rate of increase, then undoubtedly the figures will betray an even more spectacular increase. In 1962 the number of movements (mergers, associations and subsidiaries) within the Common Market was 316. By 1968 the same index rose to 1445. When now only the data of the formation of subsidiaries are analysed, the following statement may be made. In 1962 the enterprises of member states of the EEC founded 83 subsidiaries, whereas in 1968 already 492 cases of the kind were on record.24 There was a spectacular increase in the turnover of the enterprises in industrial property. This increase is indirectly indicated by the number of applications filed for patents. In 1967 altogether 105,337 applications for patent rights were filed by Common Market countries.2 5 (b) As far as the present study is concerned as a matter of course the legal results are of major importance. These indicate the stage the establishment programme has in point of principle reached and also point out the channels open for actual use. It is namely a matter of indifference — at least partly and in this context of the legal work done on the channels - how many vessels have passed the channel, what is essential is that the channels are in fact open and that they may be passed by an optional number of vessels.

2 4For the source of the data and further details see Màdl 13, Article 42, Table 31.

2*Ibid., Table 25. 5*

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The legal results are embodied by the directives and recommendations issued. These define the date by categories (economic sectors) when the freedom of establishment must become effective in all member states and decree the measures the member states have to take to this end. The hundreds of directives, recommendations and memoranda issued with a view to abolishing restrictions of establishment and to the the approximation of municipal law relating to establishment, all testify to most strenuous efforts.26 There is still much to be done towards the complete liberalization of establishment, although meanwhile the transitional period has come to an end. Legal subterfuges were soon at hand; it was pointed out that the Community organs would not forfeit their rights even on the expiry of the transitional period, moreover, as may be inferred from paragraph 2 of Article 54 of the Rome Treaty, if necessary they were bound to perform their functions in matters of establishment even after the transitional period. The General Report of the EEC of 1970 emphasized that in the first year after the transitional period many-sided activities were going on for the continued enforcement of the establishment programme: with the new directives and the provisions which came into operation in 1970 the freedom of establishment and operation became a reality in about 75 per cent of industry, commerce and small-scale industry.2 7 59-62

Recognition o f companies and legal persons

59 The reasons are straightforward, the tale itself is a short one. In connexion with the legal regulation of the establishment and recognition of legal persons what has to be made clear before all is the exact notion of the legal personality. Also it has to be known that the municipal legal systems of the member states define legal personality in many different forms. It is to no purpose that by Article 220 of the Rome Treaty action has to be taken to guarantee the change of seat of enterprises coming within the purview of Article 58, ie. enterprises operating in the member states, without the forfeiture of the legal personality, when the Rome Treaty has failed to make clear what by legal personality should be understood, and this in circumstances of a divergence of the municipal laws on the matter beyond measure. Here the relevant rules of private international law will be of little help when for the ascertainment of the legal personality of foreign enterprises they offer the one or the other law. As a matter of fact when the conflict rules so do, they already presume the existence of the legal personality of certain units, a presumption which may be accepted only under the conditions of the one municipal law or the other. Unfortunately these diverge from one another on this point.2 8 Since the wish or need for having a foreign economic and legal unit be recognized by municipal law may come into conflict with what this municipal legal order expects, requirements will have to be set with respect to the demands for recognition. This is what every state does, still even their requirements may differ by states. Yet there are differences in this question 2 6Sec supra Article 54, Note 17. 2 7General Report 1970, pp. 48 et seq. 2 “For the divergences in detail see Goldman 1, pp. 107 et seq.

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even between the, on the whole, ten bilateral agreements for recognition.2 9 There seems to be only a single way out of this logical maze, namely to lay down the system of requirements in a common rule, Le. in an international convention, a method already resorted to. Besides, however, it stands to reason that recognition by itself does not at the same time imply the law applicable to the life and operation of the commercial company in question. The two, namely recognition and the law subsequently ruling the company’s activity, are different things. The recognition of a German company in France cannot be construed so as to subject this company in its operation to a law other than French municipal law. Recognition may by itself merely mean that the legal life of the company has been accepted as such. Recognition may take place in a way that the parties concerned, either by a municipal legal rule, or - if there is an international convention — by a definition of substantive law as agreed upon in the convention, make clear the conditions in the presence of which they recognize a concrete unit as such that meets the requirements defined for legal personality. This recognition may take place also in a form that, with a precise delimitation, the parties adopt the system of requirements of the municipal legal systems of the member states and recognize the enterprises which in conformity with the law of countries X and Y are legal persons, or comply with other definite municipal requirements. This has happened in the convention on recognition of the European Economic Community to be discussed below. The story begins naturally with the programme laid down in Article 220 of the Rome Treaty. Subsequently a committee of experts prepared a draft convention which was then reported on by the various industrial concerns,30 and then, later, by eminent representatives of the legal profession,31 when eventually the plenipotentiaries of the member states meeting in the Commission of the EEC in Brussels signed the convention on February 29, 1968. The convention has nineteen articles, with minutes containing three so-called joint declarations of the founders attached to it. 60 As regards recognition the convention essentially gives expression to two principles. In addition, it defines in detail the sphere of preferred enterprises, a matter to be discussed specially in paragraph 63 below. In conformity with one of the principles underlying the convention the host states without any special decision or declaration ipso iure recognize (werden ohne weiteres anerkannt) the companies and legal persons defined by Articles 1 and 2 of the convention. However, Article 4 institutes a fairly essential exception from under this rule. This article declares that anyone of the member states may, if it makes a declaration in this sense, apply the peremptory or mandatory rules of its municipal law to companies or legal persons which though under the law of the given member State have come into being lawfully, still their actual seat is in the territory of the State pronouncing the7 7 9For these see Goldman 2, p. 2. 30So, e.g. the Union des Industries de la Communauté Européenne and the Commission Européenne des Banques; see Goldman 1, p. 104. 71 Ibid., p. 104.

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proviso. The non-premptory or non-mandatory rules of the same State can be applied only when the statutes of the legal person in question fail to define the law to be considered governing the case, or when the legal person fails to produce evidence substantiating its having been engaged in economic activities also in the country of formation for any length of time. The expedient giving priority to the law of the country where the enterprise carries on its business, an expedient seemingly inspired by the idea of national sovereignty, has found its way from the municipal law of the contracting parties into the convention and on this understanding the convention has yielded to the municipal legal systems. The French, Belgian, Luxemburgian and Italian company laws unanimously declare that (in the words of Article 2505 of the Italian Codice civile) “companies formed abroad having their administrative headquarters or their principal scope of activities in the territory of the Italian State have also for the validity of the conditions of registration to be dealt with in conformity with the provisions of Italian law” . With this expedient the parties to the convention have, first, embedded a conflict rule in the convention,32 and, secondly, as a corollary of this, opened the gates to divergences, the thing they exactly wanted to avoid. In point of fact, though, in this connexion a general declaration of the given member State of this meaning will be required, a development which remains to be seen and which it is said will remain within narrow limits,3 3 although theoretically the contrary is quite as imaginable. As a matter of fact theoretically it is now possible that, since the validity of registration may come under the ruling of the receiving State,a company formed in the Netherlands under the rule of Dutch law, transferring its headquarters at a later stage to France, might be qualified as non-existent merely because according to French law registration was defective, or otherwise non-valid. Another theoretically possible contingency consists in that a company formed under Dutch law would in conformity with the provisions of the company law of the Federal Republic of Germany be compelled to adopt the organizational rules of the latter company law according to which it would have not only a board of directors and a general meeting, «but also between the board of directors and the general meeting a supervisory board. Consequently a Dutch company limited by shares operating in the Federal Republic of Germany would as for the managerial organs have a dual structure. Theoretically this contradiction could be resolved only if the legal person in question would on entering the receiving country become detached from the law of the place of formation and by a legal fiction the seat of registration would move to the receiving country. All these are theoretical complexities, yet not only such. In reality they could be eliminated only if the particular contracting parties waived their right to have recourse to the proviso defined by Article 4 of the convention. On what the parties might put their trust is that, as follows from Article 15 of the convention, the contracting parties gradually withdrew their provisos, if any, an act which again by Article 15 would be 3 3This has been done by the provision that the validity of the recognition has to be established in conformity with the law of the country of the actual seat of the enterprise. 33 Goldman 1, pp. 121 et seq.

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irrevocable. This does not, however, alter the case, since at the formulation of the convention the parties could overcome the contradictions of their municipal laws partially only, or not at all. Yet they wanted to take a step further. Therefore they composed an instrument of international law where the belief in the identity of the municipal laws could be preserved and at the same time the exigencies of the integration met. If we set out from the assumption that here we have the case of the freedom of movement of capitalist enterprises and monopolies, then the trend of the following development will become easily predictable: the homage to national identity will probably remain a beauty-spot and with a high degree of probability the postulates of integration will be victorious. 61 The other principle is the possibility of putting in the plea of public policy. One may be prompted to the belief that as regards the types of enterprises the conflict of public policy will be gradually fading away in the relations of the member states. Yet at the formulation of the convention, in 1965, the wave of the confidence crisis was sweeping over the EEC (a relative calming down of the storm set in only in 1966, with the signature of the so-called Luxemburg agreement34) and in the light of this crisis the reception of any company departing from those established in the country in question forthwith stumbled upon strong opposition. Then in all certainty the circumstance had also a word to say that at the time of drafting the convention the approximation of the company laws made its first tentative steps. Finally, as Goldman says,35 the public policy clause was to be a tool against any possible ‘surprises’ not wholly precluded in the law of the other party. The convention formulates the recourse to the plea of public policy in a general rule and two special rules. The general rule, expressed in Article 9(1) reads as follows: “ .. . the application of the . . . Convention . .. may be dispensed with . . . when the company or legal person . .. violates through its objects, its aims or its actual conduct principles or rules which the said State considers as public policy in the private international law sense of the term.” The same Article in paragraph (2) pronounces the first special rule. Accordingly, “if the law in accordance with which a company is formed allows its legal existence with only one member, the said company may not be regarded on that ground alone by a contracting State as contrary to the latter’s public policy in the private international law sense” . This provision is addressed in the first place to Belgium where in the practice of private international law the recognition of a company of one member or of one shareholder only (one-man company) was denied on the ground of public policy.36 The other special rule, a 3 4See supra Chapter III, Article 44. 35Goldman l,p p . 111-2. 3‘ For this see, in paragraph 20.10.14, in the volume lura Europae-Droit des Sociétés (Ed. Techn. Iuris-Classeurs, Paris), the rules of Belgian law according to which a joint stock company has to be formed by at least seven natural or legal persons, or the provision of paragraph 20.10.65 according to which a drop of the number of persons below seven constitutes a cause for winding up the company. This is not the case in other EEC countries; e.g. according to West-German law (see Ibid., paragraph 10.00.22), for the foundation of joint stock companies though two persons at least are required, still after the formation the company rights may devolve on a single person. In this case the company will continue its operation as an Einmanngesellschaft.

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‘Europe’ clause, has been taken up in Article 10. Accordingly, the principles and rules of the law of a State cannot be regarded as of public policy within the meaning of the Convention if they are contrary to the provisions of the Rome Treaty. If therefore a forum of one of the Common Market countries, or even the Court of Justice of the European Economic Community, would find itself in a situation where the member State in question could invoke the public policy clause, still its invoking would at the same time conflict with the provisions of the Rome Treaty, the forum or the Court of Justice would on pleading Article 10 have to defend the what is called ‘Europe law’ priority or primacy of the Rome Treaty and dismiss the plea of public policy. In this general and special public policy clause there is some sort of a scholastic desire to create a system. Houin, too, says that in want of any practical significance Article 10 is just good enough to throw a brighter light on the hierarchy of the municipal legal systems and Community law.37 62 Of the many other provisions of the Convention special mention may be made of those which after the recognition of the company or legal person are meant to advance the functioning of the recognition. Three provisions deserve mention, (i) It is declared in one of them that the companies recognized by virtue of the Convention dispose also in the receiving country of all rights within the scope of the legal and disposing capacity of which they dispose by the law of the country of formation.38 (ii) The rights cannot be denied or limited on the plea that the given company is in its country of formation void of legal personality.39 (iii) In the joint declaration No 3 attached to the Convention, the parties express their desire for a possibly effective application of the Convention and for a uniform interpretation of its provisions. On this understanding the parties have agreed on the recognition of the jurisdiction of the Court of Justice of the EEC in matters of the unity of the law.40 6 3-5 Scope o f the preferred enterprises 63 What has been set forth above as regards both establishment and recognition is valid for enterprises (legal persons) in general, Le. it applies to enterprises for which the Community codification of establishment and recognition has been meant. Nothing has, however, been said of the scope of enterprises and legal persons to which the legislation so far enacted extends. One may believe that here there is a case of commercial companies operating in the one or the other of the member states. The case is, however, by far not so simple, as will be seen subsequently. The Rome Treaty in its chapter on the Right of Establishment, after setting forth the principles of the programme of establishment (as summed up and commented on in paragraphs5 4 -6 of this work), in a short Article (58) speaks also of the beneficiaries 3 ΊHouin 2, p. 24. 3*Legal persons. Recognition o f Article 6. 3 9Ibid., Article 8. 40 The Agreement does not, however, confer concrete jurisdiction on the Court of Justice; in the declaration in question the contracting parties have merely agreed that for the unity of law this course is needed and to this end they are prepared to open negotiations for an appropriate convention.

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of the programme. Accordingly, “Companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purpose of applying the provisions of this Chapter, be treated in the same way as individual nationals of Member States” . “The term ‘companies’ shall mean companies formed under civil or commercial law including cooperative societies and other legal persons under public or private law, with the exception of non-profit companies.” Accordingly the scope of beneficiaries has been delimited by the following criteria which have to be present in conjunction: (a) The company or legal person (capitalist companies formed under commercial or civil law, or cooperative societies, or state-owned enterprises) has to be formed under the law of anyone of the member states; (b) the company must be tied to the territory of the Community (through its registered office, central administration, or principal place of business); (c) the company or legal person must be a profit-making one. To these three criteria the General Programme of Establishment under the heading ‘Beneficiaries’ adds another two. These are: (d) the territorial criteria according to (a) and (b), above, extend also to the overseas countries and territories as defined in the association treaties between these countries and the EEC; (e) as regards the criterion specified in (a) the formulation of the programme is somewhat more ‘liberal’ inasmuch as the company has not to be formed according to the law of anyone of the member states, but “set up in conformity with the legislation of a Member State” . However, it is due to the want of practice in this respect that nothing can be said whether or not this looser formulation purports anything else than the term ‘in conformity with the law’. The concept of the Convention of Recognition, too, seems to favour the opinion that in the domain of legislation the legislators of the EEC have not been led by the thesis ‘in conformity with the legislation’ of a member State. This is what has to be assumed, probably also because in this form the thesis cannot be properly grasped and since for the requirement of registration it is inexplicable, except naturally the interpretation that the term ‘conforming with’ is but a miscarried variant of ‘according to the law’. As a matter of fact the Convention of 1968 invariably adheres to the criterion as set forth in (a) above,4 1 while in other respects it supplements several earlier provisions. These supplementations apply to the conditions specified above and consist in the following: The Convention loosens condition (b) by decreeing the attachment to the territory of the Community in three respects, viz. (aa) the Convention is satisfied when at least the head office of the company is within the territory of the member states;42 (bb) still anyone of the member states may waive the application of the Convention in respect of a company whose actual head office, in the meaning of the Convention its central administration, is outside the territory of the Community and which entertains no genuine relations to the economy of the Community;43 (cc) anyone of the member states may for the purpose of the 41 Legal persons. Recognition of. Article 1. 4 2Ibid., Article 1. 4 3Ibid., Articles 3, 5.

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application of the Convention give an extensive interpretation to the notion of the Community provided it notifies the Secretary General of the Community that in its relations entertained to a third State for the purpose of the recognition of companies it intends to apply the provisions of the Convention also to dealings with the third State.44 The Convention modifies criterion (c) on the profit-directedness of the company in a sense “that the principal or subsidiary object of a company is to perform such economic activities as are, as a rule, carried out against a consideration.”4 5 64 When now in the structure of recognition of the European Economic Community the issue of the preferred companies, or beneficiaries, should be treated by way of more general interrelations, then before all a few statements of legal dogmatics should be brought forward, where the sequence does not express an order of importance. What may be stated is that the member states divided in the borderland of the theory of registration or incorporation and the theory of head office (when The Netherlands stood for the theory of incorporation) have by the Convention been joined to a group defined by the registered office in conjuntion with the formation of the company in conformity with the law of a member state. In reality and strictly speaking this group is but a ‘singleton’. Namely, the law of none of the member states agrees to the registered office being established in a country other than that of incorporation. Moreover, except for Italian law, there are countries which penalize a subsequent transfer of the registered office with the dissolution of the legal person.46 In other words here there is a case of the generalization of the theory of incorporation. The five member states (apart from The Netherlands), adhering to the principle of the head office in the terms of private international law, apparently jettisoned their right to recognize only such companies as have their head office in their territory. Everybody knows that here in the first plact> American companies are meant. Dogmatically there is though Article 3 with the content as in (bb) above, still nothing can be said as regards the meaning of the term of the absence of any essential relations to the economy of the Community. Thus here, too, a gate has been opened in this river course originally meant to be European. In fact this Common Market reality would have become yet another property of general legal dogmatics of this part of the Convention, and this in the sense that it is effective in each member state in a uniform manner. This would have been served by the bulk of opinions sounded in professional literature and economic policy, when going beyond the principle of the régime national a position would have been taken in favour of the elaboration of the principle of membership. The creation of the category of the so-called membership treatment was needed also because it helped to construct the legal background for the withdrawal of the organizational-legal units created, or to be created from under the rule of the most favoured nation clause, Le. to achieve that on the plea of the most 4 4Ibid., Article 12. 4 *Ibid., Article 2. 4‘ For details see Goldman 1, pp. 119-20.

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favoured nation clause the legal persons of foreign states should not for the purpose of establishment, recognition and free movement benefit by the privileges of the legal persons operating in the member states of the Community unconditionally. Namely as is known under the most favoured nation clause the same benefits have to be granted to the nationals and legal persons of foreign states as the State in question extends to the nationals or legal persons of any other State. Therefore the creation of the category of membership treatment by the side of national treatment was not meant to become a mere formal distinction. What was intended here by the Common Market was to build up a rampart round its legal unit also in this respect. If this had not been done in point of principle the Common Market would in the given domain have become shoreless, a situation where under the most favoured nation clause any foreign state having a treaty with a member state incorporating the clause would virtually have established membership relations to the Community. Already Article 234 of the Rome Treaty expressly states that the advantages granted by the treaty serve the creation of the Economic Community, they are part and parcel of this process and cannot be extended to extraneous countries, among others also because these advantages are accompanied by far-reaching duties on the part of the member states, duties namely which do not affect or apply to non-member states. This shipping lane, with scholastic precision dubbed ‘European’, has been forced to open even two gates for non-Europeans. The one has been opened by extending the advantages to ‘non-European’ enterprises which have a registered office in one of the member states and there form a commercial company conforming to the effective statutory provisions in this State. The other is the gate opened by the provision in (bb), a gate through which a number of American and other vessels sail and will sail to ‘European shipping lanes’. Obviously the case has ceased to be one of purely legal dogmatics and developed to one of economic policy, and in the last resort to one decidedly of economic interests. Here clearly the principal issue was not whether or not in the uniform settlement of the issue five countries had dropped the theory of head office and adopted what the Convention brought with it. Theoretically these states could have acted also the other way round. Still in reality only with the consequence that such an action would have inflicted considerable drawbacks on a large number of ‘non-European’ enterprises operating in West Europe, and exactly on those which were governed by their rather ‘sensitive’ masters (mostly American parent enterprises) from their central administration at home. The parentheses used with the term ‘non-European’ are, however, to a certain degree misleading and serve for the expression of the climate which has borught about the two-gate solution in question. In reality the case is as a matter of course one of the enterprises of European countries outside the Common Market, and may be one of both their establishment and recognition. Here it should also be remembered that through either gate even the enterprises of the socialist countries may pass. Since in the EEC there are already in operation commercial companies founded with the coope­ ration of a socialist enterprise, the existence of these gates and so also their widening towards the socialist world may also serve universal international trading interests. 65 As a practical example of the general interrelations it is worth while to observe how again and again the contradictions between the municipal laws and Europeaniza-

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tion come to the fore (in particular when in the background of Europeanization extra-Europeans, Le. again mainly Americans loom up), and what mechanism the legal practice of the EEC offers for the settlement of the issue. The opposing party, not for the first time, was again France. The issue sprang up of course in connexion with American investments of European origin in a concrete form and grew in intensity, as was reported by the American Journal o f Comparative Law in an article entitled ‘Equal Joint Venture Corporations in France’.47 In the beginning, in 1967, France promulgated provisions of law by which a strong state control was extended to the investments or associations of French companies controlled from abroad, or to the merger of the American parent companies of French subsidiaries with another American company, and also to the repercussions of this merger on the French subsidiaries.48 As a reaction to this, on April 24, 1969, the Commission of the EEC on the ground of Article 169 of the Rome Treaty invited France within 45 days to stop the controlling ‘manoeuvres’ impeding the investments and expansion of the nationals of the member states, among them those of the ‘Community enterprises’, and to declare that the procedure of registration decreed by the provisions in question as regards investments was merely an administrative formality. This was not, however, what France had in mind. What France thought was that foreign-controlled enterprises should not benefit from the advantages afforded by Article 58 of the Rome Treaty, or in other words, in French opinion foreign control undid the condition in (b) above Le. the attachment to the Community. The Commission might as well have invoked the text of Article 58, or even the General Programme of Establishment, or the Convention on Recognition, which insisted only on the actual and lasting relation to the economy of one of the member states. Moreover, the Programme of Establishment expressly removed the nationality of the shareholders or the managerial-controlling organs from the relevant circum­ stances.49 Still, in order that the opinion of the Commission might develop to French practice according to French legal practice of transmission procedures government measure was not satisfactory: an act of legislation was required. Namely, in conformity with the earlier decision of the Conseil d'Etat on constitutionality “the of late enacted French statutes are above the Rome Treaty until the legislation provides otherwise, and this on the policy-making consideration that the guarantee of the agreement with the Rome Treaty is the function of the legislature” .50 If the EEC would on this account sue France, which it could do by Article 169 of the Rome Treaty and which it promised to do earlier,51 then the Court of Justice would have to take a definite position as to whether enterprises operating in the territory of the Community, otherwise complying with all other conditions, yet

4 7Kozyris, pp. 505 et seq. 4SDccret No. 67-78, 27 Janvier, 1967. Journal Officiel 1967, 1073; Arrêt de 27. 1. 1967. Journal Officiel 1967, 1074. 4 9Establishment, General Programme of. Title I. Legal persons. Recognition of, Article 3. s 0Conseil d ’htat, 1968. D. S. Jur. 286. 51 Sec under Reply to written questions. Journal Officiel, CCE, 28/68, 11. C 7 1 /1 ,1968.

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controlled from abroad could become fully authorized beneficiaries for the purpose of the establishment, recognition and operation of enterprises. In this process the Court of Justice would have to determine to what extent the General Programme of Establishment, a programme which has precluded the nationality of the shareholders and the managerial-controlling organs as relevant factors, should be considered a binding norm. The Rome Treaty in Article 189 on the legal nature of the Community norms does not namely make mention of the form of the programme, although the programme of establishment has been proclaimed in Article 54 of the Rome Treaty itself, and this in a way that the Commission will unanimously approve this programme. This has been done since. The Court of Justice would beyond doubt give judgement for the Commission and this not only because of the binding character of the Programme of Establishment, or not only because of its policy in critical cases to safeguard the priority of Community law, what is by the way one of the immanent objects of the Rome Treaty, a priority which has in a generalized form been discussed before,52 but because of the economic interests in the background. This would not be the first judgement of the Court of Justice in this sense. In Costa-Enel, in 1964, the Court held that in the event of a conflict between municipal law and Community law the Community law was the stronger.5 3 This was confirmed in the judgement in ‘Farbenfabriken Bayer AG’ once again in 1969 (“the application of the municipal laws cannot restrict the operation of the measures serving Community law and its enforcement” ).54 §11

For a better movement o f the enterprises in the EEC: approximation of the municipal (national) regulation o f companies

66

The legal rationale o f approximation

66 For the movement of enterprises in agreement with the dimensions of the EEC Article 100 of the Rome Treaty promises the gradual approximation of the law of the member states in all domains which directly affect the functioning of the Common Market. The same has been pronounced by Article 220 concretely for company law. The freedom of establishment and the mutual recognition of companies, discussed in Article 10 of the present work, is but the first step of the nature of company law with a view to providing simple legal channels to serve the movement of enterprises on a Community scale. On the other hand the life of companies, and their operation, are, after they have freely entered another member State and have been recognized there, governed in the nine member states by nine different municipal company laws. This medley of laws and the many divergences as a matter of course considerably retard and impede the movement of enterprises on a Community scale. The uniform Community home market would call for uniformity also in the field of company law. In the sign of 5 2See Chapter III, supra paragraphs 3 2 -3 . “ Recueilde la Cour, No. 6/1964, p. 1141, 1964. 54Recueil de la Cour, XV, 1969, pp. 1 et seq., also published in Europarecht, 4, 1969, ρρ. 147 et seq.

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the demand for unity the five directives have been born, which are enumerated in paragraph 53 of this work, and which have started the approximation of the principal elements of the municipal company laws following next: the demand for publicity, the assumption of obligations of the company and its managerial-controlling bodies, the nullity of the company, the formation of the company, the increase and reduction of the capital stock, the different forms of merger, the balance sheet report, the organizational mechanism. What is the main current of the approximation so started, or partly still to be started, to which the law of the member states have to be adjusted? This will be discussed in paragraph 67 and the following ones of this work. 67-70

Publicity - validity o f assumptions o f obligations - nullity o f companies

67 The birth of the first directive in the series of the legal acts purposing the approximation of company law in so far as it relates to the companies defined in Article 58 of the Rome Treaty dragged on for a considerable time. In the wake of the general provisions of the Rome Treaty the General Programme of Establishment emphasized, a$ early as 1962, the need for concrete action in this domain.5 5 Although the Commission was ready with the first draft directive on publicity, assumption of obligations and nullity by 1964, still owing to the debates in the Economic and Social Committee,56 then in the European Parliament57 on the draft, and to its frequent re-formulations, the Commission could approve the directive, after a process of codification going on for six years, only as late as the 9th March, 1968.58 By this the process of approximation of the municipal company laws by way of Community rules could be set in motion. The subject matter of the first directive, viz. publicity, the validity of assumption of obligations and the nullity of companies is seemingly fairly heterogeneous. Obviously, there is something which combines this triplicity of issues. And this is the point of view of third parties, or rather the interests of third parties, in general of the possibly affected ‘outsiders’, or quite precisely: the protection of the interests of capital processes, capitalists and creditors not participating in the concrete company as proprietors or owners. 68 One of the most important requirements of the uniform protection of the interests of third persons in this meaning is the publicity of certain processes of significance governed by company law, the harmonized enforcement of the binding norms (ius cogens) of a minimum of public control. This publicity is provided for by Chapter I of the directive, following upon an itemized enumeration by member states of the municipal forms of companies to which the provisions of the directive have to be applied.59 In the .abstract form of legal norms the directive sets out from the thesis that by way of publicity third persons have to become acquainted with essential 5 5Establishment, General Programme o f VI. 56Amtsblatt, No. 194, November 21,1964, p. 3248. 57Amtsblatt, No. 96, May 2 8 ,1966, p. 1519. 5· Company Law Directives 1. 59These are in general joint stock companies and limited liability companies. Company Law Directives 1, Article 1.

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documents of companies, with data of significance relating to the companies, the agencies and persons authorized to enter into engagements burdening the company.60 The directive then in a detailed form and at some length brings under regulation all to which the rules of publicity of the municipal laws have to extend. (a) Considered in its objective interrelations one of the planes of the system of requirements of the directive is built up of the elements of the formation and operation of companies which by mandatory legal provisions have to be raised above the surface of publicity. These are the deeds of formation (memorandum of association, statutes, etc.) and their subsequent amendments, the data of persons vested with managerial powers, the capital stock and its modifications by years, the balance sheet and profit and loss account, the changes of the registered office or head office, dissolution and nullity by judicial decision, termination of liquidation.6 1 (b) The provisions of publicity, on another plane, define the conditions of organization and procedure. These are the conditio sine qua non guarantees of the actual operation of publicity. The provisions in question decree the deposit of all documents, deeds, etc. embodying the elements specified above at the commercial register, the publicity of this register, the obligation of the register to issue attested copies of the company deeds, the disclosure of the contents (or the excerpts) of the documents deposited at the commercial register in the official gazette of the member states.62 (c) Another requirement earlier unknown to this degree, and in particular not of a general kind, is the one that imposes the obligation on the enterprises concerned to indicate on their stationery not only their company name, but even the commercial register (with the number of registration) where the enterprise has been registered and where the documents enumerated before are kept for inspection by the public. Furthermore on the stationery of the enterprise showing the capital stock, also in behalf of a more efficient general credit of smaller or less known enterprises, com­ panies are bound to indicate the rate at which the authorized capital stock has been paid up. These are on the whole more than interesting ‘regulations’ concerning national capital animated to European dimensions, or of smaller national firms or their owners. The purpose of these rules is to induce even small firms to movements on larger scale and at the same time to protect potential business partners against impostors, swindlers, etc. coming from far away, le. from the other member states, and infringing the rules of the game of capitalist business. Obviously the Common Market is in earnest, and even must be it, when in the world of enterprises it is intent on reaching European dimensions. In fact in the directives sanctions are held out to those who disregard this ‘stationery etiquette’, le. print false data on their stationery.63 69 Beyond publicity the protection of the interests of third persons calls for guarantees also in the sense that the validity of obligations entered into by persons authorized to act for and on behalf of the company should be legally unambiguous. *°Ibid.t 41 Ibid., 4’/&#., 4 *Ibid.,

Preamble. Article 2 ( 1 ) , a - k . Article 3. Articles 4, 6.

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The uniform application of this principle at the same time implies that commit­ ments entered into for and on behalf of companies not yet completely formed, Le. still in a state of formation should, if subsequently not approved by the company, bind the persons assuming the obligation. The fairly generally known principle wants to declare that third persons cannot be victims of the disorderly state of affairs or initial anomalies within the company.64 This principle finds even more emphatic expression in the provision of Article 9 of the directive namely that the commitments to third persons of the principal officers of a company once formed will be binding on the company even when the commitments are outside the scope of the company. The same holds in another relation as expressed in paragraph 2, Le. that the enterprise cannot put in a plea of the limitation of the powers of the managerial organs even when such limitation has been taken up in the company statutes, or in a subsequent resolution of the enterprise, notwithstanding its proper publication. In addition to the stronger protection of the interests of third persons, this provision at the same time is an indication of the shift of the relative legal capacity of enterprises towards absolute legal capacity, and for that matter owing to management policy rather than to a disposition of the company statutes. This legal capacity of management tending towards the absolute by Article 9 has but a single limitation. Namely, that obligations of the enterprise outside its scope will cease to be binding on the enterprise if by statutory provisions these obligations cannot come within the competence of the management. A further mitigation of the absolute legal capacity and the protection of the interests of extraneous subjects-at-law is contained in the rule of the directive that the member states may authorize their enterprises to produce evidence to the effect that the third party was acquainted with the ultra vires action of its negotiating partner. If the enterprise succeeds in demonstrating this the enterprise will not be bound by the obligation. As stated in Article 9(1) of the directive the knowledge must apply to the concrete case, the mere invoking of the published character of the statutes of the enterprise does not suffice. 70 As a matter of course the formation of a company in compliance with the minimum requirements of the law cannot be guaranteed unless some kind of a governmental agency is vested with powers of control. This function is in general discharged by the courts of registration. Since, however, this is not the case in every member state (Dutch law almost ignores public control before registration) Article 10 of the directive tries to generalize this condition by decreeing that the deeds of formation and their modifications, if any, must have the form of authentic documents at least, in every member state. Only documents made out in an authentic form are of a nature permitting the unambiguous establishment of their genuineness and integrity (be they complete, or of legally satisfactory or non-satisfactory content). Authenticity is therefore the condition in the absence of which there may be talk of the nullity or the voidance of companies operating on the strength of legally unsatisfactory docu­ ments or documents of unlawful content. Nullity may be pronounced, in each case by judicial decision, when the rules of the procedure of formation have been violated, the object of the enterprise is unlawful or violates public policy, if the deeds of formation é 4Ibid., Article 7.

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do not show the contributions, the subscribed capital stock and the scope of operation of the company, if the founders are void of legal capacity, if the number of associates is less than two, if the rules of the municipal law defining the minimum of capital investment have been ignored. Companies can be declared null and void for no other reasons of nullity than those specified above. Legally the declaration of nullity places the company in a state of liquidation. This does not, however, affect obligations under­ taken to third parties or the validity of rights acquired by third parties. The fate of such obligations and rights is eventually determined by the general rules concerning the wind­ ing up of company law coming into operation after the dissolution of the enterprise.65 71-2 Formation o f the company and its capital stock 71 It is by no means wholly accidental that after the generalization of the minimum standards of publicity the next step of the EEC in the approximation of company law has been bent to the formation of the company and its capital stock. As set forth in the preamble of the second directive of company law, here we have the case of guarantees namely which from the outset are called to protect the interests of the shareholders and third persons.66 Obviously the Commission intent to proceed step by step first provided for the protection of interests, and then proceeded to the institutions of organization and operation. The second directive in question was put up for debate by the European Parliament and by the Economic and Social Committee.67 The final draft of the Commission was ready on March 9, 1970, and then submitted to the Council, where it was still under discussion in 1975.68 The title of the directive indicates that its validity is confined to joint stock companies (sociétés anonymes, Aktiengesellschaften)*9, and within this scope to the uniform regulation of the interests of approximation. The framers of the directive expect from this directive the facilitation of the approximation of the laws governing other types of companies at a later stage.70 Incidentally the directive is fairly comprehensive. It is put together of thirty six in general long articles grouped round four principal objects. Notwithstanding the highly technical character of most of the provisions, the four principal sections in an unambiguous form give expression to the objectives they are meant to achieve, (i) By the side of the more and more intertwining relations of the market, capital brings forward claims gradually increasing in binding force to the guarantee of the free display of action taken under company law beyond the frontiers of its country (partnerships, participation in the formation of companies, etc.) in the whole territory of the EEC. (ii) The shareholders of the company once formed want to obtain certainty of the protection of the capital investment against contingencies which might turn it into a fictitious figure, (iii) In the event of the increase of the capital stock the 6SIbid., Articles 11-2. 66 Company Law Directives 2, Introduction. 47Ibid., Preamble. 4 ,CCE, Note d'information. No. P - 1 1, March 1970. General Report 1974, p. 72. 49This has been stated separately also in Article 1. 70Company Law Directives 2, Introduction. 6 Madl

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position of the earlier shareholders must remain a settled one. (iv) In the event of a reduction of the capital stock the shareholders insist on the equality of treatment and the creditors on the protection of their interests. Now the directive wants to bring about a harmonized legal order in these relations on a Community scale. 72 For the uniform system of conditions of the process of formation and its legitimacy the draft directive before all defines the minimum content of the deeds of formation (memorandum of association). In addition to the usual items (name, object, registered office, capital stock) the deed of formation (memorandum of association) should extend to the accurate definition of the types of shares, and of the rights and obligations associated with the shares, to the unambiguous definition of the competences of the agencies of the company, the person of the founders and the way in which the formation expenses are covered.71 It is not merely the question of the favor societatis when Article 5 of the directive wants to preserve the Einmanngesellschaft (one-man company) at any price, inasmuch as it definitely does not link the liquidation of the company as a consequence to the concentration of all shares in a single hand. If a municipal law in such cases decrees the judicial winding up of the company, the directive, to loosen the rule, decrees that a term of grace of six months at least should be allowed for the company to mend the situation leading to liquidation. As regards the amount of the capital stock the member states make the subscription of a capital stock corresponding to 25 000 units of account at least obligatory. The price of the shares subscribed in cash has to be paid in up to 25 per cent, subscriptions not in the terms of cash must be paid in up to 100 per cent. The valuation of subscription deposits in kind must rely on the report of chartered accountants.72 In order to preserve the capital stock one of the cardinal provisions decrees that no profits can be paid to the shareholders if the net worth of the company drops below the capital stock. According to another rule dividends may be paid only from the net profit.73 The preservation of the capital stock does of course mean its preservation for the benefit of the shareholders. It is a fact though that without capital stock the company itself (i e. the legal unit as relatively segregated from the shareholders and now as part of the national economy as a whole and of a number of social, micropolitical interrelations) would become a fictitious one. Theoretically, however, it may occur that the enterprise buys up its own shares and in this way so to say ‘socializes’ itself, a contingency which under given circumstances might mean the rule of the management. There are even trends in the developed capitalist world pointing in this direction. Moreover the growth of management power and its foundations have been discussed also in the literature. An example of this kind is ‘Power without Pro­ perty’ the book of Berle, the American lawyer and economist, which through the intervention of a number of factors, so self-financing and the purchase of part of the shares scattered among the public, prophesies the growth of this non-proprietary 71 Ibid., Articles 2 -3 7 3Ibid., Articles 6 -8 . 13Ibid.f Articles 12-3.

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power against which the shareholders would become almost impotent.74 Still the buying up of the enterprise’s own shares can never become considerable and in every capitalist system the buying up of the own shares is absolutely prohibited beyond a certain rate, exactly because such a policy on the part of the company management would constitute a danger to the capital stock and become equal to a definite kind of expropriation of the shareholders under company law. All this has been taken into account by the directive and Article 17 categorically declares that the company cannot subscribe its own shares. Since, however, under the municipal legal systems a fairly wide margin was allowed for ‘self-subscription’ of a company’s shares, the directive has preserved this freedom with certain limitations. Even so a dual system of conditions have to be met. (i) There is the quantitative condition. Notably, the company can buy up its own shares only up to 25 per cent of its capital stock, (ii) There are the organizational conditions and other guarantees. Such are, among others, the agreement of the general meeting of the shareholders (this can be waived only in the event of a heavy loss threatening the company and then only up to purchases of the company’s own shares not exceeding ten per cent to the capital stock), the restriction of purchases of fully paid up shares, the limitation that through the purchase of the shares the company’s net assets cannot drop to a value below that of the capital stock, the deprivation of the company’s own shares bought up from voting rights in the general meeting, the detailed rendering account of the purchases of the company’s own shares in the annual report, in the balance sheet,75 etc. The interests of the shareholders, and even more those of extraneous subjects, are served by the provision of Article 16 that in the event of a substantial decrease of the capital stock (or more precisely, when the company’s net assets drop below the capital stock) a general meeting has to be convened, which however, has a choice between restoring the balance between the actual net assets of the company and the capital stock, or decreeing the winding up of the company. The meaning of a substantial decrease differs by member states, still as understood by the directive the above contingencies will be deemed to have supervened for a loss of 50 per cent. The leading idea of the rules relating to the increase of the capital stock is again the respect for the original intention of the shareholders and the protection of their interests. This has been given expression by Article 22 of the directive which requires the resolution of the general meeting for the raise of the capital stock, except, however, when the statutes of the company or a resolution of the general meeting has assigned the decision on this matter to the competence of the one or the other agency of the company. Another protective means of the interests of the shareholders has been incorporated in Article 25 of the directive according to which in the event of a raise of the capital stock the old shareholders have a right of pre-emption for the new shares to be issued, proportionately to the stock held by them. This principle guarantees that the shareholders preserve their earlier position, the one they had on entering the company, in an unchanged form. 1ABerle, pp. 3 et seq. 7 5Company Law Directives 2, Articles 18-20. 6*

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As regards the reduction of the capital stock (not the decrease of the company’s net assets) the main consideration is to guarantee the equal treatment of the shareholders at this contingency, and the protection of the interests of business partners, in general of third persons. Two of the provisions serving the protection of the interests of the shareholders should be mentioned specially, (i) It has been taken up in Article 27 of the directive and decreed that the reduction of the capital stock requires for its validity a majority of votes of the same order as, in conformity with company law, the amendment of the statutes, (ii) According to Article 28 the general meeting has to pass separate resolutions for each category of shares, if a uniform resolution would be prejudicial to the one or the other category. Among the many technicalities attached to the capital stock there is yet another group of rules bearing on economic policy. Notably the safeguard of the interests of extraneous parties, Le. the requirement that the reduction of the capital stock should have no prejudicial repercussions on the functioning of economy as a whole. In conformity with Article 29 municipal legislation has to make provisions for the preservation of the rights of third persons before the reduction of the capital stock. One of the conditions is, by way of example, that a reduction of the capital stock cannot become effective and an embargo has to be placed on any disbursements to shareholders before the legitimate claims of third persons have been honoured by the company. 73-5

Mergers and interest protection

73 In the next stage the approximation of company law crosses over from the domain of a pure protection of interests to that of the organizational and dynamic relations of company life, although this third directive, as betrayed by its title, gives prominence to the protection of the interests of the shareholders and of third persons,76 however by way of the process of mergers. Merger is the form of movement of company law by which the EEC intends to allow a range of action to smaller enterprises on a European scale. Hence there is this dynamic phenomenon looming behind the directive throughout, i.e. the affirmation and stimulation of a definite trend, with a permanent refrain, however, ceterum censeo the interests of the shareholders and the order of relations with third persons have to be protected in any event. The Commission, after a debate in the European Parliament and the Economic and Social Committee, on the 16th June, 1970, drafted the final wording of the directive of merger, which after the approval of three Community organs is waiting for the approval of the Commission and its promulgation, although its discussion will be reopened among others also in the Council Working Party on Economic Questions, since the Parliament has taken new initiative towards proposing the reinforcements of protection for workers whenever a merger might be prejudical to their interests;77 what this really means has still to be seen. Since, however, the harmonization of interests of7 7 4For the full title see Company Law Directives 3. 77Ibid., Introduction and Preamble; General Report 1974, pp. 7 2 -3 .

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the member states for the purpose of codification in general takes place on a Commission level, the coming into operation of the directive may be taken almost for granted. Since in this matter the Council is the legislative organ, and since the Council is by its functions a representative institution, there may still be discussions on the subject and even the possibility of departures from the original wording cannot be dismissed altogether, moreover, theoretically the dragging out of the promulgation of the directive cannot be precluded. The directive applies to the approximation of the municipal regulations of mergers, still a convention on international mergers is also in the process of drafting. As a matter of fact the Community is determined to make extensive use of the experiences gained with the uniform formulation of the provisions governing municipal mergers for the drafting of the convention on international mergers.78 In general the directive bears upon the following interests: (a) the interests of the economy on Community scale attached to the mergers Le, to the legal mechanism of larger dimensions; (b) the safe protection of the interests of the shareholders and extraneous parties; (c) the protection of the interests of employees (this will also be published, although for the first time). These are the interests and considerations which permeate the long Article 24 of the directive, and also define the technical inner structure and contents of its Chapter VI built up by the different kinds of mergers. 74 As regards mergers as such, and on the whole in an approach from the side of their uniform West-European structural system, they are now at the focus of our interest as follows. (a) The directive before all decrees that the member states incorporate in their company law the institution of merger, if so far they have not recognized it.79 The case is one of the introduction of two kinds of mergers, or of their uniform regulation. The one is the merger by way of acquisition (Articles 2—18), the other is merger by way of the formation of a new company (Articles 7-19). In the meaning of the directive the notion of merger by way of acquisition (or absorption) implies that the company to be acquired assigns its estate as a whole (hereincluded its liabilities, by dissolution without liquidation) to the acquiring company and in return the shareholders of the acquired company participate in the shares of the acquiring company; for up to 10 per cent of the shares cash payments may also be made. The organizational guarantees of mergers and those of the technicalities of decision-making have been promulgated in an enormous mass of regulations on details. As rules of importance the following may be mentioned: for the merger the management of both companies have to prepare a detailed and properly substantiated plan; the plan of merger has to be approved separately by a majority of two thirds of the shareholders of both companies in the general meeting; the plan of merger has to n*Ibid.t Introduction. For the details of the Regulation in the meantime completed and in 1974 approved by the Parliament of the EEC, its introduction and the idea embodied by it, see Deringer 3, pp. 99 et seq. 7*For the want of merger in certain member states, see in the EEC Note d'information, No. P -30, June 1970, “3. Richtlinie zur Angleichung des Aktienrechts. ” For the general introduc­ tion of merger, see Company Law Directives 3, Introductory notes to Article 2.

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be published; on the basis of an appraisal made by chartered accountants the number of shares must be defined which the acquired company carries with it into the acquir­ ing company; the exact date must be given for the transfer of the liabilities of the acquired company to the acquiring company; at least one month before the general meeting deciding on the merger each shareholder of the companies concerned has to be delivered the merger plan, together with the accountants’ report of the assets of the own company and their relations to the shares offered, the balance sheets of the merging companies for the last three years before the merger; the documents (minutes) of the merger decisions in the form of a public deed at least, if preliminary judicial or administrative control is not conditional for their validity, or if such a con­ trol is not demanded by municipial law; the merger cannot prejudice the interests of the creditors and holders of debentures of the acquired enterprise; the members of the management and the chartered accountants are jointly and severally liable to the share­ holders for any loss caused to them by their culpable conduct in the merger procedure. (b) The notion of a merger by way of a new formation has been defined by Article 2 of the directive. Accordingly several companies assign their total assets (together with their liabilities) to the newly formed company and in return the shareholders of the merging companies will become such of the new company by the ratio of their pre-existing shares. The organizational rules and the concomitant guarantees of the process of merger by the formation of a new company are by the provisions of Article 19 uniform with those of merger by way of acquisition. 75 The protection of the interests of the shareholders and third persons concerned stands out with adequate clarity from the rules set forth above. Instead of going into further details it may suffice to point out that of the twenty-four articles of the directive there are a bare six only which do not deal with the interests of the shareholders or of extraneous parties concerned. It is a development of interest that in addition to the Statute of the European Company80 this directive is the second instrument of company and private law which admits the presence of the collective of employees within the walls of law and at the regulation of merger attends also to the interests of this collective up to a certain level. Nothing more is said, however, than what the Preamble formulates as follows: “It is indispensable that the merging companies inform their employees of the effects of the merger touching the employees and give a hearing to their opinion.” This is though formulated by Article 6 in a more differentiated manner, still nothing more is said of the actual rights of employees and workers. Nevertheless Western literature likes to speak of a Mitbestimmungsrecht or the right of participation, still there is no question at all of interference or decision-making powers, and in the Statute of the European Company the right of participation is restricted mostly to marginal questions. According to Article 6 (1 -2 ) of the directive the management, in its detailed report on the merger, analyses the consequences of the merger affecting the employees (in general the legal, economic and social interactions of the merger). This report has to be

*°Sce Article 12 of the directive.

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placed at the disposal of the employees and their representative organization at latest one month before the general meeting deciding on the merger. In conformity with paragraph 3 of Article 6 the management of the company has to discuss the report with the representative organ of the employees before the general meeting proclaiming the merger. The representative organ of the employees may make its comments on the report also in writing and this report must be at disposal in the general meeting deciding on the merger. Obviously, if the employees and workers want to defend themselves from the prejudicial effects of the merger, they can do so only by having recourse to the means of the political struggle outside the said walls of company law. These are the strike, the paralysing of the operation of manufacturing plants by sit-in strikes or other means dependent on what the actual power relations permit and what kind of measures for a general re-structuralization are resorted to by the state or Community agencies to bring about a relaxation of the tension.8 1 This is therefore all that remains of what even Community sources on the strength of the directives try to blow up to the protection of workers interests,8 2 although in reality they would have to admit that the document sends the workers to the street or to the battlefield of political struggle for the protection of their interests. 76- 7 Balance sheets - annual accounts and reports - publicity 76 After a protracted preparatory stage the Commission on the 11th November, 1971 approved and on the 15 th November 1971 forwarded the fourth directive of company law on the ascertainment of the balance sheets, annual accounts and reports of the management and the minimum standards of their publication. On February 1974 the Commission presented to the Council - after a redrafting upon the opinions of the Parliament and the ESC and suggestions from all interested circles - a modified proposal on the mentioned minimum standards of the subject matter in question.8 2a As for the purpose of the directive this may be summed up as follows: The data of the enterprises of the member states to be published should be ascertained by uniform criteria and should be commensurable; an apparent technical element of this uniformity is that the uniform use of the principal items of the balance sheet should be guaranteed in every member state and within the scope of the particular items and appraisals the same conditions should be enforced; from the competition of the enterprises of member states the negative element should be eliminated which is produced by the circumstance that companies operating within the same scope publish wholly different data in the particular member states; if this is done the potential investors will have access to better information and the free money reserves will be marshalled to investments better controllable in the given economic conditons.*

*1Re-structuralization (by way of closing down of plants, mergers, organization of new branches of industry, etc,) down to its social repercussions is of course an issue much in the fore of the economic and legal policy of the EEC. (See the developments in connexion with the coal crisis of 1958-1960.) • 2See EEC Note d'information, No. P -30, June, 1970, p. 1. ,a a See General Report 1974, p. 73.

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77 The twelve chapters of the bulky draft directive of altogether 52 articles groups the approximation of the company laws of the member states by the following principles: (a) The rules governing the requirements of how the balance sheets of the companies of the member states shall be drawn up have to be modified in a way that the balance sheet shows the active items of assets (unpaid shares, expenses for plant extensions, rights in rem, viz. industrial property, buildings, equipment, stock interest and participation in other companies, current assets, outstanding debts, securities, loss) and the passive items, those on the liabilities (paid up capital stock, reserve funds, debts, profit, etc.), altogether about hundred items, the application of which by the enterprises in conformity with uniform rules produces clear and commensurable systems of enterprisal balance sheets for the whole territory of the EEC.8 3 (b) The provisions regarding the profit and loss accounts decree a unification going into about as many details.84 (c) Of the detailed rules of valuation (Bewertungsregeln) the following are the most important: in the methods of valuation efforts should be made for their stability; only profits realized and losses supervened on the closing date of the balance sheet should be represented; irrespective of whether the annual balance sheet closes with a profit or loss allowance should in all cases be made for depreciations; the annual closing balance sheet and the opening balance sheet of the following year have to be uniform.8 5 (d) As regards the report rendered on issues of economy or on operation, mostly by summing up generally known and applied principles, the directive mainly gives instructions on publication: in addition to the depositing of the specified data and reports with the court of registeration also full publication in the Press has been made compulsory.86 (e) For a part of the limited liability companies (GmbH, Société à la resp. limité) the directive sets up simplified conditions of publicity (only abridged balance sheets have to be published without the reports, the notes on the balance sheet may be shortened, etc.). This benefit may, however, be granted only to limited liability companies whose annual turnover does not exceed two million units of account or which do not have more than hundred employees on their payroll.8 7 78-81

Organizational structure o f enterprises, rights and duties o f the elected and managing bodies, the question o f workers participation

78 On 27th Sept. 1972, after a series of clashes and compromises, the Commission forwarded to the Council for decision the most neuralgic directive on the approximation of company law, the one that was the cause of headache within the Community more* *3Company Law Directives 4. *4Ibid., Articles 19-24. • 5Ibid., Article 28. e 6Ibid., Articles 4 3 -7 . By Press the public press organs should be understood which by the municipal legal systems for the present purpose qualify as the official gazette of the enterprise (Ibid., Article 44). • nIbid., Articles 48-51.

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than the earlier four. This directive has as its purpose the reconciliation of the provisions governing the organizational structure and the legal status of the leading and managing bodies of joint stock companies. In this codificatory work disputes and controversies centred round three neuralgic spots. Due, partly at least, to this circumstance the ESC and the Parliament were continuing their examinations on the draft for long and the adoption of the directive was not promised by the Commission for 1975.8 73 In the sequence of the gravity the main problems were as follows: (a) Should Community law adopt the tripartite organizational structure of the German system, viz. general meeting, board of directors, supervisory board or the dual system of French, Dutch and English law with a general meeting and a board of directors? (b) What should be the powers of the management in respect of the owners of the company, and vice versa? (c) The extent of worker-employee participation, if any, in the management of the Company. As regards the first question, here firmly established municipal legal regulations were rivalling. In this rivalry for the abandonment of the one municipal system or the other even certain clear-cut organizational considerations proved to be arguments prevailing with difficulties only. The second question implied the casting into a concrete form of the fashionable theories on managerial powers v. shareholders looking for profits only. In the third question one of the greatest contradictions of modern capitalism is involved, namely the role to be accorded to the masses of workers and employees in the future development of Community law. This is a question which not even an ever so strong and concentrated West-European big capital can ignore. 79 In the following discussion we shall concentrate on the attempts of the directive of altogether sixty-five articles to come to a settlement of the three neuralgic problems. As regards the organizational structure, or so to say the future constitution of WestEuropean joint stock companies ( Verfassung der Aktiengesellschaften)8 8 the directive, on placing the two organizational models in juxtaposition, states the following: The interests of the investors (or rather owners — the author) of an enterprise on a European scale insist on possessing, by the side of the general meeting, an organ which with mobility and a sense of duty is on the track of the financial forces invested throughout Europe. If there were no such organ the investors, in particular the small shareholders, would hardly become engaged in business operations outside their own country. If they did become, they would lose sight of their investments, a contingency which in the last resort would prevent the Europeanization of the ‘economic forces’. In view of this contingency the directive decrees that the member states in their municipal company law prescribe the institution of three agencies in the organization of companies limited by shares. These are (a) an operative managing organ representing the company and set up by the supervisory organ; (b) a supervisory organ elected

17aSee General Report 1974, p. 73. ·· Vorschlag einer 5. Richtlinie zur Harmonisierung des Aktiengesellschaftsrechts. Informato­ rische Aufzeichnung der Kommission der EWG, Oktober 1972, P-^43, p. 1.

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by the general meeting, supervising and in the broad outlines defining the activities of the operative organ; (c) the general meeting of the shareholders.8 9 80 In the distribution of the powers of the elected and managing organs, in addition to the working capacity and elasticity the stress has been laid, irrespective of pro-managerialism, in any event on the precise delimitation and protection of the interests of the shareholders. This finds expression in the generalization of the large power of the supervisory organ even when according to the opinion of many the supervisory organ and its members belong mostly to the manager stratum. Although in point of fact in economic issues of decisive importance the agreement of the supervisory organ has to be obtained and in many a key issue the decision lies with the supervisory organ, it nevertheless depends on the general meeting, it remains an organ of the shareholders, and the ‘electors’ may at any time dismiss its members. In general the members of the supervisory organ are in a precisely regulated manner liable to the shareholders.90 The protection of owner interests further on finds most detailed expression exactly in the manner how the directive details the rights and the role of the shareholders and the general meeting, in a space about three times that devoted to the organizational structure as a whole.9 1 What deserves special mention of this proprietary regulation is the ‘Europeanized’ American institution of the retreat of the company before finance-capital, i.e. the institution of the proxy.92 Its growing importance is clear from that it has besides practice come to be recog­ nized also by Community law regulation. As the Commission states, the proposed new regulation of the voting rights of the shareholders is of particular importance. Under the new regulation the voting rights may be vested in the board of directors of the company or in a bank.93 What is essential, therefore is that the shareholders may con­ fer powers on their banks, mostly on those where their shares are deposited, to repres­ ent them in the general meeting.94 Although the right of proxy may be conferred on anyone,9 5 so that the managements are eager also to get hold of larger powers by this way, virtually the banks are in a stronger position. It is easy to discover here the organ­ izational-legal source of the power position of the banks. A bank may act as proxy of the shareholders of several hundred companies. Although in principle in respect of each enterprise the bank will have to act in a manner serving the interests of the shareholders best in the dealings of the very enterprise, still the interests of the several*

** Company Law Directives 5, Preamble and Article 2 et seq. 90Ibid,, Articles 3-21. 91 The number of Articles 22-47 is not much more, but each Article holds much more ruling than the previous one. 9 3For the role of the proxy in American law see Lattin (in particular: ‘Voting by Proxy and its Importance in Contest for Control’, pp. 306 et seq.) . - Lattiri*s work is probably the most extensively used textbook on company law in the United States. 9 3For its introduction in this understanding see the declaration of the Commission on p. 2 of the document referred to in Note 88. 94Company Law Directives 5, Articles 27-8. 9 5Ibid., Article 28, 1 (Sofern sich jemand öffentlich erbietet, die Vollmacht des Aktionärs einzuholen und für ihn einen Vertreter zu bestellen . .. ).

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hundreds of enterprises will in the deliberation of the bank be put necessarily into a common melting pot, in that of the bank’s proliferous interest-serving-or-mixing com­ puter-pot, and ultimately the bank ‘will be unable’ to reach decisions better than those called for by its own strategic interests. It will be limited only by the circumstance that in addition to a variety of factors these strategic interests are influenced also by the endeavour not to lose proxies for the benefit of other ‘stewards’, i.e. by the circumstance that the further functioning of the enterprises and their representation on this understanding is, when the balance is struck, also the interest of the bank. As a matter of fact the values which find their way into the computerized realm of figures of the bank or into its iron-safes are in the last resort created at the enter­ prise, at the work-bench. This does not, however, mean as if in the strategy of the banks there were not, too frequently, cases when the one position or the other is given up; in this case the proxy would be metamorphosed into a liquidator. 81 Even in its to the nth power abstracted form of the power based on capitalist private property there was no way out, one was forced to come down to the work-bench, the principal factor of enterprise and economic life: to the workers and employees. What was the idea of the law-makers of the Common Market of all this? In particular, when in certain member states the governments have been forced to recognize certain forms of the Mitbestimmung (participation; it was by no means merely accidental that France was forced to take this step under the impact of the quasi-revolutionary crisis of 1968) and in the Statute of the European Company its makers had to reckon with participation on the level of the EEC.96 In reality the Commission has not gone beyond the solutions known from certain municipal legal systems (at least not in its first proposal of this directive) and the last word is still pending963 and with its skeleton rules it wants to keep the gate open for the further development of the municipal institutions. However, in order to obviate difficulties resulting from the exaggerated divergence of enterprising movement on a Common market scale, the Commission thought it was essential that in enterprises employing more than 500 persons certain minimum standards should prevail here uniformly.97 The idea was that the protection of employees’ interests should not be allowed to cumulate on the plane of the struggle between the operative management and the representative organs of the employees. The conceivable portion of employees’ interests and powers should preferably be marshalled to the supervising organ, while the employees’ should not be burdened with the responsibilities implied in the participation in the board of directors.98 The directive then decrees the choice between two alternatives by the member states: (i) In enterprises employing more than five hundred persons one third of the members of the supervising organs should be delegates of the employees, and two thirds be elected by the shareholders in the general meeting. The legislation of the9

96See supra paragraph 52; Em pbyee participation and company structure, pp. 2 et seq.; European Company, Title V. 94aSec supra paragraph 78, note 87a. 97 For this idea of the Commission see the document referred to in Note 88, p. 3. 96ibid., p. 3.

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member states may even permit that part of the two thirds to be elected by the general meeting should be appointed by some organ ‘representing public interests’. " (ii) The supervising organ would be constituted as some sort of a self-perpetuating institution: it would invite its members itself, allowance being made for a period of rotation of six years. On the other hand the shareholders in the general meeting and the employees may - on pleading the interests of the enterprises, the shareholders and the emplo­ yees - veto the cooptation of any new member. In this case cooptation would become valid only if the veto were reversed by an independent public law agency appointed for the purpose.100 No special arguments have to be brought forward to come to the insight that whenever there is a case of critical problems or of the antagonism of workers and capi­ tal the chances to be settled by a division of the third representation of the employees would become for practical purposes nil. But on considerations of capitalist apologet­ ics the one third representation is good enough for capital to advertise the partial giv­ ing up or division of its positions for the other side by proclaming that the workers have been made its partners under company law, they are now ‘one of us’ (Sozialpartner) so that capitalism, expressed somewhat simplified, has ceased to be capitalism in its original meaning. Nobody, however, believes in earnest, capital in the least, that capitalism has cleared its own shadow. As indicated by experience, the various organizations of the working class, mainly the trade unions, have made use of the participation where this has been recognized by municipal legislation. The working class has had recourse to this means too in its political and economic struggle, however never in the belief that by this it would land in some sort of a socialism or it could waive the warfare against capitalism, as something superfluous. §12

The European Company (Societas Europae) — a new legal institution of the West-European economic integration

8 2 -5

The European Company in statu nascendi

82 The objective and essence of any enterprise institution, Community legislative action or idea so far outlined have been to open the gates for the legal units formed under municipal legal systems to free motion on a Community scale. By this, institutions, legislative actions or ideas have themselves become part and parcel of company law on a Community level or of so-called European or Community law. The units formed, however, in conformity with the particular municipal laws cannot forfeit their national allegiance as postulated by the municipal legal systems through this liberalizing Community legislation before the divergences by member states have dropped below a minimum critical level. This is, however, still in the somewhat remote future. On the other part the slow, still continuous process of integration or Europe­ anization of the municipal company laws conceived in this sense is to all appearance 9 9 Company Law Directives 5; Article 4 (1) (2), and p. 2 of the document referred to in Note 88 as regards the extraneous institution representing public intersts. 100Company Law Directives 5; Article 4 (1) (3).

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supplemented by another process. Notably not only may something happen through the agency of Community law means (e.g. freedom of establishment, recognition, approximation of municipal laws), but what happens may at the same time become itself an institution of law on Community level. Such an institution is the European law of cartels101* and within company law, the Societas Europae (SE) or by another designation the Statute for European companies and the convention on the interna­ tional (European) merger of companies. Since the latter - following the enlargement of the Community in 1973 - is still in the drafting stage, as the Commission says at the end of 197510 2. in the following part attention will be focussed on the Societas Europae. The European Company with its structure of European law is perhaps the instrument best meeting the formula of economic integration: it creates companies which, it will be seen, are not attached by any substantial ties to the municipal laws. The Statute of the European Company is a directly operating system of rules of Community level, its home is the Common Market as a whole as regards both its origin, operating rights, controlling mechanism and functions. 83 This legal novelty is as a matter of course also the expression of some sort of a determining factor in its contents, which it is not difficult to discover, for the EEC in its economic policy and policy of competition calls it by its name with accuracy. The point in question is that according to the managing organs and theoreticians of the EEC in West-European economy there is, too, in general need for concentrations on a larger scale than that already existing, and in certain branches of industry for big enterprises of American scale, and this partly for satisfying the growing demands of mass consumption, partly for the effective economic competition with non-European world monopolies. Since this aspect of the problem has already been discussed,103 in this connexion it may suffice to refer to an overture-like moment or two. ‘Size is the key to survival’ sounds the statement made by Agnelli the main shareholder and president of Fiat (Italy) the largest concern in the European automobile industry. He, too, explains the truth of his thesis by referring to the American challenge, the present conditions of the means of production, the process of concentration resulting from these and the need for competition.104 The point in question is therefore in the SE in the last resort the struggle of European ‘small’ big capital with American ‘big’ big capital for survival and better economic positions, for developed technology and better markets, finally for the increase of profit and other economic ends. 84 Before the framing of the Statute of the European Company the idea of the European Company itself has become through the settlement of a number of prob­ lems, a programme of legislation. Here only a few of the more comprehensive issues of the process of maturity of the problem will be touched upon. 101 See Chapters V and VI. 103 According to General Report 1970 (p. 54), a committee of the government experts of codification was supposed to forward the draft to the Commission and the Council in 1971; also see Schwartz 1, pp. 121-3; but the enlargement of the Community induced a redrafting of the Draft Convention in this subject matter (see Employee participation and company structure, p. 3), 10 3See supra Chapter II, paragraph 27. 104 See the writing ‘The Man Who Put Fiat Into High’ in Newsweek - Spotlight on Business, December 23, 1968; already in 1968 Fiat put 1.5 million cars on the market; by this it outstripped the Volkswagen, and rose to fourth place in the world’s motor car production.

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As has already been made clear. Articles 100 and 101 of the Rome Treaty decree that the Council of the Community will on the proposal of the Commission issue its directives on the approximation of commercial and company law. The articles in question do not expressly mention commercial and company law. They merely decree the approximation of such legislative and administrative provisions as directly affect the^operation of the Common Market. From a number of provisions of the Treaty, before all from Article 220 already quoted it is evident that what Articles 100 and 101 pronounce applies also to company law. There is, however, not a single word of the European Company in the Treaty. There were opinions sounded according to which the question of the establishment of companies and their free movement must be considered legally settled as soon as a convention came into being on the establish­ ment, merger and recognition of commercial companies, or as soon as the process of the approximation of municipal company laws was started. (The development of the process so far has been dealt with in Article 11 above). It became manifest soon, however, that the process was not so rapid as originally might have been thought and that for the actual integration some sort of a mobile European form of company law was needed until the approximation of the municipal company laws would be completed. The conviction grew ever stronger that the statute of a European large enterprise could become one of the most promising complementary institution to the approximated company law. The unity of the market and the unity of the legal form of the enterprises, in particular on the level of large enterprises have come to be accepted as natural (ist zur Selbstverständlichkeit geworden) writes Groeben. He continues by saying that economic cooperation on a European scale, the joint capital policy of the large enterprises, their rationalization, the development of production are unimaginable when our steps stumble upon the barriers of municipal laws.105 There were of course difficulties of economic policy of another kind, strictly speaking such of an opposite character. The one difficulty was to decide to what extent the particular member states should give up their national economy to the endogenous rational movement of big capital, or to what extent should a protectionist economic policy be applied without change. Like in a large drop the sea can be seen distinctly, this problem, too, is in sight in the cases Fiat-Citroen, or the earlier case Machine Bull v. General Electric. In both cases foreign large powerful companies with the advantages of their financial and technological appropriations drove the two less competitive French enterprises into a forced marriage. The French government for a long time tried to fend off foreign ‘intervention’ by a variety of means. As is known, in both cases the French government had to give in and compromises were reached. It is of interest to note that as will be seen (infra paragraph 85) the idea of a draft convention on the European Company Ltd was first brought forward by France and forwarded formally also to the organs of the Common Market. Among other difficulties of the nature of economic policy there is the French concept discussed earlier (supra paragraph 65) according to which foreign joint stock companies operating in the territory of the Common Market should not be allowed a

10 5Groeben 1, p. 1.

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share in the benefits of the planned unity of company law. Their movements should continue to be under the ruling of the municipal law of the member states. Considerable difficulties have been caused by the circumstance that certain rights of participation of employees and workers in the management of companies and enter­ prises differ in the statutes of the particular member states. There are of course several national and historical factors closely associated with class struggle in the background. Earlier the so-called Mitbestimmungsrecht was known in Germany only. Of late it has been made part and parcel of the policy of the French government conceived for the settlement of the political crisis of 1968, to grant certain rights of participation to the working collectives. Even so it was, and is still questioned by many whether the problem is part of company law at all. Finally the opinion has prevailed that worker participation is part of company law. A statute of the European Company ignoring this problem would have hardly been passed by the Economic and Social Committee and the Assembly (the European Parliament), to which by Articles 54 and 100 of the Rome Treaty the draft statute had to be submitted and where then political parties and the trade unions had their representatives.106 It is not only by chance that, when the European Parliament in July 1974 first discussed the Commission’s original proposal for a Statute of the European Companies of June 1970, the proposed amendments strongly emphasized a better consideration of the workers’ participation; this emphasis was even stronger when the Economic and Social Committee and the European trade unions presented their comments.106a It has become clear that the companies are not only economic and a shareholder business is increasingly stronger also within the Community. “In this period of econom­ ic and social tension”, as the Commission states, “in the current period of profound economic and social change in the world ... the interests of society are increasingly rela­ ted to wider considerations than economic efficiency” .106b This resulted (i) in a more general, although very vague, treatment of the whole complex called ‘employee partici­ pation and company structure’ generally in West Europe (as discussed above in para­ graph 52), and (ii) in a somewhat more substantial admission and regulation of the em­ ployees participation by the amended proposal for a Statute of European Companies. Another serious issue of economic policy was to decide enterprises on what level of association might become subjects of the European Company. It was proposed that the gates should be opened for access only to units well provided with capital. It was by no means an easy matter to decide where to draw the precise line. French joint stock companies as a rule operate with a low concentration of capitals and as regards joint stock companies only a recent act on companies has raised the minimum capital stock to 5000 000 francs. Still the law authorizes the formation of companies with a capital stock of only 100 000 francs, a sum considerably lower than the average capital stock of a West-German limited liability company (GmbH).107 The capital concentration in0 l0 *Rome Treaty, Articles 137-8, 193. 1oea European Company, Explanatory notes of the Commission to the Title 'Representation of employees in the S E \ p. 179, and the ‘Information’ of the Commission (Bruxelles, May 1975, p. 24) on the European Company, pp. 1 et seq. 1e ib See the Commission's statements in the ‘Information’ cited above, p. 3. lt>JGroeben 1, p. 4.

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the German economy is higher; even the 54 000 GmbH’s average stock capital totals at 500 000 DM, whereas the average capital of the 2500 joint stock companies amounts to more than 18 million DM. Obviously in the planned convention in the one way or the other the sphere of economic units - also with regard to their capital strength will have to be defined which could become subjects of the convention. The line must, however, be drawn fairly high while at the same time the interests that more and more joint investments should be channeled and helped by the European Company structure, the limits of capital and the access to this structure call for a possibly differentiated regulation. A legal problem by no means of minor order is the conversion of the planned convention to a municipal law. At the beginning it was thought that the Statute should be clad into an interstate convention (as will be seen in paragraph 85 below, the proposers of this idea have since changed their mind). Either the convention would embody the Statute itself, or the Statute would become an annex to the convention, which the member states would then have to enact on the strength of the convention. Here the provisions of the constitutional law of the member states differ widely from one another. According to the constitutional law of France, Belgium, the Netherlands and Luxemburg, treaties and international conventions qualify as directly operating sources of law. In Italy and in the Federal Republic of Germany the principle of transmission is in force. This means that after ratification the treaty or convention becomes municipal law, which on constitutional considerations may by a municipal legal act be even set aside. This problem will therefore have to be settled directly by the provisions of the interstate convention. The guarantee of uniform judicial practice to be developed on the ground of the con­ vention confronted the drafters with a specially difficult task to tackle. It was thought that the Court of Justice of the Community should be authorized to interpret the convention as the last instance. The professional literature unanimously took a stand for this expedient. In the course of interpretation, creation of law or the formation of new provisions was likely to take place the more because in the opinion of the literature a convention meant for eternity or one going into too minute details ran counter general interests, let alone that circumstances and also the various economic factors were liable to changes in the course of time and that allowance had to be made for the dynamic development of economics. On the other side there were the statics of the firm rules of the convention. Except for possible amendments of the convention it was solely practice that could therefore resolve any contradictions. The Court of Justice of the Community has two forms and two ways available for the development of judicial practice. One of the forms is interpretation, the other the filling of the gaps in the law. As for the ways the one is to proceed in a concrete case under a contract, the other is, after the exhaustion of all municipal legal remedies, to take position as last forum, ex lege, Le. by authority conferred upon the Court by the convention, in matters of the interpretation of the planned convention and of filling gaps in it, if any, so to say in the form of preliminary rulings as outlined in Article 177 of the Rome Treaty. 85 As told by the brief chronology of preparatory work for the formulation of the convention, various circles of economy and jurisprudence raised the idea of the 96

creation of some sort of a uniform type of society as early as 1959-1960. The Commission itself took the matter up in 1964. A decisive impulse was given by the French government when in its note of the 3rd March, 1965 in a concrete form it proposed that the legislatures of the member states should promulgate the uniform law (loi uniform) of the European Company, as framed by the EEC and the govern­ ments. On the 22nd April, 1966 the Commission studied the legal forms available for the analysis of the Statute of the European Company. In its decision the Commission gave priority to the mechanism of Community law. This meant that instead in the form of an international convention as proposed by the French government, the Statute would be promulgated as a regulation of the Council. At the request of the Commission, Professor Sanders of Rotterdam assisted by national experts submitted a preliminary draft of the Statute of the European Company, which, as to the source of such a law, was still based on the principle of an international convention. After the comments of a working committee and of others the Council authorized the Commission, in 1968, to take action for speeding up and completing codification. The Commission at this juncture decided to prepare a draft of its own. It approached Professor Lyon-Caen to give an expert’s opinion on the ways and means of employees’ participation. The expert’s opinion was through the Eco­ nomic and Social Committee and other circles put up for discussion by the parties concerned. On the 30th June, 1970 the Commission for approval and promulgation submitted the draft regulation on the Statute of the European Company to the Council, after approving it on its own part on the 24th June, 1970. The Council, on the 9th June, 1970, discussed the Werner report where the approval of the Statute figured among the first rate agenda.108 To define the form of the legal source, Le. the authority to promulgate the Statute as a regulation of the Council, Article 235 of the Rome Treaty was eventually invoked by the Commission. This Article in general vests powers in the Council to take action for the achievement of the objectives of the Common Market, on proposal of the Commission and by consulting the Assembly, even when no specific powers have been conferred on it in the particular matter. The Commission was of the opinion that for the operation of the Common Market and the development of the economic union “the only solution capable of effecting both economic and legal unity of the European undertaking is .. . to permit the forma­ tion . . . of companies wholly subject to a specific legal system that is directly applicable in all the Member States, thereby freeing this form of company from any legal tie to this or that particular country” .109 This conviction was repeated also in the preamble of the amended proposal for a regulation for a Statute for European companies submitted to the Council on 13 May 1975.109a This new version shows significant changes, following to a large extent, the advice given by the European Parliament in July 1974, and the opinion given by the Economic and Social Com108For the chronology see European Company, p. 1, General Report 1970, pp. 5 4 -5 , Europäische Aktiengesellschaft, Note d’information, 29/1, Brussels, June 1 -2 , 1970, Sanders draft, Introduction to. 108European Company, freamble of the original (1970) version; General Report 1970, pp. 54-5. 10 *aSee European Company. 7 Midi

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mittee at the end of 1972,109b but account was taken also “of the view of numerous business associations and trade union organizations and of the theoretical considera­ tions” .109c A very important motive of adjustments or rearrangements was of course the new ‘infusion’ provided by England’s common law legal approach and tech­ niques.109d As to the nature of the ‘self-development’ of the Statute from 1970 till 1975, the amendment — the motions thereto coming from the mentioned sources — may be grouped, very roughly, in three categories, (i) Technical changes of minor importance, (ii) Amendments of economic, legal and partly also political significance (such as more differentiated access and minimum capital rules to enable this European way also for entities other than joint stock companies, i.e. sociétés anonymes; a proposed regula­ tion of 1970 refers to their taxation, merger and acquisitions procedures, etc.).The most spectacularly emphasized rearrangements are those of the employee participa­ tion, amendments considered as having ‘high political significance’. 109e (iii) Part of the ideas of that ‘new vista’ mentioned above (paragraph 52) are meant to materialize. Instead of looking for the various actual differences in the two versions, what we do not have space for, let us see the amended Statute, which for the time being is the only one. What does it bring for the matters mentioned and for others? 86

On the Statute o f the European Company in general

86 A brief look at the Statute may suffice to gain an idea of its system. The Statute is formed of 284 Articles in addition to the Preamble and four Annexes. The 284 Articles are split into fourteen titles, these again are subdivided into a varying number of sections and sub-sections. From this - and from the structure as given infra110 - it will become evident that »0 9bEuropean Company, Preamble, p. 11. 109CIbid.f Explanatory notes, p. 141. 109(*lbid., Explanatory notes, p. 141. 109eAlso for the categories mentioned see the ‘Information’ of the Commission to the Council of May 1975, p. 24; see also European Company, pp. 3-4. 110 Broken down to chapters this structure offers the following picture (the Roman numerals indicate the titles, the Arabic numerals indicate sections (in brackets the article numbers): I. General Provisions (Articles 1-10); II. Formation: 1. General, 2. Formation by merger, 3. Formation of a holding company, 4. Formation of a joint subsidiary, 5. Formation of a subsidiary by an SE (Articles 11-39); III. Capital - Shares - Debentures: 1. Capital, 2. Shares and the rights of shareholders, 3. Debentures, 4. Other securities (Articles 4 0 -6 1 ); IV. Governing Bodies: 1. Board of management, 2. Supervisory board, 3. Special obligations applicable to members of the Board of Management, the Supervisory Board, the auditors and principal shareholders, 4. The General Meeting, 5. Special supervision of the governing bodies (Articles 6 2 -9 9 ); V. Representa­ tion of Employees in the European Company: 1. The European Works Council, 2. The Group Works Council, 3. Representation of employees on the Supervisory Board, 4. Regulation of terms of employment (Articles 100-47); VI. Preparation of the Annual Accounts: 1. General provisions, 2. Classification of the annual accounts, 3. Valuation rules, 4. Contents of the notes on the annual report, 5. Contents of the annual report, 6. Preparation of group accounts, 7. Audit, 8. Approval of the accounts and report, Appropriation of profits and publication, 9. Legal proceedings in respect of the annual accounts and report (Articles 148-222); VII. Groups of Companies: 1. Definition

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here we have a comprehensive regulation of the volume of a code which with only residual reference to municipal law as limited in Article 7 is meant to become a real Community law source for the solution of any issue emerging in association with the European Company. The source from which the solution of questions may be derived is in all cases the Statute as interpreted by the Court of Justice of the Community. According to Article 284 “this regulation shall be binding in its entirety and directly applicable in each Member State” . Article 7 expressly states that matters not dealt with in the Statute shall be resolved in conformity with the general principles on which the Statute is built. Literature so far published is of the opinion that this method will be practible inasmuch as the regulation of the Council promulgating the Statute is in its interrelations, both horizontal and vertical, sufficiently compre­ hensive.111 Even if the Statute is for its volume short of the new law of the Federal Republic of Germany with its 410 Articles governing the joint stock companies112, still on the whole it is on par with the new French company law of 310 Articles.113 The definitive wording of the Statute of the European Company as agreed on by the Commission in 1975, if not in its structural elements so in its content, differs considerably from the first proposal, as mentioned above, and of course also from the draft of Professor Sanders.114 For the subsequent analyses as a matter of course the new wording has been used. 87-94

Europeanisms in the Statute: peculiarities and relevances

87 Under this heading, beyond what has been made clear in paragraphs 8 5 -6 supra, namely, that the Statute itself is a phenomenon typically of European law, stress will be laid on some of the provisions or traits which turn the European Company into something specifically European, something specifically of the Common Market. and scope, 2. Publicity, 3. Protection of outside shareholders, 4. Buying-out of outside share­ holders, 5. Protection of creditors, 6. Instructions and liability, 7. Special rules regarding group relationships in existence prior to the formation of the SE (Articles 223-40); VIII. Alteration of the Statutes (Articles 241-6); IX. Dissolution, Liquidation, Bankruptcy and Related Pro­ ceedings: 1. Dissolution, 2. Liquidation, 3. Bankruptcy, winding-up arrangements and similar proceedings (Articles 247-63); X. Transformation (Articles 264-8); XI. Merger: 1, General Provisions, 2. Acquisition by an SE, 3. Acquisition of an SE by a company incorporated under national law, 4. Merger by formation of a new limited liability company under national law (Articles 269-74); XII. Taxation: 1. Formation, 2. Tax domicile, 3. Permanent establishments and subsidiaries (Articles 275-81); XIII. Offences (Article 282); XIV. Final Provisions (Articles 283-4). Annexes: I. National employees representative bodies; II. Rules for the election of members of the European Works Council; III. Rules for the election of employees’ representatives to the supervisory board; IV. Penalties for infringements of the Statute. 111 Sanders, pp. 29-30. 112 Aktiengesetz vom 6. September 1965. Bundesgesetzblatt, Teil I, Nr. 48. 11. Sept., 1965. *13Décret No. 67-236 du 23 mars 1967 Sur les sociétés commerciales. Journal Officiel, 24 mars 1967, p. 2843; still if to these the Articles 703-39 of the reform Act No. 66-537 of July 24, 1966 on the joint stock companies are added which, in comparison with the décret quoted earlier is merely an implementing regulation, then the volume of the French codification exceeds its West-German counterpart. 11 4See Sanders, pp. 29 et seq. 7*

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The name, European Company (Societas Europae; SE) is part and parcel of the essence of the Statute. As a matter of fact by Article 1 this designation may be used only by commercial companies, which have been formed in conformity with the present regulation in the territory of the EEC. 88 There are, however, elements which are by far more essential, elements of which the name is an expression only. One of these essential elements is that the home of the European Company is if not the world at large so at least the whole EEC. However approximated may be the municipal company law of a country, it will terminate at the frontier of that country, and therefore companies formed in conformity with the forms of municipal company law will in their form extend only to the frontier line. On the other hand by Article 1(4) of the Statute, “in each Member State and subject to the express provisions of this Statute, SE shall have in all respects the same rights and powers as a company limited by shares incorporated under national law” . As emphasized by the motivation of the Commission these rights extend to authorizing the European companies to operate in any branch of industry, contract loans, issue securities and have them listed at the stock exchanges. On the other hand the Statute does not guarantee a preferen­ tial position to the European Company. Nor can it for the purpose of economic competition enjoy rights other than those vested in other commercial companies.115 89 An essential Europeanism of the Statute is its system of conditions relating to the sphere of subjects. This system defines the economic units which may create a European company limited by shares. According to one of the conditions only commercial companies formed under the law of the member states may found a European Company, and this only when the founders represent the legal system of two member states at least. Hence the com­ mercial company of an extraneous country cannot take part in the formation. Nor can the association of companies registered in the same member State take on the form of a European Company, except when a European company in being takes part in the association.116 By this provision the last world has been said in the dispute whether or not companies formed under the law of a third country could take part in a European company,117 a concession sponsored even by the Sanders Report, in the back­ ground of which again American concerns loom up. The European company has decided to remain a company of Europeans, at least formally. In conformity with the second group of conditions, at least concerning the proposal of 1970, as expressed by Article 2, the founder companies had to be joint stock companies, i.e. sociétés anonymes in the French, or Aktiengesellschaften in the German legal meaning. Domestic commercial companies may as a matter of course be formed also by natural persons or other units of legal personality such as limited liability companies, other organizations, units operating under public law, etc. In 1970 the opinion prevailed that to admit to the European Company other than joint stock companies would introduce several complexities (the regulation of the minimum 115European Company, Proposal of 1970, Notes to Article 1, p. 10. 116Ibid., Article 2. 117 Sanders draft, Title 1, Article 2, Sanders, p. 31.

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system of conditions of the various municipal forms of companies in the Statute, the complications and cumbersomness apt to arise in the exercise of the controlling powers vested at the formation in the Court of Justice of the EEC, etc.), so that the Commission preferred to choose the simpler, from the point of view of procedure smoothly operating solution. The Commission acted also on the understanding that if a commercial company not organized as a joint stock company, e.g. a limited liability company, was desirous to become member of a European Company, this had to be transformed in conformity with municipal law first into a joint stock company, a procedure involving no particular difficulties.118 In the new Proposal of 1975, however, “at the request of the European Parliament and the Economic and Social Committee, access to the legal form of a European Company has been extended” .118a The chance has been given not only to joint stock companies, but also to “companies having legal personality, including cooperative societies.. . and other cooperations governed by the public or private law of a Member State” ; but this chance of the so-called ‘others’ is limited to form a joint subsidiary SE only.119120 According to what has been set forth for the purpose of ‘Europeanism’ the following conditions hold for the formation of an SE: a European Company may be formed - by companies limited by shares registered in two member states at least, in the form of merger, or by forming a holding company or joint subsidiary company; - by a European Company jointly with another European Company or with a limited company registered in a member state, by merger or by forming a holding company; - by an SE in the form of a subsidiary company, - by other such legal persons as cooperative societies and other cooperations in the form of subsidiaries; - by an SE together with the mentioned ‘other’ companies in the form of joint subsidiaries. 90 Public law control, Le. ‘state’ control in general brought under detailed regula­ tion in the company law of the various countries, under municipal law exercised by the domestic courts of registration, has for the European companies been entrusted to the Court of Justice of the EEC. All essential documentary matter of the European Company (the document of constitution approved by the founder companies, the statutes of the founders and of the European Company to be formed, the opening balance sheet, the balance sheet notes, the auditors report, the composition of the first Board of Management and the first Supervisory Board, decisions on merger or dissolution, etc.) has to be forwarded to the Court of Justice.120 The Court of Justice submits these documents to a scrutiny. If anyone of the documents, or the procedure represented by it, is not in agreement with the provisions of the Statute, the Court of

118European Company, Notes to Article 2, pp. 10-1. 1188European Company, 1975, Explanatory notes, p. 141. 119European Company, 1975, Article 3(2). 120Ibid., Formation, General Provisions, Article 11 et seq.; Alteration, Article 244; Dissolution, Article 250; Bankruptcy, Article 253; Transformation, Article 266; etc.

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Justice calls up the parties concerned to institute a new procedure or to deliver a new document. In the last resort the Court may deny registration, or refuse to enter the document in question in the European Commercial Register. As is known from company law in general, by this the documents or actions in question will become invalid. By way of exemplifying these powers of the Court permeating the Statute reference may be made to Article 17. In this Article, as regards formation, the Statute declares that “the Court of Justice of the European Communities shall examine whether the formalities required for the formation of the SE have been complied with. .. . The Court of Justice may require the founder companies to provide all the information it may need” . As may be seen the Court of Justice of the EEC has been granted considerable freedom for deliberation. It has an important role and extensive competence in determining the conformity of company acts with the rules. As indicated by the reasons given by the Commission, there was extreme need for this expedient. The reasons are: “ .. . because it is essential that a central court ensures, on a uniform basis wherever the Statute applies, that the prescribed conditions for the formation of undertakings in a standard legal form are observed.” 121 91 The principle of publicity, too, prevails in a ‘European’ way.122 Publicity manifests itself in two more significant forms.12 3 (i) All documents which - through the intervention of the court of registration, or without it (Le. the essential elements of company life in general) - have to be made publicly known, have to be published in the Official Journal of the EEC.124 Thus e.g. according to Article 19 of the Statutes constituting condition of the formation of an SE is the publication of its entry in the European Commercial Register, in the Official Journal of the Community.12 5 (ii) This ‘European’ publicity does not, however, supersede the obligation of the publication of essential facts as decreed by municipal law, or in the words of the Statute: “All notices concerning the SE shall be published . . . in the official publica­ tion for company notices in the Member State in which the SE has its registered office and in a daily newspaper circulating in that state .. -” 126 92 Of the ‘Europeanisms’ mention should be made of the amount of the capital and the method of its designation. Although the minimum capital has been lowered in the 1975 Proposal (to enable the access of the newly admitted ‘other’ company categories mentioned above, and also that the constitution of the various types should not vary too greatly), its size is still at a higher European standard than that of the national laws in this respect. For mergers or the formation of a holding company the amount of the capital is 250 00U units of account, for a joint subsidiary company 100 000 units of account,17 171 European Company, 1970, Notes to Article 17, p. 24. 17 7Namely, in general, by the introduction of Community level means and ways of public control. »23European Company, Articles 8, 11 er seq.. Articles 244, 250, 263, 266, etc. >74Ibid., Article 9. »7 5Ibid., Article 19. *76Ibid., Article 91; in the Proposal of 1975 the very last obligation (the publication of notices in a daily newspaper) has been dropped.

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for a subsidiary company 100 000 units of account, which has to be paid up fully.12 7 This minimum capital stock is substantially in excess of what the municipal company laws decree.128 The reason lies in the objective of the Societas Europae, ie. that the capital stock should act as an incentive to the large European concerns, with the reinforcement of their financial standing as its end. This of course demands consider­ able assets. Accordingly the domain of the Societas Europae will become —at least the really big ones — the exclusive club of the strongest European big capital. It is not unlikely that this will develop to the club of European multi-millionaires, as recorded by the magazine Fortune annually.12 9 The original idea, as stated in the Sanders draft, was to raise the amount yet higher, in general to twice that figuring in the Proposal of 1970 (500 000, 250 000 and 100 000 units of account for the forms mentioned above). The Commission, however, as subsequently approved also by Sanders, preferred to lower the minimum capital, in order that “this form of international cooperation might become available also for medium-size or even smaller companies” .130 As could be seen the Proposal of 1975 made another step further, really in the direction of this last philosophy. The minima capital have been defined by the Statute in terms of units of account. This again is a Europeanism. The unit of account is namely the uniformly applied basic rate of EEC transactions (budget, forms of subsidies, the various settlements, the accounting order of the European Investment Bank, etc,). This is of course not a means of payment, a legal tender, only an accounting unit behind which in the real transactions in all cases the national means of payment will appear converted at the rates in force at any time. The Statute uses the unit of account not only for determining the capital. While Article 1(2) declares that “the capital and the shares of the European Company shall be divided into shares” , Article 40 adds that “the capital of the SE shall be expressed in the European Community units of account or in the currency of one of the Member States” . 93 A specially peculiar Europeanism of the Statute is embodied by the separate Title XII ‘Taxation’. In the opinion of the Commission this Title has been taken up in the Statute because for both the taxes of foundation and the profit tax, the existing large national enterprises, their affiliations and subsidiaries in another member state are governed by widely divergent fiscal legislation. This circumstance and the risk of dual taxation may become the cause of special problems as far as the European Company is concerned. Since the European Company is meant to be Stateless it calls123 12 nIbid.t Articles 4, 40. 12 8According to French law the minimum capital stock of a joint stock company is 100,000 francs, ie. 20 per cent of the amount established for the European Company. Under West-German law the minimum capital stock is 100 000 DM, a sum little in excess of the capital established for the French Company; the Italian Codice civile prescribes one million lire, ie. scarcely 2000 US dollars. (See Jura Europae - Droit des Sociétés, 30. 10. 28, 10. 10. 6 and 40. 10. 18 and the provisions here referred to: Article 71 of the French Act of July 24,1966 ; Article 7 of the German Aktiengesetz of the 6th September 1965; and Article 2327 of the Italian Codice civile.) 199 For the analysis of the data concerning the ‘over-a-billion’ companies in Europe see the annually published Fortune Directories of the American and non-American largest industrial companies. 13 0Sanders draft, Title I, Article 3, Sanders; pp. 31-2.

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for a settlement of the problem making allowance for this circumstance, yet not fora privileged treatment.131 Instead of setting forth the leading idea of the settlement in all its details,132 here ~ on the plea of what are called as European peculiarities - shall refer to some of the interrelations only. One of these is that for a formation of a European holding comp­ any in conformity with Article 275 the issuance of the shares in exchange for the shares in those companies who form the holding company is not subject to taxation. Else in conformity with Article 276 under fiscal law the European Company will be deemed to be resident in the member State where its centre of effective management is located. In this State the company’s profits will be subject to assessment. If a member State shall have doubts in this connection, it may apply to the authorities of the member states concerned to take action. In conformity with paragraph 4 of Article 276 in default of an agreement of the parties concerned the matter has to be referred to the Court of Justice, whose decision shall be final. 94 Finally there remains a single ‘Europeanism’ to be dealt with. Namely that the Statute has a chapter on criminal law. Unlike the municipal legal systems133 the Statute carries specific criminal rules. Articles 282 and 283 of the Statute namely declare that the member states within six months reckoned from the date of the Statute’s coming into operation have to incorporate in their legal system the provisions which hold out penalties to conducts defined in the Annex of the Statute. Thus the Statute is void of ‘European company criminal law’ of its own, still it defines autonomously which of its institutions and principles have to be protected by means of fines and penalties, and how. What has been left to the member states is to take care of finding a place for the rules in their legislation and of the enforcement of these rules, either by criminal proceedings or in some other way. Although on this under­ standing the legal technicalities will become tied to the municipal legal structure, the Statute will nevertheless retain some of the force of a source of law also in this respect, (i) It will be the source of the obligation of the member states to incorporate in their legal system the appropriate means, (ii) The Statute will be invoked when in the procedure it comes to interpret the forms of conduct enumerated in the Statute or in the Annex to it. In such and similar cases obviously a preliminary ruling will have to be pronounced by the Court of Justice, as following from what has been set forth in Article 7 of the Statute and the notes on this Article.13 3a The offences enumerated in the Annex among others imply the following: willfully erroneous information supplied by the representatives of the governing bodies of the founder companies, or the non-disclosure of essential circumstances concerning the 131 European Company, Title XII, and Proposal of 1970, Notes to Title XIII, pp. 213-5. 132For details seeMàdl 13, Chapter VI, paragraphs 193-8. 13 3 To the minuteness of detail of the penal provisions of French company law see the relevant provisions of the Company law of July 24,1966. With its differentiated provisions it even goes be­ yond what is generally known as German thoroughness (in particular see Articles 428-88). The new West-German Act on joint stock companies of September 6, 1965, in Part III deals with company criminal law. In articles 399-408 it holds out a less differentiated system of sanctions to the specified cases of the infringement of the provisions of the law. 13 3European Company, Proposal of 1970, Notes on Article 7, p. 15.

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foundation (amount of capital, number of shares, valuation of capital subscriptions in kind, the privileges of the founders, etc.)\ the supply of misleading data for the increase or reduction of the capital of the SE; the issue of shares before they have been paid fully; any culpable conduct of the representatives of the governing bodies of the SE which may lead to distortions at the election of the governing bodies or in the balance sheets and annual reports.134 95

On some institutions o f the Statute

95 It would lead us too far if we wrote on all institutions of the Statute. As a matter of fact the Committee text itself is printed on 223 pages. Perhaps, it would not even be necessary to speak of all of them. Partly because the European Company itself is a company limited by shares as stated in Article 1 of the Statute. The legal structure of a company limited by shares can in general be assumed known. Notwithstanding, there are several novelties and peculiarities, in the Statute. Such are e.g. the specific types of formation (the special structure of the merger, the holding company and the sub­ sidiary company), the conditions of ‘Europeanism’ at the foundation, attempts at a comprehensive regulation of the concern unprecedented in capitalist company law, the peculiar European composition of the system of the governing bodies, the rather reserved - although in the Proposal of 1975 substantially extended - 134a legalization of the employee participation, the integration of the agreement of collective bargain­ ing in the elements of the formula of company law, etc. The analysis of such and similar questions may be welcome for the demonstration of the tendencies in company law brought about by the given economic laws and notions-ideas of contemporary capitalist economic policy, or for the prognostications justified by recent devel­ opments. Unfortunately for reasons of space this demonstration has to be waived.135 The only exception is the European Commercial Register, the prognosis of which is worth to deal with briefly, because in accordance with the Statute of the European Company it would extend not only to the European Company, it might become an institution of registration under company law of a more general nature.

134European Company, Annex IV, Items I-X II. 13 4aTo this problem see supra paragraph 52 further the green paper Employee participation and company structure, pp. 1 et seq., especially, however, the relevant new parts of the Proposal of 1975, European Company, Title V, and Annexes I-III. 135The Hungarian edition of this work deals in detail with these questions, see Chapter V, paragraphs 139-48, in Màdl 13. For the literature on the regulation of groups, concerns, see Wiirdinger, pp. 25 et seq.

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§13

The European Commercial Register

9 6 -8

Ideas and reality

96 There remains another problem of major importance the solution of which - as may be seen from what has been said in connexion with the formation of the SEs has been tried by the European Economic Community parallel to the Statute of the European Company, viz. the simplification and the unification of the registration of European companies. Publicity of the appropriate extent is one of the preconditions of security of investments, extension of credits and other financial operations by nat­ ural and juristic persons. If it is now assumed that the motion of capitals extends to the territory of the Common Market, then it will have to be proper to assume that the data of registration of a firm having its headquarters in Brussels should be known with accuracy also to a firm with its head office in Naples or Marseilles. This presupposes the formulation of the minimum standards of registration, access to them in the appropriate languages, and what is perhaps the most important, the creation of an appropriate organization for the purpose. Rotondi, in a paper dealing with the interests of the Common Market, reiterated one of his earlier statements, namely that for the development of international economic relations on company level the organization of international registration could not be postponed any longer.136 In literature and positions taken on the subject matter137 the outlines of an international convention or Council regulation begin to loom up, which at least in the territory of the Common Market promises the settlement of the problem in the one way or the other. 97 What facts are promised by the assumptions which have so far appeared in professional literature? It may be taken for granted that a possible international structure will not interfere with the system of the domestic forums of registration. Literature already speaks of the ‘peaceful coexistence’ of the two systems of registra­ tion. The organizational institutions to be created, irrespective of whether these will operate as autonomous organs or as some sort of intermediate elements between the users (i. e. the companies) and the information centres already in being, will have to be capable of the high-speed transmission of information. In addition, the institutions will certainly be less expensive than the ones the present system provides. As suggested by literature, the best possible solution would be the creation of a European centre which would register the data of enterprises, commercial companies, etc. operating in the territory of the member states, in several languages. These data would be the simple, yet multi-lingual duplicates of the standardized data of registra­ tion of the national registration centres. At a written request the registration centre would provide any information available at the centre. Consequently registration should be an open one, that is of the nature of public records.

13 6See Rotondi, pp. 641 et seq. 13 7See Rault, Rotondi, Sanders.

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In principle and also in practice the costs of operation of the centre would have to be borne by those making use of it. The services would be extended against a consideration to be established and payable by the beneficiaries. The question of the rights to be vested in the centre, le. whether supervision exercised over the public relations of enterprises should be a judicial or an administrative one, appeared to be easier for the authors to tackle. Notably, opinions are sounded that this competence, Le. supervision should be left with the municipal courts of registration, and as has already been made clear, the European centre of registration should in this case store only legally determined and controlled data and transmit these to its clients. For this function no administrative or judicial competences would be needed. There are authorities who are of the opinion that a member of the Community Court of Justice should be entrusted with the higher supervision of the centre. Finally the question was raised whether registration at the European centre should in general be made condition of the validity of the contract or document of constitu­ tion, Le. of the qualification of the company as a commercial one. It is a matter of common knowledge that in the near future the Community will in this question hardly adopt such a course. Namely, to such a step before all the relevant question should be determined in a uniform manner. Still not only this is needed. In the whole terri­ tory of the Common Market veritable courts of registration, or administrative institu­ tions corresponding to these, should be organized for public law control and super­ vision, powers which similar institutions exercise within the framework of municipal law. It follows - by the writers - that the initial step ought to have been taken in organizing the cumulative storage and organized transmission of the data of the munic­ ipal centres of registration, whereas the probative force (the legal probative force of the register) would remain with the municipal institutions of registration. 98 Now it is exactly this non-supposed course which the EEC has notwithstanding adopted, at least as far as the Europen Company is concerned: if there is a European Company, there should also be a European Commercial Register, and if there is a European Commercial Register, then it should be vested with the same rights and operate on the same conditions as are usual in institutions of this type. This is stated by Article 8 of the Statute of the European Company when it declares: “Every SE shall be registered in the European Commercial Register at the Court of Justice of the European Communities” . And this has been stated also by the Commission when it informs the world - although implicitly, but decidedly by referring to such an insti­ tution in the SE Statute systematically —that it has already been working on the draft of the Council regulation creating the European Commercial Register and bringing under regulation its operation. This can no longer be postponed and all the less so as with the coming into force of the Statute of the European Company there will be need for a register on the strength of the Statute.138 From the Statute of the European Company much may already be inferred as to the actual functions of the European Commercial Register. What is made clear by the

13 8See the ‘inducing’ Articles there, e.g. 8,11.

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Statute is before all that the Commercial Register has to be organized at the Court of Justice of the Communities (Article 8), for the validity of company acts of major importance their entry in the register is required,139 registration has to be made in general by virtue of the decisions of the Court of Justice of the EEC, the entries in the register have probative force, in the member states branch offices of the European Commercial Register should be organized, where the data of the European companies operating in the respective member state would also be on record. Any data of companies limited by shares to be converted into European companies which are de­ posited with the competent local courts or registers should be deposited with these branch offices, and the register has to be public.

13 9Formation, statutes, seat, capital stock, founder companies, name of the members, any modifications, balance sheet and balance sheet report, allocation of profits, bankruptcy, merger, winding up, forming of groups, concerns, etc.

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Chapter V The economic competition in the integration by integrated legal structure

§ 14 Sceptical overture and the instruments of the law of competition 99 Sceptical overture 100-1 The law o f competition in the strict sense o f the term (anti-trust law) anc^ its instruments 102-3 General analysis o f the development so far § 15 Cooperation contracts and cartels 104-6 Confusion and reality about the notion o f the cooperation contract and the cartel 107-13 The cooperation contract in practice § 16 114-6 117-8 119-20 121-3 124-5

§ 17 126-8 129-30 131-3 134-8 139-45

§ 14

99

Agreements in restraint of trade - the cartel The cartel in legislation Cartel regulation in general context Cartel legislation and practice in figures and the scope Competition policy and anti-trust law in practice: (a) Extent o f the prohibition o f cartels; degree o f the perceptible effect o f cartels Competition policy and anti-trust law in practice: (b) Main lateral arms o f the legal channels Concentration and dominant market position (monopoly) Optimum size? The form s o f concentration The dominant position in EEC legislation Dogmatic problems o f the Regulation in the controversy o f theory and practice Results in facts: Parturiunt montes e t . . .?

Sceptical overture and the instruments o f the law o f competition

Sceptical overture

99 “It is 1978 and by this time every company west of the Mississippi will have merged into one giant corporation known as Samson Securities. Every company east of the Mississippi will have merged under an umbrella corporation known as the Delilah Company. It is inevitable that one day the chairman of the board of Samson and the president of Delilah would meet and discuss merging their two companies . . . The Anti-Trust Division of the Justice Department studied the merger for months. Finally the Attorney General made this ruling: ‘While we find some drawbacks to only one company being left in the United States, we feel the advantages to the public far outweight the disadvantages. Therefore, we’re making an exception in this case and allowing Samson and Delilah to merge’.” 1 1Quoted from A. Buchwald's satire on ‘competition law’. Washington Post, 2nd June, 1966.

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This quotation of Buchwald lends itself readily as the inaugural address to the discussion of the law of competition. Art Buchwald in his book And then I Told the President and in his other satirical writings known the world over2 has told not only the President but also the world and the experts of the professional field and not only in issues of general politics, but also in a number of wholly special issues, so also as regards the question to what extent the law of competition imposing limitations on concentration can be considered as a real remedy: what is the truth in the question of law of competition v. concentration, Le. what is the anti-trust law of the United States worth, the law which government policy and the literature is looking to for being the saviour. Both are in the belief that this law will stem the drive of big capital and the monopolies for absolute power, that fair competition might be saved, and that fair competition will also save the fairness of the economic system. It would be something in the line of fortune-telling to predict whether or not the vision of Art Buchwald will come true, if so, certainly not in this extreme form. Truly, the vision wants to be merely the allegory of a process. In all probability other historical, if not exclusively or overwhelmingly immanent capitalist, forces will come and they will, after all, throw obstacles in the way of such contingencies. It remains a fact, however, that under the conditions of the new scientific-technical-industrial revolution economic concentration gains in momentum today even at places where owing to warfare and the combined effects of a number of other factors concentration went on at a slower rate, so before all in West Europe. “The euphoria of concentration and mergers is spreading over Europe”, writes von der Groeben,3 who is even more competent in the matter than Art Buchwald. In fact he was for a long time member of the Commission of the European Economic Community, the head of the Directorate-General for Com­ panies and Competition and at the same time one of the most prominent writers on European company and competition law. Although since 1963, the date of euphoriastatement of Groeben, there have been years passed, when, e.g. between 1969 and 1972, ‘the level of concentration did not change substantially’, this is not a thoroughly convincing comfort extended to the Community by the Competition Policy Report 1976 of the Commission: (i) because it is not covering all industries; (ii) because it is limited to a three years’ period only; in fact the same Report had to admit that “in 1973 and 1974 the number of national and international concentration operations in the Community continued to rise”; (iii) the Report is frank in submitting the general conclusion: “throughout the Community, the absolute level of concentra­ tion measured on the sales variable is generally fairly high” , with the rather weak self-comfort that, as referred to, the relative growth of concentration is less dramatic. The striking facts could not relieve the Commission and the Council of their repeated commitment - as can be read e.g. in the Introduction of the Report in question - to intensify their work on the regulation of the concentration3a. But future is hard to be foretold. For the time being we shall have to be satisfied with the recognition and 2 A volume of his selected writings has been published also in Hungary (‘All Is Quiet in Zemululu’. Kossuth Kiadô, Budapest 1969, 288 pp) most of them taken from A nd then I Told the President. 3 Groeben 2, pp. 102-3. 33Competition Policy 1976, pp. 9,118 and 140.

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analysis of the development that has been attained so far and which can be considered as real facts. After all it is not without any interest to closely study how present-day Western economic and legal policy and bourgeois jurisprudence, before all the law and juris­ prudence of the European Community, are - in the institutions of Community com­ petition law, integrated from the municipial laws of competition and enriched so as to suit the demands of the integration - struggling with the vision of Art Buchwald and how efforts are being made to forge a successful economic policy of Groeben's eu­ phoria. 100-1

The law o f competition in the strict sense o f the term (anti-trust law) and its instruments

100 Figures indicate that concentration has already grown to considerable proportions in West Europe, that the process is gathering momentum and that together with this process it still has to catch up in the competition with concentration on an American scale.4 The chapter dealing with the pragmatic economic policy of the Common Market has made it clear that the economic policy of the Common Market partly makes efforts to increase concentration and to encourage the movement of enterprises and their cooperation on a European scale; on the other part this policy seems to be intent on preventing the market activities of the enterprises on a Community scale, in both company-merging and contractual cooperation (in cooperation and cartel agree­ ments), from leading to the over-organization of the market in the private capitalist style and to the suppression of market competition, being this the decisive regulating system of capitalist economy.5 Chapter IV has dealt with the institutions of Community law which have been designed to serve the enforcement of one of the postulates of this scheme of economic policy, namely concentration, and the movement and cooperation of enterprises on a European scale. These, too, are elements of the wider notion of econimic competition. It is namely a feature of economic competition of the dimensions of the integration that equal chances should be offered to enterprise concentration and movements throughout the whole territory of the Community, i.e. that a uniform or harmonized legal framework should be available. The present chapter, however, discusses the Community legal means (European anti-trust law) to which recourse may be had for the enforcement of the second postulate of the scheme, Le, the preservation of free competition. 101 The Community legal institutions to be dealt with here are the indirect means of the law of competition of the EEC. These institutions embrace all norms or rules (and as a matter of course their practice) whose purpose is with their organizational functions, the potentialities implied in them and the setting of barriers, if necessary, to shape the contract for cooperation, the cartel and the undesirable dominant market position (monopoly) to the likeness of free competition, to ‘conformity with the 4See Màdl 13: Chapter II, paragraphs 2 7 -3 0 and 38-41. *Ibid, pp. 26-8. Il Ill

Common Market’. The law of competition in the narrower meaning of the term includes the EEC normatives and the practice developed within their sphere of operation which are meant to block international cartels and monopolies (even such as have not been formed with exlusive EEC participation), further the rules concerning Community or state enterprises and other Community or state direct economic operations (government orders, subsidies). However, these would, owing to their peculiarities and volume, go beyond the scope of the present chapter, therefore they will form the subject matter of other chapters.6 In its chapter on the law of competition the Rome Treaty deals also with dumping (Article 91). The study of the question of dumping will, however, be omitted in this connexion on the following considerations, (i) Article 91 itself declares that the rulings taken up in it are applicable within the Common Market during the period of transition: this period has come to an end. (ii) It would exceed the scope of the present work if we wanted to elaborate the general international practice of this phenomenon (within it the practice of the Common Market and third countries, so the very detailed regulation No. 459/1968 of the Council on the subject) in a monographic form similarly to the other chapters. The means of competition law and competition policy of the European Economic Community, however, go beyond the scope outlined above. The means in question are the direct means of competition law and competition policy. One would be hard put to it had all these to be typified. Those which can be circumscribed somehow are action in larger particular cases affecting the Community as a whole, Le. cases which substantially affect economic competition in the economy of the Common Market. Cases of this category were the coal crisis at the turn of the ‘fifties and ‘sixties, later the joint action in connexion with the Kennedy round, then the chicken war and the steel war, etc. The principal mover, in an organized alignment, of such direct and particular actions is in most of the cases the Commission, still the Council may also have a significant role. Occasionally the Parliament of the Community may have its opinion heard in such and similar cases. The concrete means extend from the resolution through diplomatic intervention, a variety of quotas and subsidies to Community or government contracts and the establishment of state or Community enterprises. All this is associated with the elaboration of short- and medium-range economic programmes also embracing items of structural and regional policy. This goes hand in hand with the placing of Community means at the disposal of those framing the economic programmes, and also with the formulation of plans for the coordinated use of state means. Another significant category of means consists of the information-supplying activities of the agencies of the EEC which with the supply of data and with a variety of organizational activities serve as a foothold for the economic units of the EEC in their endeavour to find their bearings. Another direct and particular form of activity of the Committee, perhaps most distinctly defined, is its competence to check individual contracts for cooperation and cartel agreements, further mergers apt to bring about monopolistic positions, for their lawfulness, and accordingly approve or veto them. Of these direct means the latter wil! as such 6

112

Ibid., Chapters VI and VII.

concerning the law of competition be discussed more extensively subsequently. An­ other chapter will be devoted to the economic actions of the state and regionalpolitical measures,7 whereas any other direct means will be dealt with only in association with certain interactions and only by way of examples. Accordingly the present chapter will also because of the overlapping and hardly segregable nature of the categories of contracts for cooperation and cartel agreements be split up into the following principal sections: (a) cooperation contracts and cartels, (b) concentration and dominant market position (monopoly). 102-3

General analysis o f the development so far

102 In this connexion by general analysis or ‘development as seen from outside’ we mean the data referring to the date of origin and the number of norms or measures governing the institutions of cooperation, cartels and monopolies. As a matter of course the primary source of the contract for cooperation is the Rome Treaty and the ECSC Treaty, in their provisions on competition policy. Articles 85-6 of the Rome Treaty and Articles 65—6 et seq. of the ECSC Treaty, by bringing under regulation the embargo on cartels provide what may be called the concave framework of the potentialities of contracts for cooperation and of their extreme confines. After the signature of the Rome Treaty hardly anything was said of the contracts for cooperation when in 1968 the Commission of the European Community promulgated its instrument: “Vereinbarung, Beschlüsse und aufeinander abgestimmte Verhaltensweisen, die eine zwischenbetriebliche Zusammenarbeit betreffen”* This is followed by communications and individual decisions of the Commission declaring that notwithstanding earlier opinions certain forms of enterprise cooperation are not conflicting with the provisions of the Rome Treaty and the ECSC Treaty on the law of competition; in other words the Commission within the scope of powers conferred on it will qualify a number of forms of cooperation calculated to improve economic efficiency and competitiveness as free for the purpose of the law of cartels.9 In its session of the 24th July, 1964 the European Parliament, too, discussed the issue of contracts for cooperation and in its opinion demanded a green light for the forms of cooperation referred to above. In this connexion also the documents were debated on which were submitted to the Assembly on the development of cooperation and contracts for cooperation by the German—French study group of industrial coopera­ tion, the German—French committee of economic and industrial cooperation and a number of other economic and scientific associations.10 103 In this formal manifestation the events in the field of cartel agreements and dominant positions (monopolies) present a picture of many more hues and shades. In addition to the provisions of the Rome Treaty and the ECSC Treaty (respectively, Articles 85—6 and 65—6) the following events are on record — just to have a nIbid., Chapter VII. •See, Cooperation contracts, EEC Document. 9A detailed enumeration is infra, paragraph 108. 1°For an outline see Benisch, p. 69. 8 Madl

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quantitative orientation of how much is happening - until the latest years. There is, e.g. a summing up till 1972. This speaks of: (a) 10 communications of the Council and the Commission; (b) 16 provisions of law, Le. the regulations of the Council and the Commission; (c) 51 decisions of the Commission based on Articles 8 5-6 of the Rome Treaty in individual cartel cases, 79 decisions on Articles 65-6 of the ECSC Treaty; before the Treaty establishing a single Council and a single Com­ mission for the European Communities the High Authority of the ECSC proceeded in 269 individual cases; (d) to the mentioned individual 51 Commission decisions based on the Rome Treaty 26 judgements of the Court are attached; no summarizing data were available of court judgements based on the ECSC Treaty; we may, however, conclude with tolerable certainty that about one hundred judgements amenatedfrom the total of 348 individual decisions based on the ECSC Treaty and passed by the High Authority before and by the Commission after the merging of the two administrations. This means a total of 551 measures which embody norms and regulations of a general significance, often a comprehensive system of regulations, and the practical operation of these measures.11 In Chapter ΠΙ we have already discussed the legal nature of the Community acts and also the general problems associated with the source of law. Here a word or two will be said of the facts in the background of these figures. Much happened also in the years 1972—1975. As to the situation at 31 December 1973 the General Report of 1973 speaks, e.g. of 130 new cases in competition matters only. The General Report of 1974 relates, as to 1974, to 89 settled cases and to 4353 pending competition cases of which 4200 were applications or notifications.1la But let us see some more concrete developments. Let me just mention the Commission decision (1972) and judgement of the Court of Justice (1973) in the Continental Can Company case, a case of extreme importance for the present work too. As will be seen in Chapter VI here a giant monopoly has tested the force of the Community law of competition. Other cases of significance in matters of monopolies is that of CSC v. Istituto of 1974; and the decision of the Court of Justice also of 1974 in the Nold case case associated with the monopoly position of the Ruhr Coal Trading Enterprise; the Sacchi case involving monopoly as well as the problem of state enterprises determined in 1974; the judgement in Belgische Radio en Televisie dealing with similar issues of law of 1974; further the two judgements in Centrafarm of 1974, which interpret the cartel-prohibitions of Article 85 of the Rome Treaty with reference to the new members joining the EEC. And very recently here is the well-known Sugar-cartel case, in which many sugar-producing and trading companies of five EEC countries (Italy, the Netherlands, France, Belgium and the FRG) formed a conspiracy against these coun11 All these are enumerated with data and precise references in Cartels and the document of the Commission: Competition Policy Report 1971, published in 1972, pp. 22 1 -3 2 , the former dealing with sixteen provisions of law by wider criteria, the latter with fourteen; for the data of the ECSC see: H ay-Stein, p.558. General Report 1969, pp. 60, 64; Note d Information de la Commission, No. 50, October 1969, pp. 10 er seq.; as regards the judgements, the Competition Policy Report 1971 records eighteen only, still the Farbstoffe case accounts for nine judgements. (See Chapter VI.) 11 aSee General Report 1973, p. 480; General Report 1974, p. 81.

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tries’ consumers, launched the so-called ‘sugar-price-war’ as formulated by the EEC Advocate-General in his reasoned conclusion submitted to the EEC Court of Justice June 16-17, 1975, and decided by the Court of Justice December 16, 1975.1 lb All these cases are of importance because they touch mostly the problem of monopolies, a problem rarely turning up in judicial procedure before the Court of Justice. The beginning of the communications and statements mentioned supra under (a) dates back to the 9th November, 1962 and are mostly the forecast of Commission or Council regulations, of the principles of regulations under study, and of considerations of legal policy involved, and extend to questions such as the translation into reality of the competition policy of the Community and the ideas of competition law as announced in the Rome and ECSC Treaties, the control of inter-enterprise agreements and cooperation on a Community level, planned group-exemptions, Community con­ trol and procedure to be followed at the registration of agreements and decisions made, the timetable laid down for the realization of the community ideas of competi­ tion policy in the various branches of economy and so on.1112 The norms mentioned supra under (b) are regulations issued by the Council or the Commission as the case may be. These may be divided into five groups: (i) Regulations of competition law relating to economic life as a whole, so e.g. Regulation No. 17 of the Council of the 6th February, 1962 on the general regulation of economic competition and the cartels (the first rule implementing the provisions of the Rome and ECSC Treaties). This regulation was supplemented with amendments dated the 3rd July, 1962 and the 5th November, 1963 on the modification of the term of registration of cartels already in being. This Regulation of the Council was followed by Regulation No. 19/1965 of the Council of the 2nd March, 1965, on the group exemption of certain cartel agreements, to be followed by other group exemptions laid down in the regulations No. 67/1967 of the 22nd March, 1967 and No. 2821/1967, respectively, of the Commission and the Council, (ii) Regulations in like way apply to economy as a whole and governs the procedures to be followed in cartel law, so Regulation No. 27 of the 5th May, 1962 of the Council (with amendments dated the 21st December, 1962 and the 26th July, 1968) on the procedure of the registration of cartel agreements, and the Regulation of the Commission of the 25th July, 1963 on the hearing of the persons affected by the cartel agreements and of third persons, (iii-v) Regulations which govern the scheduling of the regulation of the competition policy and competition law of the three main branches of economy (the coal and steel industry, agriculture and transport). As regards agriculture the principal enactment of group (iii) is Regulation No. 26 of the Council of the 4th April, 1962 which brings 11 bAs to the decision and the judgement see: Schlussaufträge des Herrn Generalanwalts H. Myras in den Rechtssachen 40-73, 41-73, 42-73, 44-73, 45-73, 46-76, 4 7-73, 48-73, 54-73, 55-73, 5 6 -7 3 , 111-73, 113-73, 114-73, Le. the Sugar Cartel case of 16 companies against the EEC Commission, and Urteil des Gerichtshofs von 16. Dezember 1975 in the same case (both documents published by the Court; the first 84 pp, the second 394 pp). 12 See the communications, to which the Competition Guide of the Commission and the annual reports may be added, in Competition Guide, pp. 4 et seq. or Hay-Stein, Documents, pp. 146 et seq., 159 et seq., and Competition Policy, Report 1971, pp. 222-3, Campbell, paragraphs 501 et seq. 8*

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under regulation the application of the rules of competition law to certain agricultural products and the trade in them in a manner differing from the general. Associated with this regulation is Regulation No. 49 of the Council dated the 29th June, 1962 which for the purpose of the common agrarian policy modifies the beginning date of the application of certain provisions of competition law, and postpones their coming into force to a later date. Group (iv) consists of the Regula­ tions giving the special provisions of competition law relating to carriage by rail, road and to inland water transport. These were supplemented by other two regulations, viz. Regulation No. 1629 of the 8th August, 1969 and the introductory Regulation No. 1630 of even date. In group (v) three general decisions have been published concerning the coal and steel industries, all on the implementation and interpretation of the relevant Article 66 on concentration of the ECSC Treaty.13 The 399 individual decisions mentioned supra under (c) offer, on the ground of the norms already promulgated, their interpretation from aspects of economic and legal policy and as for their content extend from negative clearance or negative cartel tests through prohibitions of cartels and concentration to their lifting and to preliminary notifications.14 Both the individual decisions mentioned supra under (c) and the judgements under (d) will as a matter of course undergo an analysis for their substance in the relevant sections of the present work. What may be stated by way of anticipation is that both the decisions of the Commission and the judgements of the Court of Justice of the Community serve to fill the gaps in the provisions under (b) or to interpret certain fundamental provisions. In conjunction they stand for the practical realization of the theses and principles of the law of economic competition in practice, the real efficiency of the Community ideas of competition policy, the world of the facts of the sociology of law, or in general how the ideas of competition policy of the founders of the Common Market stood the test once put into operation. What has to be noted in parantheses is that the picture drawn in the foregoing merely presents a survey of norms and measures of Community level and their enforcement in practice. To this picture we have to add that, as has been seen in the relations of Community law and municipal legal systems,15 the provisions of competition law of the Common Market are directly valid and effective in the member states of the Community, as is stated also in Article 9 of the Regulation No. 67/1967 of the Commission. Consequently the relevant judicial practice of the member states has to be understood as part of the sociological reality of the Community anti-trust law. To the picture ‘seen from outside’ belongs also, e.g.f the notification of 36 000 cartel agreements arrived at the Commission until the 1st February, 1963, with a request addressed to the Commission by virtue of Regulation No. 17/1962 to qualify the agreements as such for cooperation and not conflicting with the prohibitions on cartels (kartellrechtfreie Kooperation), Le. the Commission should issue the what was called negative clearance or negative cartel test in respect of these agreements. The 13 See Competition Policy Report 1971, p. 223. 14 For an itemized enumeration see e.g. Cartels, pp. 10 et seq. 15See supra Chapter III, paragraphs 32-3.

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Commission revised hardly more than two hundred of these agreements. The load was of a volume the Commission was unable to cope with, notably with the paper warfare in the background of which the trends in the fate of European economy, and the structural rearrangement of it, loomed up. From the point of view of competition law it was up to the Commission to control this economy indirectly with its decisions. Among others it was the pressure of this enormous load resting on the Community which led to the formulation of a Community policy in matters of group exemptions, to the promulgation of the provisions governing these exemptions and consequently tens of thousands of agreements and contracts for cooperation could be exempted by recourse to a few measures of group exemption, if not at a single stroke, so at a small number of strokes.16 All these facts and processes, even if viewed from outside only, speak of growing importance of the EEC anti-trust law and the EEC herself, also with regard to third countries. As we may see in the vertical analysis of this book, even big American companies had to take seriously the EEC anti-trust law and practice, or, as I may add for example, also the Hungarian cooperation contracts with bigger EEC firms were advised to arrange the EEC negative cartel test clearance beforehand and - as it is stated in the literature - since “the rules of competition of the Treaty have a very direct impact also on the way of life of enterprises of third countries, thousands of agreements with participants from third countries have been notified to the Com­ mission, even from such far away countries as Japan” 16a. No doubt, these are facts convincing that, really, the EEC anti-trust law cannot be ignored from neither side, it has to be watched and studied from this legal orbit too. § IS

Cooperation contracts and cartels

104-6

Confusion and reality about the notion o f the cooperation contract and the cartel

104 The confusion is of a rather old origin. Until after the Second World War, Hungarian private law, too, was in the grip of the question, what should be regarded as a beneficial cartel and therefore worthy of statutory protection, or as one detrimental to public interests and therefore unworthy of statutory protection.17 On gleaning facts from history we might as well go back as far as Roman law, where at a number of places provisions may be discovered prohibiting the creation of monopolies: ne quis. .. monopolium audeat exercerez of conspiracies with the purpose to fix prices by way of unlawful contracts: neve quis illicitis habitis conventionibus coniuret aut paciscatur, ut species diversorum corporum negotiationis non minoris, quam inter se statuerint, venumdenetur, contraventions being punished by the confiscation of prop' ‘ Campbell, 1st Supplement, p. IV; Benisch, p. 68 speaks of only 31 400 notifications, exemptions have been granted under the regulations 17/1962, 19/1965, 67/1967, 2821/1971 on block exemptions. 16aSee: P. V. van Themaat: The anti-trust policy of the European Economic Community. Int. and Comp. Law Quarterly, Suppl No. 6 (1963), p. 26. 17 See Nizsalovszky, pp. 4 -5 .

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erty and exile for life ( . . . bonis propriis expoliatus perpetuitate damnetur exilii).18 It remains a fact that, uti figura docet, at a definite developed stage of commodity production the need arose even in Rome for the suppression of private conspiracies against the market. It is also true, that the notion of ‘economic conspiracy’ of modern capitalist competition law19 in any case formally shows a direct relationship to the categories formulated in the Justinian codes. Still it would go unwarrantedly too far to dig up the remote past of anti-trust law. In fact an analysis of the history of institutions of law would have to extend from Aristotle through Grotian to the present days. Aristotle already wrote of monopolies ‘arising from justifiable interests’ and others not justifiable. Grotian confronted natural law and the law of love with monopolies and cartels.193 We and now, however, have to start at the point where the stream directly discharges into the realm of problems of modern capitalist competition law. In 1943 Hexner wrote a book, The International Steel Cartel which, owing to its interrelations to present day developments, will turn up for discussion subsequently. He begins by stating that literature was enormous: politicians, econom­ ists and lawyers had written a mass amounting to libraries on the notion of the cartel. The works were made up mostly of meditations on questions of terminology, still several hundreds of volumes had been consumed in writing the history of economy or law without arriving at a solution of the problem.20 In one of the most significant Common Market publications on cooperation contracts, Kooperations-Fiebel, the author, W. Benisch states that cooperation is a concept of economy and not one of law, therefore so far neither legislation nor practice could formulate the notion of cooperation or of the contract for cooperation in an unambiguous manner.18*2 1 There­ after, however, the author in the same writing exposes the fairly differentiated legal dogmatics of the contract for cooperation, moreover, he speaks of the cooperation expressly as a type of contracts, and within this type he presents dozens of variants of the type of contracts, all taken from life.22 There are authors who write of the contracts for cooperation as institutions of law departing from the cartel and declare that these are positive institutions of inter-enterprise economic cooperation which have nothing to do with the restrictions of competition, on the contrary, they improve the conditions of competition, whereas the cartel is the type of cooperation which in both its subject matter and its legally assessable manifestations leads to the restriction of competition, the creation of monopolies, the partial elimination of the market and, at the end to profit-maximizing, running counter the interests of national economy23. 18 These fragments are C. 4. 59. 2. 1, and also D. 48. 12. 2, quoted by Trinkner (a good summary of the other problems of Roman cartel law regulation), pp. 860 et seq. 1 9‘Economic conspiracy’ is the standard term of American anti-trust law, see infra Chapter VI, paragraphs 148, 155. The term is spreading also in West Europe, see infra paragraph 106. 19aSee Aristotle: Politics /. 11; Grotius: On the Law o f War and Peace. II. (Quoted from the Hungarian edition, Akadémiai Kiadô, Budapest 1960, pp. 235-6). 30Hexner, p. 33. 21 Benisch, p. 59. 22Ibid., pp. 357 et seq. 3 3For an outline see Benisch, p. 59.

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At other places we may read of cartel agreements not conflicting with the prohibitions on cartels. Accordingly the cartel is a double-faced thing; (i) it is the totality of enterprise agreements and practices violating the prohibition of competition, or of the legal rules formulating the prohibition of such agreements and practices; (ii) the embodiment of possibly the same forms of agreement which, owing to their limited efficiency or on the plea of desirable technological development and other titles of useful cooperation, do not violate either the social values reflected by economic com­ position, or the legal norms expressing these phenomena, namely the cartel rules. It is on this understanding that, e.g., Benisch can speak of cartel-law-free (kartell· rechtfreie) cooperation agreements (formally cartels too) under the heading of cartel law.24* There is an enormous mass of writing which on a similar understanding conceives the specialization contracts as cartels for specialization.2 5 The Ministry of Economy of the Federal Republic of Germany, in its so-called Kooperations-Fiebel, of the 29th October, 1963, indicates in the title of this compilation that cartel law and cooperation contracts coalesce in the legal form to a symbiosis and says that the cooperation contract is the form of “inter-enterprise cooperation within the frame­ work of the law relating to cartels in restraint of competition” .26 Hence on this understanding cartel contracts were a kind of institution not merely of defensive, but also of positive content, displaying economically organizational effects. In another connexion Kronstein gives expression to the same kind of ideas in his work Das Recht der internationalen Kartelle, where he defines the cartel agreement in more-orless the following manner: “The international cartel agreement is the contract of independent enterprises domiciled in different countries, which as regards the regula­ tion of the market creates a uniform legal order for the participants.”2 7 This view seems to be sponsored by the circumstance that the cooperation contract does not appear as an unequivocal type of contract in legal dogmatics; its legal framework and features are mostly lent by those laws and institutions of law prohibiting economic activities that would restrict competition. Therefore by definition according to dog­ matics, contracts of cooperation should not be allowed to reach the forms ând levels which amount to such cooperation forms (agreements and practices) as are prohibited by anti-trust sanctions. Accordingly, what we have to deal here with is a colossal amorphous process of movement, which — from the harmonization of the legally undefmable conducts and concerted practices via sale contracts, licence agreements to associations (companies) in the stricter meaning of the term —breeds in thousands of forms and in this culture the only condition of the viability of the particular forms of their raison d'être, at least in the world of Ought To (Sollen), is the non-correspondence of these forms to the legally pre-defined forms of the cartel regulations. Thus for its form the cooperation contract is any otherwise not typified or typified form of cooperation (e.g. one taking also the form of a closer kind of association), negatively referred to cartel law. 24Ibid, p. 69. 2 5For the literary review see Benisch, p. 182. a4See Benisch, p. 11. 17Kronstein, p. 135.

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105 On the ground of reality two principal traits may be established in the historical development of the legal category of cartels. (i) Historically the cartel is the expression of a peculiar contradiction. On the one part ‘free competition’ in the atomized market of classical capitalism gradually became coupled with the market dominating, market organizing and consumption manipulat­ ing role of capital. On the other part capitalist thinking in terms of economic and commercial law felt ashamed of this private organization of the market,' of the distortion of the classical economic freedom on the market. Furthermore, beyond a certain level, these phenomena were thought to be critical for the intrinsic conditions of the survival of capitalism (on the understanding namely that unbridled monopolies and the capitalist restraint of competition might for many political and economic implications be detrimental as well). Therefore, mainly in American thinking of economic policy and law, the belief sprang up that competition law might come to the rescue of honour and also of the organism of the system and of its viability. For the illustration of this trend of thought plenty of examples may be quoted from the latest history of economic and legal thinking. When after the First World War first the European Steel Cartel, then the International Steel Cartel was born,28 among others on the part of American and French capital the modestly formulated, yet the sufficiently clear-cut suggestion was brought forward that the term ‘cartel’ should be deleted of the name of this world-wide institution, because of its anti-social and unlawful connotation living in the minds of many. To this Hexner added with hardly believable incredulity that although it might appear incredible still the mere dropping of the term cartel saved these corporations (the organizations of big capital) from many attacks.2 9 In order to adjust or approximate the American and international manipulation in restraint of competition gradually to the so-called guidelines, in the sign of the New Deal, Congress called to life the Provisional National Economic Committee and made it its duty to deal with the economic role of the cartels and their structure and market shaping influence. President Roosevelt who urged the Com­ mittee in one of his messages to Congress (of the 20th April, 1938) said: “Private enterprise is ceasing to be free enterprise and is becoming a cluster of private collectivisms, marketing itself as a system of free enterprise after the American model, it is in fact becoming a concealed cartell system after the European model.”30 In this connexion we have to keep in mind that before the Second World War European economic thinking was by no means hostile to cartels, on the contrary, in 1930, e.g. in Germany in one of its many reports the Committee Formed for the Investigation of the Production and Market Conditions of German Economy (Ausschluss zur Unter2 8The story began in Europe when on the 30th September, 1926 the representatives of the German, Belgian, French, Luxemburg steel industry and that of Saarland at the initiative of von Thyssen signed the Entente Internationale de l ’A cier or by another designation Internationale Rohstahlgemeinschaft. From this the association of the European and American steel producing and exporting countries, the International Steel Cartel developed, which reached the peak of its influence in the years 1938-39. For the history of the International Steel Cartel see Hexner, pp. 66 et seq. 29 Hexner, p. 8. 30 Hexner, p. 36.

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suchung der Erzeugungs~ und Absatzbedingungen der deutschen Wirtschaft) stated of economic concentration, hereincluded the process of cartellization, that the process was “a positive phenomenon, because it serves efforts for productivity, for the benefit of private capital and the interests of general national economy as well” .31 Several legal writers state that this valuation was erroneous already at the time it was made. “It is beyond doubt that the processes in question were in the interest of private capital”, writes e.g. Lenel. “But this does not mean as if they were reasonable and desirable as far as national economy is concerned. . .. The Committee gave no heed to the differences between what is reasonable for private economy, and what for national economy; nobody went in his studies deep enough to establish whether or not this process of concentration was in its social and general economic implications truly an unambiguously positive phenomenon.” 32 Although owing to the outbreak of the war the International Steel Cartel collapsed, still as far as it was concerned neither the legal instruments in question nor the press were too modest. “The word cartel” , says Hexnerf “was generally used in the name of the International Steel Cartel because, according to its traditional meaning, ‘cartel’ designates a voluntary organization of legally and economically independent entrepreneurs . .. collectively controlling the market of a commodity.” 33 Hexner was even more unambigous in his work when he said: “The International Steel Cartel represented the most highly developed instance of an organized collectivity of marketing units, conventionally called a super or general cartel. It was a combination of combinations, or more precisely a cartel composed of cartels. It attempted to concentrate the collective control of the world steel export market in the hands of one rather complex body which may justifiably be designated as monopolistic in tendency.” 34 As regards the ends of the International Steel Cartel he gave expression to his opinion in the following words: “The history of the ISC is complicated by the fact that the early organization was intended to serve a double purpose; first, to reduce competition on steel markets, second, to adjust the steel industries of continental Europe to the political and economic situation created by the First World War and by the peace treaties of 1919-1920.” These purposes, really, prevailed later too, only, as Hexner remarks, “less indiscemibly” .35 106 (ii) Another trait, too, manifests itself in the first place in historical inter­ relations, still here we may discover a legal-dogmatic side also. As regards the historical interrelations in the United States in response to the New Deal the guideline influence tended to increase, generally through public intervention, the weight of regulation in capitalist market economy — overwhelmingly through means of anti-trust law. After 31 The statement and the appraisal are from Vol. I: Wandlungen in den wirtschaftlichen Organisationsformen; quoted by Lenel, pp. 242-3. 32Lenel, pp. 243-4. 33 Hexner, pp. 7 -8 . 3 4Ibid., p. 32. The International Steel Cartel was a tightly closed, yet highly complicated organization; the analysis of the structure of the Cartel covers eleven pages in Hexner (pp. 277-86). To this are added the statutes, the export quotas and a number of documents which accurately delimit the positions the particular national cartels occupy, their scope of operation, define their production and exports with regard to all principal types of steel products; Hexner, pp. 287 et seq. 35 Hexner, p. 66.

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the Second World War this philosophy began to invade Europe, before all —owing to the measures of the Allied Powers —Germany, where after the physical dismantling of heavy industry, the ‘dismantling’ of the organizational intertwining of German largescale industry and its monopolistic organs set in, die kalte Demontage nach der heissen Demontage, as the otherwise Social Democrat Fritz Baade bitterly complained.36 Many are inclined to explain the what was called German economic miracle with the dissolution of the cartels and concerns, a process equalling the penetration of the American anti-trust practice (the outcome of which was the spread of competition which in turn speeded up development).3 7 The term cartel had a discordant tone for many, whereas the legal order prohibiting the creation of cartel was lent an euphonious undertone. It was due to these circumstances that the contract for cooperation remained an institution not grown out of its rudiments. Almost compet­ ing with the practice of the Allied Powers, the representatives politically aligned to what was called ‘ordo liberalism’ took a stand against the bad cooperation of the enterprises: “cooperation was a conspiracy against economic competition, a sin against the holy spirit of market economy”, characterizes Benisch this period.38 As soon as industrial development reached a certain level, however, in particular as soon as with the creation of the European economic integration the need for largescale market activity made its appearance also at the small-scale and medium-size enterprises, upon the ever more emphatic insistence of industry, the pro-cooperation trend was the stronger when it came to interpret the rules of competition law. Political, economic and legal public opinion chimed in with the demands of economy, demands formulated by the German Industrial Federation (Deutscher Industrie­ verband), and in an ever more distinct form the idea began to take shape that enterprising cooperation was serving rationalization of production and sales, the increase of efficacy and competitiveness. “To this end the notion of cooperation has been worked out in order to withdraw this economic and legal phenomenon from the sphere summarily depreciating and condemning the notion of the cartel” , as literature stated to the point.39 In 1964 eg. the legislation of the Federal Republic of Germany enacted the amendment to the cartel law. On tabling the bill the Minister of Economy stated in the Bundestag: “A large number of cooperations, which a few years ago could have been suspected of restraining economic competition, may now be reckoned as reinforcements of economic competition. . . . Therefore I should like to emphasize that parts of the act which grant greater potentialities to cooperation, should not be considered concessions made to circles disliking economic competition. The coopera­ tion which the present act is intent upon to strengthen, serves fair competition... therefore it is desirable that we should not be reluctant to give to economy this law, the law it is not only waiting for, but for which it has a reasonable demand.”40 The statement referred to before, namely that it was through the idea of coopéra36Baade, pp. 21 et seq. 3 7The effects of American anti-trust law are generally recognized by Western literature; see Buxbaum 2, 402 et seq., further the studies of Canellos and Jacquemin. 38 See Benisch, p. 64. 39In Benisch, p. 64. 40In Benisch, p. 65.

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tion that the economically desirable enterprise cooperation was freed of the summarily condemning value judgement pronounced against the idea of cartels, that the path to efficacy and competitiveness led through cooperation,4 1 also implies —in addition to rendering capitalist tendencies towards concentration and market domination ‘fit for good society’ - the legal-dogmatic novelty of the thing. Notably that from the cartel as a defensive system of prohibition something that may be outlined legally and nurtured with legal means begins to grow out, something that wants to live the life of its own, something which though legally cannot be grasped in an unambiguous manner, yet may serve as the framework of the market organizing cooperation of segregated economic-legal units for technological development and production. This something is now a laudable ‘thing’, which would not limit competition, rather encourage and boost up competition, because it improves efficacy and so competi­ tiveness, concludes the logical chain. After the initial refusal which in the cooperations extending to other countries was inclined to spy a restraint of competition equally extending to other countries,42 in the Common Market in 1965 the conviction gained gradually in strength that certain forms of cooperation on Community scale (the European cartel-free cooperation contract became the notion), were reasonable and economically desirable means (a) for the achievement of a better efficiency and improved competitive position of small and medium-size enterprises, (b) for the restructuralization of European economy, to an economy adjusted to the dimensions of the market of the European Economic Community, to a united European economy, and finally to the unfolding of the planned economic integration. 107-13

The cooperation contract in practice

107 After the initial defensive phase under the pressure of industry and of facts such as the inability of the Commission of the EEC to deal with applications for the registration of cartels amounting to many tens of thousands, the Commission pro­ claimed its new policy on cooperation. “The Commission”, states one of its members competent in matters of competition law, “attributes great significance to inter-enter­ prise contracts of cooperation in the fields of technology and economy, and is prepared within the scope of its policy and the potentialities of the rules of competi­ tion law as laid down in the Rome Treaty to sponsor this cooperation on a large scale. The Commission would welcome if this cooperation were not confined to the enter­ prises of the particular member countries, but extended to beyond the frontiers of these countries and by this rendered important services to the integration of the markets of the Community; the Commission attributes special significance to the cooperation of small- and medium-size enterprises in such fields as joint contraction of credits, joint purchasing, joint measures for the rationalization of internal economic management and enterprise organization, joint research and development, rationaliza­ tion through typification, the simplification of production programmes, the joint 41 Ibid., p. 64. 43For a description of the development see Benisch, p. 67.

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collection and evaluation of information, exchange of experiences in purchasing, production, sales, etc.”4 3 This was followed by the two regulations on group exemp­ tion referred to above.44 In this way the Commission at once admitted to registration a large portion of the several tens of thousands of applications and raised those exempted from under the operation of cartel law to now highly desirable contracts of cooperation. Later, on repeated request, as stated in the introductory lines of the instru­ ment,45 on the 8th July, 1968, the European Catechism o f Cooperation (Kooperotions-Fiebel) was published under the auspices of the European Communities (the EEC, EURATOM, ECSC), which in a positive form exposed the cooperation contract as an institution not affected, and only in a negative sense delimited, by cartel law. What now followed, in addition to the large-scale unfolding of the practice of cooperation contracts and their spread (their number amounts to several hundreds of thousand), was the promise of the Commission to sponsor cooperation purposing the improvement of the productive and commercial structure of the Common Market. In its individual decisions on cooperation contracts of importance it also acted on the strength of this promise. The new policy manifested itself also in a number of individual decisions. So, e . g . in the decision of the 17th July, 1968 in the case of the Alliance de constructeurs français de machines outils the Commission issued the negative clearance on declaring that eight small and medium-size French enterprises had become associates of the company in question in order to provide the best possible chances for the joint exportation of tool machines manufactured by these firms and to specialize production among the participating smaller companies.46 A decision of major importance was made by the Commission on the same day in the case of SOCEMAS, when again a negative clearance was issued to the French concern operating about 20 000 affiliations. It was held that in conformity with the statutes and practice of the association its purpose was essentially the joint collection of information on the chances of purchases abroad, and so also joint purchases in foreign markets.4 7 Another decision in a case of major importance was the one of the same date, ie. the 17th July, 1968, in the so-called ACEC-Berilet case. Here the Commission held that the contracts for cooperation of the participating French and Belgian firms did not come within the purview of Article 85(1) of the Rome Treaty, because according to paragraph (3) of the same Article here was the case of an agreement which related to technical cooperation and joint research for a new electrically driven bus.48 A similar decision was made in the case of Transocean Marine Paint Associa­ tion, a cooperation formed of eighteen medium-size firms.49 Furthermore the Com­ mission by having recourse to its right of group exemption granted general exemption to cooperation contracts made for research and development and for cooperations for 4 *Groeben ’s statement has been quoted by Benisch, p. 67. 44 See in paragraph 103, supra. 4 5Cooperation Contracts, EEC Document, introductory lines. 4 4In Amtsblatt, No. L 201, 12th August, 1968, p. 12. 47Ibid., p. 7. 48Ibid., p. 7. 4 9See infra Chapter VI, paragraph 168.

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the purposes outlined above, which owing to their moderate importance and also for other peculiarities did not call for individual action and decision. Eventually by a general decision also petty agreements were exempted on the plea that their economic or competition-limiting significance was marginal.50 108 In the positive development of the European cooperation contracts the Common Market catechism of cooperation (Kooperations-Fiebel) first defines the content and functions, ie, the content notion of cooperation and of the cooperation contract. Accordingly, “the Commission approves the inter-enterprise cooperation of small and medium-size enterprises if by this they attain a position where they can display their activities in a more rational manner and strengthen their efficiency and competitive position. Although the Commission considers the strengthening of the cooperation of small and medium-size enterprises its special function, contracts of cooperation between large enterprises may also be economically reasonable and for the purpose of competition policy free of problems” .0 51 The instrument52 in its introductory statement declares as follows: (a) Contracts of cooperation of Community level and the forms of cooperation shall not distort the diserable progress of interstate commerce. (b) With the promulgation of the present instrument any reason for obtaining a negative clearance as required by Article 85 of the Rome Treaty or the Regulation No. 17/1962 of the Council has ceased to exist. Consequently the obligation of notification of the forms of cooperation in the meaning of the sources of law quoted here has also ceased. This does not, however, in the event of certain dimensions or special peculiarities, prevent the parties from applying to the Commission for its opinion. Then the instrument on contracts of cooperation itemizes the forms of contracts of cooperation or actual variants of cooperation which for the future may be deemed to be free of any problems, economic or legal, moreover to be desirable economic and legal categories of cooperation. The instrument distinguishes eight larger groups of contracts and agreements of cooperation, (i) The category of agreements including those signed exclusively (a) for the exchange of opinions and experiences; (b) for joint market research; (c) for joint measures concerning the optimum dimensioning of enterprises and larger units of association; (d) for the joint analysis of statistics and calculations. Within these four forms of contracts and agreements there are several possible sub-variants. Their seriatim enumeration would carry us too far, still let it be understood that these variants and those belonging to the further seven categories rely on the processing of an enormous mass of practice and generalizations. In this connexion those interested are referred to the useful and detailed information provided by the economic and legal professional literature.5 3 (ii) Agreements whose S0For details see Benisch, pp. 66-9. 51 Cooperation Contracts, EEC Document, Part I, paragraph (1). 5 2We believe that at a summarizing-analysing presentation of the document references going into details may be dispensed with. 5 3To illustrate these variations of the European catechism of cooperation (KooperationsFibel) Benisch presents a number of specimen contracts in Beispiele von Kooperationsverträgen, pp. 357 et seq.

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subject matter is (a) cooperation in accounting and book-keeping; (b) joint credit insurance; (c) joint collection of outstanding payments; (d) the creation of joint institutions for plant organization and consultation in taxation, (iii) The subject matters of contracts or agreements of cooperation are (a) the joint execution of ideas of research and development; (b) the joint commissioning of research and development work; (c) allocation of research and development schemes among the participants, (iv) Agreements for the joint exploitation of equipment and installations for production, storage or transport, (v) Agreements made between non-competing enterprises cannot be in restraint of competition. Such agreements are those whose subject matter is the creation of communities of operation for the joint execution of extraneous commissions; as a matter of course these agreements cannot restrict competition, (vi) The category which embraces cooperation such as (a) joint purchasing; (b) joint servicing of customers on the condition, however, that the participating enterprises to which the agreement applies are not objectively opposing one another in the given scope, (vii) The category of contracts of joint advertising and publicity, (viii) Finally a by no means insignificant category includes contracts of the distinctive joint designation of quality goods. 109 As regards the subject and limits of the forms of cooperation outlined above the statement may be made that in the law of the EEC any form of cooperation of central importance has remained a disputed question. These are cooperations in production, sale and purchase in so far as they have or may have a restrictive effect on competition. This will be the case when partners virtually or potentially competing with one another take part in the cooperation. This contingency — namely that cooperations may be considered any time as harmful cartels —might bring about a fairly critical legal insecurity, if economy were to give too great heed to it. This would be to the liking of ‘economy’ the less, because as the argument goes, these forms of cooperation would stand for the most serious means of the integration of European economy.54 It seems industry is not too fond of the anyhow liberalizing so-called ‘effect concept’ of the EEC, for in the last resort it exempts cooperation from under the notion of the cartel not by its object, like, e.g., the new West-German law and practice, but for the want of a competition-restricting effect, or the negligible nature of this effect. It is for this reason that in the thesaurus of examples which on the ground of the processing of an enormous mass of contracts has been taken up in the ‘Catechism of cooperation’ of Benish, several forms of contracts have been given the note that a Common Market negative clearance might still be required, whereas under the new West-German law an obligation of notification exists at most,55 that for practice with other words, the situation is still not clear, the green light of the EEC is still not always green. Therefore, part of the strongly industry-directed professional public opinion is of the belief that in the competition policy and competition law this effect problem’ has to be either eliminated or at least reduced. Apart from invoking the amendment of Article 85(1) of the Rome Treaty this could be achieved in three w*ys: (i) only agreements wilfully directed to a restraint of competition should be “ Ibid, p. 75. 5 5Ibid, pp. 357 et seq., 479, 489.

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vetoed; (ii) the term ‘apt to affect trade between the Member States’ should be construed so as not to apply to agreements serving the interests of integration ; (iii) the forms of cooperation of central importance should be freed by way of group exemption.56 110 There is not much in the ‘Catechism of Cooperation of the Common Market’, or in any other document, of specialization contracts either, an omission industry reckons as a grave difficulty. The Catechism speaks of specialization contracts only in connexion with cooperation for research, however, even here, as industry complains, only in a negative form inasmuch as it declares: “A distribution of the fields of research precluding the mutual exchange of the results by the parties may be a specialization contract for restricting competition.” The document speaks in about the same sense of production specialization contracts which may turn up within the joint exploitation of equipment for production.5 7 What would follow in fact from all this is that basically and on principle the Commission is not opposed to specialization contracts. The question, however, here is whether or not in a concrete case the specialization contract has a restrictive effect on competition. In the individual decision in the case of Machines Outils already referred to, the Commission held that within the sales community, for which incidentally the contract had been made, the agreements for specialization did not in all events stand for a restraint of competition, not to speak of the fact that already before the creation of the sales community there had existed relations of specialization between the parties and that the share of this community was an insignificant one in the area of the Common Market.56*58* What followed was that practice developed the variants of specialization contracts which under cartel law were unimpeachable. It is rather tempting to go into a discussion of the details of these contracts, still this would lead us too far.59 In any case the demand was voiced that the Commission should treat the exemption applications in as liberal a way as possible. Concerning the role specialization contracts actually play or may play in the Common Market, we may with fair confidence rely on the rapidity with which these contracts spread as demonstrated by French and German practice.60 111 Now inside the ramparts of the dogmatics of cooperation contracts before all a few words have to be said of the essential and non-essential criteria of these contracts. From the thesaurus collected from the elaboration of the stock of contracts and the ‘Catechism’, further from the individual decisions partly referred to, the following may be concluded. The essential criteria of the contract are the elements according to which (a) the cooperating parties are reciprocally, legally and economically independent; (b) the contract is directed to the coordination of the one or the other function of the 56 The demand has been formulated by Benisch, p. 75. 57Cooperation Contracts, EEC document Part I, third and fourth group of contracts. 51 In Amtsblatt, 12th August, 1968. 59See in the literature Benisch, pp. 203 et seq. 60Benisch discusses the question under the heading 'Gemeinschaftliche Spezialisierung* in thirty-eight paragraphs enriched with statistics, pp. 182 et seq.; informative is also the ‘Grouppement d’intérêt économique' (Guyon-Co quer eau, pp. 169 and 197 et seq.).

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economic activities of the participating parties. Here the case is one of the coordination of one or the other function, and not of the coordination of the economic activities and operations of the parties as a whole. If the subject matter of the contract were the general coordination of the economic activities of the concentrated enterprises, then the case would be one of the creation of a sort of Konzern (a gorup of companies) or some other type of company, when both the legal and the economic autonomy of most of the participants could be called into doubt. In reality, in the form of the cooperation contracts a new legal and economic entity has come to life. The following are the contingent elements of cooperation, Le. elements which need not necessarily or one by one be present in the aggregate. (a) Before all the legal form itself may be anyone in the range extending from a civil law or commercial contract in the strict meaning of the term, through mutually adjusted and indirect conduct to certain jointly formed or approved recommendations. (b) Legal typification or unambiguous legal regulation is not an absolute feature of the notion of cooperation contracts. (c) Cooperation may, or may not, extend to several concrete economic operations. (d) Generally, in the ideal case, voluntariness is an element of a contract of cooperation, yet in the economic sense not necessarily and not in a rigid form. Nevertheless, a contract made under the conditions of objective interdependence of credits and raw materials does not render a contract of cooperation voidable. But it does so if the party accepting the credit and the raw material deliveries is for the purpose of purchases in the economic sense subordinated to, or at the mercy of, the party providing the credit or raw materials. (e) Although the trust of the cooperating parties is in general an element of the contract of cooperation hard to spare, still it is as non-essential as for example mutual confidence in the case of a joint partnership. (f) A contingent, although generally an implicit element of cooperation is the improvement of efficiency. It would, however, be illogical to contest the cooperation character even if an increase in the efficiency would fail to be produced. (g) The same applies also to the improvement of competitiveness as one of the general elements of cooperation contracts. (h) Finally, for both its function and possible legal formulation the cooperation has to be profitable for national economy. It should strengthen competitiveness and consequently cannot be conflicting with those provisions of competition law which prohibit the restriction of economic competition and are in general valid for national economy as a whole. 112 Literature classifies contracts of cooperation developed in practice by a number of considerations.61 An analysis of these considerations going into details is out of the question. This applies also to the genesis of the contract of cooperation, the three-phase process of birth, viz. (i) the underlying fundamental economic contract (Wirtschaftsgrundvertrag), (ii) the plan contract planning cooperation (Planvertrag), and (iii) the contract for execution (Durchfährungsvertrag). Finally there are the 61 See Benisch, pp. 82 et seq.

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peculiar automatism of the self-executive sanctions (Selbstvollstreckung)62 and the judicial forms, dealt with in detail in Kronstein's standard work on the inter­ national cartels.63 113 The temptation is great to write in detail of the changes in the system of sanctions of cooperation contracts or cartel agreements. What did sanctions mean in the thirties and in what did they consist, and to what did they develop in the present days? 64 Unfortunately, a study of this kind would carry us too far. We shall see, however, what the situation is at present and what did the law and practice of the Common Market bring with themselves e.g.t in the world of international cartels,65 yet even in the world of cartels within the Common Market.66 § 16

Agreements in restraint o f trade — the cartel

114-6

The cartel in legislation

114 From the notional delimitation of the cooperation contract and the cartel agreement (paragraphs 104-6) the conclusion could be drawn that in the meaning of legal characteristics, ie. dogmatically, the notion of the cartel includes the forms (contracts, agreements, concerted practices, etc.) which the law conceives as offensive actions against economic competition, to which the law puts up resistance in contradistinction to contracts of cooperation appraised in a positive sense and sponsored by the law. The body of law relating to the formulation (designation) of these offensive actions, the methods of their elimination or delimitation, and to exemptions from the prohibitive principles have been given the designation of cartel law. In the legislation of the EEC this cartel law appears in the structure as outlined below. In the following discussion we shall not in general treat special cartel rules applying to the ECSC, or to transport and agriculture. A schematic survey of the general situation and the sources of these rules have been given in paragraph 103 supra. In what follows we prefer to concentrate on the general, and therefore in its significance decisive, legal material. Naturally the principal source of law is the Rome Treaty which in Article 3(a-k) defines the tasks to be performed and objectives to be achieved for the creation of an integrated market and national economies according to the timetable laid down in the Treaty. Here paragraph (0 envisages “the establishment of a system ensuring that competition in the Common Market shall not be distorted”. This general introductory provision, like the rest, is given a detailed interpretation and definition in the relevant chapters of the Rome Treaty. As regards cartel law Article 85 of the Treaty is the source of any subsequent legislation. This Article reads as follows:6 6 2In large international cartels the sanctions are applied between the members themselves in the form of economic pressure. This policy appears in a distinct form in the case of the International Quinine Cartel (see paragraph 148 infra). 6 3Kronstein, pp. 134 et seq. 64See Kronstein, pp. 148 et seq. 6 5See Chapter VI (the practice of international cartels and monopolies). 66See Article 16, infra. 9 Madl

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“ 1. The following shall be prohibited as incompatible with the Common Market: all agreements between enterprises, all decisions by associations of enterprises and all concerted practices which are apt to affect trade between the Member States and which have as their object or effect the prevention, restriction or distortion of competition within the Common Market, in particular those consisting in: (a) the direct or indirect fixing of purchase or selling prices or of any other trading conditions; (b) the limitation or control of production, markets, technological development or investment; (c) market-sharing or the sharing of sources of supply; (d) the application of unequal conditions to parties undertaking equivalent engagements in commercial transactions, thereby placing them at a competitive disadvantage; (e) making the conclusion of a contract subject to the acceptance by the other party to the contract of additional obligations, which, by their nature or according to commercial usage have no connection with the subject of such contract. 2. Any agreements or decisions prohibited pursuant to this Article shall be null and void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: —any agreements or groups (categorie, Gruppen) of agreements between enter­ prises, —any decisions or groups (categorie, Gruppen) of decisions by associations of enterprises, and —any concerted practices or groups (catégorie, Gruppen) of concerted practices, which contribute to the improvement of the production or distribution of goods or to the promotion of technological or economic progress while reserving to consumers an equitable share in the profit resulting therefrom, and which: (a) neither impose on the enterprises concerned any restrictions not indispensable to the attainment of the above objectives; (b) nor enable such enterprises to eliminate competition in respect of a substantial proportion of the goods concerned.” Although, as has already been made clear in connexion with the direct effect of the Community sources of law,6 7 according to general conviction the provisions of the Rome Treaty quoted above are directly effective and obligatory in each member state of the Community, it is still characteristic, that as to their in principle self-executive implementation what Regulation No. 17/1962 of the Council had to stress again in Article 1 was the following: “the agreements, decisions and concerted practices referred to in Article 85, paragraph 1, of the Treaty and any abuse of a dominant position on the market within the meaning of Article 86 of the Treaty shall be prohibited, no prior decision to this effect being required” . Regulation No. 17 was accordingly necessary in order slowly to inspire Article 85 with true life. Incidentally Article 85 would have remained ineffective anyhow for the simple reason that it is not6 6 7See supra Chapter ΙΠ, paragraph 32.

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sufficiently differentiated or concrete in order to permit its direct application in the field. This explains why in its first paragraph Article 87 of the Rome Treaty declares: “Within three years after this Treaty comes into force, the Council, acting by unanimous voice on a proposal of the Commission and after the Assembly has been consulted, shall issue the necessary regulations or directives to put into effect the principles set out in Articles 85 and 86. “If such regulations or directives have not been adopted within the specified time-limit, they shall be laid down by the Council acting by a qualified majority vote on a proposal of the Commission and after the Assembly has been consulted.” Incidentally Article 86 deals with the competition restrictive exploitation of the dominant position (monopoly), a detailed exposition and analysis of which follows in Article 17 infra, paragraphs 131 et seq. After a certain delay, Regulation No. 17, the First Implementing Regulation pursuant to Articles 85 and 86 of the Treaty’ was bom in 1962. This was followed by Regulation No. 19 of the Council, in 1965, and Regulation No. 67 of the Commission, in 1967, on group exemptions which declared definite groups of cartel agreements (a group of contracts for exclusive selling rights) free under cartel law. 115 Regulation No. 17 as a law of general implementation, naturally in close association with the Rome Treaty, laid down legally regulated frameworks in the following principal institutions. (a) Pursuant to the first paragraph of Article 85 of the Rome Treaty this Regulation defines those who may apply for the termination of actions of the cartels, or in general of acts in restraint of competition. Request to this end may be submitted by the member states or any natural or juristic person who shows a justified interest in the elimination of the act restricting competition (Article 3). Pursuant to this provision Article 12 authorizes the Commission —if within the Common Market the trend of trade, price movements, inflexibility of prices or other circumstances suggest that in the economic sector concerned competition is being restricted or distorted — to request enterprises in the sector concerned to supply information of their cooperation contracts or concrete data of their participation in the market. In conformity with Articles 9—10 of the Regulation the termination of agreements in restraint of competition or actions to this end may be enforced by procedure instituted by the Commission or the Court of Justice. Until the Commission takes action in a case involving the restriction of competition the establishment of a situation coming under the first paragraph of Article 85 of the Rome Treaty comes within the jurisdiction of the competent judicial or cartel law authorities of the member states. Hence in the enforcement of the provisions of the Rome Treaty and other subsequent Community regulations, etc. of cartel law an important role has been accorded also to the authorities of the member states. In addition to an action for termination and the institution of sanctions the Rome Treaty in paragraph 2 (a) of Article 87 states that “regulations or directives.. . shall be designed. . . to ensure observance, by the institution of fines or penalties, of the prohibitions referred to in Article 85(1) and Article 86” ; Le. two kinds of sanctions in terms of money may be imposed on infringements of Articles 85 and 86, viz. fines and penalties (amendes et astreintes, Geldbussen und Zwangsgelder). For the implementation of this provision Articles 9*

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15—6 of Regulation No. 17 declare that the Commission may impose the following fines on those infringing the freedom of competition. For the supply of false or incomplete information, the information being requested by the Commission or any other authority proceeding in matters of competition, a fine of 100 to 5000 units of account may be imposed. The fine may range between 1000 and 1 000 000 units of account for the wilful or negligent infringement of the first paragraph of Article 85 of the Rome Treaty. Further, also in the event the parties have been exempted under paragraph 3 of Article 85, however, for a term definite or on specified conditions, if on the expiry of the term or the non-observance of anyone of the conditions the parties fail to put an end to the infringement, a fine of the amount as stated above may be imposed. A penalty being 50 and 100 units of account per day may be imposed if on the pronouncement of the prohibition of a cartel the parties are dilatory in putting an end to the unlawful practice. (b) Although by itself it is not a sanction, still the enforceable public control may have a considerable preventive effect. The institutionalization of the public control, Le. the obligation of the notification of cartels, was deemed to be required for the simple reason because without this notification what has been set forth in (a) above would become illusory. Accordingly, Articles 4—5 and 7 of Regulation No. 17 decree that after this Regulation has come into operation the Commission should be notified of any cooperation conflicting with Article 85 of the Rome Treaty. This is required also in order that the Commission might deal with the granting of an exemption under paragraph 3 of Article 85. No notification has to be submitted of agreements of cooperation where enterprises of a single member state, or only two enterprises, take part; nevertheless, in the latter case the principal and sole purpose of cooperation shall be technological development. The Regulation fixes the time-limit for the notification of existing cartel agreements or activities, and provides also for the concrete procedural forms to be observed at submitting notifications or applications.6 8 (c) For cartels once notified besides the prohibition set forth in (a) exemption was also possible. This will be dealt with separately. One of the variants of exemption is the negative clearance. Although the law does not differentiate between the types of exemptions, in practice and in literary usage the term exemption applies rather to group exemptions by the subject of the contracts, whereas the possible exemption of contracts by way of individual scrutiny, Le. exemption in the narrower sense, has been given the designation of negative clearance. In conformity with Article 2 of Regulation No. 17 a preliminary negative clearance also may be granted for cooperating enter­ prises who would like to be sure that their cooperation or contract does not violate EEC anti-trust law. According to Article 19 this preliminary negative clearance must be published by the Commission in order that third persons might within a reasonable term establish whether or not the act in question violates their competitive position protected by the law, and notify the Commission, if necessary. (d) Paragraph (d) of Article 87 of the Rome Treaty already forecasts a possible delimitation of competences when it states that in matters of anti-trust law the tasks6 6 8The relevant provisions of Regulation No. 17 (Articles 2 ,4 -5 , 7) have been supplemented by special provisions and consequently they are complete for practical application: see Exemption and Notification, Procedure of. Commission R27/1962.

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of the Commission and the Court of Justice of the Community have to be kept apart in a clear-cut manner. The Commission has to carry the greatest load, whereas the professionally high-quality work has as a matter of course been allotted to the Court of Justice. As far as the Court of Justice is concerned, it has full competences of interpretation and unrestricted jurisdiction to determine proceedings instituted against decisions imposing a fine or penalty, as laid down in Article 17 of the Regulation. In conformity with the provisions of Regulation No. 17 the Commission has to be notified of any mentioned agreement or contract, or act. The Commission decides in matters of preliminary negative clearance, determines individual disputes under Community anti-trust law, and grants group exemptions. The Commission entertains close relations to the member states in particular cases and in general. It informs the competent organs of the member states of notifications received pursuant to Article 85 of the Rome Treaty and the subsequent provisions of competition law. Thereafter the competent organs of the member states may communicate their opinion on the economic and legal bearings of the cases.69 Coordinated proceedings of the Commission and the member states was a function of the Commission even before the promulgation of Regulation No. 17, when by virtue of Article 88 of the Rome Treaty the authorities of the member states proceded in cases under Article 85 in conformity with this article and the respective municipal law. Namely Article 89 of the Rome Treaty declares that the Commission has to guard over the observance of the rules governing competition irrespective of whether the complementation of the principles of competition policy laid down in Article 85 and following articles of the Rome Treaty comes, before the promulgation of the rules of the enforcement of the Community competition law within the jurisdiction of the member states and their organs, through the channels of municipal substantive and procedural law. At that time it was the right and at the same time the duty of the Commission in cooperation with the competent authorities of the member states to investigate into cases where a violation of the principles of anti-trust law might reasonably be suspected. In these proceedings the Commission could apply to the organs of the member states for official cooperation and the invoking of the relevant provisions of municipal law and bring forward proposals for the suppression of acts in restraint of competition. If the procedure against such acts was unavailing, the Commission could by way of a decision establish the existence of an infringement of the relevant provisions of the Rome Treaty, and even publish this decision by authorizing the member states to take the measures deemed necessary by the Commission for the elimination of the restriction of competition. (e) The procedure of the Commission actions and procedure in general was promulgated by Regulation No. 17 as follows.70 For the performance of its function the Commission is free to collect any information from the member states or the enterprises concerned, as the case may be. The Commission may require detailed information from the enterprises, the presentation of their contracts, and also the disclosure of their enterprisal decisions on production and sales, and the pertinent 49These provisions have been taken up in Articles 4, 9 and 10 of Regulation No. 17. 70 Articles 11, 1 3 -5 , 19 and 21.

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book-keeping records. Upon request of the Commission the competent organs of the member states may institute concrete investigations at the enterprises concerned and in this case proceed in conformity with the considerations and request of the Commission. As has already been mentioned in the event of the supply of false or misleading data the Commission may impose heavy fines or penalties. Before the decision of the Commission the parties concerned and even extraneous parties substantiating a justified legal interest in the case may insist on being heard. Decisions of the Commission on the substance of the case have to be published. (f) In the structure of the capitalist order of economy, where the enterprises and firms are eager to keep away strangers from secrets owned by them and used in the process of production, sales or development, or values and processes coming within the scope of industrial property, this secrecy is one of the preconditions in the struggle for survival in the often cut-throat competition. Consequently it was only understandable that the declaration of a so-called supranational obligation of the supply of data within this wide range elicited a general protest. It is for this reason that Article 20 of Regulation No. 17 declares that information relating to the professional secrets and other data of the enterprises concerned acquired in the course of the procedure of the Commission or in any other procedure under competition law must not be disclosed and cannot be used for a purpose other than the official procedure. Consequently in the published decisions or judgements any information of this nature must be suppressed and apart from the enterprises concerned others may inspect the files of the case only by the special permit of the competent authorities. 116 As regards the exemptions and group exemptions, Regulation No. 17 states that it comes within the competence of the Commission to establish whether or not an agreement or an act in restraint of competition qualifies for an exemption under Article 85(3) of the Rome Treaty.71 If the Commission issues a decision of exemption, it will indicate the day from which this exemption is in force. However, its retrospective force cannot be reckoned from a day earlier than the date of notification. Exemption, Le. the benefit under Article 85(1) may be granted also fora term definite and on specified conditions. The exemption may be renewed, withdrawn or modified, if such circumstances specified in Article 8 of the Regulation tum*up as have not existed at the time of the exemption’s being granted. In Articles 22 and 24 Regulation No. 17 declares that upon the motion of the Commission the Council may within a year examine what further action appears to be necessary in the respective field of competition law, before all as regards exemptions by virtue of Article 85(3) of the Rome Treaty. This promised action of the Council was required the more because, as stated in the preamble to Regulation No. 67 of the Commission of 1967 on group exemptions, first the Commission was unable to cope with the mass of several tens of thousands of notifications, secondly, experience was to the effect that the bulk of notifications consisted of contracts or cooperations for exclusive supply or purchases, Le. a category of contracts and cooperations highly desirable because of their guaranteeing the better satisfaction of needs before all for the quality of sales, the better supply of the market, the continuity of supply, a 71 Articles 4 and 6.

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reasonable range of commodities, a lower rate of appropriations, fewer linguistic problems, or technological development, and also because the majority of these contracts and cooperations were such entered into by two, and in general small enterprises, a useful condition of the adjustment to the European market and at the same time a circumstance improving competitiveness. Instead of an individual scrutiny of each of the contracts of this type the convenient procedure was for both the Council and the Commission to have re­ course to group exemptions made dependent on appropriate conditions. This end was served by the two regulations of the Council already mentioned, viz. Regula­ tion No. 19 of 1965 and Regulation No. 2821 of 1971, and in addition by the Regulation No. 67 of the Commission of 1967, on group exemptions. Article 1 of Regulation No. 19 of the Council defines the general scope of block exemptions. Accordingly without prejudice to Regulation No. 17 the Commission may by a regulation rule that the first paragraph of Article 85 of the Rome Treaty cannot be applied to agreements or groups of agreements to which only two enterprises have subscribed and where the case is one of contracts for exclusive rights of purchases, sales or retail sales, or for the acquisition of industrial property, and in certain interrelations, for the limited exploitation of such, extending to a definite territory of the Common Market only. The Commission, by way of a regulation, has to define the groups of agreements to be exempted and has to specify the clauses which may not, or have to, be taken up in such agreements. These provisions of group exemption apply according to their meaning also to mutually concerted conducts, practices, eta On the strength of Regulation No. 19 Article 1 of Regulation No. 67 essentially reiterates what has been set forth before, with the proviso, however, that exemptions from the first paragraph of Article 85 of the Rome Treaty could for the time being be granted only till the 31st December, 1972. In Articles 2 and 3 the following restrictions have been made. On the party acquiring the exclusive sales rights of the commodity or service in question, or undertaking such sales rights, no further limitations can be imposed except, however, for such as the undertaking not to purchase or to produce the commodity in question outside the territory specified by the contract, nor to advertise it in this territory or open a sales office there. The undertaking imposed by the seller on the distributor to purchase complete series, take over a certain minimum quantity, maintain a definite publicity and service system, employ specially trained salesmen, keep an adequate stock and maintain a definite sales and agency system, cannot be deemed to be conflicting with the exempting provisions of the regulation. No exemption can, however, be granted if in the contract for mutually exclusive purchases the manufacturers of products of the same nature and use, ie. such competing with one another, appear in the contract, further if the parties limit the chances of agents and consumers to purchase the commodity in question from other sellers in the Common Market or in other territories of the Common Market. In particular limitations are unlawful which apply to rights coming within the scope of industrial property or which are instituted by restricting such rights. This general statutory legal system of group exemption is supplemented by additonal powers and obligations of the Commission defined by Article 6 of

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Regulation No. 67. Namely the Commission has to carry through investigations and take action for the revoking of exemption or for its being withheld,72 if the following can be established: (a) in the given territory there is no competition in the products or services defined by the contract, among others owing to the peculiarities, costs or the purpose of the service in question; (b) in the territory defined by the contract no other producer can offer the product for distribution or the service in question; (c) the party vested with the right of exlusive distribution abuses the exemption, e.g. he excludes part of the customers with no reasonable cause from his clientele in the given territory, when the customers are unable to procure the products or services in this territory on reasonable terms, or he charges unreasonably high prices of the product or services specified in the contract. In addition to this specification of the objective or substantive conditions of the group exemptions there are yet further provisions of law applicable to exemptions.73 The exemptions are granted for a term definite and may be modified when circumstances have changed, when a period of adjustment has to be provided for. A group exemption may be granted retroactively if the contract or agreement in question could have benefited by a decision having retroactive effect by application of Article 6 of Regulation No. 17. For practical purposes this provision recognizes the validity of a cartel agreement retroactively from the date of notification, if on the strength of the third paragraph of Article 85 of the Rome Treaty an exemption has been granted. Agreements by their subject-matter prohibited by virtue of the first paragraph of Article 85 of the Rome Treaty may come under the effect of group exemption, provided, however, that the clauses or terms of the agreement conflicting with the prohibition have been amended. Before promulgation the Commission makes the regulations on group exemption publicly known and calls up the parties concerned to make their comments within a specified term. At its own initiative, and also at that of natural or juristic persons stating their legitimate interest, the Commission may revoke exemptions once granted. This may be resorted to in the presence of concrete microstructural conditions of competition,74 still the request and decision may be suggested also by the aptitude of the contested agreement or concerted practice to produce effects which the third paragraph of Article 85 of the Rome Treaty wants to obviate. As may be seen from what has been set forth the substratum of the statutory provisions of anti-trust law is in a state of permanent flux and, consequently, there can be little talk of the development of a complete security of law or legality. It may appear as straightforward as if the competent agencies of the Common Market were led by some sort of a geometrical mean of the various factors of economic interests or of state and Community considerations of economic policy. The establishment of this geometrical mean through statutory law is determined by a number of factors, before all by the laws and tendencies of the development of capitalist economy to the dimensions of an economic integration. The agencies of the Community tend to 7 2Article 7 of Regulation No. 19 also provides for this case, and of course also the General Anti-Trust Regulation, Article 8. 7 3Articles 2 -8 of Regulation No. 19. 74 Article 6 of Regulation No. 67.

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respond to these laws of development in a pragmatic sense and eventually this response will turn up within the framework of positive law. Obviously here the legislative agencies will be inclined to underline the temporary character of the particular statute law measures, and so also the provisions relating to group exemptions conclude with the statement that “the Commission shall submit to the Council before January 1, 1970 a proposal. . . for the amendment of this regulation to incorporate such modifications as appear necessary in the light of experience” .7 5 117-8

Cartel regulation in general context

117 For reasons of a significance exceeding that of interpretation itself a dispute sprang up in the keenest form in connexion with the interpretation of Article 85(1) of the Rome Treaty, when the point at issue was whether in a cartel the potential presence of the competition restricting effect was sufficient for the establishment of the unlawfulness of the cartel, or the express directedness to a restraint of competition or the actual realization of the effect was also required.76 At the other pole of the dispute, in close association with the one before and with reference to Article 85(3) of the Rome Treaty the opinion was voiced that the effect in restraint of competition could be remedied if the given cartel had a positive effect on public interest in the EEC meaning of the term. As may be seen the cartel law of the European Economic Community is permeated by the idea that the cartel is conflicting with the principles of economic policy and the rules of cartel law only when from its operation prejudicial effects to public interests arise or may arise. In other words a cartel beneficial to public interest is good and even welcome, as formulated and presented by Article 85(3) of the Rome Treaty and subsequent provisions and the practice relying on them. This is the doctrine of efficiency. The doctrine will become clear when it is placed in juxtaposition to American anti-trust law. Accordingly any cartel striving for market domination is, irrespective of its effects, unlawful and invalid, moreover sanctions of criminal law may be inflicted on those constituting the cartel. The so-called per se rules of American law and legal practice according to which, e.g. naked market-sharing, production-limiting or price-fixing cartels are ipso facto invalid, preclude any distinction between good and evil cartels. Recently, in the American practice the elements of efficiency also begin to emerge, nevertheless, it remains a feature of American law that its system of prohibition stands or falls in anti-trust practice by the role the given cartel agreement or merger plays in defining or changing the market structure.77 It is an altogether different question where in the particular branches of 7 5Article 8 of Regulation No. 19. 7‘ The same problem emerges also in the case of international cartels, see infra Chapter VI, paragraphs 158 and 164. 77For this nature of American anti-trust legislation, its principal institutions see Chapter VI, infra, in particular paragraph 155; further, for the doctrine of positive effect see Handler's handbook on anti-trust law used all over America, or the recent work of A. D. Neale on American practice in anti-trust law. For a comparison of American and Common Market anti-trust law in particular see the writings of Buxbaum 1 -3 and Jacquemin. So far the public interests benefit test

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industry and products the extreme limits of the structure of market participation required for competition are drawn. As regards the approach to cartel agreements, however, what Rishe writes will hold in any way, namely that the difference is not so much in what but how something is limited in the US and Europe. In the US the courts look at the facts, in the EEC it is only the effects that are taken into consideration; for the US practise the prohibited anti-trust action itself is the primary consideration and is sufficient, in the EEC the action has to be analysed also from the viewpoints of its benefits, or whether or not it is detrimental to public interests.78 What is even more decisive is as a matter of course the anti-trust practice. Here on determining one of the leading cases, Le. US v. Philadelphia National Bank the Supreme Court held that an act in restraint of competition cannot be excused on the account that somewhere in the final balance of the social and economic advantages and disadvantages this act could qualify as a good outcome . . . Such a decision is beyond the natural limits of the courts’ competency.79 This was the case in 1963; but in 1967, as has been seen, the natural limits of the jurisdiction of the court have been stretched somewhat farther.80 It is true though that in the exemption by Article 85(3) of the Rome Treaty there is room also for a more rigorous practice. The trend, however, partly through the contracts for cooperation, partly through rather easily granted exemptions, points towards the rule of a relatively liberal approach to the question. In the last resort there is the principle of economic policy outlined in Chapter II above in the background; that this is the price to be paid for the adaptation to markets of larger dimensions or for the restructuralization of industry and trade for the integration. This liberal practice has - in addition to certain by no means non-essential definitely restrictive decisions mainly of recent date (see paragraph 119 et seq., infra) - passed exempting decisions, and even rejecting ones, without bringing into confrontation the restrictive and positive effects in the competition. Decisions have been made on the strength of the wording of the contracts, and not on the ground of depth analyses of economy and market. Moreover, the modification of the wording of the contract suffices for the issue of a negative clearance. For example, of the about thirty thousand notifications in 1700 cases the contract has been accepted as lawful merely because the wording has been amended, or adjusted to the provisions of law in force.8 1 This does not, however, mean as if the new wording were orientated to less quasi-cartel activities, still the contracts in their modified form betray the current tendency and also that so far, at has received its most important legislative confirmation in the Bank Meiger Act of 1966, which was then formulated for practice by certain important decisions of the Supreme Court; the onus probandi lies with the parties concerned, accordingly (a) the positive effects have to be formulated in a decided form; (b) the positive effects have to be unambiguously stronger than the negative effects on competition; (c) the public interests benefit in question cannot be achieved unless by meiger; see the following cases: US v. Provident National Bank and US v. First City National Bank of Houston, 386 US. 361 (1967); and US v. Third National Bank, 88, S. Ct. 882 (1968). 78Rishe, separatum, pp. 1 et seq. 7 ,US v. Philadelphia National Bank, 374 U. S. 312 (1963). • 0 See above in Note 77. ei See eg. Deringer 2, Anmerkung 4 0 -3 zum Artikel 85, Abs. 1\Homburger, p. 37.

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least in mass occurrences, the Commission has refrained from exploring reality, a tendency which by the change-over to the system of group exemptions is steered even more in the direction of liberalization. In mass instances the doctrine of efficiency seems to rely upon a not too verified assumption of effects. There are, however, writers on Common Market anti-trust law who interpret the passage of Article 85(1) of the Rome Treaty, that prohibition applies to “practices which are apt to affect the trade between the Member States” in a way that potential aptitude suffices for invoking this provision: only the reasonable expectancy has to be present that in response to such practices in the normal course of events, as taught by practical experience, a virtual restraint of competition will supervene.8 2 Others, and so also life, seem to favour the liberal interpretation (industry directly insists on it). According to their argumentation the passage applies only to “the trade between the Member States” and it is within this scope that the principle of ‘potential affectedness’ holds. Namely when Article 85 speaks of competition restricting or distorting effects, it is argued, those cartel agreements are meant which are expressly directed to the restriction of competition (“which have as their object or effect th e .. . distor­ tion . . . ”). Hence ex post facto the cartels come under the ruling of this article which have de facto evidenced the effect in question, or pro futuro the cartels whose nature and purpose will bring about the translation of the potential restraint on competition into reality as an obvious consequence.8 3 All these are possible opinions and interpretations of the given provisions of law. Still, what has happened in reality so far? This question is worth the special study to follow subsequently. As regards the philosophy of the doctrine of efficiency more critical American authors bring forward that the striking of the balance between the values which may be gained by economic competition and the gain which the cartels released on the plea of defending the public interests (momentary or lasting, better or cheaper production for the benefit of the community) cannot be entrusted wholly and solely to the courts of law, to their liberal or less liberal attitude. Eventually the balance will have to be established by the scale of values of society. Many emphasize that in the United States, too, in anti-trust cases, in addition to a large-scale exploratory economic analysis by having recourse to certain social value judgements, the courts provide for economic regulation, for that matter for the most important ones of economic activities, viz. production and market organization. It is an altogether different question whether it is the proper course. In the Common Market this function is performed by the Commission to an even greater extent. In the Common Market, owing to the comprehensiveness and the elasticity of the provisions of law, the Commission has, or may have, a wider scope to act within. It is for this reason that it may be argued whether without going into an analysis of economy and market structure, by the licencing of cartel agreements or by their prohibition, an optimum efficiency can be achieved in economy at all. It is ill-advised on the plea of the protection of public interests or economic efficiency to expose market structure to yet further concentra­ tion, for sooner or later ‘interventionist’ means will have to be resorted to in order to81 81 This has been described by Benisch, p. 75. 88For a detailed exposition of these opinions see Homburger, pp. 37 et seq.

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maintain order in American economy, not to speak of other political implications of intervention. So American criticism,84 where ultimately also the apology of the capitalist economic mechanism is apparent. In fact this criticism has been passed in order to “increase popular loyalty to the image and credibility of the free-enterprise system.”8 5 Still at the same time it evidences a clear and logical view of economic policy. Both those who accept this opinion, and also those who would have the mechanism of competition replaced by state planning and anti-trust legislation replaced by direct regulation,86 hold that by the side of the activities of the judiciary (absorbed by the application and the interpretation of the law) the competent agencies of the State (the Congress, Le. the legislature) should determine the criteria of the ‘good’ and Svrong’ restriction of competition. Within the Common Market too, as is suggested, attention should be focussed on the test as set forth in Article 85(1) of the Rome Treaty, and through this an economic policy should be continued which is in agreement with the market structure. This should be the attitude to be preferred rather than on the ground of a purely textual analysis of contracts by the Commission or the Court of Justice, as the case may be, give the green light to ‘good’ cartels by issuing bureaucratic licences and in the meantime permit the market structure to grow rigid to an unknown degree. And what is welcome of this degree at all should be up to the legislator to determine by its means.8 7 At the end of this polemic trend of thought it should be noted that, as will be seen infra** 8 since the mid-sixties onwards, in the Common Market anti-trust thinking in terms of market structure has been gathering strength, a trend which has brought into prominence the test as set forth in Article 85(1) of the Treaty with greater emphasis. 118 From the interrelations which may be established among yet other notions taken from the Community anti-trust law the following statements affecting the essence of the subject matter offer themselves.8 9 (a) As regards the legal manifestation of acts conflicting with the rules of competition the provisions of law speak of agreements, decisions and concerted practices (accord, décision, pratique concertée, Vereinbarung, Beschluss, aufeinander abgestimmte Verhaltensweisen). The ‘agreement’ (accord, Vereinbarung) though intended to be a category wider than that of a contract, is for its notion obviously congruous with the notion of a civil law contract. Logically it should be segregated from the other two forms of manifestation, viz. the decisions and concerted practices rather than from contracts. The term ‘decision’ in the first place refers to the common formation of will of the cooperating parties, namely to a cooperation of the parties close enough to permit its being defined by a decision in the meaning of company law and not by a contract. In • 4 To the dispute see Jacquemin, pp. 214 et seq. 8 5Ibid., p. 222, still in greater detail: M. Friedman: Capitalism and Freedom. University Press of Chicago, 1963; or F. Machhtp: Oligopoly and the Free Society. Antitrust Law and Economics Review, July-August, 1967, p. 14. **See,e.g.,J. K. Galbraith: The New Industrial State. Hamilton, London 1967, pp. 184-97. 8 7For more details see: Jacquemin, pp. 223-5. 88See paragraphs 119 et seq. 88For an analysis going more into details see Homburger, pp. 21 et seq.

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general, however, the decisions of the general meetings of commercial companies do not come within the purview of the category here prohibited, except that these decisions are part and parcel of the concerted policy of several companies. The ‘form of concerted practices’ is synonymous with the concept of concerted actions or collusive practices known from the anti-trust law of the United States as well as the law of European countries. For the establishment of concerted practices the intrinsic agreement of will is required, even if not in the civil law meaning of an agreement of will for the conclusion of a deal. (b) The notion of the ‘Member State’ is by no means an indifferent category inasmuch as the law of competition of the Common Market applies only to actions which in the trade between the member states are apt to distort economic competition. The point at issue is here notably how the countries associated with the Common Market qualify for the purpose of the relevant provisions of the Rome Treaty. Practice and literature agree that here only the trade between the member states is meant. If any departure from this understanding is authorized, this must follow expressis verbis from the association agreement in question, like e.g. the association agreement of the European Economic Community and Greece expressly declares in Articles 51—2 that the law of competition of the Common Market is effective also in respect of commercial transactions between Greece and the Common Market. There is yet another problem which is apt to emerge, viz. whether or not the law of the Common Market extends to the restrictions of competition affecting the trade between member states and third states. Here, too, opinions agree that inasmuch as the settlement of this question is outside the scope of operation of the law of the Common Market, it is a question of the municipal law of the member states. Actions producing restriction of competition coming from third countries may, however, come within the sphere of operation of Common Market law, if such actions interfere with the trade between the member states, as will be made clear in Chapter VI below. (c) The intrinsic breaking down of the notion of ‘economic competition’ implies the following content elements in the light of the practice and literature of the Common Market. The term freedom of competition expresses that contracts coming into being within this domain have to rely on such decisions of the participants of economic processes as are made under the conditions of private autonomy. This means the freedom of contracts, the free choice of the contracting parties, and the free stipulation of the content of the contract. Accordingly, the violation of the legal conditions of a free competition will be realized when a competition-restricting act, whatever it is, frustrates, restricts or distorts anyone of these freedoms. 119-20

Cartel legislation and practice in figures and the scope

119 Paragraph 103 supra offers a general and numerical survey of what exists in reality and how it does so. The figures are by no means insignificant and tend to rise, though slowly. Of the 51 individual rulings of the Commission till the end of 1971, 5 date back to 1964, 17 to

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1971. Of the 26 judgements of the Court of Justice in the wake of these rulings one was pronounced in 1964 and 5 in 1971.90 If now the judgements passed on international cartels in 1971/1973 are added to these together with those new cases in competition which have been mentioned in paragraph 103 supra - e.g. the 130 new cases in 1973, the 89 cases in 1974 only in competition matters — also if the weight and importance of these cartels are taken into account,9 1 the developments are by no means negligible. Owing to the entry of the United Kingdom, the Republic of Ireland and Denmark in the Common Market we may reckon with a subsequent numerical increase of the judicial practice. On the other hand it is a tell-tale development that more than fifty per cent of the 51 decisions of the Commission are ‘exemptions’, ten per cent are secret, confidential communications (communication took place on the basis of internal, non-formal decisions) and only in a small part of the cases decision was given against the cartel members. On the other hand in the smaller number of the Court judgements the rate of those against the cartel members is higher.92 120 In breaking down, according to subject matter, the decisions of the Commission and the judgements of the Court of Justice of the cartels, the following were on record: agreements of exclusive dealing associated with absolute territorial restrictions; sales contract void of territorial restrictions and exclusiveness; agreements on the joint exploitation of industrial property; contracts for the performance of joint services; agreements of joint research work; joint exploitation and development of technological knowledge; contracts of specialization; joint purchases and market survey; joint sales; organization of joint exhibitions of the tool machine industry; joint regulation of production and sales; cooperation of the parent company and its subsidiaries; contracts for uniform prescription of quality; price-fixing and marketsharing agreements for market dominating positions; concerted price increases; production limiting agreement; and concerted practices.9 3 121-3

Competition policy and anti-trust law in practice: (a) Extent o f the prohibition o f cartels; degree o f the perceptible effect o f cartels

121 The judgements of the Court of Justice actually extend, for practical purposes, to almost all essential elements of the anti-trust law of the European Economic Community. Often a judgement will pronounce opinions which will help to take bearings in several issues. In the following in the first place an analysis will be given of the judgements of the Court of Justice which prohibit the restriction of competition or define the extent of this prohibition with greater precision, and which therefore offer an idea of the approach to practice in the law of competition by legal policy. A phenomenon deserving notice in this field is perhaps the one that there are at least 18 decisions of importance, where both the Commission and the Court of Justice

90 See Competition Policy Report 1971, pp. 223 et seq. 91 See Chapter VI, paragraphs 166,172 infra. 92 See eg. Cartels (Überblick), pp. 10-6. 9 3As a basis for classification by subject and for the analysis Cartels (Überblick), pp. 10 et seq. and Competition Policy Report 1971,pp. 223 et seq. should be consulted.

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have made definite attempts, instead of preferring the issue of licences under Article 85(3) of the Rome Treaty, to formulate their decisions rather on the ground of a thorough examination of the elements and effects in restraint of competition as specified in Article 85(1) and the repercussions of the cartel on economy (Spürbarkeit), further on the ground of an economic analysis going into details, and mostly on this understanding to control the actions of cartels affecting the market structure. These decisions include the judgements No. 56/1965 of June 30, 1966 in Société Technique Minière (LTM) and Maschinenbau Ulm GmbH (MBV);94 the Grunding-Consten judgements9 5 ; the ruling in the Government of Italy v. the Com­ mission of the European Economic Community (1966)96 ; in the SOCEMAS case9 7 of July 17, 1968, which though not a judgement, may, owing to its weight, be enumerated in this connexion; the judgement No. 5/1969 of July 9, 1969 in Volk v. Vervaekke;98 and, in addition five other judgements in international cartel cases.99 What has been given expression in the decisions and judgements in these cases is the what may be called doctrine of reasonable test, or of the rule of reason. In American practice this indicates that the authorities competent to proceed in matters of the law of competition (the Congress committee of anti-trust law; the Department of Justice; and the judiciary) perform — as regards the industry or the product - thorough market, production and economic analyses in order to decide whether the particular cartel agreement had a bearing on these and, within the limits of reasonable potentialities, whether or not the action in question had or may have effects in restraint of competition in the industry or product in question. As a matter of course when the action of the cartel is unlawful by itself, e.g. price-fixing or market-sharing has been foreseen, without any examination a judgement prohibiting the cartel will be given. 122 As regards the fate of the doctrine of the rule of reason in acquittal, things started with the judgement already mentioned in the case Société Technique Minière (LTM) v. Maschinenbau Ulm GmbH (MBU) in 1966. The facts were briefly as follows. In order to complete government contracts, on April 7, 1961 LTM and MBU signed a contract for exclusive representation and exclusive distributorship of machinery and equipment for construction work in a manner that LTM was appointed sole representation and sales organization of MBU in the whole territory of France. Concretely the contract applied to bulldozers. Under the contract LTM could procure or sell such machinery or any other competitive with it only by agreement of MBU and had to organize an efficient service system for the repair of machinery, replacement of spare parts or components, etc. The contract further declared that “LTM cannot assign its rights and obligation arising from the contract to third parties unless MBU has given its agreement in writing thereto” . When we now ignore many "Published in Amtsblatt, 170, September 2 9 ,1966, 3013/66. 9 5For data see Note 114, infra. 9 *For data see Note 118, infra. 97Published in Amtsblatt, L201, August 1 2 ,1968, p. 7. 9‘ Published in Amtsblatt, C.105, August 1 4 ,1969, p. 15. " S e e Chapter VI, paragraph 167 infra: Marine Paint Association, Farbstoffe (comprises nine judgements), International Quinine Cartel, Boehringer, Beguelin.

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other provisions of the contract and merely mention that the case was first determined by the Tribunal de Commerce de la Seine and then in appellate procedure by the Cour d ’A ppel de Paris before the ‘appeal’ was passed on to the Court of Justice of the Community, we may formulate the point at issue, as it had been formulated by the Cour dAppel in its question addressed to the Court of Justice, viz. “whether or not within the meaning of Article 85 of the Rome Treaty and the Community normatives supplementing it may this contract. . . (a) validly prohibit LMT to reexport the contractual products of MBU to other countries of the Common Market; (b) validly enjoin on LMT to prevent its Common Market contracting partners from procuring the product defined by the contract from a seller other than LMT, ie. in the last resort from MBU; (c) does the contract constitute a legal obstacle to the consumers in France procuring the products in question in other countries of the Common Market, at all or on better terms; (d) may the contract validly stipulate that LTM cannot market products competing with those specified in the contract unless MBU has given its consent thereto.” 100 In the judgement of the Court of Justice of the Common Market and in other documentary matters relating to the case it is the underlying considerations of legal policy that are of interest rather than the verdict itself. Incidentally, at the end in the inter-partes judgement of the competent French courts, the decision was one uphelding the validity of the contract, although LMT was partially relieved of the commitments it had entered into. As a matter of course the decision relied on the judgement of the Court of Justice of EEC, which in its preliminary ruling passed a decision on the interpretation to be given to Article 85 and the associated legal material of the Rome Treaty (la Cour. . . dit pour droit). The decision itself had many elements and defined the conditions on which contracts of an exclusive character could be and had to be considered unlawful. One of these conditions was that “from the nature of the contract the fear follows reasonably that the contract could possibly exercise a direct or indirect, virtual or potential effect on the economic relations between the member states, by which it may be apt to prevent a uniform market from coming into being between the member states.” 101 This only potential influence, however, does not refer to the restrictions of competition, but to the repercussions on the trade between the member states. On the other hand, as regards the thesis of legal policy pronounced with reference to the competition restricting effect the reasoned conclusion of Μ. K. Roemer, the avocat général of the Community, offered an answer. Accordingly Article 85(1) of the Treaty and the legal material related to it cannot be applied merely on the ground of the wording of the contracts affected by way of theoretical analyses. Logical conclusions will make it clear whether or not the given contract is contrary to Article 85(1). Instead of granting an exemption by virtue of paragraph (3) merely on the grounds of a textual analysis the contract should be examined with regard to the concrete situation brought about by it in the market in respect of the given product. Could the parties through their participation restrict competition at all? 102 It was on this10 10 ùRecueil de la Cour, XII, 1966, p. 343. 101 Ibid., p. 361. 192Ibid., pp. 363 et seq.

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understanding that judgement was given, when on summing up on the basis of anal­ ysing the economic bearings of the contract the judge demonstrated that as far as the product in question was concerned the participation of MBU in the French market was below one per cent, and even in the German market it moved between 3 and 4 per cent only so that the given contract was wholly inadequate for the virtual restriction of competition or the distortion of the market. On the other hand it was apt for accommodation to the conditions of larger markets, or the improvement of technological development and market supply.103 In the judgement the judge formulated the policy making principle of law as follows: “We have to examine whether. . . the contract distorts the functioning of competition in a way to be felt. For this purpose we have to examine thoroughly the restrictive provisions of the contract, the quantity and nature of the goods of the products specified in the contract, the actual quantitative interest of the parties in the market of the given products, the number of the contracting parties, further whether or not the parties are participants of a larger system of contracts in another relation . . . the unlawfulness of the restriction of competition has and shall be established by virtue of Article 85(1) on the ground of examinations of this kind as far as they have a bearing on the real conditions in the market.” 104 Following upon this highly important judgement the Commission, too, adopted the rule of reason. A notice was issued according to which the cooperation of companies does not come under Article 85(1), if the market position of the participating com­ panies is in its totality not able to distort the EEC competition of the commodity in question.105 This was followed by another important decision of the Commission in an individual case, viz. in what was called the SOCEMAS case, where after a thorough analysis of the economic bearings of the case, and the confrontation of the given economic-market relations with the contract itself the Commission declared that the activity of the SOCEMAS in the EEC was proportionally unable to produce real restraint to competition.106 Namely a substantially similar decision was made by the Commission in the ‘Alliance de Constructeurs français des Machines Outils' case in that on considerations of the weight of the participation in the market the joint export organization of the associated or contracting small- and medium-size enterprises did not infringe Article 85(1) of the Treaty.107 Recently the Court of Justice of the European Communities declared the same idea of economic and legal policy in Volk v. Vervaecke. Giving judgement the court held that an exclusive dealing agreement, even with absolute market-sharing and protection109 109Ibid., p. 349. 104Ibid., pp. 361-2. 105Article 9248, ‘Notice of the Commission of the European Communities’. July 27, 1968. CCH Common Market Reporter. 106It is in this way SOCEMAS, a French company limited by shares (with 69 associates and 20 000 branch offices), continues its market survey and joint purchases on a Common Market scale. See Amtsblatt. L 201, 12. 8 .1968, p. 7; Article 9250: ‘Commission Decision of July 17, 1968’. CCH Common Market Reporter. 101Amtsblatt, L 201, 12. 8 .1968. 10 Madl

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was not prohibited by Article 85(1), because of the weak position of the parties concerned on the relative market in the territory of which this absolute protection applied.108 On summing up the case, the Court established this weakness of the position of the parties concerned in the market and demonstrated that in the Common Market, in 1966, 1 482 000 units had been manufactured of the electrical equipment in question and that the joint participation of the contracting parties was in the Common Market 0.08 per cent, the participation of the supplying firm in the German market 0.2 per cent, and in the Belgian and Luxemburgian market (where the total territorial protection, namely that the dealer would contract with no other party, was actually in operation) the 960 apparatus implied in the contract represented 0.6 per cent only of the total annual turnover of 163 000 in the apparatus in question, a quantity which could have no substantial restrictive effect on competition.109 If it is now remembered that earlier, on March 15, 1967, the Court of Justice set aside the December 14, 1965 ruling of the Directorate-General for Competition in Société Anonyme Cimenteries C.B.R. v. Commission de la CEE, laying an embargo on a cartel agreement, because the ruling had several ‘formal defects’, and also because the Directorate failed to examine with the proper thoroughness the bearing of the agreement on the market (i.e. it did so merely on the ground of the wording of the agreement), before declaring that the agreement was conflicting with Article 85(1)! 10, furthermore, if we now take into consideration that the cartel agreement of 74 enterprises of the cement industry was given the green light on the plea that there were only ‘formal defects’, then the following two statements may appear as unimpugnable: (a) the EEC practice in the law of competition has taken the first step to scrutinize contracts and agreements in restraint of competition, by way of concrete economic analyses, in their repercussions on the market of the given products, and tries in this manner to watch over the proper functioning of competition; (b) so far all these have not at all or occasionally only led to the establishment of the objective extreme values of the market structure ensuring competition. The decisions so far made by pleading the need for a better accommodation to larger market sizes and the security of the desired market structure, further by giving prominence to the notion of cooperation as set forth above, mostly stimulate the further strengthening of enterprise level organization of production and market. The negative decisions of major importance to be discussed subsequently are at most indications of the potential resistance the Community might be prepared to put up, occasionally and on definite terms, against the growth of market domination. 123 As regards the scope of the prohibition of actions in restraint of competition, in so far as the analysis of the genesis of the rule of reason and its trend can be traced, another rather essential aspect of the question is apt to turn up, namely, what qualifies as something violating the extreme limits of prohibitions as understood in the light of the rule of reason? Here the rulings of the Commission and of the Court of Justice in matters of the prohibition of cartels are the better known: the judgement in Grundig, v. Consten, further in Commission of the European Communities v. Government of ""R ecu eil de la Cour, XV, 1969, p. 303; Amtsblatt, No. C 105, 14. 8 . 1969, p. 15. 109Ibid, pp. 299-300. 11 0Recueil de la Cour, XIII, 1967, pp. 9 4 ,1 2 0 \ Amtsblatt, 65, 6. 4 . 1967, pp. 1025 et seq.

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the Italian Republic, associated with the former, in the International Quinine Cartel and the nine Farbstoffe judgements. As regards the development of the extremely extensive practice of the national judiciaries we may refer to the sources only. The statement may indeed be brought forward that the life in practice of the directly valid norms of Community origin and their trend move on this lower level also within the framework formed on Community level.111 While the analysis of the case of the Quinine Cartel will be set aside for discussion in the Chapter on the international relations of anti-trust law, let us now pay attention to the following rulings: (a) the Farbstoffe case; (b) the Grundig and Consten case and (c) in part the case of the Italian Government. All three cases are of particular interest and deserve special attention both for defining the virtually extreme limits of the rule of reason tests and also for the legal mechanism built up or implemented exactly in these cases. (a) In the Farbstoffe case the Commission pronounced its ruling on the 24th July, 1969. The nine judgements passed in the case date also back to 1969.112 Briefly: nine European paint manufacturing firms ‘agreed’ that in the territory of the Common Market they would sell their paints uniformly at prices determined by them (price-fixing cartel). The ‘agreement’ was in fact no agreement, but a mutually concerted practice, a practice unanimously followed with regard to one another. The ruling of the Commission deserves attention because it lent practical reality to the underlying legal thesis in question. And for that matter in a triple sense, (i) By the ruling the purely price-fixing cartel was declared to be almost per se unlawful, Le. almost void of the need for producing evidence of a will directed to price-fixing, (ii) The ruling deserves attention, because the participant enterprises are relatively large ones in the European paint industry, where by holding a share of 80 per cent in the industry these enterprises are in fact in a position to control the prices as it pleased them. To prove this the Commission carried through far-reaching production and market analyses, and in making its decision it relied on these analyses by implication pronouncing the per se principle, (iii) The decision revealed how the Commission thought of exploring such in general not notified concerted cartel practices and ex officio carrying through examinations, a process which Articles 11-4 of Regulation No. 17 not only authorized but made it the duty of the Commission to carry through. To this decision the Commission was led by a procedure instituted ex officio, inasmuch as the Commission from the surprising rise of the due prices began to suspect 111 See under heading ‘Rechtssprechung der Gerichte der Mitgliedstaaten der EWG’ in Europarecht, vol. I, 1966, pp. 64, 146, 149, 360; vol. Ill, 1968, pp. 134, 231, 317, 394, 405; vol. IV, 1969, pp. 51, 57, 158, 167, 255, in particular vol. V, 1970, p. 48 (French practice), p. 172 (Dutch practice), p. 267 (Belgian practice), p. 339 (Italian practice). Under heading ‘Case Law, National Courts of the Member States’ similar analyses and information are published in the relevant numbers of Common Market Law Review. These inform also of the practice of the national courts in competition law. On more general lines see P. Pescatore: Die unmittelbare Anwendung der europäischen Verträge durch die staatlichen Gerichte. Europarecht, vol. V, 1970, pp. 56-79. 112 Decision of the Commission: Amtsblatt, No. L 195, August 7, 1969, p. 11; for the details of the nine judgements see: Chapter VII, paragraphs 167,169, infra.

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the existence of a cartel. In all nine cases judgement was given against the cartel-members.113 (b) For both the ruling of the Commission and the judgement of the Court of Justice the Grundig—Consten case114 is of by far greater interest than those dealt with before. This greater interest is justified mainly for the legal mechanism underlying the judicial formulation of what is expected from Common Market industry and trade in general. The facts: The German firm Grundig and the French firm Consten signed a contract by which the German partner invested the French partner with the right of the exclusive distribution of its products. Consten undertook to procure the products specified by the contract exclusively from Grundig. Grundig agreed with all other business partners that they would refrain from selling Grundig apparatus and its components or spare parts in France. By this Grundig could create an extensive network of ‘individual’ market organizations. Grundig in the contract consented to Constên’s registering in France the trade mark GINT (Grundig International) and to using this trade mark together with the trade mark ‘Grundig’ on apparatuses marketed in France within the scope of the contract for exclusive distribution. Consten could operate with increasing success in the French market. The success was partly due to the very good reputation Grundig enjoyed in the market and this explains why other French importing firms began to import Grundig apparatuses bought from non-French wholesale firms. One of these was UNEF in Paris, and another Leissner in Strasbourg. Grundig brought an action for unfair competition and also for the fraudulent use of the trade mark. UNEF pleaded that the Grunding-Consten contract conflicted with Article 85(1) of the Rome Treaty and petitioned the EEC Commission to declare the contract of the 1st April, 1957 null and void. After these antecedents the Tribunal de Commerce de la Seine gave judgement for the plaintiff, Consten. The Cour d*Appel de Paris set the judgement aside and ordered that proceedings be stayed pending the decision of the Commission of EEC. Grundig then, on 29th January 1963, duly notified its contract with Consten and many others to the Commission and with reference to Regulation No. 17 petitioned the granting of a negative clearance. The Commission, however, held that the contract could not be exempted by virtue of Article 85(3) from the prohibition as set forth in Article 85(1). Both Grundig and Constens gave notice of appeal against the decision to the Court of Justice of the Community. In the litigation both the Italian government and the government of the Federal Republic of Germany jumped in each to back each of the cartel-members. On the other hand UNEF and Leissner by invoking Article 3 of Regulation No. 17

113 For the court and the details of the case see Chapter VII, paragraph 169, infra. 114A survey of the copious literature on the Grundig-Consten case is given by Steindorff, E.-Hoft, K. under heading ‘Decisions’ in the American Journal o f Comparative Law, 1967 (vol. XV), pp. 811-22. The decision of the Commission of September 23, 1964 was published among others in Amtsblatt, No. 161, October 20, 1964, p. 2287. For the judgement of the Court of Justice of July 17, 1966 see Recueil de la Cour, XII, 1966, pp. 430 et seq., Amtsblatt, No. 170, September 2 9 ,1966, p. 3015; Europarecht, vol. 1 ,1966, pp. 273 et seq.

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notified the Court of their interests in the case and of their intention to make appearance as parties to the case.115 In its judgement the Court of Justice held that both the right of exclusive distribution and the patent right in question were apt to restrict competition in the given product; that the restriction affected a large portion of the territory of the Common Market; and that it was directed to an absolute territorial protection and the exclusion of parallel imports; that the product protected by the given trade mark itself represented a substantial share in the market so that by it a serious distortion of competition could be reached; that the setting aside of Article 85(1) and the applica­ tion of Article 85(3) was unfounded already for two reasons: (i) the surplus price earned by selling the Grundig sets in France bore evidence to the fact that the consumers did not enjoy the equitable advantages of the contract, this being one of the conditions on which an exemption could be granted by paragraph (3); (ii) for the achievement of the advantages according to paragraph (3) neither the granting of the right of exclusive distribution in France, nor the trade mark contract reinforcing the right of exclusive distribution were absolutely essential. The Court of Justice ruled out the pleading that Article 85(1) did not apply to vertical agreements (between producers and distributors), or that only Article 86 applied to such agreements. The system of contracts in question which Grundig signed with several firms established in the Common Market was directed to, and was apt to isolate the French market for an important commodity, where then plaintiff could push its own competition restricting actions through and by this substantially prevent Common Market policy from prevailing in respect of the given group of commod­ ities.116 This judgement in Grundig-Consten gave rise to prolonged disputes. Among others the question was asked, whether even in cases of such, logically and factually, obviously unlawful contracts it would not be more advisable to build on conclusions drawn from economic analyses, i e a rule of reason test, rather than on the per se theory so strongly preferred in the present instance. Or whether for the introduction of certain commodities in the market and by this strengthening competition similar absolute distribution contracts were not after all welcome and therefore, notwith­ standing the judgement in the Grundig case, legitimate. In fact the judgement in the Grundig case was passed in respect of parties already competing, of a competition at that time already in full swing. It was also brought forward that in many other decisions both the Court of Justice and the Commission were more liberal than in the present instance. On such and other issues lively disputes developed in the relevant literature and the judgement was exposed to attacks from many sides.117 (c) However, the Court of Justice adhered to its position with determination, at least for the time being. In the case of the Government of the Italian Republic v. the Commission of the European Communities once again it reaffirmed its position. In this instance the Italian Government asked for no less than the annulment of the articles of 115 See Recueil de la Cour, XII, 1966, pp. 435 et seq. (Faits. . .) 116Ibid., pp. 430 -3 , 506. 117 For details see the writings of Steindorff and Hoft, quoted in Note 114 supra.

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Regulation No. 17 of 1962 and No. 19 of 1965 of the Council, on the strength of which the Commission could grant group exemptions with limitations only. The contention was that green light should be given to vertical cartel agreements too, inasmuch as Article 85(1) applied only to horizontal cartel agreements. As against this, the Court of Justice construed paragraph (1) so as to imply vertical cartel agreements, too, if these were apt to distort economic competition on a Common Market scale. In the Centrafarm judgements of 1974 concerning trade marks, patents and absolute territorial protection the Court of Justice, with reference to the judgement in the Grundig case, held that patent and trade mark rights could not lead to market-sharing or the restraint of competition.118 This is more or less the position which the European Economic Community actually holds as regards the actual extent and operation of the prohibition of cartels. The legal mechanism is fairly clear and it has developed to an adequately high degree of completeness. The outlines of the limitations which are virtually intended to be set up are also well visible. It is an altogether different question, and for the time being any reply to it would amount to prophecy, what life will produce tomorrow with regard to cartels in the discussed and in other branches of EEC industry. What may be accepted as fairly certain even at the present moment is that Common Market economic policy will - for both keeping the capitalist economy actually functioning and for protecting fairness — try to take a certain minimum level of the anti-cartel spirit into consideration, possibly by letting the present trend take hold. 124-5

Competition policy and anti-trust law in practice: (b) Main lateral arms of the legal channels

124 Under this heading we propose to deal with further institutions and theses of the practice of anti-trust law which though by-pass the principal issue, viz. the means needed for determining the degree of prohibition, still remain important lateral arms and means of enforcement of the legal mechanism as a whole. (i) The replies coming from practice are of interest which concern the legal fate between notification and the decision of the cartels notified to the Commission. As regards the principal thesis as developed by judicial practice this may be summed up by stating that the cartels affected by their being notified to the Commission may continue to operate until the Commission of the Community or the Court of Justice has passed a ruling to the contrary. This is the case also when the cartel is in conflict with Article 85(1) of the Rome Treaty. This is to what the contradiction of the norms of Articles 1 and 6 of Regulation No. 17 has boiled down. Although Article 1 of the Regulation states that any agreement, decision or concerted practice referred to in Articles 85 and 86 is ipso facto unlawful and prohibited, no prior decision to this

118 See the judgement of the Court of Justice in Italian Government v. EEC Commission of July 13, 1966 in Recueil de la Cour, XII, 1966, pp. 564 et seq.; Amtsblatt, No. 170, September 29, 1966, p. 3016; Europarecht, I, 1966, pp. 338 et seq.; the Centrafarm judgements (in the stereo­ typed publication of the Court of Justice): 15/1974 Centrafarm-De Peijper, Rotterdam and Ster­ ling Drug Inc., N. Y., and 16/1974 Centrafarm-De Peijper, Rotterdam and Winthorsp, Haarlem. 150

effect being required, still on the other hand Article 6 states that the Commission shall indicate the date from which an authorizing, declaration of exemption shall take effect and that this date cannot be prior to the date of the notification. When we now set out from the understanding that in point of principle the Commission may grant an exemption to each notification and that for this reason unlawfulness cannot be presumed even for the period prior to the declaration of the exemption, the con­ clusion will appear as legitimate that, until the Commission has decided on the notification, a cartel is, at least pending the question of unlawfulness, not ineffective. This was the point of view adopted by the domestic practice of the Common Market countries. It was on this understanding that the Bundesgerichtshof of the FRG gave judgement in the matter of the cartel agreements of the firm Braun concerning its electric razors.119120This is borne out also by the practice of the Court of Justice of the European Communities. In this matter there were three judgements of the Court of Justice on record in 1969 and 1970. In the S. A. Portelange and Smith Corona Marchant International case the Court of Justice gave judgement on the 9th July, 1969, after the Tribunal de Commerce de Bruxelles by invoking Article 177 of the Rome Treaty had applied for a preliminary ruling of the Court of Justice.120 In the present connexion it is not so much the peculiarities of the facts of the case121 which are of importance, although even these are not wholly void of interest. Under a contract the firm Corona gave Portelange the exclusive right to market its products, computers, bureau apparatus, typewriters and electronic copying machines in Belgium and Luxemburg. The agreement made in 1961 was duly notified to the Commission. On the 6th October, 1966, however, Corona terminated the contract for a part of the groups of products. Portelange, invoking a Belgian provision of law, contested the lawfulness of the unilateral cancellation of a contract signed for a term indefinite and brought an action for damages. Corona as defendant raised a question of law. Namely Corona pleaded that the contract was by Article 85(1) of the Rome Treaty null and void, because the Commission had so far granted no exemption as was provided by paragraph (3) of the same Article. On the other hand Portelange argued that even if the contract was conflicting with paragraph (1), pending the decision of the Commission it was valid anyhow. The contracts had been notified in time to the Commission as decreed by the Rome Treaty. The Commercial Tribunal of Brussels in this situation on the plea that Regulation No. 17 was not unambiguous on this point, applied for a preliminary ruling of the Court of Justice.

119 For a detailed information on the judgement see Common Market Law Review, vol. 3, P· 59. 120According to Article 177 of the Rome Treaty, the jurisdiction of the Court of Justice extends to the interpretation of the Rome Treaty, the supervision of the acts of the institutions of the Community for their validity and their interpretation, etc.; if before the court of anyone of the member states such and similar issues shall arise and the court shall be of the opinion that it cannot determine the issue unless a preliminary ruling has been obtained, it may apply to the Court of Justice of the European Communities to settle the question of interpretation. 121 Recueil de la Cour, XV, 1969, pp. 310 et seq.; Europarecht 4, 1969, pp. 341 et seq.; Common Market Law Review 7, 1970, pp. 234 et seq.

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*The Court itself was in a quandary. The point at issue was whether the legal validity of a contract beyond doubt lawfully terminated, yet until its termination performed, could be argued for the term of its actual existence. If the legal validity of the contract could be argued, e.g.t because of its conflicting with Article 85(1) a claim to damages did not exist, although in reality the contract was in operation. If the validity of the contract was incontestable then a claim to damages must be admitted, although there might still be a chance of Article 85(1) being applied to the contract with the proviso, however, that as for damages the contract was nevertheless valid. The judicial practice of the member states of the Common Market as regards the temporary validity of invalid contracts has developed on widely divergent lines. In this situation the Court of Justice held that agreements coming within the purview of Article 85(1) of the Rome Treaty, yet duly notified to the Commission were in compliance with Regulation No. 17 fully valid pending the decision of the Commission in conformity with Article 85(3) and Regulation No. 17. The decision was mainly based on the following arguments. An agreement conflicting with Article 85(1) was though ipso facto prohibited, yet on the condition of the applicability or inapplicability of (3) of the same Article. On the other hand the applicability of paragraph (3) could, after notification and procedure conducted in conformity with Regulation No. 17, be established solely by the Commission. From the sole fact that the agreement had been notified to the Commission its voidness under paragraph (1) could not, however, be inferred. The parties were not in the position to urge on the Commission to make its decision. Among others the Commission needed considerable time for the formulation of its decision for the very reason that for the establishment of the simultaneous presence of the conditions specified in paragraphs (1) and (3) of Article 85 the Commission had to carry through depth-analyses of points of economy and law. The principle of the security of commerce and of law demanded that during this period of investigation, which might extend over several years, agreements duly notified to the Commission should retain their binding force. The contingency that after all the Commission might place prohibition on certain agreements might give cause to certain difficulties in points of law, still these difficulties were by far not so critical to legal security as the denial of a provisional validity to such agreements. If the Commission was of the opinion that an agreement was prima facie one coming within the purview of Article 85(1), then it was the obligation of the Commission to issue an interim communication as foreseen by Article 15 of Regulation No. 17, stating that the cartel agreement seems to conflict with Article 85(1) and that an exemption by virtue of paragraph (3) seems not to be justified; upon such a communi­ cation the agreement may be kept in function, however, as to the possible retroactive voidance, only at the parties’ own risk. This ‘principle of temporary validity’ was even expanded by the Court of Justice in its judgement of the 30th June, 1970, in the case Parfumes Marcel Rochas, Paris and Parfumes Bitsch, München. In this case the point at issue was whether the validity of a cartel agreement could be argued, when, though the agreement had not been notified to the Commission, it was substantially the same as earlier standard contracts which had been made by the parties concerned and which still were in the phase of examination by the Commission. The Court of Justice established that the Com-

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mission had been authorized to regulate and perform the procedure of notification. Procedure of notification and examination had been brought under regulation by Regulation No. 27 of 1962 and its several amendments stating that for standard or blueprint contracts for the establishment of their validity or prohibition it was sufficient to attach a specimen contract to the notification and even the names of the concrete contracting parties could be omitted. The Commission could lawfully act therefore in the manner contested: the provisional binding force of a contract so notified extended to the provisional validity of all concrete contracts entered into in conformity with the attached specimen contract. Namely the Commission was fully aware of the circumstance that such and similar contracts could for their peculiar substance become prejudicial to the economic competition going on in the sphere of the given group of products, therefore, for the formulation of its decision the Commission would, on the basis of this nature of such contracts, embark on the appropriate examination of the relevant points of economy and law even without the concrete contracts being attached to the notification.122123 (ii) In the Bilger Breweries, v. Restaurant Jehle case the Court of Justice, on the 18th March, 1970, delivered the following judgement.123 The Bilger Breweries placed two restaurants and credit at the disposal of the Jehle family on the condition that for a term of 25 years they would serve in the restaurants only Bilger beer and that in the event of a lease of the restaurants they would have this restriction taken up in the lease contract. In the restaurants, however, beers of other brands were also served, so that the Bilger Breweries instituted an action against the Jehle family. The Oberlandesge­ richt of Karlsruhe ruled the case be referred to the Court of Justice of the European Communities. The Jehle family namely submitted that eighty per cent of German restaurant keepers were under the effect of such restrictive contracts, so that virtually the German market was torn out of the Community as a whole and segregated from it. Contracts of this type therefore violated Article 85(1) of the Rome Treaty because of their influencing the integration of the trade between the member states to its prejudice. They said that the contractual stipulation in question would be unlawful even when by Article 4 of Regulation No. 17 it would formally be exempted from the obligation of being notified to the Commission on the plea of its being made between the subjects-at-law of the same state, and that the Rome Treaty was stronger than a regulation issued by the Commission — even if by virtue of the Rome Treaty. The Court of Justice in its decision found that the rules of Regulation No. 17 could not be contested merely from a hierarchical position. Until Regulation No. 17 was in operation and the Commission did not embark on an investigation into the practice of German beer breweries to the prejudice of integration and until the concrete contract subject to litigation had been declared null and void, the contract was under no obligation of notification and was therefore in full possession of validity. This decision betrays the occasionally positivist and formalisme concept of Com­ munity law. The Court of Justice of the European Communities as a matter of fact 122Recueil de la Cour, XVI, 1970, pp. 515 et seq.; Gewerblicher Rechtsschutz und Urheber­ recht, vol. 1970, No. 10, pp. 325-6. 123Recueil de la Cour, XVI, 1970, pp. 127 et seq.. Europarecht 5, 1970, pp. 248 et seq.

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refrained from embarking upon a wholesale examination of the contested systems of contracts, notwithstanding the fact that they affected eighty per cent of the German industry in question, merely because the German court submitting the case to the Court of Justice had failed to put a question to this effect. In a judgement of 12th December, 1967, when the facts at issue were about the same, the Court of Justice of the European Communities had already declared namely that although a contract made within the same country stipulating that buyer would purchase exclusively the products of seller did not fulfil the conditions of the prohibition in Article 85(1) of the Rome Treaty, it could nevertheless fulfil these conditions if either by itself or in conjunction with other economic and legal interrelations, in which the contract had come into being, it was apt to affect the trade between the member states and purpose or bring about its obstruction or distortion. For these reasons, although not exclusive­ ly for the purpose of decision-making, the courts of law had for establishing the fulfilment of the conditions of Article 85(1) by the individual contracts in question to attend also to the possibility whether for the given products there was not an extensive system of contracts of this kind in operation which in the last resort was apt to produce the effects fulfilling the conditions of paragraph (1). Consequently the system of contracts beyond the concrete case might as well become part and parcel of the facts at issue.124 125 Another lateral arm of practice in cartel law is the process of competition of Community law and municipal law, the vertical relation of what has already been discussed under the heading of the priority of Community law.125 Of the two judgements worth notice the first in the temporal order concerns the conflict of municipal patent legislation and Articles 85 and 86 of the Rome Treaty. The second judgement throws out the problem in a more or less generalized form. The first judgement, in Parke, Davis & Co. and Bientema-Interfarm is dated 29th February, 1968.12 6 The gist of the issue was the territorial nature of municipal patent rights, a point much argued in literature, the extent to which these rights were apt to restrict competition, and their conflict with Articles 85 and 86. Namely the plaintiff Parke, Davis & Co. had a patent registered in the Netherlands which related to the process of manufacture of an antibiotic preparation called chloramphenicol. The defendant Bientema-Interfarm imported chloramphenicol from Italy (where no patent rights are granted to medicines or their manufacturing process) and marketed it in the Netherlands. The plaintiff, Parke, Davis & Co. brought an action for the infringement of patent rights. The Dutch firm pleaded that the plaintiff American firm was monopolizing the Dutch market with its patent in restraint of competition. It sold the medicine in question at a price higher than that of the same substance if imported from Italy. Consequently this method of protection under patent rights and also the exploitation of these rights was conflicting with the rules of anti-trust law as defined by the Rome Treaty. The Court of Justice giving judgement defended the principle of the territoriality of municipal rights inasmuch as it held that the rights granted by the 124 See judgement in Brasseries de Haecht and Wilkin-Janssen, Recueil de la Cour, XIII, 1967, pp. 526 et seq.; Europarecht, 3, 1968, pp. 132 et seq. 12 5See Chapter III, paragraphs 3 2-3, supra. 126Recueil de la Cour, XIV, 1968, pp. 82 et seq.. Europarecht, 3,1968, pp. 2 2 8 -3 1 .

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one or the other member state to the owner of a patent did not affect Articles 85 and 86 of the Rome Treaty. As regards the restrictive effect of the patent here, too, the Court passed a ruling in the negative when it held that “the exercise of those rights would not in itself fall under Article 85(1) in the absence of any agreement, decision or concerted practice referred to in that provision, or Article 86 in the absence of any improper exploitation of a dominant position” , further “the higher level of sales price of the patented product as compared with that of the non-patented coming from another member State does not necessarily constitute abuse” . Literature fairly unanimously agrees that here the last word has not yet been said. Like in the United States, in Europe too, the market monopolizing tendencies by way of patent rights will give rise to worries, and there is no doubt that both the Commis­ sion and the Court of Justice of the European Communities will have to confront the issue in a more differentiated and determined manner than hitherto. Admittedly, in certain cases, both agencies had already taken steps in this direction, as re Grundig and Consten, where the Court of Justice in part set aside the decision and judgement owing to the monopolizing character of the exclusive use of the trade mark GINT. The relations between Community law and municipal competition law was in general terms formulated in the judgement in Farbenfabriken Bayer AG of the 13th February 1969.127 Here the Kammergericht (West-Berlin) by invoking Article 177 of the Rome Treaty applied for a preliminary ruling as to whether this court could impose on the members of the board of directors of this company and also of others a cartel fine under German law, or whether such imposition was defeated by a prospective cartel fine to be imposed under Community law. Briefly the facts may be summed up as follows. Bayer and other partly non-German companies entered into a price cartel agreement and in the territory of the Common Market these companies raised the price of aniline paints on several occasions. By the side of the German Cartel Office and the Kammergericht (West-Berlin) also the Commission of the European Communities instituted procedures. Both the West-German law of competition and Regulation No. 17 of the Communities authorize the imposition of fines. There was a case therefore of a duality or of competing sanctions, or in more general terms, the question of the applicability of municipal law when the Commission had been examining whether a cartel agreement was in conflict with Community law, still decision had not yet been made. Referring to Article 87(2Xe) of the Rome Treaty the Court held that unless the regulation provided by paragraph (e) decreed otherwise the domestic authorities could take action against cartels in conformity with their municipal law, even when in the Commission an examination was in progress regarding the relation of the given cartel and Community law. Notwithstanding the application of municipal law could not in a restrictive manner affect the unrestricted operation of Community law and the measures serving the enforcement of this law. The gist of the issue is not so much the way of the imposition of a fine on the parties. The less so because it has been announced that for reasons of equity the first12 121 Recueil de la Cour, XV, 1969, pp. 1 et seq.. Europarecht, 4, 1969, pp. 147 et seq.

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fine may be included in a second fine. The substance is the declaration of the claim to the absolute force of Community law. This means that in the event of provisions of municipal law conflicting with those of Community law, everybody has to obey the latter. If, e&, in the case of a cartel municipal law insists on greater rigour, or places an embargo on the cartel in question, whereas Community law shows a more ‘liberal’ attitude and allows a wider elbow-room, then the liberalism of Community law will be the winner and will be watering down the hard-won rigour of municipal law. Steindorff writes: it may easily happen that it is not a more distinctly defined European market control that will come into being but rather that the European car will have entered a cul-de-sac in this field.128 § 17

Concentration and dominant market position (m onopoly)

126-8

Optimal size?

126 In Chapter II we have spoken of the strides enterprise concentration in reality makes in the Common Market. Although a concentration on the American scale is as yet out of the question, nevertheless the trend points in the direction of a concentration at an accelerating rate. We have also seen that in agreement with the present-day Common Market concepts of economic policy the integrated expanding European market calls for the increase of concentration and that this demand has received encouragement from the economic policy of the Common Market. Still at the same place we have also read as if in the economic policy of the Common Market by the side of concentration, as one of the pillars on which this policy rests, there were yet another pillar buttressing up this policy, namely the fear lest concentration should create monopoly positions and eventually lead to the restraint or distortion of the economic competition in the market. This logic ‘concentration v. competition and competition v. concentration’ implies an interesting thesis. That namely, if on the one side of the equation the optimal size of the enterprise (meaning a plant, a manufacturing unit) can be defined and this can be incorporated, with exact calculations, in the function of economic competition in a working system, then on the other side of the sign of equation we shall obtain the x, Le. the prohibitive or permissive reactions, as the case may be, with which anti-trust law or the agencies organized for the purpose have to respond to concrete actions of concentration in the particular groups of products or branches of industry. In the following discussion we shall see, how far this equation still is, in most of its elements, from the unambiguity of mathematical equations. Yet let us review the problems, each in their turn. The optimal size of the enterprise or of the manufacturing plant is in fact a luring premise if by the side of modem expectations directed to technological development and performance one is eager to find the clue to market competition, this natural economic regulator. Is this the philosophers’ stone which would turn one of the elements of the equation into an unambiguous value? After all we should refrain from speaking of this discovery of the 128 Steindorff 2, p. 980.

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philosophers’ stone in this ironical manner, for in the professional press the discoverers belong, as will be seen subsequently, to those who have on the spot demonstrated that the economic giants in the struggle for market domination ignore any restriction and do not care a farthing for any optimal size since for them the optimal size is anything that is larger than anything else. The critical and warning authors have made the public aware of the dangers of ever increasing dimensions and even queried the sizes on grounds of economy. What the American Buxbaum, the well known expert of competition, has written could so far hold its own, namely that European eco­ nomists and jurists bypass the study of the legal rules governing market domination, so also Article 86 of the Rome Treaty, merely because tacitly or expressly they set out from the thesis that European market structure is by far not so monopolized as the American, moreover for the increase of competitiveness European economy insists on yet greater concentration.12 9 127 In like way as anti-trust law tending towards becoming a more and more determined moulding force, so also the idea of the optimal size of plant has found its way to Europe from America. Of the many authors129130 here only Bain will be quoted who in his work Industrial Organization, and also in his other writings, has carried through intensive investigations as to the optimal size of enterprises and reality in America. He has demonstrated that in 1947 the average size of a plant of the milling industry was 24.3 times the optimal size, the respective rates being in the shoe industry 21.8, in the canning or food processing industry (one of the largest branches of industry in the United States) 17.6, in the distilling industry 12.5, in the kitchen utensils industry 16.7131 *. Slowly in European literature, too, the idea is gaining strength that in the Common Market there is no need for a concentration on a United States scale, and this for several reasons: (i) the US market is larger; (ii) concentration is over-dimensioned even there; (iii) in many branches of the Common Market, so in the chemical industry, motor car manufacture, electrical industry, concentration is anyhow too strong. What is needed here is in the words of Jacquemin to determine the economically optimal dimensions.132 Several studies have been forthcoming in this sign. One of the most comprehensive of them, besides giving a detailed market structure analysis, makes an attempt to offer at least a numerical orientation for the solution of the formula of optimal size of plants and the competitive market structure.133 This attempt has still been made only on general lines, since to perform calculations for all branches of industry would exceed the size even of a large volume. What is essential here is the exposition of the underlying idea, still in conjunction with a number of concrete calculations made for certain branches of industry, hereincluded the juxtaposition of American and Common Market data. It is of interest to note that Jacquemiris parallel data for the Common Market have also been derived from the American 129Buxbaum 2, p. 409. 130For a detailed review of American literature see Jacquemin, pp. 2 1 2 -3 . 131 Bain 3, p. 84. 13 2What we need is to determine the dimension required to achieve economies of scale, Jacquemin, p. 231. 1i i Canellos-Silber, pp. 5 et seq.

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anti-trust mechanism.134 These data, e.g. , extend to the optimal plant size for the manufacture of ten concrete groups of products. Accordingly, in the Common Market in the ten groups of products the optimal plant sizes would be as given in our Table 1. Table 1 Optimal plant sizes13 s A rticle

Type

O u tpu t (per annum , unless otherw ise stated)

Shoes Woollen carpets

Leather, simple Machine made, tufted Pilsener, bottled Beet processing Standard passenger 55 AG Simple, small-size Simple, small-size Ingots

4.800 - 5.000/day

Beer Sugar Cars Steel drums Washing machines Refrigerators Steel Nitrogenous fertilizers

Percentage o f EEC output

0.2 -

0.3

5.000. 000 - 55.000.000 m2 5 . 0 - 6.0 0.1 - 0.15 100.000 - 200.000 hi 0.1 - 0.20 5.000 - 6.000 metric tons 1 .5 - 5.0 100.000 - 300.000 6 . 0 - 7.0 625/hour 10.0 - 11.0 400.000 - 500.000 9.0 - 10.0 400.000 - 500.000 3.5 - 4.5 3.000.000 - 4.000.000 tons 300.000 tons

6 .0 -

7.0

128 It is an altogether different question, how these theoretically optimal plant sizes are related to reality. It is well known that the divergences are great. It is yet another question whether for the maintenance of economic competition or for measures of competition law, these figures form a safe foundation, whether they can be accepted as a point of departure at all. As we shall see, this is hardly the case. The authors of the works here referred to and also others are at a loss to emphasize in terms strong enough that concentrations by way of merger also have a macro­ economic aspect.136 In another interrelation this sounds, by adopting the doctrines of the American Edwards,137 as if workable competition could not be maintained unless there were a case of what can be called a wide oligopoly,13 8 a configuration (so far as the optimal plant size is concerned, or by its side) demanded by modem expectations and situations of financing the market and market distribution.139 All this indicates that this theory of optimal plant size, if this name may be given to it: 134De Jong, H. W.: ‘Economic Concentration’ Hearings before the Subcommittee on Antitmst and Monopoly o f the Committee on the Judiciary., United States Senate, 90th Congress, 2nd Session, S. Res. 233. Part 7: Concentration Outside the United States, pp. 3608 et seq. 13 5Published by Canellos-Silber, p. 19. 136See Burki, p. 105;Servan-Schreiber, p. 108; Canellos-Silber, p. 11. 137Edwards, C: Maintaining Competition. New York 1949, pp. 9 et seq., in Canelbs-Silber, p. 11. 13 · The criteria of a wide oligopoly are of course also wide enough: by the side of a number on the whole equally strong enterprises a large number of small ones, so that the choice of the consumer should always be certain, whereas the market conduct of the selling concerns should always be uncertain at the proper degree and should not lead to a guild-like concerted practice of power groups. Ibid., p. 11. 13 9Canellos-Silber, pp. 11 et seq.

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(i) is still far from maturity and not yet on the level of exactness; and (ii) it can hardly become, if at all, part of the laws of capital. The plant sizes occurring in the work of Gy. Äddm, departing from those above, also show140 that theory is still far from providing sufficiently exact information for the law of competition. Among others this explains why so many want to believe that it is legally impossible to delimit concentra­ tions undesirable on considerations of social and economic policy, and that even their unjustifiedness on grounds of industrial administration could be demonstrated only by calculations performed at the expense of substantial government appropriations, therefore it is better to remain at the Missbrauchsaufsicht, ie. supervision of abuse of monopoly power.141 Viewed from the side of the depressing facts of reality this would mean that a certain objective market structure or market domination would not even in the Common Market bring about unlawful conditions per se. This will be discussed subsequently in conjunction with the legal problems in greater detail. Here we would by way of anticipating merely refer to the statements made in 1966 by the Com­ mission of the Common Market and a professorial committee delegated by it. Ac­ cordingly the circumstance that the purpose of enterprise concentration is directed to the acquisition or the building up of a dominant position cannot by itself be considered conflicting, on the plea of abuse, with Article 86.142 The 1970 Report of the Commission on industrial policy143 nevertheless says a little more. Although with several provisoes mainly affecting comparative statistics the Commission in its Report before all offered a detailed and comprehensive analysis of the average structural conditions of a long series of branches of industry, in any case of those of outstanding importance. It is true though that this analysis is adjusted to the actual situation in so far as it informs of the weight with which the particular categories of plant dimen­ sions,144 ie. plants employing 1-99,100 -4 9 9 ,5 0 0 -9 9 9 , 1000 and more employees figure in the industrial statistics of the member states, and accepts the category as standard type to which in the given country the largest number of employees falls of the given branch of industry.145 By this the Commission, though indirectly, leads us to the interrelations of the optimal plant size and through it, to those of the structure of industry and market conduct and competition, still it goes beyond this only at the expense of a single remark. Namely in its conclusions, which are almost exclusively focussed on the organization of the statistical system of the given fields, the Report states that in the sphere of industrial structure it is in like way indispensable that by branches of industry, at relatively short intervals, differentiated information should be available of facts such as the formation and termination of enterprises, closing down of manufacturing plants, processes of concentration, size of plants and enterprises by l40Àdâm 2, p. 441. 141 Hoenig, p. 23. Missbrauchsaufsicht: State and legal control and intervention as restricted to the abuses of market domination of the 'big* ones. 141 Commission: Enterprise concentration, p. 22. 14 *‘Memorandum der Kommission an den Rat*. In industrial Policy 1970. 144 According to Industrial Policy 1970 within the large average there is a surprisingly little difference between the dimensions of manufacturing plants and those of enterprises, p. 95. 14 sIbid, pp. 97 et seq.

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employee numbers and turnover, order of magnitude of the creation of values, payroll disbursements, gross plant results, etc. For the enforcement of competition policy the Commission has to dispose of data continually brought up to date, since the Commis­ sion will be able to assess the degree of concentration in the particular branches of industry in an exact form only in this case.14 6 This reservedness of the Commission is the less understandable as in a number of West-European countries there are statutory provisions in force which define the still tolerable degree of concentration. In Austria a dominant market position is deemed to begin at a share in excess of 30 per cent of the enterprise in question in the given branch of industry, or, if the question is one of the three leading enterprises, their aggregate share is in excess of 50 per cent. In the United Kingdom an enterprise acquires a dominant position with a share of 33 per cent. In Norway a control of 25 per cent suffices, in the Federal Republic of Germany regulation is somewhat com­ plicated, as a dominant position can be reached by an enterprise which is one in the group of enterprises representing 10 per cent of the total number of industrial enterprises controlling the given branch of industry up to 50 per cent. There can be no question of a dominant market position until these rates have been attained. Con­ sequently if enterprises constituting 11 per cent of the grand total control the same 50 per cent of the market, a dominant market position is out of the question. In conformity with the statutory regulation, obviously, a dominant position will be reached by enterprises within the 10 per cent, only if anyone of these enterprises transacts one half of the 50 per cent of the turnover controlled by these 10 per cent, Le. if the enterprise in question seizes a 25 per cent control of the total turnover of the respective branch of industry.146147 These dimensions are also well beyond those of the optimal sizes of plants allocated to the ten branches of industry figuring in the Table above. The Commission, however, did not even contemplate to specify the higher rates of the municipal legislations as the statutory rates of Community law. This is therefore how things stand after an objective assessment of concentration and the dominant position of enterprises. This is what has become of the mathematical formula referred to in the introduction, which could have served as the starting ground for statutory regulation and intervention: so far the Commission has failed to come to the establishment of unambiguous categories and criteria as regards the optimal size of manufacturing plants and the dominant position. Also the statistical assessment is defective. On the other hand in a number of industries there is already a concentration in excess of the tentatively indicated dimensions. Furthermore what may be regarded as given is the Community concept of economic policy promoting the continued structuralization, Le. concentration for the achievement of dimensions on a Com­ munity scale. Thereafter the still desirable component of the other side of the equation, viz. that there shall be competition, can be established only in concrete individual anti-trust cases separately in decisions always subject to ad hoc power relations in economic policy. Therefore the Commission pronounced the following policy-making statement on the subject: “The Commission considers appropriate to 146Ibid., p. 115. 14 7For details see: Burki, pp. 60-2.

160

pursue a competition policy according to which the contents of the prohibitions formulated in Articles 85 and 86 should be established in connexion with the particular cases by way of the gradual development of decision-making and judicial practice and not in an abstract manner.” 148 129-30

The forms o f concentration

129 Among the factors advancing or obstructing concentration there arc by the side of economic determinants and such of economic policy, or partly as the expression of these, in abundance mainly institutions of company law, fiscal and commercial law. In particular owing to the want of the uniformity of the conditions of competition considered desirable from the point of view of the Common Market, the factors referred to before, advance or obstruct concentration owing to the fact that in the particular member states they develop and operate differently, whereas Community law reinforces the trend towards unification. With reference to the legal mechanism of concentration and enterprise activity on an integration scale, as outlined above,149 we shall, for the better grasp of what will be set forth below, make clear the legal forms. This is necessary mainly because it would be unreasonable to speak of the legal appraisal of the monopoly situation, or market domination, or even of the order of the statutory prohibition of the abuse of market domination unless the forms to which all these apply are sufficiently known. The first remarks refer to the segregation of the cartels and enterprise con­ centrations and their interrelations, and also to the question whether the prohibitive rules of market dominating concentrations, ie. the body of rules of Article 86 and associated articles of the Rome Treaty can be applied to both, viz. cartels and concentrations. Already from the foregoing Articles 15 and 16 it stands to reason that these categories may take on a company law form, that the cartel may develop to an organized enterprise form, Le. to a company even if this is not its principal form. The instrument of the Commission relating to enterprise concentration already indicates this intertwining of the forms: “The cartel brings about the restriction of the conduct, the enterprise concentration causes the change of the internal enterprisal structure. The transitions, however, coalesce to an extent that the limits of the cartel and the enterprise concentration cannot be defined in any abstract manner with precision. The marginal cases can be defined only in a concrete situation.” 150 Even if in the sphere of company law empires in the last resort the property relations are the determinant factor, even if we argue the validity of the today strongly professed opinion as if in the company empires in the complex, combined effect of the many factors the decisive power did not rest on ownership (this is by the way Berle's Power without Property)151, and if we therefore assign a prominent position to ownership, even4

l4SCommission: Enterprise concentration, p. 21. 14 9See supra Chapter IV. 150Commission: Enterprise concentration, p. 21. 151 This theory has best been evolved by Berle, a prominent writer on western company law. The theory according to which the influence of the natural persons, Le. the capitalist shareholders,

11 Madl

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assuming all these, it will not suffice to reduce the anti-trust law implications of enter­ prise concentration to organized company forms, to units owned by a single person or group, Le. to companies which, from the point of view of proprietary rights, are homogeneous and undivided. There are many known forms of loose, informal part­ nerships, where the partners preserve their proprietary independence, still the dis­ posing power will nevertheless be concentrated. Hence the notion of enterprise concentration is wider than that of property concentration. Perhaps Lenel gives the widest interpretation to the notion of concentration. In his opinion economy is permeated by as many decision-making plans or programmes as there are mutually independent units in it. If these decision-making plans or programmes of conduct developing in relative independence of one another become intertwined and knowingly part and parcel of one another, while their number is simultaneously dwindling, then we have a case of enterprise concentration, and the dominant market positions will have to be appraised legally on this understanding.15 2 Whatever theories we may bring forward, we shall have to admit that although the extreme limits of enterprise concentration cannot be drawn in any abstract manner, still here we cannot content ourselves with the proprietorship conception in a narrow sense of the term. 130 Of the particular concrete forms of enterprise concentration we shall briefly mention the following principal types. Such are (a) joining an existing commercial company, (aa) with minority interest; (bb) with minority interest, still owing to the dispersion of the other shares, in a dominant position; (cc) with majority interest; (b) purchase, outright or partial, of the assets, equipment, etc. of another company; (c) merger of two or more companies to a new company; (d) concern-cartel, holding, or other loose forms, however, bringing about a uniform dominant position. All four principal types may appear in a company form on different levels of organization, with or without legal personality. This may be by way of a contract of cooperation or a cartel agreement producing an organized cooperation, or the new French groupement d'intérêt économique,1s 3 the investment or capital supplying company,154 a simple partnership, a highly developed joint stock company or a limited liability company, or in other words any imaginable category which can be grasped by the law and is capable of serving the interests of the concentration. In any principal type or case the legal means of concentration and its form of expression may be highly variegated. There are, e.g. the different behind-the-scene agreements, which restrict the apparent freedom of action of the associating partners, or priority shares which help particular groups to a special power position in the complex of concentra­ tion.*15

on the legal persons as the owner of the means of production is dwindling, has become strongly dominant in West Europe. See Lenel, pp. 2 et seq. 1 *7Ibid., pp. 2-3. 15 3See the work of Guyon-Coquereau which offers a treatment of the practice of this also legislatively new institution of French law. 15 4 For the Investment Companies, Tnvestment Gesellschaft* and *Kapitalbeteiligungsgesell· schaft’ as interesting forms of association see Hax, K.: Kapitalbeteiligungsgesellschaften zur Finan­ zierung kleiner und mittlerer Unternehmen. Westdeutscher Verlag, Köln-Opladen 1969, p. 90.

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131-3

The dominant position in EEC legislation

131 The dominant position arising from enterprise concentration manifested itself in Common Market legislation for the first time in Article 66 of the ECSC. Accordingly any transaction which would have in itself the direct or indirect effect of bringing about a concentration shall be submitted to a prior authorization of the High Authority. “The High Authority shall grant the authorization . . . if it finds that the transaction in question will not give to the interested persons or enterprises. . . the power —to fix prices, to control or restrict production or distribution, or to prevent the maintenance of effective competition . . . ” The High Authority may by precisely defined procedure deny authorization if these conditions do not exist. In its decision the High Authority may impose heavy fines, decree the liquidation of unlawful associations and of other organizational and legal forms of concentration, in order that the normal conditions of competition might be restored. There is a rather interesting provision incorporated in Article 66(7). Accordingly if the merging or otherwise concentrating enterprises acquire a position of domination or one enabling them to restrict competition, the High Authority may by way of recommendations warn the enterprises to refrain from exploiting their position in a way running counter the ends of the ECSC Treaty. If the enterprises shall not carry out such recommendations, the High Authority may in addition to imposing a fine and by consulting the governments concerned define the sales conditions and the delivery programmes of the enterprises concerned. 132 Before commenting on the provisions of the ECSC Treaty relating to concentrations which extend beyond the frontiers of the member states we con­ sider it appropriate to offer an outline of the European Economic Commu­ nity. The formulation of Article 86 of the Rome Treaty was preceded by serious controversies. The French proposal thought of prohibiting a dominant position for itself. They wanted to protect the more atomized French economy against German giant industry. Finally the smaller countries sided with Germany against France. This attitude was quite reasonable because in The Netherlands there were several giant concerns such as Philips or Unilever which might have been affected by the French prohibition. It was also argued that purely on grounds of the structure nothing could be done inasmuch as a given structure could not be changed with retroactive force. All that could be done was to constrain giants to market-and-competition-conform conduct. This was the only way to bind them legally. The argument that pro futuro a merger bringing about structural changes could be handled theoretically in the same way as the market conduct failed to enlist a sufficient number of backers, thus the German motion was passed, and for that matter in an even more liberal form: only the abuse of a dominant position was qualified as being unlawful. In German municipal legislation namely definite mergers came under official control, exactly in order to prevent an undesired dominant position from developing. No such institutionalized control was taken up in Article 86, for the very reason because in this case the upper limits of concentration in the very branch of industry ought to have been determined,

11*

163

a step which the then official French standpoint - simultaneously emphasizing the role to be assigned to European great capital —refrained from pressing for.15 s The Rome Treaty in Article 86 formulates its thesis of the dominant position as follows: “Any abusive exploitation by one or more enterprises of a dominant position within the Common Market or within a substantial part of it shall be deemed to be incompatible with the Common Market and shall be prohibited in so far as trade between Member States could be affected by it. “Such abusive exploitation may, in particular, consist in: (a) the direct or indirect imposition of any inequitable purchase or selling prices or of any other inequitable trading conditions; (b) the limitation of production, markets or technological development to the prejudice of consumers; (c) the application of unequal conditions to parties undertaking equivalent engagements in commercial transactions, thereby placing them at a competitive disadvantage; (d) making the conclusion of a contract subject to the acceptance by the other party to the contract of additional obligations which by their nature or according to commercial usage have no cennection with the subject of such contract.” To this provision of the Rome Treaty, partly according to their meaning, partly in an express form, the provisions of law of Community level belong which have already been discussed in paragraphs 102 and 103, above; thus before all, for the present purpose by itself, Regulation No. 17 of the Council. This Regulation in Article 1 declares that any abuse of a dominant position is in the terms of Article 86 of the Rome Treaty prohibited and that for this prohibition no preliminary ruling to this effect is needed. This, and also the fact that by its Article 24 Regulation No. 17 is directly binding and applicable, imply that both the competent agencies of the member states and the Community organs may by virtue of Article 86 proceed forthwith. As regards both the inquiry into concrete dominant positions and their prohibition, and the grant of a negative clearance, if upon request of the enterprises concerned or of other parties attesting their justified interest and on ^uch of the member states or ex officio an investigation to this end has been instituted, on Community level in conformity with Articles 2, 3, and 9 of Regulation No. 17 authoritative competences have been vested in the Commission, the judicial compe­ tences, among others the competence for the supervision of Commission rulings, on the other hand, in the Court of Justice of the European Communities. The provisions of Regulation No. 17 (procedure of investigation; acquisition of information; inspection of enterprise balance sheets; submission of contracts; fines; eta) in general apply also to abuses of a dominant position.15156 As regards the dominant position Article 12(3) specially emphasizes:

155As for the genesis of Article 86 see Documents de Marché Commun, 468/1956,du 26 Octobre 1956; Burki, pp. 88 et seq. 1 54 See paragraph 115, supra.

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“3. When making enquiries as provided for in paragraph 2, the Commission shall also request enterprises or groups of enterprises whose size suggest that they occupy a dominant position within the Common Market or within a substantial part thereof to supply any particulars relating to the structure of the enterprises and to the conduct of their affairs necessary to appraise their situation in the light of Article 86 of the Treaty.” Both Article 88 of the Rome Treaty and Article 9 of Regulation No. 17, each for themselves, declare that until the Commission institutes procedures for the application of Article 86 of the Rome Treaty the national authorities shall proceed and in this procedure apply their municipal laws in agreement with Article 86. 133 Some general remarks appear to be rational as to the provisions of of the ECSC Treaty and of the Common Market, (a) The ECSC Treaty ‘opposed’, and still ‘opposes’, a dominant position on by far more objective grounds in so far as it considers the dominant position itself unlawful and not the abuse of it, and this whenever the dominant position leads actually to the effective restriction of competition, or to a privileged position as regards the sources of supply or in the market itself. It is true though that the provision holding out special measures to be instituted by the High Authority (direct determination of prices and control of production) makes it clear that recourse to the sanctions will not be had unless, notwithstanding the various measures, the concentrated enterprise empire exploits its situation in a manner conflicting with the ends set by the ECSC Treaty. In general, however, the ECSC has nevertheless formulated a more objective, or one may be tempted to say, more rigorous, or as often stated in West-European literature, more ‘dirigist’ monopoly policy in statutory law than the European Economic Community, (b) The special measures of the ECSC Treaty referred to before and the direct and operative rights in economic management may justifiably be termed as peculiar. Provisions of this kind have not been taken up in the Rome Treaty. By the side of what has already been set forth this, too, is an indication of the process of liberalization, of the concessions made to the free movement of capital, of the process of a retreat before the interests of capital, (c) Whereas by Article 85 and the associated provisions of the Rome Treaty each cartel agreement has to be notified to the Commission, Article 86 fails to provide in this sense as regards concentrations. Yet the ECSC Treaty still preserves this principle, and even in the preparatory work for the Rome Treaty and in its drafts there was greater rigour foreseen against concentrations. The express mitigation betrayed by the final wording is yet another indication of the prevailing tendency.15 7 (d) If we now add that as regards the dominant position the number of negative rulings given by both the Commission and the Court of Justice is also by far below their number in the case of cartels, and finally also the facts and figures are considered which have been discussed in Chapter II of the present work testifying to the rapid growth of concentrations, then the degree of deference to the expansive trends of capital will appear to be by far stronger, than might have been thought.

1*7For the drafts in this connexion see Canellos-Silber, pp. 155-6.

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134-8

Dogmatic problems o f the Regulation in the controversy o f theory and practice

134 Once statutory regulation had been completed dogmatic issues began to crop up, the most ominous being the one concerning Article 85 on cartel agreements. The question was whether this article was applicable, and had to be applied also, to enterprise concentrations, or was Article 86 sufficient. The EEC entrusted a team of professors with the study of the problem. Unfortunately the team failed to reach an unambiguous or unanimous opinion. Majority opinion took a stand for the applicability of Article 85 also to concentra­ tions, on the assumption, however, that - after their grouping (Zusammenschluss) for the anti-competitive economic end in question —the particular economic units would retain their legal independence and that they would restrict competition by agreements or decisions through their combination or grouping. In its wording, Article 85(1) (see paragraph 114, above) does not distinguish between cartel and concentra­ tion. Even so, the minority believed, Article 85 applied to the market attitude and not to changes in the structure of enterprises: these were two different things. There was unanimity, however, in that the team made it clear a legal system closed by itself was needed where agreements and associations for market domination bringing about uniform economic effects should be assessed on uniform principles.1s 8 The unequal regulation, with many lacunae in it, evoked then the critical remark confirmed by American practice, namely that the enterprises rather readily and with accuracy respond to the defective legal order; if cartel law and cartel law practice were not strong enough, the enterprises were apt to form cartels. If there was an effective cartel law in operation, yet there was no sufficiently strong legislation against monopolies, the enterprises would merge. If there was one, yet extending only to horizontal and vertical mergers (as is the case in general and in America), then the so-called conglomerate mergers would tend to come into being.159 By way of conglomerates enormous economic powers may be bom, in a way, however, that on formal grounds they do not impair the chances of competition, for the enterprises of the conglomerate may infiltrate several dozens or perhaps hundreds of branches of industry and appear with a low rate of participation only within a particular branch of industry or group of products.160 American practice, strongly anti-cartel-minded, yet weakly anti-concentration-minded, made the first fairly belated move only when the concentration process already moved on a gigantic scale. In 1950 Congress in response to the Kefauver investigation and the philippic of Kefauver161 supplemented Article 7 of the Clayton Act with the so-called Celler-Kefauver Amendment, which placed any association with any enterprise under an embargo if this association tended to reduce18 18SThe standpoint of the professor team has been analysed in Commission: Enterprise Concentration, pp. 21 et seq. 159 Conglomerate merger: concentration in a single hand of enterprises of different branches of industry. 16 °See Canellos-Silber, pp. 145 et seq. 161 For this, see Kefauver, E.: In a Few Hands. Monopoly Bower in America. Penguin Books, Baltimore 1965, p. 245.

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competition or to create a monopoly. Congress defined the express purpose of the amendment as the restriction of the future growth of economic concentration originating from mergers of enterprises and purchases of stock.162 Ever since then the number of judgements and other measures aimed not only at the merger of the competitors in the market of the given industrial product, but also at vertical and conglomerate mergers.163 As a matter of fact the circumstance that between 1951 and 1954 the rate of conglomerate mergers was only 51 per cent, only to rise between 1963 and 1966 to 71 per cent, has, as exaggeratedly stated by literature, ‘revolutionized’ anti-trust ideas, doctrine and also the competent organs.164 In the literature of the Common Market, where many seem to have a clear idea of the situation, notably of the gaps in Community legislation, the opinion is making headway that in view of the weakness and also the failure of Community law recourse should be had to the strengthening of municipal legislation. This is, however, argued by others, who believe that the problem should be settled in an ‘integrated’ manner inasmuch as this has been given expression also in the Rome Treaty.16 5 135 The Commission of the European Communities has joined the field — the dispute of legal dogmatics and comparative law arguments - armed with the weapons of practice. Substantially the Commission does not consider Article 85 applicable to concentrations. The arguments: wherever there is legislation restricting concentration in force, it has appeared enacted by the side of cartel legislation. In general, and so also in the Common Market, the prohibition of cartels is the general rule, the restriction of concentrations is an exception. Consequently the application of the prohibition of cartels to processes of concentration would lead to either a weakened prohibition of cartels or too strong restrictions of concentrations. The exemptions according to Article 85(3) cannot be assessed in the case of the process of concentration a priori and in a satisfying manner. The voidance of the contracts for association of the participants of mergers would become an unreasonably strong sanction and might be the cause of serious losses. There is need for rights and means of interference other than those specified in Article 85. The retroactive application of the procedure relating to cartels already prohibited by Regulation No. 17 to concentrations in being, since nobody knows when, would confront the agencies with a special problem. On these and similar considerations the Commission deems Article 85 to be applicable only4* I4*The Congress statement and the new wording of the Act have been published in Canelbs-Silber, p. 139. 143See the following judgements of significance: Brown Shoe v. United States, 370 US. 294. 1962; US v. First National City Bank and Trust Co. of Lexington, 376 US. 664 1964. Of the measures the Guidelines of the Department of Justice of May, 30, 1968 deserves to be mentioned. In these the Department of Justice outlines the policy it will follow in respect of concentration and also the degree of rigour it will apply. In the United States the Department of Justice is the anti-trust authority, its jurisdiction being very roughly uniform with that of the EEC Commission. See Neale, pp. 92 et seq., in particular, however, the section on mergers of Handler. Neale's work contains the full wording of the Merger Guidelines issued by the US Department of Justice (pp. 494-505). Substantially the guidelines consist of three parts: I. Horizontal mergers; II. Verti­ cal mergers; III. Conglomerate mergers. 14 4 For details see Canellos-Silber, p. 142. 14 5For the dispute see Ibid., pp. 150-1.

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where notwithstanding the association the particular enterprises preserve their auton­ omy under company law and also their proprietary independence.166 The idea of applying Article 86 in interdependence with Article 85, and the attempts to weaken the efficacy of Article 86 on the plea that it is void of the dispensatory valves defined by Article 85(3), or to transfer these to the dominant positions (mergers) and so to give the yet greener light for the latter, have - in the Continental Can case, in this monster international monopoly case to be discussed subsequently — met with the opposition of both the Commission and the Court of Justice.167 136 There remains the question now as to how Article 86 should be treated as regards its legal contents and limitations. On the part of jurisprudence the team of professors mentioned above has in the first place made it clear, what is manifest from the wording of Article 86, that neither the endeavour to build a dominant market position, nor its achievement are by themselves unlawful. On the other hand by Article 86 any enterprise concentration brought about by an abusive exploitation of a dominant position already in being, even if subsequently it is not exploited for further abuses, is unlawful. This is what the Commission and the Court of Justice held in the Continental Can case.168 The team of professors construes the notion of ‘dominant position’ so as to mean the power of a single enterprise, or of several, in their own and autonomous strategy to influence the decision-making of other economic units to a degree that competition in the given market cannot develop, or if there was any, this cannot be maintained. The notion of an abusive exploitation of the dominant position is embodied by the endeavour to achieve advantages, or exploit such as in the event of wholesome competition and in the absence of a dominant position could not be achieved. What theory expects from a practicable competition is the production and turnover without ‘artificial’ restrictions, the satisfactory response of the enterprises to demand, and that they allocate an equitable share of the results of technological and economic progress to the consumers of their products. Finally the team of professors recommends the organization of a system of control and observation (for recording certain processes of concentration). For this control and supervision by authority under Article 87 of the Rome Treaty a Community provision ought to be issued.169 These opinions and recommendations have in many respects received the approval of the legal press, with a number of differentiations. As regards the dominant position, beyond what has been said above, it has been made clear that not only a complete monopoly, but a disproportioned market share in a certain product, or a disproportioned financial power and price leadership in respect of others might as well be implied in the dominant position. To the ‘exploitation of the dominant position’ such additional elements have occurred like the fixing of low16

16 6Commission: Enterprise Concentration, pp. 22-4. 167See paragraph 172 in Chapter VI; for the judgement see Europarecht, 1973, No. 2, pp. 155-6. 16 8For the sources see supra Note 166. 16 9For the recommendations of the professor team see Ibid., p. 22.

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market prices apt to drive the other party into a merger in order to avoid bankruptcy; the bringing of concerted pressure by strong enterprises to bear upon other enterprises earmarked for ‘surrender’; the offer of advantages which enterprises not in a dominant position are void of (internal subsidies; the securing for large-scale suppliers and customers the possibility to enter into business relations with third persons who without the consent and the intervention of the dominant enterprise cannot do so, etc.)110 137 Criticism, which now fairly often is sounded, however, tends to marshal the Commission to greater activity and to a better objectivization of the control and limitation of concentration. Those writing on the subject believe that in modem capitalist economy in the first place Bain9s approach to the problem, ie. in the first place market structure, will help to achieve an appropriate economic policy or a proper attitude in the market. Be the cartel laws ever so rigorous, they will be of no avail, if the prices and production are dictated by the ‘members’ of asymmetric oligopolies. The consumers are an impotent mass in the place of which State and society will have to wage their battle with the dominant forces of the market with clumsy and therefore mostly ineffective bureaucratic weapons. There is no better guard and involuntary protector of the consumer than the competitor, even if the implications of technological development are ignored. And the good competitor will in the first place be provided by the good market structure rather than a rigorous cartel law. Therefore the Commission should (a) build up the statistical systems relating to enterprise structures and concentrations; (b) make efforts to determine the acceptable sizes of concentration at least in the definite market areas of the staple products and publish them; (c) endeavour to outline principles which for concrete types of cases predict the probable Commission decision (for an oligopolist market structure only a larger merger may impair competition, in a market where small units are operated a small-scale merger may be apt to distort competition; a market share above a certain level might be prohibited per se; if in the given territory and the given product there is hardly any competition, or the conditions of entry into this market have been made difficult, then mergers appearing here should from the very outset be appraised in a negative sense, e ta ).171 Finally, again on the ground of American experience and literature, the question is asked, whether in certain definite areas a market structure not relying on competition may nevertheless be needed. First, because interests attaching to economic develop­ ment or research and development can be served with the given size of the enterprise only at substantially higher costs, and, secondly, the enterprises concerned are unable to rise to an optimal level through internal development.172 138 What the Commission has done in response to what professional writing has recommended and expected may be summed up on the basis of the 1963 Memoran­ dum on concentration as follows.17 3 ,70For the constructions and analyses in literature see Burki, pp. 68 et seq. and CanellosSilber, pp. 159 et seq. 171 Canelbs-Silber, pp. 164 et seq. 17 *Ibid., p. 166. 17 3Commission: Enterprise Concentration, pp. 24-7.

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(a) Although strongly relying upon the quantifiable facts of market sharing, the ‘dominant market position’ has to be built up from the ‘total’ of the enterprise in question (its financial capacity, potential of production, its industrial property rights such as patents and trade marks, etc,), from the potentialities of this ‘total’ as defined by the economic environment, from the complexity of all these. The economic potential or capacity, ie. the essence of the dominant position, can be established only on the basis of concrete cases and economic conditions, further by recourse to appro­ priate calculations. It is essential further that the dominant position appears within the sphere of definite products and services. There is therefore no dominant position when a certain enterprise is the largest in the given geographical region, still in the product in question other smaller enterprises turn up with bigger share in the market. (b) A dominant position may be established also in respect of an enterprise having its headquarters outside the Common Market if for its products and services it holds a dominant position in the Common Market countries. (c) If no particularly justified reasons are present the monopolization of a definite product will by itself become the abusive exploitation of the dominant position, the monopoly being the want of competition. (d) The more concentration leads to monopolization, and so to the narrowing down of the chances of a choice by the consumers, the greater the possibility of the concentrating enterprises entering the zone of abuse (Missbrauchszone). (e) The disappearance of small enterprises from the market owing to the concentration of others, does not by itself amount to the violation of the ends of competition policy as laid down in the Rome Treaty, if the development in question is for all other intents and purposes conforming to the law of competition and owing to the market structure and other circumstances competiton continues to remain wholesome. The policy-making statements of the Commission — and thereto no additonal confrontation has to be demonstrated — are in general below the expectations formulated by the professional writing. Obviously, the Commission moves in this field rather reservedly and irresolutely, at least as far as the formulation of certain policy-making and general principles are concerned. Seemingly, the Commission does not intend to commit itself in any general form. It need not be pointed out that it nevertheless commits itself: to the for practical purposes scarcely limited euphoria of concentration. 139-45

Results in facts: Parturiunt montes e t . . . ?

139 On assessing practice in general we would in this connexion refer to a Commission statement of 1969 according to which concentration is going on, still so far in general no implications of a competition policy nature have become manifest which would have called for the application of Article 86 of the Rome Treaty.174 Although the statement was made in 1969, and since then in the Continental Can case (1973), the European Sugar Industry case (1975), and in four less significant cases, the17 17 4 General Report 1969, p. 60.

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Commission has taken steps, still the statement is slightly characteristic of the situation. And yet something has happened, apart from the Continental Can and the European Sugar Industry case; something has come to fruition of what the legal regulation here outlined holds out. More is perhaps going to happen; at least this is promised in the Competition Policy Report 1976 in which the Commission, as a general conclusion, asked “the rapid introduction of a more systematic means controlling large-scale mergers (concentrations), which would help to maintain effective competition” 174a. But let us focus now on the development which has been attained so far. It has made its appearance in the following form, (a) The prohibition of a few enterprise concentrations, such as unlawful formations of cartels, by invoking Articles 85 and 86. (b) In cases of concentration of enterprises, in the reasons given so to say by way of obiter dicta, 175 fairly inconsistent judicial declarations of Article 86. (c) A small number of negative rulings by national forums in matters of concentra­ tions, or the forecast of such on a Community level, (d) Decisions authorizing the concentration (still based on Article 85 of the Rome Treaty and Article 66 of the ECSC Treaty) which do not peg out the extreme limits of the concentration, but for less significant dominant market positions establish that these do not yet affect the prohibitions envisaged by the Community rules, (e) The first great test of Article 86 in the monstre case of Continental Can. (f) The relatively larger number of decisions based on Article 66 of the ECSC Treaty. We should be hard put to it, if we tried to make a numerical assessment of decisions and judgements relating to the concentration of enterprises, or to assess their weight. The number of the decisions and judgements would be difficult to establish because this depends on whether or not we include the cartels as well as the concentrations by quite loose associations in the figure. As regards the weight here a numerically verifiable figure is out of question. As will be seen on the ground of particular decisions, what we have here is a legal valuation projected to the economic efficacy and as regards this efficacy on the basis of practice accumulated so far only more or less tentative statements may be made. If nevertheless a numerical assessment has to be given, then —not as an exact up to date picture, just in order to have a feeling of reality —on the ground of the analyses of accessible sources176 the following data may be offered. Before the merger of the organs of the three European Communities the High Authority of the ECSC proceeded on the plea of Article 66 of the Treaty in 269 cases until the 1st January, 1965. Out of these, in 198 enterprises that applied for the authorization of their concentration, in17

17^^Competition Policy Report 1976, p. 9. 17 5The precedent doctrine of Common law in the precedent judgement distinguishes two legal elements which on subsequent occasions might figure as normative sources. The one is the rath decidendi, the thesis underlying the judgement, the surviving and applicable core of the precedent. The other is the obiter dicta; these evolved in the process of giving the reasons of the judgement, not part of the core of the precedent, still an indication of the judge’s opinion of the given thesis of law; in subsequent cases the obiter dicta may be and are often used in the pleading as arguments. 17 6For both the summaries and the material relating to individual rulings the sources are fairly complete.

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71 cases proceedings were instituted ex officio. In 103 cases an authorization was granted, in 13 cases the concentration was in being already before the Treaty’s coming into operation, in 6 cases a negative clearance according to Article 66(3) of the Treaty was accorded, in 73 cases the conditions of the applicability of the ECSC Treaty were not present, in 7 cases the application was withdrawn or procedure for a concentration was broken off, whereas in the balance of cases procedure was still pending at that time.177 After the merger of the organs of the three European Communities (ECSC, EEC, Euratom), the jurisdiction of the High Authority of the ECSC in matters of cartels and monopolies has been assigned to the Commission of the European Economic Community. According to the 1969 Report of the Commission there were still 79 cases pending, which had to be decided on the ground of Article 66 of the ECSC Treaty. Until December 31, 1969 twelve of these cases were terminated by a formal grant of authorization, 41 were decided in another form, and 26 were still awaiting a decision.178 The number of Commission decisions on the ground of the Rome Treaty dealing with concentration, or affecting if only slightly Article 86, may be put at 10 and 14, respectively. Dependent on whether extremely low cases of concentration, or the more developed cartels are reckoned these figures may increase somewhat. Again dependent on where the line of partition between concentrations and cartels is drawn the number of judgements passed by the Court of Justice of the Communities was five at least, or when concentrations of a looser kind are included, twelve.179 If the judgements delivered in 1974 in cases of monopolies are added, there will be a total number of sixteen. This figure will be greater if settlements not reckoned as decisions, such as communications to the parties concerned, or decisions terminating procedure because of the breaking up of the concentration, are included, ie. cases where the Commission terminated its investigations before a formal derision based on Article 86 of the Rome Treaty.180 The picture presented by the judicature of the national forums is on the whole the same.181 140 For an examination of the practice followed by the Commission of the European Economic Community and the High Authority of the ECSC, beginning should preferably be made with the ECSC, an institution for reasons of economic policy and also legally special in nature. From the statistics quoted above it is not sufficiently clear whether the figures include the decisions approved by the High Authority in the period of the coal crises, ie . in the years 1958/1959.178 17 7The 1966 data of the ECSC have been published by H ay-Stein, p. 558. 17 8General Report 1969, p. 64. 179See Commission des Communautés Européennes. Note d'information (October 1969, No. 50, pp. 10 er seq.); further, Competition Policy Report 1971, pp. 230 et seq.; and for the more recent sources see in this Chapter infra Notes 191, 199, 200, and supra 14a; in Chapter VI, infra, paragraph 172, Notes 117-8. 18 °On the considerable number of such inquiries see General Report 1969, p. 60. 181 For example in conformity with the German law on economic competition certain larger mergers are under an obligation of notification. Their number rose from 36 in 1964 to 168 in 1969; a figure of 400 was forecast for 1970; and more for the next, ie. the ‘Bundeskartellamt’ made and is making a large number of inquiries in concentrations. So far (1970), however, a Marktbeherrschung has been established in two cases only. See Hoenig, p. 23.

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Beginning wit!* the negative decisions of the High Authority in the coal crisis and on the ground of, or with reference to, Article 66 of the ECSC Treaty we may make the statement that at a certain time the confusion about competition policy, free market mechanism and Community intervention seemed to herald the end of the European Coal and Steel Community. Like a drop of water (for that matter a fairly great drop) mirrors the sea, so did the coal crisis of the ECSC reflect most of the contradictions of the economic policy of the developed capitalist countries. Instead of enlarging on the coal crisis, the story of which would require a separate volume, we shall content ourselves with giving an outline of the principal elements and interrelations, when by quoting the first-rate sources reference will be made to its implication of monopoly and competition law.182 The following are the main facts and the state of affairs at the time of the crisis: In view of the enormous increase of power consumption in 1957 and the simultaneous drop in oil deliveries owing to the Suez crisis of the same year the High Authority proposed the increase of coal production. The output of the coal mines did in fact rise, moreover the market was supplemented by American deliveries under long-term contracts made by European coal importers with American coal mining concerns. Before long coal reserves amounted to twenty million metric tons. Meanwhile American coal, which even with the freightage included was cheaper, began to flow in masses into European ports. All of a sudden the conditions of 20th century Newcastle appalled capital, governments and the working classes. By 1958 there was a drop in steel production, otherwise in need of coal, in addition the winters of 1957/1958 and 1958/1959 were exceptionally mild, within the Community the oil and gas heating scheme made its effects felt at a qualitatively higher degree, coal exports dropped to one third of the earlier, within the Community imports dropped by eleven million metric tons, and the output of the coal mines by seventeen million metric tons. By all these the technologically backward Belgian mines, where the costs of operation were anyhow higher, were inflicted most. As a consequence first the working hours were reduced, then the plan to close down the mines was discussed. Finally an all-out strike of the miners extending over the Belgian coal mining industry as a whole followed accompanied by stormy demonstrations. In this situation, amidst a variety of measures and decision-making the ECSC and its organ put into operation the institutions of competition law of the Community. Recommendations were brought forward asking the governments to encourage large consumers (the railways and metallurgical industry) to buy coal for stock, to curb coal imports, to finance production for stock (what in the normal process of consumption could not be guaranteed) from the money funds of the Community in order to prevent a yet greater drop in employment, to guarantee 90 per cent of the wages of the miners in any case, to launch a long-term reconstruction scheme by building up and making use of Community funds, also implying the rehabilitation or winding up of backward mines. By the side of all these suggestions the possible application of the rules of monopoly and competition law loomed up. As has been seen, Article 66 provides for the drawing up of production and delivery programmes and for fixing the prices if18 181 See H ay-Stein, pp. 845 et seq.

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fines and other measures imposed on enterprises in a dominant market position fail to produce the desired effect. The confusion owing to the coal crisis was aggravated also by the appearance of the three large Ruhrkohlenverkauf associations (Ruhr coal selling companies) representing German coal mining generally producing at lower costs. The three groups represented a large monopolistic power in the market. Notwithstanding the appeal of the Community to reduce imports they placed orders for cheap American coal, and could even make use of the tactical advantage to bring upon the European governments the protest of the US government on account of the restrictions imposed on the imports of American coal already ordered. Although by Article 66 of the Treaty the High Authority had decreed the dissolution of the three monopolies at an earlier date, now within the purview of the same article it tried to dictate prices, production and delivery quotas. These and many other measures, when in the series of stormy sessions of the Assembly, Council and High Authority of the Community even the state of fundamental and persistent disturbances in economy’ as foreseen by Article 37 was proclaimed, were only to a certain degree effectuated. Protracting tactics in the dissolution of the three monopolies were, eg., simply connived at, for it was hoped that these powerful units of the market would embark upon large-scale purchases and by this mitigate the crisis. The success and failure of the different general measures depended on the outcome of the controversies of the representatives of the member states of divergent interests. It was soon discovered that the Community as so-called supranational organization represented a small force against the disruptive national and economic interests. The subsidence of the crisis was only partly due to the Community measures, implying such directed against monopolies, although their role was by no means a totally insignificant one.18 3 141 Of all other decisions of the High Authority184 the sources render account only of those authorizing concentrations under Article 66(3) of the ECSC Treaty. There were altogether 109 decisions of this kind, whereas the Commission of EEC passed twelve such decisions. Most of the cases (122) were such submitted by the German steel and coal industry.185 As will be evident from the statistics several concentration schemes had been abandoned, presumably to forestall investigation and decision. It is also true that even in decisions authorizing the concentration certain ‘pro-competition’ provisos had been included. The decisions authorizing concentrations generally stated (eg. in connexion with the purchases made by the German steel monopoly August Thyssen — Hütte AG in 1960—1961) that the High Authority gave its consent to the merger or purchase, as the case may be, (a) because the purchasers were already at the time of the purchase in 1 , s The rate of growth of industrial production increased: the 1960 output exceeded that of 1959 by 12 per cent. The winter was rather severe and upon Community incentive the backward Belgian mining industry has been reorganized. Simultaneously the excesses of the structure of the coal trade of the other member states have been curbed. See ‘The Outcome of the Coal Crisis’. In Hay-Stein, pp. 865-6. 1 ,4 See Notes 176-80. 1· 1*5The 1966 data of the ECSC have been reprinted by H ay-Stein, p. 558; for the data of the EEC see Id., Notes 302-4.

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a controlling position so as to influence the market conduct of those purchased objectively, so that the change in the legal situation did not amount to a change in the conditions of competition; (b) because at the same time the purchasers were obligated to give up other capital interests and other controlling positions; (c) because the High Authority would keep an eye on developments and on the efficacy of competition and in a given case institute the necessary measures; (d) because the Thyssen concentration in question accounted for only 12.1 per cent of the total German raw steel production and for 10.5 per cent of rolled products; on a Community scale the Thyssen group represented 5.7 per cent in each category.186187In 1964 the Thyssen-group received the agreement of the High Authority for yet further purchases when it was stated that although by these purchases an oligopolistic situation would be brought about in the given branch of industry, this would not operate in restraint of competition, provided of course, that all other subjects in the market would preserve their independence and competitiveness, and that any action which might bring about the restriction of independence and competitiveness would be prohibited by the High Authority beforehand. Competitiveness was served also by the circumstance that any organized relation appropriate for the joint formation of will between the company affected by the purchase of the majority capital interest and third parties had to be liquidated.18 7 The decisions of the EEC Commission based on Article 66 of the ECSC Treaty were formulated substantially on a similar understanding. A decision of the Commission coming within this category was the one of the 31st July, 1969 in the matter of mergers in the Belgian steel industry, which affected 15 per cent of the overall raw steel and thin sheet output of the Community industry. At the same time the merged enterprises had to liquidate their sales organization jointly operated with other Belgian, LuXemburgian or French firms of the steel industry. This would ensure the maintenance of an effective competition, which the Commission would for the firms concerned watch specially.188 In 1969 the Commission passed two similar decisions, both in the steel industry, the one concerning the merger of French enterprises, the other that of German enterprises.189 Finally, of a certain interest is the decision of the Commission of 27th November, 1969 in the case of the Ruhrkohle AG, a concern absorbing 90 per cent of the German coal output and coal market. Nevertheless the Commission authorized the concentration on the plea that in conformity with the ends of Article 66(2) it could not restrict competition. What really explained the decision of the Commission was that other power carriers were present in the market in a substitutable amount and at a rate at which the concentration in the coal mining industry would anyway be unable to rise to a competition which would restrict positions in the power carrier market; nor could it hamper competition in the coke market, as there it controlled only 50 per cent of the market. Furthermore, foreign pressure was strong to an extent that eventually 186Of the 1962 annual report of the ECSC the ruling of the High Authority in the Thyssen case has been reprinted in H ay-Stein pp. 558-9. 187Ibid., pp. 559-60. 18 8For the ruling of the Commission in the S. A. Cockeril-Ougrée-Providence et Métallurgique d’Espérance-Longdoz merger case see General Report 1969, p. 69. 1*9Ibid., p. 70.

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Ruhrkohle AG would have to yield to it. In additon, the Ruhrkohle AG was under an obligation within two years to enter upon negotiations with the steel manufacturing enterprises of the Community if these wished to do so, for the signature of long-term contracts for coal deliveries, at the effective prices, and notify the Commission permanently of the progress made in these negotiations. The Commission was of the opinion that by this the modernization and reorganization of the coal mining industry, a scheme which necessitated the concentration, could be carried through without adversely affecting competition.190 The judgement delivered by the Court of Justice, on the 14th May, 1974, in Nold v. EEC Commission is of even greater interest. In this judgement the Court of Justice gave its subsequent sanction to the decision of the Commission of 1969. The decision of the Commission also declared on what terms Ruhrkohle AG could transact its deals with the consumers, e.g. the wholesale traders, lest it should abuse its dominant position. The concentration was e.g. authorized to supply coal directly from the mines only to wholesale dealers where certain conditions were guaranteed (capital, equipment, etc. ) and who under a contract undertook to purchase a definite minimum quantity of coal. Among these was also the firm Nold. The Commission, however, approved in 1972 modified conditions of delivery of Ruhrkohle AG, which made cheaper direct deliveries of coal dependent on the undertaking of the wholesale dealers to take over larger lots than earlier. The firm Nold was not in the position to commit itself to the taking over of the increased supplies of coal and instituted proceedings for the abusive discriminative exploitation of a monopolistic position, and even for the violation of fundamental human rights. Nold pleaded that the fundamental human rights included the freedom of property and business activity. This principle was adopted also by the Community. Ruhrkohle AG, on its part, with its dictate, economically ruined the firm, Le. systematically prevented Nold from exercising its rights. The Court of Justice giving judgement dismissed the action of Nold. The Court, giving the reasons, held that the authorization of the monopoly of the Ruhrkohle AG and also of the new terms of direct deliveries was justified because owing to the drop in coal consumption a permanent crisis had to be reckoned with in coal mining. The only defence was the reorganization of the system of distribution, Le. the stabilization of production on an economical level by the proper assessment of the capacity of the buyers. As regards the fundamental rights attached to property and economic activities, these were really the joint assets of the EEC countries, but they are judged in relation to their dependence on other public interests; moreover, they cannot be expressed in terms of ‘small change’ of natural business risks, Le. these risks and human rights cannot be equated.191 142 Let us now review three decisions of the Commission and the Court of Justice of the European Community. They will offer an example of how by a partly obiter dictum application of Article 86 and to what extent concentrations were author­ ized.192 190Ibid., pp. 70-1. 191 See in the judgement No. 4/1973 of the Court of Justice in Nold v. EEC Commission (stereotyped edition). 1" S e e supra Note 175.

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(i) The decision of the Commission in the Eurogypsum case is dated the 26th February, 1968. The Eurogypsum·Vereinigung formed of 31 enterprises of five Common Market and sixteen other countries by invoking Article 2 of Regulation No. 17 applied for a negative clearance on the plea that the association did not violate Articles 85 and 86 of the Rome Treaty. The Commission in fact granted an exempting declaration, to the effect that the activities of the association were not conflicting with Articles 85 and 86. The Commission giving the reasons for its decision held that the objective of the association was the development of the gypsum industry by the joint study of problems concerning this industry, in particular the joint solution of technical and scientific problems. This objective was in complete agreement with Article 85(3), nor was there a case of the abusive exploitation of a dominant market position as defined by Article 86.19 3 (ii) On similar considerations the Commission, on the 17th July, 1968, granted a negative clearance also to the statutes of the Alliance de constructeurs français de machines utils, a joint stock company uniting eight smaller enterprises. The companies of medium-size associated to form a joint export organization. The association extended also to market survey and the specialization of production. In the opinion of the Commission this association did not restrict competition, moreover technological and economic progress, and the accommodation to a larger market eventually served the ends of integration.19 4 (iii) In its decision of the 17th July, 1968, on considerations very much like those underlying the decision in the previous case, the Commission granted a negative clearance to Socemas, a Franch joint stock company. The Commission held that joint market survey and joint procurement from abroad by this company controlling 69 branch department stores and 20 000 smaller units were from the point of view of economic policy a cooperation qualifying as useful.19 5 143 Seven cases of the decisions and judgements of the EEC Commission and the Court of Justice of the European Communities will now be reviewed where the abuse of a monopolistic position had been established or the dissolution of the concentration had been decreed. In these cases Article 86 either had been invoked expressly, or its provisions hinted at as obiter dictum. 193*196197 These cases are: (i) Belgische Radio en Televisie, (ii) Istituto Chemioterapico Italiano, (iii) Grundig—Consten, (iv) Farbstoffe, (v) International Quinine Cartel, (vi) Continental Can, (vii) European Sugar Industry. The Commission referred also to a merger in the glass industry, then in statu nascendi, where a prohibition as foreseen by Article 86 was likely. Partly owing to the inauspicious outlook the concentration has never come about.19 7 There are still negotiations in progress for the association of the larger aircraft manufacturing companies of the EEC member states for the development of

193Amtsblatt,, No. 157, 5th May, 1968, p. 9. 19 4Amtsblatt, No. 201, 12th August, 1968, p. 1. 19 5For the agreements for cooperation see paragraphs 107 et seq. supra; for the decision see Amtsblatt, No. L. 201* 12th August, 1968, p. 7. 19 6See supra Note 175. 197 General Report 1969, p. 60.

12 Madl

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manufacturing technology. The companies have already applied to the Commission for the promotion of their scheme, still 1 have no further information available of the institution of formal procedures.198 144 There still remains to give a summary of the legal and policy-making aspects of the seven cases referred to above. (i) In the Belgische Radio en Televisie case, Sabam — a Belgian cooperative administering copy-rights, or acting as agent for such, often competing with Belgische Radio en Televisie for the rights in the same musical composition — acquired the exclusive right of distributing musical compositions and wanted to lay an embargo on the distribution by anyone of the compositions during the term of their agreement with the authors, and for five years following upon its termination. Against the defendant Fonoir SA they pleaded that they offered ‘services of general economic interest’ as laid down in Article 90(2) of the Rome Treaty to the public and the authors for which the prohibition as defined by Article 86 did not apply to them. The Court of Justice, however, held that the plaintiffs had acted from a dominant position, for the simple reason that they had imposed legal restrictions on the authors and the public which were not absolutely needed for the achievement of the objectives of the association, therefore Article 90(2) could not be invoked. The outcome of the agreement of the plaintiffs was the inequitable restriction of the freedom of the authors.199 (ii) In the Istituto Chemioterapico Italiano case the holder of the monopoly position was strictly speaking the American Commercial Solvents Corporation (CSC), which from 1962 onwards had a share of 51 per cent in the Istituto, Le. it heida dominant position in the Italian concern. As had been established, in nitropropane and aminobutanol (basic materials for the chemical and pharmaceutical industries) CSC supplied the European market, for that matter through Istituto, as their distributing centre for Europe. The Italian firm Zoja was also a customer of Istituto. Before long, however, Zoja became aware of being held at bay in the market. For the discriminative treatment of Zoja as regards both prices and the choice of goods CSC behind Istituto was responsible. CSC decided whether Zoja should be supplied at all, and finally even stayed deliveries to them. Upon request of Zoja the Commission instituted proceedings against CSC and the Istituto. The Commission established that CSC and the Istituto were in fact a single unit, CSC being holder of 51 per cent of the capital stock of the Istituto. It was represented in the managing organs of the Istituto by 50 per cent, yet in reality it held a controlling position the president of CSC being at the same time the president of the board of directors of the Istituto, so when there was a tie, his vote decided. This was the case also as far as the deliveries of Istituto to Zoja were concerned. The Commission further established that as for the given products CSC-Istituto were in fact in a dominant market position and that they abused this position in a manner conflicting with Article 86 of the Rome Treaty in that they restricted competition. Therefore the Commission by imposing a fine of one thousand19 19 8For the sources see Màdl 13, Chapter II, paragraph 45. 199See judgement No. 127/1973 of 27th March, 1974 of the Court of Justice in Belgische Radio en Televisie-Sabam v. Fonoir (stereotyped edition).

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units of account per day obligated CSC-Istituto to deliver 60 000 kilogrammes of nitropropane and 30 000 kilogrammes of aminobutanol to Zoja. Further by imposing another fine of 1000 units of account per day the Commission bound CSC-Istituto to bring forward proposals as to how they thought to supply the basic materials in question to Zoja. Finally for the unlawful attitude by the abusive exploitation of their dominant position a fine of 200 000 units of account was imposed on CSC-Istituto. Notwithstanding the appeal of CSC-Istituto the Court of Justice substantially upheld the decision. It defended the contested action of the Commission by which it had bound CSC and the Istituto to the performance of concrete, positive acts (deliveries), although by Article 3 of Regulation No. 17 the Commission could prohibit only injurious conducts. According to the Commission, however, the injurious conduct consisted exactly in not-doing of something, so that the provision in question of Regulation No. 17 could be construed only so as it had been by the Commission, ie. to dictate a certain sort of positive action. The Court of Justice, however, reduced the fine of 200 000 units of account to 100 000 units inasmuch as CSC-Istituto notwithstanding the arguments it had adduced met its obligation of deliveries and showed its good will. Furthermore the Commission, too, came to a decision at a relatively late date so that it, too, contributed to the dragging of a situation found injurious by Zoja. The judgement200 was one of the first unambiguous and significant position adopted against monopolies. Here the Commission and the Court of Justice in the case of a not too great industrial power and monopoly established the abuse of a dominant position in respect of a relatively blocked product. Commission and Court took unanimous action and in the concrete case put an end to the distortion of competition in time. It is by this that the case surpasses that of Continental Can in 1973. Still it is of a volume by far below that of Continental Can. It was a monopoly of minor order and the attack against its structural background and its order of magnitude was, in this case understanding^, not even raised. (iii) In the Grundig—Consten case it was argeud, although contrary to the opinion of both the Commission and the Court of Justice that a vertical cartel of this kind, which had secured for itself a dominant position in a substantial part of the market, was governed by Article 86 and not Article 85 of the Rome Treaty and that it could be attacked only when it had in fact abused its dominant position. Both the Commission and the Court of Justice considered the Grundig brand or trade mark strong enough in the market that in possession of it the enterprise manufacturing and distributing the given product could in fact bring pressure to bear on other companies and so influence their business policy.201 (iv) —(vi) So far as Farbstoffe, the International Quinine Cartel and Continental Can are concerned, since in them there are outside interests, these companies belong to the group of international cartels and monopolies. With regard to their character and also because their character has been given expression in judgement (except for that in CSC-Istituto), their detailed analysis will be given in Chapter VI below. We shall now aooSee judgement No. 6 -7/1973 of 6th March, 1969 of the Court of Justice in Istituto-CSC v. EEC Commission (stereotyped edition). aei For the details of the Grundig-Consten case see paragraph 123 above.

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confine ourselves to only certain interrelations of these cartels and monopolies which have relevances to the present chapter.202 In the Farbstoffe case, Bayer AG and several other firms (three German, a French, an Italian, three Swiss and a British firm) of the paint manufacturing industry, in reality a price-raising cartel, by way of a price-fixing concentrated and concerted their decision-making mechanism of price policy so as to create a dominant market position and by abusively eliminating competition for practical purposes dictate the paint prices. Although this concentration was merely a mutually concerted practice so far as its form was concerned, it was nevertheless banned by both the Commission and the Court of Justice, and in addition fines were imposed on the participants. The International Quinine Cartel was a powerful invisible organization embracing British and American manufacturing and trading enterprises. By applying aggressive concerted business methods the organization understood to establish an unchallenged dominant position in the world quinine market and so also in the Common Market countries. The Commission, and later, in appellate procedure, the Court of Justice decreed the liquidation of the International Quinine Cartel, and, for a second time in its practice the Court meted out fines about as high as those imposed on Farbstoffe. In the world-wide concentration of Continental Can a situation arose, which may justly be termed as characteristic. As a matter of fact the Commission was of the belief that both owing to the considerable weight of the concern’s participation in the market and in consequence thereof for practical purposes the elimination of competition, and also because of the form of the establishment of the dominant position, viz. by way of company mergers, there was a typical case coming within the ruling of Article 86. Therefore the Commission decreed that the dominant position which for want of competitors would of necessity tempt Continental Can to the abuse of it, should be terminated and fixed a time-limit for Continental Can to make clear its standpoint. The Court of Justice, hearing the appeal of Continental Can, passed an ostensibly Solomonian judgement. The Court held that the considerable size of the concern could by itself operate in restraint of competition, so that Article 86 could be invoked merely on this plea, even in the absence of any intention to restrict competition. Since, however, the Commission on exploring the facts of the case failed to produce sufficiently convincing documentary evidence as to the market situation of certain products in question, and so also as to the position of Continental Can and other potential competitors in the market, the decision of the Commission had to be voided. What is the likely fate of the case? Will the Commission produce more conclusive documentary evidence? And will the Court then pass a prohibitive judgement? If so, when? Nobody can tell. If the situation can be described by the half-truth of the aphorism of a war won and a battle lost (this is how the Western press accepted the judgement),203 then let us quote, in like way to describe the situation, yet another half-truth of the proverb: he

20 2See infra Chapter VI, in particular paragraphs 166 et seq. 20 3For the sources see infra Chapter VI, paragraph 1 72, Note 118.

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that gains time, gains life, and perhaps also the war? Is it accidental that on this time-gaining international big capital has become the winner? (vii) The European Sugar Industry case dit not bring much more either. In this cartel or monopoly —however it is termed —22 companies from the EEC formed a conspiracy against the sugar-consumers and the sugar-market of the EEC. On January 2, 1973, the Commission passed a significant decision: the prohibitation of all the actions and forms developed by the monopoly as they violated Articles 85 and 86 of the Rome Treaty (the fines imposed amounted to 9 million units of account!). The view that in this case a cartel and a monopoly, with other words the violation of Articles 85 and 86 was being witnessed, was to be decided. The forecast was not quite unjustified: in his reasoned conclusions of 16—7 June, 1975 the Advocate General at the end argues for the foreclosure of a dominant position in the sense of Article 86, and for the mitigation of the 9 million fine. The decision of the Court, very roughly, followed this line.204 145 This is where EEC has come to in the monopoly issue: (a) to admit a kind of ‘reasonable concentration’; (b) to establish competition-defeating abuses in the market of conrete products; (c) to offer wavering prognostications of the possible distortion of competition by the size of the enterprise itself and to indicate that such cases may come under the abuse-zone (Missbrauchszone) of Article 86. For an excuse it goes that, if it is an excuse, the Rome Treaty did not promise more.

204 See supra Note 14.

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Chapter VI International cartels and monopolies146

§ 18

To the problem

1 4 6 -7

Why this problem?

§ 19

The problem as demonstrated by examples and reality

148 149-50 1 5 1 -2

The typical instance: the International Quinine Cartel Organization o f the world market by states - private cartels and monopolies International economic associations

§20

The answer o f the law to the challenge (from the genesis to public international law)

1 5 3 -4 155 1 5 7 -9

In general The genesis The answer o f public international law

§21

International cartels and monopolies in the law o f the

160-1 1 6 2 -3 1 66-72

Framework o f the regulation The answer o f theory The reality o f practice

§18

To the problem

1 46-7

Why this problem?

EEC

146 Cartels and other associations or groups of enterprises exploiting their dominant market position whose participants are, partly or wholly, not enterprises of the member states of the Common Market (to whom therefore, at least in the first approach, the mechanism of the law of competition of the Common Market and its members does not apply), may nevertheless have, and in fact have, an effect on the economy of the particular countries of Europe and so also on that of the Common Market. Articles 85 and 86 of the Rome Treaty do not lay an embargo on competition-defeating cartels and monopolies and enterprises exploiting their domi­ nant position unless the given phenomenon affects transactions between the member states of the Common Market or distorts competition in the trade relations of the member states. Facts, however, demonstrate that effects of this kind are apt to arise from actions performed with the participation of enterprises of countries outside the Common Market. In the following we shall dicuss this contingency. For the purpose of the present work the study of the topic is for two reasons justified, (i) Such a study will inevitably help in an attempt to become better acqua­ inted with the phenomenon of cartels and monopolies; it will enable us to have a glimpse of the critical appraisal of the latter and an idea of how they are seen in the West, (ii) This study will bring forward suggestions as to the policy to be adopted by Hungarian and other third countries’ enterprises in their possible agreements of

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cooperation (there is - e.g. also with Hungarian participation - already a fair number of such agreements in force1), also in order to achieve the ends of such a cooperation possibly without the interference of the Common Market or other authorities. 147 The cartel and the economic association or monopoly abusing a dominant market position are, as has been seen, intertwining phenomena, both in theory and practice, also within the Common Market. Both law and jurisprudence look for the solution of the problem in the interrelations of Articles 85 and 86 of the Rome Treaty.2 This is in particular the case as far as international relations, Le. international cartels and monopolies are concerned. In all certainty international cartels and associations striving for a dominant position cannot be segregated from one another, either economically or legally, with any claim to accuracy. If reality is looked at, then cooperations not organized to companies in the terms of company law, in particular to legal entities, must also be regarded as holders of a dominant position, if they are capable of a sustained, uniform formation of will also by other means and in consequence thereof to bring about uni-central market activities in certain segments of world economy. Even critical writers on the subject make it clear3 that to survey economic competition from an either-or approach, Le. to see or protect it from the aspect of the prohibition of either the cartels or the monopolies, will eventually bring us to the same results. Namely that the phenomenon —the anti-competitive action takes refuge to a place sheltered from the wind before the nevertheless possible legal measures: it takes on the form of a cartel when the practice directed against dominant positions is the more rigorous, or the guise of an enterprise concentration (formal merger or other association of companies) when the practice followed in respect of cartels is the more inconvenient. Therefore the more fair champions of fair competition are intent to apply the weapons of anti-trust, Le. institutions of law equally restricting cartels and monopolies, to the concrete phenomenon in question in their complex interaction. Any author who wants to study this problem of capitalist economy and of capitalist law would do the right thing if he viewed this chicaning movement of capital in question as a unity and cast a light on this legally double-faced problem by having recourse to the synthetizing prism of a critical approach.

1See Sôlyom - Vörös: Kelet-Nyugat termelési kooperaciôs szerzôdések (East-West contracts for cooperation in production). Jogtudomânyi Közlöny, 1970, No. 12., pp. 642 et seq. This paper deals with international cooperation contracts of Hungarian enterprises; it indicates, (i) that the number of contracts of East—West cooperation is on a steady growth and is fairly large even at present, and (ii) that in point of principle these contracts are apt to affect the law of competition of the foreign countries concerned. According to also western publications there are already a considerable number of contracts signed with Hungarian firms in cooperation; since 1960 their number has risen to about 360. (See e.g. Kontakte mit dem Westen. Spiegel, No. 46 November 6, 1972, pp. 143 et seq.) 2See supra Chapter V, paragraph 129. 8Ibid., paragraph 134.

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§ 19

The problem as demonstrated by examples and reality

148

The typical instance: the International Quinine Cartel

148 The case of the International Quinine Cartel is the example which betrays much of the operating mechanism of the international cartels, and also much of how the legal mechanism of the modern capitalist State responds to it. More closely viewed, the case is one for several reasons worth a more detailed discussion, (i) It is one of the in the ‘technical’ sence judicial cases giving an idea of how the cartel law of the Common Market has an effect on interrelations beyond the Common Market. For this reason the study of the case comes within the scope of this work merely on considerations of legal dogmatics. Among others this example will make it clear how the Common Market avails itself of the tools of the law and how far the Common Market has got. (ii) The case demonstrates to what extent the public law element has already permeated exactly the world of cartel law. This is borne out by the fact that occasionally the supreme organs of the states, too, deal with the issue, often even with individual cases. Meanwhile, political and international organs. Le. means and institutions of constitutional and international law are brought into action even in the affairs of private cartels. Diplomatic steps are taken and diplomatic pressure is exercised, and so on. The states are in an even so hard situation when it comes to bear the brunt of the attack of the large international oligopolist concerns and their cartels. (iii) It is worth while to become acquinted with the International Quinine Cartel on close inspection mainly because in this way it will become evident that through a cartel big capital is capable of launching actions on a world-wide scale and that in this struggle most of the governmental measures tailored to the formula of free-market capitalism will force the great monopolies only to a temporary retreat. Namely, speaking of the facts of the International Quinine Cartel case we have to go back to the days of half a century before. Le. to the days when in US v. N. V. Amsterdamsche, the predecessor of the International Quinine Cartel, the US District Court for Southern New York, in 1928 brought a charge for conspirative cartel practices and issued a civil law injunction in the case.4 On August 15, 1958, however, the management of the American Quinine Company, a company not participating in the International Quinine Cartel, perhaps because of being deprived of the benefits of a cartel, lodged a complaint with the US Government! “Apparently the quinine monopoly won’t stay dead. For years the US Government fought a lowing battle against it and even had our world war effort hampered by it only a few years ago. Now an agency of the government is about to put it back in business.” The US Government namely thought of remedying the situation which came about by the International Quinine Cartel; this sold quinine at exorbitant prices to those in need for it, by throwing on the market large quantities from government reserves of quinine (as known quinine is the elementary substance of medicines used for a large number of ailments; its derivative, quinidine, is used for curing cardiac troubles). The idea was to bring down the market price of quinine by these tactics, and to create a market by

The judgement has been published in Fulda-Schwartz, pp. 91 et seq.

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recourse to the means of capitalist economic competition as if there were not a well-coordinated monopoly in operation in international market economy. This was, however, a retreat which in fact redounded to the benefit of the International Quinine Cartel. If from the past conclusions could be drawn for the future at all, then it was easy to predict what would happen, wrote in his report to the Government the general manager of the American company outside the cartel. In his statement he said: “If the past is any guide to the future, it is easy to learn what will happen. The cartel will buy the quinine at a low price from the General Services Administration (the Government agency which put the government quinine on the market —author’s addition.) This will remove the only barrier to the operation of the old monopoly, because it cannot operate with a large supply hanging over the market. The price of quinine to the American buyers will immediately be raised. The millions of poor people in the tropics will again have to pay tribute to the monopoly and many of them will again be condemned to death because they cannot pay.”5 In reality there was no change for the worse in the situation of the International Quinine Cartel. Moreover it was due to the government act that it earned an exceptionally high and an exceptionally easily get-at-able extra profit. The cartel namely bought up the quinine the US Govemement dumped on the market at a low price and immediately sold it at a tenfold price (this was namely the price difference between the earlier price and the cartel price). Without any special effort the cartel got hold of an incredible income, which otherwise would have to be made in a somewhat complicated chain of transactions extending from production through trade processes to consumers. The International Quinine Cartel could have been forced to a retreat only if the Government had put quinine on the market in quantities which the cartel could not have bought up owing to its inability to find consumers for many years to come. This was not, however, the case. Before all, because the International Quinine Cartel had a hold on the international production of, and trade in, quinine of quantities by far in excess of what the US Government could put on the market,even when as betrayed by contemporary data the stocks available were considerable. These were, however, government reserves which the Government did not intend to dispose of stock and barrel, among others for the very reason that an excessive depletion of the stocks would have gone beyond what security (military) interests permitted. This is what the US Government would not risk. Instead, much to the indignation of the cartel,6 Congress began to deal with this predatory conspiracy or exclusionary tactics.7 It soon came to light that the ACF Chemiefarma NV, Amsterdam (or its predecessor, the Nedchem) in a gentleman’s agreement brought about an international cartel extending to a number of European companies (British, French and German) 5lhc report containing the quotations has been published in Fulda-Schwartz, p. 94. 6Eor the ‘press’ of the general indignation and the stormy session of Congress see ‘US Will Probe High Prices of Quinine Cartel’ (Los Angeles Times, March 24, 1967j: ‘Hearings on the Prices of Quinine and Quinidine Before Subcommittee on Antitrust and Monopoly of the US Committee on the Judiciary, 89th Congress, 2nd Session 1966’, in Fulda Schwartz, pp. 89 et seq. 7‘Predatory and Exclusionary T a c t i c s ' is the title of a chapter in Bain, this well-known, and by far not Marxist, American economist; the epithet ‘predatory’ is of frequent occurrence in the author's analysis of the sellers’ conduct. Bain 2, pp. 327 er seq.

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and an American, where concerted action was agreed upon among others in matters like the fixing of quinine prices, the distribution of export quotas, etc. The cartel had been extended also to the Common Market. Finally, notwithstanding the fact that the Dutch Government intervened for the cartel at the US Government (because of the many advantages the cartel had for Dutch industry), the American anti-trust authorities, then upon the intervention of the US Government, also the Common Market authorities initiated measures for the liquidation of the cartel.8 The developments in the case, the legal means applicable to it and the measures instituted in reality will be discussed below.9 149-50

Organization o f the world market by states - private cartels and monopolies

149 The story of the International Quinine Cartel is an illustrative item apart from being factual. Although it may appear to be a unique example, there are many of this type which, somehow as pars pro toto, could be quoted.10 If, however, we intend to study the international cartels and monopolies in general then, beyond the apparently unique lesson, we shall have to gain an insight into the appalling and simply fantastic world of the movements of capital and its predatory actions, where the particular cases are merely elements of the whole. We have already spoken of the degree of concentration, even in its principal international interrelations, in the light of figures and statistics.11 In this connexion the organizational and legal multifariousness of international concentrations gives us further pause for thought. Still here, too, only the cardinal problems will be taken for an analysis. For not even Kronstein could talk of everything, although he was the author of a monograph of several hundred pages, where on twelve pages he names several hundreds of sources which he thought should be taken into consideration for his analyses.12 When for the purpose of a study we have in mind to concentrate on the major interrelations of the international cartels, for reasons of convenience the start should be made from the most general, yet easily expressible kinetic laws of capital on the international plane. And here the rule is that in the age of imperialism the extra-enterprise organization of production and commerce is not only a phenomenon •The sources are: ‘The 1969 Decision of the EEC Commission’, Fulda-Schwartz, p. I l l ; Loi Angeles Times, March 24, 1967, quoted above; further, excerpts of the facts of the case in Europarecht, 1971, No. 1, pp. 41 et seq., as indicated in the summary of K. Markert. 9See paragraph 168 infra. I 0For example, the other large American case bearing on Europe, the US v. Watchmakers of Switzerland Information Center (published by Fulda-Schwartz, pp. 5 2 -8 2 ), which deals with the activities of the great international watch cartel dominating and ‘terrorizing’ American watch manufacture and the action against it under anti-trust legislation; or of late the ruling of the EEC Commission in ‘Continental Can Company’ (published by Journal Officiel, No. L 7, January 8, 1972), where the story has been told of how a large American concern could through its dominant position easily have a hold on its European affiliations and finally dictate the conditions of the manufacture and sale of modern packing means. II See Mâdl 13: Chapter II, paragraphs 28-31, 38-44. 17 See Kronstein.

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gathering strength, but one which, in certain branches of industry, assumes enormous dimensions. In socialist conditions it is quite natural that the State has a share in the extra-enterprise organization of production and commerce, and so also in particular in their organization on the international plane. This is a corollary following from the economic principles of socialism and its organizational pattern. Still in the beginning this element, viz. state participation, was missing from the ‘biology’ of private capital, and even more from its picture of classical political economy or, as soon as it loomed up, capital, somewhat in an embarrassment, tried to hush it up. Namely, through state participation the theoretically not too welcome immanent laws and forms of the domination of capital manifested themselves. Notably laws which amounted to an outright deprivation of the small fry by big capital destroying even the illusion of free competition, and replacing it with the command of Svithdrawal’ or adaptation. For the small ones the consolation of the freedom in the meaning of Engels remained, Le. they were allowed to know that their freedom consisted in the recognition of adaptation as a necessity. It was, namely, this tendency of self-destruction, a total monopolization, which was meant to be halted by state regulation and state participa­ tion. The international organization of production and commerce in a certain form may be considered as an institution almost two hundred years old. What is, however, in a decisive form the product of this century, and in its given dimension that of the latter two decades, is something different. What we witness in these days is the organi­ zation of production and commerce in continually expanding dimensions, and the translation of all this into reality through state or interstate actions, and through the association and the highly complex system of contracts of enterprises operating in the various parts of the world. Investigating the causes here touched on and even others would lead us into the domain of the theory of economy. One of the principal factors, perhaps the most general catalyst and cause, is in any case the intensity and rapidity of the scientific and technological development which eclipses the industrial revolution of the 19th century. In the transmission of the given relations of production, the international cartels are the legal and organizational embodiment of this development. 150 Concerning the organizational and legal forms, under capitalist conditions too, the State has a significant direct role in the organizing of international economy and market. Several forms of the role of the State may be distinguished. These forms of state activity partly invigorate, partly put under restraint, the private organization of capitalist world economy. The private and state elements, however, are in any case, associated with each other and the outcome of their interrelations is the organizational and legal mechanism of the capitalist world-economy processes. For want of space we have to refrain from enlarging on a study of these processes.13 Whereas the international state cartels are better known and are in fact of general influence, general namely also in the meaning that they often become blurred in the mist of generality, as regards the degree of efficacy the processes of international eco­ nomy are in reality controlled by the private cartels, the private Marktregelung.

13 In general, see Kronstein, pp. lO ef seq.

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These are not cartels in the traditional meaning of the term. In the traditional acceptation of the term namely it stands for the formal contracts of segregated subjects-at-law. with sanctions defined by the contract, the recognition of arbitration in the event of disputes, and with precautionary clauses, and in the case of which care is taken at contract-making so as not to infringe municipal cartel law. There are cartels of this classical type even today, still on various considerations, for reasons of the strengthening supervision of cartels and also because of the many prohibitions, such formal cartel agreements are nowadays signed on rare occasions only. Oligopolist market conduct. Le. the conduct of the large enterprises operating on an international scale coordinated with respect to one another and therefore brought about in a concerted form, manifests itself in the motley-coloured multitude of the organiza­ tional and legal forms and before all in the loose texture of these forms. The forms extend from the tacit observance of the practice of the other party, through price-fixing and market-sharing agreements, purchasing and selling pools, cooperation for development and a large number of other methods down to the control of affiliations and the quite loose vertical combinations under company law. It is for this reason that one is hard put to it when it comes to defining the notion of this phenomenon. The most comprehensive definition is largely the sum total of the following elements: (i) the coordinated economic conduct, (ii) that enterprises (in general large enterprises) which are resident in various countries, or belong in regulation systems related to various institutions, such as e.g. the European Economic Community, carry on a co-ordinated economic conduct, (iii) the coordinated economic conduct is based on an agreement, reached in the one or the other form, and (iv) it leads to the international control of (v) processes in the world market.14 The principal groups of international private cartels are (with details given in the literature),15 very roughly, as follows: (a) technological cartels; (b) raw material cartels; (c) cartels relating to industrial production; (d) protective cartels; and (e)the complex cartel comprising the elements of almost all types of cartels. The reality of the capitalist enterprises and the effect they have on the world market may provoke suggestions of how to give the outlines of the type of cartels mentioned last, namely of the type which, if we want to give it a name, we may best call a complex cartel or even an anti-cartel. The latter designation is perhaps appropriate in the association of ideas from the world of physics, namely that anti-matter is a stronger energy-carrier than ordinary matter. The complex cartel stands namely for a stronger control of the market than the ordinary cartel; historically it developed from the cartel and it was through the closed legal forms of company law that it has developed into an antiforce. It has even preserved its cell-membrane, the outer substance of the nucleus being provided by the cartel* *4Closest to this detailed definition of the cartel is that of Kronstein (p. 31 ). although of fairly cumbersome wording: “ Ein Kartell ist die auf Einverständnis selbständiger Partner beruhende Gleichrichtung in deren wirtschaftlichen Verhalten, die eine Regelung eines oder mehrerer Märkte zur Folge hat." 15See Kronstein, pp. 68 et seq.. Seale, pp 300 et seq., Oppenheim, pp. 755 et seq., Areeda. pp. 318 et seq. At these places there is a long senes of telltale examples of large enterprises such as General Electric, Krupp, AEG, etc.

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agreements, which in most of the cases it preserves unchanged or in a more developed form. In other words, here we have the case of the market organization as a combination coming about from the symbiosis of the dominant position as covered by company law and the cartel agreement. On analysing the legal actions directed against cartels and monopolies which qualified as harmful, two combinations can be taken on the international plane16 as examples of cartels constituting a conspiracy against economy. Both, namely the complexes of Timken and Continental Can, were American and European at the same time in so far as they fettered the European market, too, moreover in their effects they affected also the foreign trade of the socialist countries to a certain extent. In their branches (respectively roller bearings and metal and synthetic packing materials), both the American Timken and the, in like way, American Continental Can brought an excessive pressure, in the first stage through a network of licence agreements and other agreements for cooperation, to bear on the European market of the branches of industry in question. In the second stage, through associations, mergers and acquisitions directly, and — in Europe — through a holding company called to life there, the two concerns rose to a homogeneous dominant position under company law. By this action they could automatically eliminate competition in the larger part of the branch of industry. From this reinforced position, in a third stage, the two concerns could exercise a yet greater pressure and bring about further cartel agreements (such as cooperation for licences; market-sharing; price coordination; development, etc.) to the prejudice of yet more earlier competitors. 151 - 2

International economic associations

151 There is a vast literature already on the shelves of the libraries on the history, types, international economic and political role of the international economic associations.1617 Under this term ( Wirtschaftsverbände, Interessengruppen, Groupes de pression internationaux) the word association stands not for any form of companies, but for professional associations; without being directed to any profit-making economic activity like production, trade or else they are mainly oriented to economic policy, to formulate or influence economic policy and economic processes on both national and international scales. Here we shall briefly refer to the interrelations through which the international economic associations exercise an influence on market organization and so, although they are not cartels, nevertheless have a share in the non-governmental moulding of world economy, in particular of the international economic processes of the Common Market. The role of these associations is substantially a dual one. (i) It is of a directly economic nature inasmuch as the associations cooperate in the rationalization of the 16 For details see paragraphs 166 et seq. infra. 17For details see Ryffel, pp. 159 et seq.f Beatus, pp. 2 et seq.t Ipsen 2, p. 375. It is charac­ teristic of the dimensions and the differentiated development that actually international economic associations too have their associations (see Meynaud).

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economic activities of the participating members, organize market survey and market observation, organize their publicity in common and advertize their products through the economic association, collect information jointly and exploit it in like manner jointly, (ii) The associations display activities substantially of the nature of economic policy for the safeguard of the interests of the participating members. In this capacity they influence the state actions related to economic policy, in so far as these actions affect them, or exercise an influence on shaping the policy, in particular the economic policy, of large international or supranational organizations. In reality their principal function is to safeguard the interests of the participating members, or as expressed in literature in a refined form, the machtbetontes Eigeninteresse, against the interven­ tionist economic policy of the modern capitalist State.18 In home politics these associations may turn up as pressure groups or lobbies and often force the State to a withdrawal in respect of its economic measures. These pressure groups exercise their influence by way of a variety of actions of an economic or partly political character, partly through an intertwining of personal interests. Here, by intertwining, the symbiotic interpenetration of the interests of the leading strata of the capitalist class and the political leadership of the State is understood. It may assume dimensions so that even in Western literature many write of a metamorphosis of the political system through the operations of the economic associations.19 There are writers who with in reality apologetic words depict the situation in even darker colours. For example, it has been stated that if the modem bourgeois State is unable to defend itself against the pressure of such phenomena (when the trade unions are also counted among the members of the pressure groups) with the traditional means of bourgeois democracy, Le. if the bourgeois State is unable to resist the process, then out of this as a counter-trend only the ‘totalitarian State’, the reinforcement of the central political power can arise, a contingency which —as the reasoning goes - might bring a deadly peril on the what are called, great democracies of the world.20 152 The economic associations have understood to build up a home for themselves in the international arena even legally. Although in fairly general terms, still the Charter of the United Nations Organisation, too, grants a place for them within its constitutional stronghold in so far as Article 71 of the Charter declares that the Economic and Social Council of the UN may take any measure it deems necessary in order to continue negotiations with non-governmental agencies engaged in affairs coming within the purview of the Council. The UN Charter by this does not only assume the existence of the international economic associations as given, but even assumes their operation in a positive sense: it expects from them active participation in the settlement of international economic problems. What is of an even greater significance is that the Rome Treaty in respect of the composition of the Economic and Social Committee of the EEC declares that in it the 18 The rather subtle formulation speaks of the machtbetontes Eigeninteresse of the members of the associations. {Ryffel, p. 161.) 19 Umwälzung im Staatsgefüge durch die Verbände, writes Huber 2, p. 190. 20 This process “ could be lethal for the great democracies, except for fortunate cases”, writes Ryffel, p. 168.

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various categories of economic and social life, ie. the different social and economic groups should be represented. The Treaty goes even further in so far as it also states that the Council of the Community may as regards the composition of the Economic and Social Committee of the EEC confer with the representatives of European economic associations or any other associations which through their activities affect the operations of the Community.21 Consequently the representatives of the national and European capitalist industrial and commercial organizations are in general present in the Economic and Social Committee of the EEC. This is stated also by the relevant literature.22 The same policy finds expression in an even more differentiated form, through the respect for the interests of the economic associations to a yet higher degree, and the participation of these associations in governmental decision-making and also in supranational decisions, in the ECSC Treaty.2 3 In these historical and legal conditions the Common Market is hard put to it when it wants to take arms against the international cartels of big industry or other noxious market-regulating factors. This is the reflection also of the contradiction implied in the policy of the modem capitalist State, the State namely which by professing itself to be a champion of free market competition on the one part takes action for the institutional guarantee of this competition through the modelling of competition law, and, on the other, within a wide scope recognizes the extra-enterprise organization of capital, moreover extends this recognition also to the international plane. Even if the international economic associations of capital are not expressly directed to the restriction of economic competition, nevertheless these associations are the channels through which capital influences the economic policy of the governments so as to achieve that it conforms to its interests. That this is the case will not be altered by the ever so euphoric theoretical reasonings according to which the modem State had ceased to be the sole framework of the sovereign acts of the supreme power, the mod­ em State was an organization in which every political body and grouping had a share, so that the State changed over to some sort of a cooperative cooperation and this - as the reasoning goes - lent some sort of a new form of life to bourgeois democracy.24 Those who evolve these and similar ideas are mostly in the belief that they conceive the functions of the State in a modem form. In fact the idea they bring forward is really an apology of the modem capitalist State in the present circumstances.2134

21 Rome TYeaty, Articles 193 and 195. 22Ipsen 2, p. 377. 23ECSC Treaty, Articles 46, 48, 58, 61. The Common Market pressure groups have grown to dimensions that an extensive economic and political literature deals with the problem (see Meynaud). 24Ryffel, pp. 184-5.

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economic activities of the participating members, organize market survey and market observation, organize their publicity in common and advertize their products through the economic association, collect information jointly and exploit it in like manner jointly, (ii) The associations display activities substantially of the nature of economic policy for the safeguard of the interests of the participating members. In this capacity they influence the state actions related to economic policy, in so far as these actions affect them, or exercise an influence on shaping the policy, in particular the economic policy, of large international or supranational organizations. In reality their principal function is to safeguard the interests of the participating members, or as expressed in literature in a refined form, the machtbetontes Eigeninteresse, against the interven­ tionist economic policy of the modern capitalist State.18 In home politics these associations may turn up as pressure groups or lobbies and often force the State to a withdrawal in respect of its economic measures. These pressure groups exercise their influence by way of a variety of actions of an economic or partly political character, partly through an intertwining of personal interests. Here, by intertwining, the symbiotic interpenetration of the interests of the leading strata of the capitalist class and the political leadership of the State is understood. It may assume dimensions so that even in Western literature many write of a metamorphosis of the political system through the operations of the economic associations.19 There are writers who with in reality apologetic words depict the situation in even darker colours. For example, it has been stated that if the modem bourgeois State is unable to defend itself against the pressure of such phenomena (when the trade unions are also counted among the members of the pressure groups) with the traditional means of bourgeois democracy, le . if the bourgeois State is unable to resist the process, then out of this as a counter-trend only the ‘totalitarian State’, the reinforcement of the central political power can arise, a contingency which —as the reasoning goes - might bring a deadly peril on the what are called, great democracies of the world.20 152 The economic associations have understood to build up a home for themselves in the international arena even legally. Although in fairly general terms, still the Charter of the United Nations Organisation, too, grants a place for them within its constitutional stronghold in so far as Article 71 of the Charter declares that the Economic and Social Council of the UN may take any measure it deems necessary in order to continue negotiations with non-governmental agencies engaged in affairs coming within the purview of the Council. The UN Charter by this does not only assume the existence of the international economic associations as given, but even assumes their operation in a positive sense: it expects from them active participation in the settlement of international economic problems. What is of an even greater significance is that the Rome Treaty in respect of the composition of the Economic and Social Committee of the EEC declares that in it the 1 * The rather subtle formulation speaks of the machtbetontes Eigeninteresse of the members of the associations. (Ryffel, p. 161.) 19 Umwälzung im Staatsgefüge durch die Verbände, writes Huber 2, p. 190. 20 This process “ could be lethal for the great democracies, except for fortunate cases”, writes Ryffel, p. 168.

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various categories of economic and social life, ie. the different social and economic groups should be represented. The Treaty goes even further in so far as it also states that the Council of the Community may as regards the composition of the Economic and Social Committee of the EEC confer with the representatives of European economic associations or any other associations which through their activities affect the operations of the Community.21 Consequently the representatives of the national and European capitalist industrial and commercial organizations are in general present in the Economic and Social Committee of the EEC. This is stated also by the relevant literature.22 The same policy finds expression in an even more differentiated form, through the respect for the interests of the economic associations to a yet higher degree, and the participation of these associations in governmental decision-making and also in supranational decisions, in the ECSC Treaty.2 3 In these historical and legal conditions the Common Market is hard put to it when it wants to take arms against the international cartels of big industry or other noxious market-regulating factors. This is the reflection also of the contradiction implied in the policy of the modem capitalist State, the State namely which by professing itself to be a champion of free market competition on the one part takes action for the institutional guarantee of this competition through the modelling of competition law, and, on the other, within a wide scope recognizes the extra-enterprise organization of capital, moreover extends this recognition also to the international plane. Even if the international economic associations of capital are not expressly directed to the restriction of economic competition, nevertheless these associations are the channels through which capital influences the economic policy of the governments so as to achieve that it conforms to its interests. That this is the case will not be altered by the ever so euphoric theoretical reasonings according to which the modem State had ceased to be the sole framework of the sovereign acts of the supreme power, the mod­ em State was an organization in which every political body and grouping had a share, so that the State changed over to some sort of a cooperative cooperation and this - as the reasoning goes - lent some sort of a new form of life to bourgeois democracy.24 Those who evolve these and similar ideas are mostly in the belief that they conceive the functions of the State in a modem form. In fact the idea they bring forward is really an apology of the modem capitalist State in the present circumstances.2134

21 Rome TYeaty, Articles 193 and 195. 22Ipsen 2, p. 377. 23ECSC Treaty, Articles 46, 48, 58, 61. The Common Market pressure groups have grown to dimensions that an extensive economic and political literature deals with the problem (see Meynaud). 24Ryffel, pp. 184-5.

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§ 20

The answer of the law to the challenge (from the genesis to public international law)

In general 153 Cartels and monopolies have appeared, they have grown, and also the law of defence against them has come into being. How and with what efficacy, we have already seen.2 5 We also mentioned how the international monopolies and the international cartels have sprung up, and so has also the legal differentiation manifesting itself in their genesis. The law in each case follows in the wake of the development of economic and commercial relations, even when in a camouflaging or distorting, or in an exactly retrograde way. No sooner has cartellization as an economic phenomenon stepped out of the national framework than the idea of domestic legal defence has also become intent on abandoning the national borders in order to get a hold of the international cartels and monopolies where they are most effective, irrespective of where they are domiciled. In the course of this process, however, theory and practice have stumbled upon a number of general theoretical, political and practical problems. Based on the present state of literature and practice these problems may be summed up as follows:26 (a) May sanctions of competition law, or even criminal or quasi-criminal law be inflicted by a domestic forum on the juristic persons of foreign States for acts performed by them in the territory of a foreign State, sanctions namely which originate from municipal law and are applied by the domestic authorities? The issue has emerged merely because these sanctions are according to general and mainly traditional opinion void of extraterritorial effect; they are part of municipal law void of extraterritorial effect (principle of territoriality); furthermore the imposition of these sanctions may violate the sovereignty of the foreign State in that they might be inflicted for something which is lawful under the laws of the particular foreign State (principle of sovereignty). (b) Is there an international cartel law irrespective of whether developed by legal custom or international legislation? If there were any, it would precede the application of the municipal cartel law, wherever the international norms are accepted by the given State and are to be directly enforced. This, accordingly, might mean that in the given State more rigorous (or perhaps milder) norms —more rigorous or milder than the domestic ones - are applied to international cartels.2 7 (c) If there is no international cartel law the states could inflict sanctions on the international cartels and monopolies on the plea that although the act has been performed abroad, still the legally prohibited harmful results have been brought about at home. Hence the states could qualify a cartel created abroad as a tort for the effects it has produced at home (principle of effects produced; Wirkungsprinzip). What may 2 5See supra Chapter V. 2 6Homburger-Jenny, pp. 51 et seq.f Meessen 1, pp. 560 et seq., Frisinger, pp. 553 et seq., Kronstein, pp. 501 et seq.t Neale, pp. 342 et seq. These sources inform also of the development of practice that will be discussed at the relevant places of this work. 2 7The principle is the direct effect of international law: e.g. in conformity with Article 25 of the Grundgesetz of the Federal Republic of Germany (for details see Meessen 1, p. 560).

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be questioned here is whether this circumstance is sufficient for action to be taken by the states against cartels and monopolies having their seats in third countries in order to evade or stave off these effects. (d) Another version of the considerations set forth above may sound more or less as follows. Do not the conditions of municipal competition law, in general the domestic economic order, or the protection of the established economic policy by itself justify the legal measures of the states against external economic potentates which with their acts and the effects of their acts affect this domestic order? This is the so-called principle of protection (Schutzprinzip, principe de la protection). (e) The measures under cartel law of the State defending its interests may occasionally cut into the quick, Le. affect economic, moreover political interests. Switzerland e.g. had even as State grievances against the judgement of the Supreme Court of the United States in the case of the Swiss Watchmakers Cartel.28 The Government of the Netherlands, too, made it known that the measures the United States had instituted against the International Quinine Cartel violated momentous interests of Dutch economy.29 Still even if there are no national economic interests of special gravity in the background of each case, there is always some sort of a microstructural capitalist economic interest in the background of the protection or the unwillingness of the passively affected party. Let us quote two examples only, (i) Certain Japanese and European exporting enterprises of the steel industry, in the last resort the producing enterprises of t industry, thought of improving their economic position against the largest, before all American enterprises of the steel industry. To this end the Japanese and European firms concerned arrived at an agreement under cartel law, a clause of which provided for the coordination of export trade. This by itself threw out no problems. By the agreement, however, the enterprises in question could influence the American price level, so that the American enterprises concerned, formally for and on behalf of what was called the Consumers’ Union instituted an action against the Japanese and European enterprises. (The case is still pending at the District Court of Washington.)30 It is likely that for neither the one party nor the other the State concerned will take action as State, still it cannot be argued that on the passive side there is a case of the violation of serious national economic interests, and on the other hand the prohibition of the cartel on the other side would seriously impair the opportunities and the conditions of competition of the Japanese and European enterprises in their by far not easy competition with the American companies, (ii) The other example is associated with the merger of the Basle firms Ciba and Geigy. Both enterprises had each an affiliation in the United States which were competing with each other. When, however, the two firms merged in their own country, the two affiliations came to be controlled from the common headquarters in Basle. The earlier competition of the two American affiliations came to an end 2*SeeMeessen 1, p. 561, Fulda-Schwartz, p. 73. 29See paragraph 148 supra; still the decision of the Commission of the EEC in the Farbstoffe case elicited a similar governmental protest, or concretely the protest of the British Government (see paragraph 169 infra). The note of the British Government has been published in the Yearbook o f the 54th Conference o f ILA, 1970 (’Aide mémoire*, pp. 185-6). 30See Meessen 1, p. 560. 13 Madl

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automatically, still by that they exposed themselves to procedure under American anti-trust law. Action was in fact instituted with the set purpose to force the parent company to sell one of the American affiliations in order that competition in the product in question might continue uninterrupted in the United States. If not in a direct way, still the end has been achieved by American economy by way of a judgement.31 So that is the bottom of it: effective international anti-cartel practice may touch upon serious economic interests. Strictly speaking what we witness here is the complicated form of the struggle against international big capital fraught with many contradictions, a struggle in whose rational development — so that the balance can be struck — both the passively and the actively concerned states are somehow equally interested. Still, (i) the protection of national economic interests and of economic expansion, (ii) the fear of the economic and political forces of capital, (iii) the tactics applied against these forces, have made this —in an extremely complex form - conditioned mechanism of action Le. what we call international cartel law and practice, manifest itself in divergent and differentiated forms in the particular capitalist countries. There are many in literature who would, with the catchword territorialism or sovereignty, defend the freedom of movement of the enterprises.32 Yet there are others who with the determinedness and faith of a missionary fight for the interests of the consumers and also for national interests, and are convinced that the fairness of international economic relations could be maintained against the international monopolies or cartels by recourse to international cartel law.33 154 What could this front of the ‘law party’ Le. the cartel law party achieve against the forces of the ‘freedom party’ in the alternatives outlined above? Instead of the further analysis of theories let us see again the facts, the development of reality being by far more important: how did the theories and opinions of the ‘law party’ hold their own? Are they anything more than superficially effective anti-trust tranquilizers, as has often been asked by critics in an acrid tone? 34 This is the question to,which we are in search for an answer; (i) in the practice of the municipal law of the particular states, Le. in the manner the states in question apply their municipal rules of anti-trust 3‘ For the American judgement see US v. Ciba Corp. 1970. Trade Cases Article 73.269, S. D. N. Y; Neue Züricher Zeitung, 26. 2,1970, ρ. 13; and Meessen 1, ρ. 561. Concretely the dispute was settled in a way that from one of the American affiliations the manufacture of a product important from the point of view of competition has been transferred to an independent third enterprise. 3 2Meessen refers to these (p. 561), still for details see the vivid dispute in ILA, where the retrograde ‘freedom party’ dominated by waving the banner of territoriality and sovereignty against those intent to set up barriers. (1964 ILA Conference 51, Yearbook o f 1964, pp. 304 et seq.: ‘Extra-territorial Application of Restrictive Trade Legislation*). 3 3The disputes of the earlier ILA conferences of an opposite sign substantially ended with the success of the ‘Schutzprinzip, Wirkungsprinzip*. For details see Meessen l,p . 562;still this was forecast also by the 1970 ILA Conference (see the Yearbook o f the 54th ILA Conference, 1970, pp. 151 et seq.). 34 See Haight: ‘The Restrictive Business Practices Clause in US Treaties: An Antitrust Tranquil­ lizer for International Trade.* Yale Law Journal, vol. 70, 1960, pp. 240 et seq.

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law to the international cartels; (ii) in the development of the legal status of international cartels in international legislation, and finally (iii) how much progress the law and the practice of the European Economic Community have made in this field. 155

The Genesis

155 For the study of the genesis of municipal cartel laws and so also, as indicated by reality, for that of the genesis of international cartel law, we have to go back to the anti-trust legislation of the United States. In order to tell the story of modern anti-trust law we have to remember that in the beginning there was the Sherman Act of 1890 which has since been reinforced, supplemented, modified, extended to yet further fields and forms of protection.35 It is the first and second articles of this Sherman Act that have triggered off a flow of writings filling the shelves of many a library, and a mass of judicial decisions. These first and second articles incorporate the following essential elements: Every contract or any other combination of legal nature, or conspiracy, which are apt to restrict the trade relations between the states of the United States, or of the United States and other countries, shall be prohibited; every monopoly or striving after a monopoly, every economic or legal combine which through monopolization restrict the economic relations between the states of the United States, or between the United States and any foreign state are prohibited and entail the sanctions defined by the law. These sanctions are the voidance of the contracts or any other agreement in question, fines or imprisonment.36 What was questioned was whether the ideas of economic policy as formulated by the Sherman Act had also been meant for international economic relations and, beyond the terminology of the Act, what real degree of efficacy was meant to be achieved, or in other words, in what sense and to what degree of efficacy did economic and social development advance on the path of the concept of economic policy indicated by the Act. Projecting the question to theoretical interrelations we may perhaps formulate it in a way: How did reality respond to the issues of principle developed by theory as outlined above, or more precisely, which monopolies or cartels were meant to be drawn under the force of the Act? Were these monopolies or cartels which interfered with the freedom of competition in the development of the interna­ tional economic relations of the United States from within the United States, or were they with regard to the participants also international cartels and monopolies in the sense that by the side of American members there were also aliens in them, or moreover were they wholly or predominantly foreign international monopolies or cartels, too? The affirmative answer would have meant that these cartels and monopo­ lies had been made subject to the prohibition of American anti-trust law because their 3 5Such supplements to the Sherman Act were the Wilson Tarif! Act of 1894, the Clayton Act of 1914 (the principal prohibitive provisions were Article 2 on price discrimination, price fixing; Article 3 on agreements restricting the freedom of contracts, Article 7 on the acquisition of competing enterprises; Article 8 on the intertwining of boards), the Webb-Promenance Act of 1918; for details see Neale, pp. 1 et seq., Fulda-Schwartz, pp. 17, 155. 36 Published by Neale, p. 3 and Fulda-Schwartz, p. 17. 13*

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operation ran counter the interests of anti-trust legislation both as far as domestic and international relations were concerned. Here we would refer only in passing to the legal literature and that of the history of economics3 7 before reverting to facts. These facts manifested themselves with considerably weight in judicial practice only after the Second World War. In the following review we shall present some of the major decisions in American judicature. These are the judgements in Alkali export (1949), Timken (1951), National Lead (1947), International Quinine Cartel (1942), then Alcoa (1964), the Swiss Watchmakers Cartel (1962) and the Ciba (1970) case. In their totality these cases offer an idea of the actual form and force of anti-trust legislation in economic and legal policy as embodied by judicial practice. On the ground of an analysis of the particular cases38 - for the details of which we would refer to the relevant literature39 - essentially the idea underlying the judicial decisions may be formulated as follows: American law applies the rules of anti-trust legislation also with extra-territorial effect, if the foreign cartel or monopoly in question distorts also American internal or external economic competition, fixes the prices, or in any other way operates in a way detrimental to price conditions in the United States, restricts production, hampers market supply, and —what is of utmost importance - is doing this in a manner prejudicial even to American dimensions. 156-9

The answer o f public international law

156 In the following discussion we shall for the time being postpone the analysis of the equally developed international cartel law of other developed capitalist states. This will be dealt with in detail when the international cartel law of the European Community comes to be discussed. Let us study here to what extent did public international law succeed through interstate relations in the face of such actions of international cartels and monopolies that qualified as harmful or dangerous. As is known the premiss of the question is the answer to the charge often made by the monopolies concerned, that the municipal cartel law of the states has no extra­ territorial effects, z.e., in the want of international cartel law, as formulated through the agency of public international law, international cartel law is strictly speaking non­ existent. If therefore the international cartels and monopolies had to be attacked with efficient and unarguable means of the law, those concerned would have to come to an agreement for the purpose in the meaning of public international law. This legal me­ chanism has received the support of many on the side of legal science. A number of 3 7See Fulda-Schwartz, pp. I l et seq., Buxbaum 1, pp. 517 et seq., Neale, pp. 342 et seq. 3 8US V. US Alkali Export Association, S. D. N. Y., 1949 published by Neale, pp. 343 et seq.; US v. Timken Roller Bearing Co., S. C., 1951, published by Neale, pp. 346 et seq.; US v. National Lead Co. S. C. 1947, published by Neale, pp. 351 et seq.; US v. Aluminium Co. of America, S. C. 1964, published by Neale, pp. 360 et seq.; US v. Watchmakers of Switzerland Information Center Inc., S. D. N. Y. 1962, S. D. N. Y. 1965, published by Fulda-Schwartz, pp. 52 et seq.; US v. N. V. Nederlandische Combinate Voor Chemische Industrie et al., S.D.N.Y. 1968, published by Fulda-Schwartz, pp. 97 et seq.; US v. Ciba Corp. S. D. N. Y., Trade Cases Articles 73, 269; also see Meessen 1, pp. 560 -1. " F o r the treatment of the cases in literature see Neale, pp. 342 et seq.; Fulda-Schwartz, pp. 42 et seq.; Markert, pp. 42 et seq.; Mâdl 13, paragraphs 259-62.

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initiatives have led to a variety of results, even if those taking action have not in all cases set out from the above premisses. The motive force in the proper sense of taking the initiative through international channels was, at least on the part of the majority of the representatives of jurisprudence, the idea that in this way a system of defence and regulation of greater completeness could be brought about. 157 The system which has developed on the level of international law is a biplanar one: it is formed of bilateral treaties and multilateral agreements. There are several bilateral conventions or agreements worth mentioning but only two of them will be discussed here. In both of them the United States is, by no means accidentally, the one partner. These are (i) the treaty between the United States *and the Federal Republic of Germany of 1954; (ii) the agreement between the United States and Canada of 1959. (i) Article 18 of the Treaty of Friendship, Commerce and Navigation between the United States of America and the Federal Republic of Germany, and on its pattem other treaties or agreements of the United States of similar subjects, declares: “ 1. The two Parties agree that business practices which restrain competition, limit access to markets or foster monopolistic control, and which are engaged in or made effective by one or more private or public commercial enterprises or by combination, agreement or other arrangements among such enterprises, may have harmful effect upon commerce between their respective territories. Accordingly, each Government agrees upon the request of the other Government to consult with respect to any such practice and to take such measures, not precluded by its legislation, as it deems appropriate with a view to eliminating such harmful effect.”40 On the plea of this provision of the treaty no formal steps under anti-trust law (e.g. investigation or judgement legally based on this article, especially forced execution of an action of either contracting party by means of public international law) have as yet been taken. The article quoted could have been invoked in a number of concrete international commercial and economic disputes and conferences convened for their settlement. Still, disputes were in most of the cases settled through mutual information, or voluntary admission of the standpoint, of the other party, or through diplomatic channels by consultation. A case coming under this heading was that of the International Quinine Cartel so often quoted. As is known the United States government preferred the method of requesting the Common Market through diplomatic channels and so its member states, to take action against the cartel resident in its territory by having recourse to the means of municipal law.41 This means that in the international agreement referred to and in others of similar wording international cartel law manifests itself in a heterogeneous form. Substantially it incorporates the following elements: the non-detailed expression in terms of public international law that agreements and enterprise-combinations operating in restraint of economic competition may have harmful effects in the countries of the contracting parties; therefore the parties consult in order that the 40 Treaties of Friendship, Commerce and Navigation, US-West German Treaty 1954, 2, U. S. S. T. 1839, 1858; published by Fulda-Schwartz, p. 102. 41 See Marken, p. 43.

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country concerned might by having recourse to means authorized by its municipal law take action for the elimination of the causes of the harmful effects. Hence in this case the mechanism of public international law operates in a way that though it did not create an international substantive cartel law it developed the public international law channels for the application of the municipal anti-trust law, producing meanwhile, nevertheless, a codified pejorative value judgement against harmful cartels and monopolies, although in very generalized terms. (ii) Substantially the anti-trust agreement of the United States and Canada declares that the parties shall (1) consult with each other before taking any legal action or instituting concrete investigations in matters which may affect the interests of the other party; (2) continually inform each other of the development of investigations and measures in anti-trust cases concerning the other party; (3) although the purpose of the agreement is the pursuit of joint anti-trust policy, as far as this is possible, either party to the agreement reserves the right to enforce its own municipal provisions of law against the activities of international cartels and monopolies in a way the party concerned deems inappropriate and within the limitation of legislation in force; (4) the parties will supply no information of the consultations to the enterprises concerned.4142 As may be seen here authorization under public international law for procedure against international cartels or the cartels of foreign states, at least implicitly, finds moderate expression only. The agreement is rather an example of the tacit consent to the application of municipal law to alien parties while stress has been laid on the harmonization of the interests to a nicety. 158 In the temporal order the following multilateral agreements deserve special mention: the General Agreement on Tariffs and Trade (GATT) of 1947, the Treaty Establishing the European Economic Community (Rome Treaty) of 1957, the recommendation of the Organisation for Economic Co-operation and Development (OECD Recommendation) of 1967, and, finally, the ILA draft of 1972. The General Agreement on Tariffs and Trade (GATT) does not speak expressly of international cartels and monopolies. Still substantially the agreement has as its end the liberalization of international economic relations and the abolition of international and national protectionist ties. In this sign GATT brings under regulation several fundamental and known institutions of international economic relations, such as the principle of most favoured nations, the principle of national treatment, the customs unions and free-trade zones, the question of discriminations and so on. GATT, however, brings under regulation and liberalizes such governmental measures also as may come into being within the practice of international cartels and monopolies as well. Examples coming under this heading are the establishment of quotas in international trade, subsidies paid by the governments, the actions taken against dumping or quasi-dumping manipulations of prices.43 Consequently the spirit embodied by GATT had to be extended so as to govern also these and other phenomena of private economy, and means had to be contrived for the application of 41 Informal Agreement of US and Canada on Antitrust Notification and Consultation Procedure 1959, published by Fulda-Schwartz, pp. 104-5. 4 3GATT, Articles VI, XI, XVI.

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GATT measures against the abusive policy of large concerns. In 1960 the general assembly of GATT passed a resolution according to which the member states expressed their readiness for consultations if the international or domestic cartels directing their operations from the territory of these states displayed activities which were conflicting with the principles of GATT. In these consultations the parties concerned also discussed the means and ways of eliminating the limitations of and barriers to, trade which owed their existence to the activities of the cartels.44 Although no practice of significance has developed in the wake of this resolution, and even opinions have been sounded that there is nothing in the General Agreement on Tariffs and Trade which may be construed so as to imply the obligation of consultation4 5 still GATT has remained a channel through which international cooperation can be marshalled and at the famous Kennedy round of GATT, in 1967, the participants almost pathetically confessed to the potentiality of achieving satisfactory results against the international cartels and monopolies through interstate cooperation, for that matter through cooperation brought about and channelled by GATT.46 In the temporal order the Rome Treaty followed after GATT, but this treaty will be discussed separately below. The next step was the Recommendation o f the OECD of 1967. As regards the member states of the OECD, le. by the side of the United States, Canada and Japan, the states of West Europe, this Recommendation substantially contains the same theses as the agreement between the United States and Canada, enriched by two supplementary provisions, (i) The member states, if taking action against international commercial practices in restraint of economic competition, endeavour to coordinate this action, still within the potentialities and limitations of their municipal law. (ii) In their action against policies in restraint of comptetition the states cooperate in working out the most appropriate methods of this action.47 What is a surplus here is international coordination of the general agreement that the parties will cooperate in developing the mutually convenient methods of action. Concrete provisions of public international law, however, have not come into being even within the scope outlined by the Recommendation. What has become established is consultation in the event of domestic governmental intervention or joint action on 4 4The resolution has oeen published by Tirpitz, pp. 25-6. 4 5Also see Kronstein, p. 125. 44 Among others also see the conference in Geneva, in the evening of 30 June, 1967, which led to the Kennedy Round. It was in this conference that the economic circles concerned (before all the representatives of USA, the EEC and UNCTAD) came to the conclusion that against protec­ tionism the spirit of GATT should be revived. A brief passage of the subjects of the conference, exactly with reference to anti-trust law, reads as follows: “We almost failed . . . But somehow we managed to move the world closer to the ideal of free international trade . . . And now with the increasing acceptance o f our antitrust notions in regional and national legal adequate means to rid thè international economy o f private restrictive agreements are also at last available. ” Published by FitIda-Schwartz, pp. 1 et seq.; also see what several contributors held in the dispute of the ILA Conference of New York (1970) in this subject matter (Yearbook o f the 54th ILA Conference, pp. 151 et seq.) 4 7The 1967 anti-trust recommendation of OECD has been published by Fit Ida-Schwartz, pp. 103-4.

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certain occasions, yet in all instances on the ground of municipal law. Here again the procedure followed against the International Quinine Cartel may be quoted as the classical example. The story of the draft of the ILA agreement, from 1959 onwards till the formulation of the New York wording in 1972, testifies adequately to how occasionally extreme opinions develop. The story begins with the absolutization of the principle of extra-territoriality and ends with a combined (French, German and Dutch, i e. Common Market) pressure of the principle of effects produced and that of extra-territoriality.48 Article 5 of the draft gives the thesis constituting the gist of the instrument: “A State has jurisdiction to prescribe rules of law governing conduct that occurs outside its territory and causes an effect within its territory if: (a) the conduct and its effect are constituent elements of activity to which the rule applies; (b) the effect within the territory is substantial; and (c) it occurs as a direct and primarily intended result of the conduct outside the territory.”49 The original and highly retrograde wording, a wording strictly speaking conflicting with the anti-trust legislation and practice of the United States, the Common Market and e.g. with that of the Federal Republic of Germany, reads as follows: “International law, as evidenced by general practice of States to date, does not permit a State to assume or exercise prescriptive jurisdiction over the conduct of an alien which occurs within the territory of another State or States solely on the basis that such conduct produces ‘effects’ or repercussions within its territory.”50 The new wording, too,has several weak spots. It appears as if the three conditions specified by Article 5 were conjunctive and that the third condition demanded the existence of an intention directed to a result prohibited under cartel law. Still in most of the cases those taking action under the respective legislation will be hard put to it when it comes to produce evidence of the existence of the incriminated intention. As a matter of fact, as has been made clear in the passages discussing the forms of existence, the variety of the operating methods of cartels, and the range of cartels extending from associations to simple concerted practices, like a price-leadership, embrace such forms whose harmful intention it is almost impossible to prove in most of the cases. The judgements in the Alcoa and the Watchmakers of Switzerland cases waived the appraisal of the intention51 and even the Second Restatement contented itself with declaring that the internal effects should be foreseeable. By this, strictly speaking, the Restatement objectivized intention, or at least the subjective element.52 This objectivization in fact means that in the subjective sense all the cartel members must be reproached for is at most their failure to have foreseen the outlawed effect that has actually supervened. On the other hand, the cartel members may get off scot-free when they produce evidence to the effect that the results could not be foreseen and the Court admits this evidence. 4 8 For the prehistory of the New York draft see Meessen 1, pp. 561 -2 . 4 9The text has been published in English and German by Meessen 1, pp. 562-3. so Published by Meessen 1, p. 564. 51 For details see supra paragraph 155 and the sources quoted there. 52Published by Meessen 1, p. 564.

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The principal shortcoming of the ILA draft is that it is still a draft, and even as such declares in the Preamble that in the field of practices in restraint of economic competition the provisions of the draft are principles and guidelines of public international law serving the resolution of the problems manifesting themselves when it comes to the establishment and practice of the jurisdiction of States.53 We are therefore still far from the day on which this draft compiled at the expense of so many efforts and pains will become the generally accepted system of norms of public international law, a branch of law the need for which has been recognized even by Western literature in a definite manner.54 What remains a fact, however, is that through the ILA draft in the given issue the uniform or at least harmonized pattern of thinking, the what has received the name of Denkmodell of international cartel law of Western jurisprudence as extrapolated from legal practice and considerations of economic policy, has reached a higher stage of completion. This pattern is so to say the legal prototype of what may be expected in domestic and international legislation and what partly through the extension of municipal anti-trust rules to extraneous cartels, though fraught with the contradictions indicated earlier, has been realized. 159 To the story of the fate of the Denkmodell of the international cartel law, and to its wavering development burdened with contradictions, two general remarks may be added, (i) The first remark applies to one of the contradictions of modern American and West-European capitalist economy. It is a fairly general phenomenon that in its state of dependence on American economy West-European economy mostly lays the blame on the European presence of the large American monopolies; even some sort of a general anti-cartel law or anti-monopoly law would help to ease this American pressure. In the United States too in the spring of 1973 the large American multi-national enterprises were blamed for the dollar crisis. It was thought that if these enterprises repatriated their money claims and capitals the American deficit and consequently also the mistrust of the dollar would have decreased. Yet it is here where the contradiction turns up: without jeopardizing the principles of capitalist economy no commands can be issued to these enterprises. They are by far more interested in making their financial strength and power in the market felt at places of capitalist world economy most favourable for them. And even more: what are the reproaches of West Europe addressed to the American-European affiliations and monopolies worth on the one part, when on the other West-European capital does its utmost to tie the capitals, investment capacity of these enterprises to Europe, since, as they say, if this capital emigrated, technology would migrate too, and with it a large part of the present economic power of Europe. Instead of gathering strength European economy would have to face substantial stagnation and even unemployment.55 (ii) The other 5’ Principles of International Law as guidelines to the resolution of problems concerning the assumption and exercise of jurisdiction by States in connexion with restrictive practices. 54See Meessen 1, p. 563 (Ausblick). 5 5Decidedly and as stated here this was the dilemma of West Europe at the dollar crisis associated with the 10 per cent devaluation in the 1st quarter of 1973. (See the analysis of R. Tomas of the European economic and financial situation at that time entitled ‘Why American Will ‘Win* Again*: “ He was touring European political and financial capitals when the monetary crisis broke; here is his analysis of the likely outcome and its consequences*’. Newsweek, March 19, 1973, p. 38.

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remark affects socialist legal public opinion: the blame has namely been laid to it that so far it has refrained from taking part in the battle that is being waged in ILA against the international monopolies and cartels. This ‘extraneous’ position cannot be held any longer for several reasons: (a) The harmful manoeuvres of the international monopolies in world economics, in particular in Europe, eventually might seriously affect the foreign trade of Hungary and, in general, of the European socialist countries; (b) The increasing struggle against the great monopolies is at the same time part of the political fight directed against the domination of capital. This is the case for very concrete reasons. For example, the American ‘higher management’ prospering in its Belgian affiliation will find it easier to carry on a defensive struggle against the striking workers of the Italian affiliation of the same monopoly. On the other hand the Belgian and Italian ‘local managements’ will be hard put to it, when the ‘change-over’ facilities afforded by the monopoly are missing, (c) The embittered struggle against the international monopolies is in particular being carried on by the economies of the developing countries, a struggle namely where socialist jurisprudence cannot stand aloof. Since the economic and legal problems associated with the international giant concerns and monopolies have recently been put on the agenda also by the United Nations,56 the appearance of socialist jurisprudence in the field has become a matter of timeliness and exigency as a corollary of the policy officially professed by the socialist countries. § 21

International cartels and m onopolies in the law o f the EEC

161-1

Framework o f the regulation

160 The law of competition was not unknown in the legal systems of the present member states of the European Community. As is known, it was in the wake of the Second World War that this branch of the law entered a phase of remarkable development. This is true in the first place for the legal appraisal of the international cartels and monopolies. Still instead of enlarging on the analysis of the relevant municipal law of the countries concerned, a by itself enormous undertaking,57 in the following we shall restrict our investigations to Community law created in the sign of integration. If by reversing the thesis of pars pro toto we subject to a study the com­ mon international anti-trust legislation applying to the totality of the member states and effective in anyone of them, strictly speaking we also study the relevant legal policy of the member states. In fact with a slight exaggeration and simplification the Com­ munity anti-trust law may after all be considered the extrapolation of the municipal anti-trust laws or the national doctrines of competition law. 161 We have already spoken in detail of the appearance of the anti-trust law of the 5 6Also see the section on the activities of the Economic and Social Council (ECOSOC) of UN in the 1972 Annual Report to the General Assembly. 5 7For the international cartel law of the member states see Fulda-Schwartz (‘National Antitrust Laws’, pp. 147 et seq.); the national reports submitted to the 1972 ILA Conference; ‘Extraterritorial Application of Restrictive Trade Legislation’. Yearbook o f 54th ILA Conference, pp. 151 et seq.; and in the form of a monograph, for German law, Schwartz 2, pp. 296 et seq. 202

European Economic Community within the Community itself.58 As regards the statutory law, in medias res the remark may be made that Articles 85 and 86 o f the Rome Treaty are void of express provisions relating to international cartels and monopolies, Le. to such as operate partially at least with extra-Community subjects. This is how literature interprets the two articles59, and this is what clearly follows from the wording of them quoted earlier.60 Neither do the Community normatives promulgated by the Commission or the Council of Ministers of the Community by invoking Articles 85 and 86 of the Rome Treaty at later times contain provisions whose validity extends to international cartels or monopolies.61 In this situation it is straightforward therefore that, against the actions of the international cartels and monopolies considered harmful (of which there were and still are many), recourse to the coercive means of the law could not be had unless an extensive construction had been given to the Rome Treaty. This is the position which literature has taken,62 and this is what the practice followed by the Commission and Court of Justice of the European Economic Community betrays.63 162-5

The answer o f theory

162 First jurisprudence was confronted with the problem in a most graded and most comprehensive form. This was the case not merely because jurisprudence was acquainted with American practice and the relevant literature, and also because the writers on law could justly assume that after the anti-trust law of the Rome Treaty the problem would emerge also in practice, but also because jurisprudence had a direct share in guiding the first tentative steps of practice. Let it be exemplified by a concrete and by a more general case, (i) Professor Pescatore is the well-known theorist of what may be called European economic law and at the same time judge at the Court of Justice of the European Communities. In this capacity he took part in delivering the judgements in the for the appraisal of the international cartels on considerations of Community law highly significant cases of Farbstoffe and Continental Can.64 (ii) Professor Kronstein first in the United States, then in the Federal Republic of Germany took part in high positions in the formation of national anti-trust practice (legislation and legal policy), and so also in the so-called kalte Montage. At the same time as a theorist he wrote his work on the law of international cartels, which is often quoted in present-day Western legal literature, and which is perhaps the best of works that had ever been written on this topic. Also he was the author of the first draft of the ECSC Treaty, this first European source of the Community anti-trust institutions. 5 8See supra Chapter V. 59See e.g. Homburger—Jenny, p. 18; Frisirtger, pp. 553 et seq.; Schwartz 2, pp. 296 et seq. 6°See Supra Chapter V, paragraphs 114-30. 61 For the supplementary norms see supra Chapter V, paragraphs 114—6. 6 2See the literature quoted supra in Note 59 and for the problems of theory the paragraphs 162 et seq. infra. 6 3See the paragraphs 166 et seq. infra. 64Pescatore 1, 2, 3. For the Farbstoffe and Continental Case see paragraphs 169 and 172 infra.

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This Treaty has, in its Articles 65 to 67, transplanted to Europe the more rigorous American anti-trust attitude, and it is this Treaty from which Articles 85 and 86 of the Rome Treaty may be derived.6 5 West-European jurisprudence may boast of an extensive and theoretically also highly differentiated literature as far as the treatment of the set of problems here involved is concerned. Unlike American literature which concentrates rather on issues of principles of a pragmatic nature, West-European literature treats the issues by branches of law (nach Rechtszweige, in the German terms) from a variety of points of view and so also from those of theory and dogmatics of law, from top to bottom. In this field, too, the American so-called pragmatic man stands in juxtaposition to the European so-called philosophic man - the way how, not void of reasons, the American approach to the issues prefers to draw the parallel. Since I hold the view that, in an analysis of the ideological contents and the theoretical positions in West-European literature,66 emphasis should be laid on the principal elements instead of offering a long review on the history of the various theories, and since their more or less polarized appreciation may result in a probably useful addition to the picture of this West-European literature, I shall now deal with the three trends that may be distinguished in this field, viz. (i) ‘freedom-party’, (ii) the ‘law-party’ and (iii) the ‘builders of dogmatics’. 163 The partisans of the freedom-party who with a more or less scrupulous tightness, often in manner fraught with contradictions, somewhat embarrassedly, on defending the freedom of the international cartels and monopolies and standing in the last resort for their domination, would act as champions of this domination also against Community law. They hold that Community law cannot be extended to international cartels and monopolies having their headquarters outside the Commu­ nity. They advance a variety of arguments to buttress up their position. Some of these are,e.g., — that Articles 85 and 86 of the Rome Treaty are strictly speaking not norms of substantive law, but rules of private international law, so-called conflict rules; - that theoretically the law-enforcing jurisdiction of the Court of Justice of the European Community would somehow hold its own, but this at the same time would imply the extension of the legislative jurisdiction to abroad, which theoretically and also in conformity with international law is tied to the territory of a State. Therefore, 6 5See Krönstein. He himself speaks in his work entitled Briefe an einen Freund (Verlag Beck, München 1968, p. 323) of his role in American and post-war anti-trust practice and also of his role as prime actor in the kalte Montage and his part authorship of the ECSC Treaty (in particular on pp. 248 et seq). Kalte Montage is the term used for the post-war dismemberment of the German monopolies, their de-cartellization as opposed to the heisse Montage, the term used for the physical dismantling of certain German large industrial plants and machine pools and their delivery to the Allies as ruled by the respective agreements of the Allies. 6 6Of the sources of legal literature analysed the most important are Frisinger, Hunter, Homburger-Jenny, Themaat 2, Schwartz 2, in Chapter ‘Die Zulässigkeit kartellrechtlicher Hoheits­ akte gegenüber Ausländern im Ausland'; Kronstein, in Chapter "Schlussbetrachtungen1; Demeer 2. Special reference has to be made to the monograph of Haymann on the ‘Extraterritorial effects of the EEC anti-trust law’; it came, however, too late for us to introduce its results and findings into our analyses.

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for the norms of municipal substantive law the principle of territoriality is valid, so that any extension of these norms would infringe the sovereignty of other states; - that a Community authority, e.g. the Commission or the Court of Justice could hardly collect evidence or enforce its decisions abroad, e.g. it could hardly demand the delivery of incriminated contracts, or seize such, or collect fines, or achieve the voidance of cartels organized abroad, or the winding up of monopolies abusing their dominant position; - that the attribution of wrongful acts of affiliations within the Community to the parent companies abroad, i.e. to foreign subjects-at-law, and so the exportation of tort categories of municipal substantive law to abroad, are hardly conceivable. All these would mean that sanctions cannot be imposed on international cartels and monopolies unless they have members within the Community, and then only on these. In any other case the norms of municipal law can be enforced against them only in conformity with the principles of general public international law and within the limitations of this law.67 Now where could such principles of general public international law be retrieved? We have seen that there are no such principles, or, if any, still in statu nascendi. The OECD Recommendation concerning West Europe is a recommendation only and all it requires is,mutual information and consultation.68 The most striking arguments of the freedom party, however, manifest themselves even in theoretical discussions as the undisguised economic interests of great capital. It is obviously a hypocritical phrase to invoke the liberalization of world trade in this connexion.6 9 For as has already been made clear, in a critical phase of development of GATT the Kennedy round, too, emphasized that the free-of-restriction growth of world trade must be guaranteed also by way of anti-trust legislation.70 Truth and essence are indicated by terms such as that the escalation of Community cartel law discredits European law abroad, mainly in the United States, and that the enterprises of foreign states will, fearing their interests, look elsewhere for expedients to withdraw their business transactions from the jurisdiction of Community law.71 It is by no means by mere chance that this opinion has been voiced mainly in the United Kingdom in both scientific and official forums. As is known the United Kingdom is the homeland of most of the giant enterprises of Europe, among others of the Imperial Chemical Industries, the concern on which the Court of Justice of the Community imposed a sanction in the Farbstoffe case.72

Frisinger, p. 556. 6 *See paragraph 158 supra. 69Frisinger, p. 559. 70 For the reference see supra, paragraph 158, Note 45. 71 Frisinger, p. 559. 7*Of the relevant English literature see Hunter, pp. 221 et seq.; for the official standpoint see the Aide mémoire of the British Government to the Commission of the European Economic Community in the Farbstoffe case, among others also in connexion with the decision against the British concern Imperial Chemical Industries Ltd.; see the Yearbook ofIL A Conference 1970 (ILA ed., 1971, pp. 185-6). For British participation in the European giants1 club see the annually published Fortune Directory o f the Largest Industrials Outside the US; for the Farbstoffe case see paragraph 169 infra.

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164 The arguments the ‘law-party* brings forward are of a pragmatic nature rather than of a theoretical. This accounts for their identity with those already discussed in connexion with the American anti-trust law. Hence the defence put up against the effects of torts, if there is not a case of a directly extraneous governmental act, does not infringe sovereignty. Also without such a defence the anti-trust provisions of Community law would be turned into a blank sheet of paper and as has been seen earlier, if tacitly only, still in a number of treaties international law, too, recognizes the jurisdiction of states and formations of states in matters of anti-trust law. The ILA draft even promises international norms of general validity73. To this special arguments may be added such as that the Articles 85 and 86 of the Rome Treaty are so-called self-executing norms, i.e. directly effective within the Common Market without any intermediary procedure, e.g. ratification, that even if the Rome Treaty does not expressly recognize the applicability of these articles to international cartels and monopolies, it is void of anything which might defeat this applicability. It has also been brought forward that no such intention could be imputed to the legislators as to impose restrictions only on domestic cartels or harmful dominant positions within the Common Market, whereas the similar manoeuvres of foreign cartels would directly be favoured by such a policy. If anything, so the opposite of this must be presumed to hold, namely that the founders of the EEC thought of rendering the economy and the enterprises of the Common Market more competitive against extraneous actions than was the case before. Finally the question whether Community anti-trust law can be brought into action against foreign cartels and monopolies will be answered by practice. The though so far initial steps taken here74 seem to verify the theoretical ‘ay*. On the ground of all these many in West Europe with the conviction of a prophet believe in Community competition law. It is on the ground of developments so far, the tendencies in literature, the realities of economy, so the market-organizing role of private capital and in the course of this the frequent market-distorting excesses, the municipal and European legislation and legal practice in integration, that Kronstein ventures to state, e.g. that notwithstanding the weakness of anti-trust law, its weakness against the international cartels and monopolies, theory has to recognize the great chance (die grosse Chance) of anti-trust law, which, as Kron­ stein says, is within palpable reach. Only commitment and courage is needed and then this chance may be moved yet closer, viz. the creation of a man-centred harmony between an economic order giving expression to common interests and that of international private economy.75 It is a pleasant-sounding commitment. There does 7 9For details see supra, paragraph 158. 7 4 See paragraphs 166 et seq., infra. 7 5Two characteristic sentences from Kronstein (Ausblick) (pp. 5 1 0 -1 ): “Wenn wir auch -das

sei nochmals betont - keine Patentlösungen fur die von uns aufgeworfenen Probleme anbieten können, so wollen wir doch zum Abschluss auf die grosse Chance hinweisen, die uns durch die Entwicklung der EWG zu einem wirklich offenen Markt geboten w ird. . . Und schliesslich muss man Mut zu einer Zielsetzung haben. Wir selbst glauben, dass eines der entscheidenden Kriterien für den 'Wert' dieser nun zu durchdenkenden und zu gestaltenden Ordnung ist, ob selbst bei der gewaltigen technologischen Konzentration der modernen Wirtschaft noch wirklich Platz för den einzelnen Unternehmer ist und ob eine Lösung der sozialen Fragen erreicht werden kann, bei der der schwächere Teil die Freiheit behält, bezw. wieder erlangt, sich a u f den Märkten frei zu bewegen."

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however appear to be a wide gap between this ‘chance’ and reality. In all certainty the pontoons of scientific benevolence may help to bridge this gap, still, unfortunately, the antagonisms of the given production relations are stronger than this benevolence and, in addition, these antagonisms form a malignant stream which not only widens the gap, but also cuts abysses, erodes and washes the shores and, while doing so, heaps the torments of Tantalus on the benevolent pontoon-builders. 165 After the philosophically meaningful and committed tunes in which the quotation from Kronstein ends we shall continue with a few references to the dogmatic literature of the problem. Here we propose to lay stress on the considerations relating to certain important elements of the facts at issue with regard to Articles 85 and 86 of the Rome Treaty. (a) In what exactly concerted practice consists? Dogmatic literature, e.g.t segregates this practice from the so-called price leadership, which in America is by itself sufficient for the establishment of concerted practices, and is inclined to point out that even for concerted practices there is need for at least some sort of an intrinsic agreement of will (innere Willensübereinkunft). (b) The activities of the international cartels and monopolies in restraint of competiton have to affect also the interstate trade of the member states. Accordingly, dogmatic literature states that if the international cartel or monopoly affects the trade between a member state and a third, non-member state, the cartel or monopoly will not come within the purview of the Rome Treaty, and consequently municipal law will have cognizance of a restraint of competition. What this thesis in reality stands for is that Articles 85 and 86 of the Rome Treaty were meant to form the framework of competiton law of the Common Market, that the Rome Treaty had been intended to demonstrate the Common Market and not to defend the domestic economies of the member states against the effects of cartels forthcoming from third countries. The same question implies yet another, viz. whether this category of the interstate trade of the member states may be deemed to include also the trade between certain member states and other states associated with the Common Market. So far no decision of the Commission or a judgement of the Court of Justice may be invoked regarding this question. Anyhow according to the dominant opinion this would be the case only if a treaty between the European Economic Community and the associated countries concerned expressly extended this category to the relations between the Common Market and such countries.76 (c) It should be put concretely what restraint of competiton needs to consist in, and what restraint of competition brought about by the international cartels must amount to. Theory formulates the answer in a way that a restriction of competition will supervene whenever the private autonomy of the decisions of those participating in the economic processes has been violated.77 More closely this means (aa) that the parties concerned are unable to formulate their decisions relating to the making of contracts, other agreements, association, or any other action of an economic nature at 76There is such an express provision in Articles 5 1 -2 of the association agreement of the European Community and Greece (quoted by Homburger-Jenny, p. 33). 77See Ho mburger-Jenny, pp. 34 et seq.

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will, Le. they forfeit the freedom of decision-making; (bb) the parties forfeit their freedom of choice of their partners, e.g. when owing to the domination or monopolizing power of the extraneous parent company they are forced to make contracts with enterprises not of their choice; (cc) the violation of private autonomy will supervene also when the international cartel or monopoly restricts the enterprise in its freedom of domestic decision-making. (d) The establishment of the extent to which an anti-competitive action is susceptible of the limitation of competition may stand for a number of things. Among others the enterprises concerned have to dispose of a fairly substantial share of the product in question, else they could hardly restrict competition or exploit their dominant position in any harmful way. (e) Has a particular action of the cartel, or the cartel itself, or the dominant position to be directed expressly to the restraint of competition, or does the objective susceptibility of the limitation of competition suffice? Dogmatic literature, which tends towards the reinforcement of the latter opinion, professes the theory of what may be called adequate effect. Substantially this theory proclaims that according to general experience of life in the normal course of things from the cartel in question or from the dominant position a competition-restricting effect will result. The only concession which the authors adhering to this theory are prepared to make to the subjectivists, who postulate the intention as one of the elements of the facts at issue, is at most that a so-called remote effect is not sufficient.78 At least theoretically, the last-mentioned dogmatic opinion sounds hard; it means namely that the undesired state of the dominant position as governed by Article 86 will come into being even when the enterprise or monopoly in question has no competitor in the given branch of industry or in a relatively large area of the Common Market, when the monopoly is not exposed to effective competitive actions, irrespective of whether or not the intention of the enterprise or monopoly is directed to this end or whether or not it actually exploits its dominant position. The enterprise or monopoly may exploit its dominant position by being directly present in the Common Market, e.g. through an affiliation or through a loose association with an enterprise within the Common Market, or by being indirectly present with its products, i.e. it is the producer, sole or one in a monopoly position, or distributor of goods which cannot be procured from any other source. (f) The last problem of a dogmatic nature to be discussed here is the fairly shaded elaboration of the conditions of exemption, Le. of the conditions for granting exemptions by virtue of Article 85(3) to useful and desirable cooperations, or cooperations in the form of a cartel, or enterprise concentrations. Literature points out that the exemption has to be granted in each case when the act in question is not such that is in conflict with the economic policy as defined by the relevant articles of the Rome Treaty, moreover it is in agreement with them. Hence this implies any international cooperation or international association which comes within the framework of the end of economic policy as set forth in Articles 85 and 86(3). Literature specially emphasizes the important role of the Commission of the EEC in 7 8In particular see Deringer 2, Notes 4 0 -3 .

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the control of such actions, their supervision, and so also the role of the Commission in a positive form to mould international cooperation and economic association which in the spirit of the provisions of the Common Market may redound to the benefit of all. Later subsequent Community norms following from Articles 85 and 86 expressly define this role and obligation of the Commission.79 166- 72

The reality o f practice

166 As regards the reality of practice here partly the general statements of the Commission, partly the concrete individual decisions of the Commission or the Court of Justice will bear testimony. In this connexion mention could be made also of the bilateral agreements of the EEC and other states for economic cooperation. Still what these provisions say can be summed up, in the formulation as, e.g., in the case of the agreement between Switzerland and the EEC, that it is the actual legal practice of the EEC authorities rather than the provisions of the agreement between Switzerland and the EEC which carries and means the reality of the law of competition of the Com­ munity, and this legal practice relies on the principle of the internal effects of the international cartels (Auswirkungsprinzip). The general statements of the Commission may also be conceived as the quasi-authentic interpretation of Articles 85 and 86, since by referring to the norms following from these articles the statements in a generalized form declare that the provisions of these articles are applicable also to international cartels and monopolies. There are several important manifestations of the Commission on the subject. One of them occurs in the general report of 1969; then the section on the law of competition in the general report of 1971 and the relevant item of the report on competition policy of 1971 can be mentioned.80 In these the Commission expressly declares that the fact that the one or the other enterprise is outside the territory of the Common Market does not by itself defeat the applicability of Article 85, if the agreement in question in its effects is prejudicial to the trade between the member states of the Common Market or otherwise amount to the violation of the Community rules prohibiting the restriction of competition. As regards the international cartels and monopolies the statements of competition policy of the Commission may be conceived as general guiding principles in conformity with which the Commission as authority of competition law proceeds. It is for this reason that these theses have about the same function as the guidelines from time to time issued by the Department of Justice of the United States as anti-trust authority. The function of these theses is in like way to outline the scope within which a cartel or monopoly has to reckon with anti-trust measures.81 Obviously these 7 ’ For this competence of the Commission see Mâdl 3, paragraphs 64 et seq. 80 See General Report 1969, paragraph 543; General Report 1971, paragraph 6 11 , Competition Policy Report 1971, paragraph 131. 81 In the document ‘Merger Guidelines’, published by Neale, pp. 494 et seq., the US Depart­ ment of Justice in paragraph 1 makes clear the purpose of the guidelines as follows: “ The purpose of these guidelines is to acquaint the business community, the legal profession, and other intercited groups and individuals with the standards currently being applied by the Department of Justice in 14 Madl

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principles or theses, too, are exposed to the general fate of principles, Le. that they are also the functions of the reality of practice, and worth no more than what has been translated into reality of them. It is but one element of this process that as regards the limits of the principles the last word is to be pronounced by the Court of Justice, for the truly last word is born somewhere in the relations of the forces of capital and the capitalist State. 167 What has so far become reality has been given expression in the individual decisions and judgements, respectively, of the Commission and the Court of Justice. The two, viz. decisions and judgements, have to be examined in conjunction, because the judgements of the Court of Justice are in all cases preceded by the decisions of the Commission and substantially relate to the very same issues. There are, however, decisions of the Commission whose provisions are carried into effect without a judicial decision, Le. they never reach the judicial phase. Let us now review six decisions of the practice of the Commission and the Court of Justice and also a single one which did not come before the Court of Justice. These are important individual decisions which apply to the international cartels and monopolies. For an analysis the cases have been classified by the issues of law implied in them. In the temporal order the seven cases are the following: Transocean Marine Paint Association (June 27, 1967); Farbstoffe (July 24, 1969; July 14, 1972); International Quinine Cartel (July 26, 1970; December 14, 1972); Boehringer (November 25, 1971; December 14, 1972);Beguelin (judgement: November 25, 1971); Continental Can (December 9, 1971; February 21, 1973) ;82 Istituto-Commercial Solvents Corporation (December 14, 1972; March 6, 1974) . 168 A group of issues significant in nature concerns itself with the legal appraisal of the virtual economic weight of a cartel in restraint of competition, Le. the provision of Article 85 of the Rome Treaty according to which only cartels limiting competition in respect of a substantial proportion of goods and distorting the trade between member states shall be prohibited. This has been stated in all the judgements quoted above. By way of example we shall, however, deal with the cases of the International Quinine Cartel and the Farbstoffe. The case of the latter will be discussed in detail below. Here we would merely emphasize that this cartel had an 80-per cent share in the paint industry of the Common Market. We have already spoken of the dimensions, actual economic weight of the International Quinine Cartel in connexion with the facts at issue. In its decision the Commission speaks also of the weight of the cartel in the relevant industry, without, however, giving precise figures of its percentage participation. Incidentally this omission is explained by the circumstance that in conformity with the interpretation of Article 85 in the judgements published no concrete figures coming within the scope of industrial secrets may be included, Le. in general absolute figures cannot be made public. Therefore the Corrtmission in its decision uses the following wording: “On determining whether to challenge corporate acquisitions and mergers under section 7 of the Clayton Act”. 8 2The first date in brackets is that of the decision of the Commission, the second is that of the judgement of the Court of J ustice.

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comparing the production of the firms participating in the quinine cartel with the total quinine production of the world the statement may be made that the members of the quinine cartel are the largest enterprises of the branch of industry even on a world scale. In accordance with the available data the statement may be made that the participation of the quinine cartel in world production attains. . . per cent.” In this connexion then the Commission states that the share of the International Quinine Cartel in the quinine industry was particularly sufficient for controlling this branch of industry of the member states of the Common Market, restrain competition and distort the commercial transactions between the member states.83 The Court of Justice in its judgement adds to this that the members of the quinine cartel were in a position to fix uniform prices for almost the total of the product marketed in the Common Market. By this as a matter of course the members of the cartel restricted the trade between the member states of the Common Market, affected it in a prejudicial manner, and within the Common Market with a high rate of efficacy restrained economic competition. Owing to the large volume of the share of the cartel, the series of agreements directed to the restriction of production produced the same results. In a passage of the judgement the Court of Justice states the following of the issue here discussed: “the Court has given special attention to the number and weight of the enterprises participating in the cartel, the market share controlled by them in the Common Market, further to the market situation existing at the time of the perpetration of the acts prohibited in the cartel.”84 Without dealing expressly with the international character of the cartel, or with the indirect effects of the cartel,8 s the Court of Justice approved the decision of the Commission by which the International Quinine Cartel had been declared unlawful under the provisions of Article 85(2) of the Rome Treaty. Also the fines imposed by the Commission had been approved. A fine of 210 000 units of account was imposed on Nedchem, one of 190 000 units of account on the firm Boehringer, one of 65 000 units of account on the firm Buchler, and a total of 35 000 units of account on the French partners of the cartel. At the time of the decision a unit of account corresponded to four marks of the Federal Republic of Germany, as had been stated in the decision of the Commis­ sion.86 In the case of a cartel representing an extremely high rate of market-sharing the examination of the critical margin of economic significance was of course legally of slight interest only. What was more of interest was that the Common Market, relying on its public law power, took action against such a great economic power at all, and staved off pleadings of minor significance such as that there was need for the cartel because of its alleviating the shortage of quinine which manifested itself at certain places, or the plea in bar of procedure with reference to statutory limitation.8 7 8 3See section 2 of the decision of the Commission of 19 July, 1969. The decision was published in the Journal Officiel', No. L 192, 5 August, 1969. 8 4The judgement was published by Europarecht, 1971, No. 1, pp. 41 et seq. 8 5So literature, e.g. Emmerich 1, p. 321. 86See sections 1 -2 of the disposing part of the decision of the Commission. In this connexion the Commission publishes the conversion rates of the unit of account in the currencies of the countries concerned at the time of the decision. 87See sections 2 and 9 of the disposing part of the judgement. 14*

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For the lower limit of dimensions and economic significance it is the Transocean case rather that may be quoted as an example. In the marine paint industry the members of the cartel in all certainty accounted for less than fifty per cent of the total volume in the territory of the Common Market. Although for the reasons set forth before the decision of the Commission is void of absolute figures of the mafket-share, from the relevant passage of the decisions a participation of the rate suggested above may be inferred: “The contract for association did not permit the members to restrict or to exclude competition for a substantial portion of the product in question. According to data made available to the Commission in the territory of the Common Market the members of the association represent only about . . . per cent in respect of the given product, in the territory of the Common Market they are exposed to a keen competition on the part of larger marine paint manufacturing combines which market their products also in the countries of the Community. For these reasons the cartel which came into being by way of the association does not come within the purview of Article 85(1), and paragraph (3) has to be applied; by this Transocean may contribute to the improvement of competitiveness in the face of the great competitors, what was the purpose of paragraph (3) of the Rome Treaty.”8 8 169 The expressed extension of the law of competition of the European Economic Community to the international plane has, except for the establishment of the invalidity, been omitted in the judgement in the International Quinine Cartel case. As a matter of fact fines were imposed only on the members of the cartel in the territory of the Common Market. It was in this sense that the Court of Justice approved the decision of the Commission. Still the Quinine Cartel judgement has been, in certain connexions, projected to an international level. And this for the following reason. As the aftermath of the case one of the cartel members, the firm Boehringer, applied to the Court for the inclusion in the fine imposed on it of the fine remitted to the United States by virtue of the judgement passed by a United States court in the case of the International Quinine Cartel. The Court of Justice held that the enforcement of the law of the European Economic Community relating to economic competition could not be limited even by the international bearings of the case and accordingly dismissed the petition of Boehringer89. The great explosion, however, came about in the Farbstoffe case mentioned so often. Half a year earlier the same happened in the Beguelin case,90 but owing to the moderate economic and political significance of the case it failed to provoke effects comparable to those of the Farbstoffe case. A similar decision in the Continental Can case did not seem to be a that big bite either, and, in addition, the decision in the judicial phase of the Farbstoffe case is of recent date91 .It 88The decision of the Commission of 27 June, 1967 in the Transocean Marine Paint Co. case was published by the Amtsblatt No. 163 of 1967, 20 July. 89Judgement No. 7/1972 in the case Boehringer Mannheim v. Commission of EEC is dated 14 December, 1972 (official reproduced publication). 90 Judgement No. 22/1971 of 25 November, 1971 in Beguelin v. Import-Export, Nizza, and Marbach, Hamburg, was published in Amtsblatt, C9, 3 February, 1972. 9‘ For the decision against Continental Can Company, New York, of 9 December, 1971 see Journal Officiel No. L, 8 January, 1972. The Newsweek, too, in its issue of 5 March, 1973, p. 45, states that the Court of Justice passed its judgement on 21 February; since then the judgement was published in the legal press: Europarecht, No. 2,1973, pp. 155 et seq.

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remains a fact though that even in this recent time the decision gave cause to a certain consternation, partly in literary quarters on the side of writers of apologetic inclinations, partly in the field, among others in a form that the firms concerned brought an action against the decision of the Commission, and in the lawsuit the reasoned conclusion of the Advocate General, even if cautiously, formulated his pleading in the sign of this ‘consternation’.92 Hence it is the Farbstoffe case which stands most effectively for the issue of law concerning the extraterritorial application of Community competititon law now in the sphere of the application of law. Owing to the dimensions and the significance of the case it appears to be worth while to offer a brief outline of facts at issue. An idea of the dimensions of the case may be offered by the fact that it embraces nine judgements, covering 724 pages together with the reasoned conclusion of the Advocate-General of 89 pages. The judgements among others affect enterprises with dimensions like those of the British giant Imperial Chemical Industries Ltd., the two German giants, Badische Anilin und Soda Fabrik (BASF) and Bayer, further the by no means insignificant Swiss companies Ciba and Geigy. In addition to the nine large enterprises, through extraneous affiliations and associations, or cartels, the judgements extend to seventeen enterprises of the chemical industry, one French, two British, four Swiss, four German, four Italian, one Dutch and one American (the similarly giant Dupont de Nemours).93 According to the description of the case as given in the judgements, which incidentally may safely be given a place among studies on economic and legal policy, the enterprises participating in the cartel represent in the territory of the Common Market a market share of eighty per cent in the given branch of industry. Hence the statement may be made that in the branch in question a situation termed oligopolistic has come into being. In this oligopolistic position the cartel carried through three uniform and general price increases in the paint industry in the territory of the Common Market between January 1964 and October 1967. These price increases were effected not by a formal contract, but by a mutually concerted price policy (abgestimmte Verhaltensweisen). The three price increases account for a global rise of the price level by 32 per cent. It was due to the market controlling share of eighty per cent of the cartel that the extraneous enterprises controlling a twenty per cent share were also forced to raise their prices. The Commission of the European Economic

9 3For these voices forthcoming from literature see Frisinger, p. 557; the reasoned conclusion of the Advocat-General (No. 6/7972, 21 November, 1972) to the Court has been reprinted in the official publication of the Court. 9 3The following judgements (separate judgements were passed by the Court of Justice against each enterprise sued) and the reasoned conclusion of the Advocat General underlying this analysis (published in the official report of the Court) were submitted to the Court: Schlussanträge des Generalanwalts H. H. Mayras in den Farbstoffe-Rechtssachen 48t 49, 51-57/1969; Urteil in den Rechtssachen 48/1969; Imperial Chemical Industries (London-Manchester); 49/1969 Badische Anilin- und Soda-Fabrik (Ludwigshafen); 51/1969 Farbenfabriken Bayer (Leverkusen); 52/1969 Ciba-Geigy (Basel); 53/1969 Sandoz (Basel); 54/1969 S A. Françoise des Matières Colorantes, Francolor (Paris); 55/1969 Cassella Farbwerke (Frankfurt a/M); 56/1969 Farbwerke Hoechst (Frankfurt-Hoechst); 57/1969 Azienda Colori Nazionali (Milano).

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Community on invoking Regulation No. 1794 and because it assumed that there was a case conflicting with the provisions of Article 85 of the Rome Treaty, on the 31 May, 1967 instituted proceedings against the enterprises taking part in the price increase. Then after an investigation where the enterprises could put forward their pleadings, oral and written, the Commission, again on the ground of Regulation No. 17, on the 24 July, 1969,95 pronounced its decision. Accordingly (a) the Commission held that the price increase was due to the concerted practices of the participants of the cartel. By this the member enterprises of the cartel restricted the freedom of trade between the member states and also the freedom of competition, thus infringed paragraph (1) of Article 85 of the Rome Treaty; (b) therefore the Commission condemned the enterprises subjected to the investigation and so also the extraneous members of the cartel, (aa) ordered the members of the cartel to abstain from their practices; and (bb) imposed a fine of 440 000 units of account (at the conversion rate at that time not quite 440 000 US dollars) on the nine firms. The enterprises appealed against the decision of the Commission to the Court of Justice of the EEC. In the lawsuit where several prominent members of the legal profession acted as experts,96 the Court of Justice had to determine two issues of significance in the background of which economic problems and interests of special gravity loomed up. (i) The Court had to determine whether the price increases in fact took place as the outcome of the concerted practices of the enterprises concerned, ie. in fact in response to the operations of the cartel. It was only after this issue had been determined in an affirmative form,9 7 that a problem even more dramatic from the point of view of the investigation in progress emerged, (ii) Namely, whether or not the sanctions foreseen by the Rome Treaty and so the operation of the Community law of competition, could be extended to subjects-at-law outside the Community, and, if so, how could the sanctions so established be enforced outside the Community. - These extremely complex issues of law had been discussed in both the pleading of the Advocate-General and the judgements themselves. All questions of theoiy and principle referred to already in this chapter, such as sovereignty, extraterritorial jurisdiction, the principles of public international law, the principle of defence, the thesis of public international law as formulated in the Lotus case, etc. were made subject to a thorough-going analysis or were mentioned.98 On synthetizing the essential points of public international law,98a the law and legal practice of the 9 4 The jurisdiction of the Commission in matters of cartels has been brought under regulation in Economic Competition, Regulation No. 17/1962 o f the Council; the conditions for the institution of investigation have been defined by Article 14 of the Regulation. 95Ihid., Articles 9, 15-6. 96 By virtue of their opinions valued and used in the reasoned conclusion of the AdvocatGeneral, and in the judgements, the following professors of law figure as experts in the judgements: Bombach, Matzenbach, Kloten, Albach, Jennings. 9 7For a detailed outline see supra Chapter V, paragraph 123. 9eFor the Lotus case see Màdl 13, paragraph 261; Hamburger-Jenny, pp. 51-3. In the Lotus case, in the high-sea delict of the French vessel Lotus (collision with a Turkish vessel), Turkish law was applied, because the consequences of the delict supervened on Turkish territory. 98aA scientific substantiation has been offered by the recent study of Meessen which examines the cartel law practice of the Community and within it this judgement from the aspects of general international law. See Meessen 2, p. 38.

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member states, further the premisses of economy and economic policy of economic competition, finally of the ends followed by the Rome Treaty, the Court of Justice dismissed the appeal of the appellant enterprises and in its decision defined the principal theses underlying it as follows: (a) The provisions of paragraph (1) of Article 85 of the Rome Treaty were applicable also to enterprises having their seat outside the Community if the consequences of their unlawful practices manifested themselves directly in the territory of the Common Market, (b) The practices of affiliations having their seat within the Community, constituting an economic unit with their extraneous parent companies and following their instructions in concrete cases, had to be attributed to the parent company. In this case the applicability of Article 85 of the Rome Treaty was substantiated not by the effects of the activities of the extraneous enterprise manifesting themselves within the Common Market, but by the circumstance that the activities of the affiliation of the enterprise performed within the Common Market must be attributed to the parent company, (c) In the presence of these preconditions the jurisdiction of the Commission extended also to procedure against the parent company, (d) This was the case in particular when the restraint of competition within the Common Market was considerable and intended. The Court of Justice has considered this position also in its judgement against Instituto-Commercial Solvents Co., in 1974, so self-evident that it imposed a fine of 100 000 units of account and other sanctions on the American Commercial Solvents Co. as well as the Italian Istituto, without specially analysing the question of the applicability of Article 86 to enterprises outside the Community." 170 It was in connexion with the judgement in the Farbstoffe case that the rather peculiar legal problem of the enforcement of sanctions outside the territory of the Common Market emerged. The problem deserves special attention. In this respect the conclusion of the Advocate General and the judgements substantially concentrate on the following statements, (a) The ascertainment of practices in restraint of competition as a tort and of their harmful effects is by itself of significance and does not depend on whether or not the defendants satisfy the provisions of the judgement, or whether or not the authorities of the Common Market can take action abroad for the enforcement of the judgement, (b) The defendant enterprises may comply with the provisions of the judgement of their own free will, an act indicating the weight of the decisions of the Common Market authorities. There are examples of voluntary performance in international practice100, (c) The judgement may be forwarded by post to the external cartel member parent company of an affiliation within the Community on the plea that the wrongful practices of the affiliation may be attributed to the parent company. Whether or not such a postal delivery of the judgement is legally acceptable " S e e the disposing part of the judgement; for the sources see supra Chapter V, paragraph 144, Note 200. 100 An example of this kind is that of the International Quinine Cartel case; one of the German partners of the cartel (Boehringer) paid the fine of 80 000 dollars imposed on it by the New York Southern District Court in the US v. N. V. Nederlandsche Combinate Voor Chemische Industrie case. It was on this plea that the first applied for the inclusion of this fine in that imposed by the Court of Justice of the Community, however, without success (see Rechtssache 711972 Boehringer gegen EWG Kommission, official publication of the judgement).

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in the foreign State under international law is immaterial for the legality of the measure under Community law. The fact that the extraneous members and the parent companies have also instituted proceedings against the decisions of the Commission indicates by itself that the measures of the authorities of the Community have been accepted even outside the territory of the Community to a considerable extent, (d) In the case of an enterprise not having an affiliation within the Community, the Community authority, in the present instance the Commission, may address its decision directly to the enterprise having its seat abroad. The Court of Justice did not enlarge on the problem in the Farbstoffe case, because the extraneous enterprises concerned had affiliations within the Community and therefore the decision of the Court of Justice could be addressed directly to these affiliations. Meanwhile the question has, however, been settled by a decision of the Commission of interest, namely in the case of Continental Can to be dealt with subsequently. Here Article 3 of the decision of the Commission decrees: “The present decision is destined for the Continental Can Company, Inc., New York.” 101 171 The next issue of law, namely that of the transformation of the cartel or monopoly, the ‘reorganization’ of the abuse so as to bring it in line with the provisions of Articles 85 and 86 of the Rome Treaty, and its mechanism, manifested itself first, partly in the Istituto case referred to above, partly in the Continental Can case,102 only to unfold itself to the fullest in the case of the Transocean Marine Paint Association. As has already been made clear earlier103 this was an association where from 1959 onwards eighteen medium-size firms domiciled in sixteen countries combined and agreed to coordinate their technology of marine paint manufacture for the coming twenty years, and so also their price policy, their market activities, etc. The enterprises undertook not to join similar organizations, to admit new members only by the unanimous resolution of the members, and to submit themselves to arbitral procedure in the event of a dispute. The Commission in its decision declared that the activities of the association were in restraint of competition, that the association introduced an embargo on exports, restricted production, all this in a manner affecting the trade between the members of the Community, consequently the association came within the purview of Article 85(1) of the Rome Treaty. Meanwhile the members of the association amended their agreement (in 1966), submitted this amended agreement to the Commission with the request to exempt them from the prohibition under paragraph (1) by virtue of paragraph (3) of the same article. The amended agreement did not anymore contain certain items of the earlier, and although even in this form it conflicted with the provisions of Article 85(1) the Commission by decision of the 27 June, 1967 on considerations set forth earlier104 regarded the 101‘La présente décision est destinée à Continental Can Company, Inc. à New York’,as stated in Journal Officiel', No. 1 of 1972, 2nd January. It should be noted that the decision was here, too, mailed to the address of the affiliation. (See Frisinger, p. 557). 10 2See paragraph 172, infra. 10 3See paragraph 168, supra: the decision of the Commission - Décision de la Commission du juin 1967 relative à une procédure au titre de l’article 85 du traité - IV/223. Transocean Marine Paint Co. - has been published in the Journal Officiel, No. 163 of 1967, 20 July, further by Fulda-Schwartz, pp. 128 et seq. 104 See paragraph 168, supra.

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exemption by virtue of paragraph (3) as justified. The Commission established in its decision that through the association the participating medium-size enterprises operating in the given branch of industry could improve the manufacture of their products and continue it on a rational basis, and so also the marketing of these products and in general the trade in marine paint. The Commission further established that from the agreement also consumers could derive considerable advantages. The customers could make their choice of a wider range of paints and had access even to paints which were not on the list of products of the paint manufacturing firms of their own country. This was of interest, the more so because here there was an association of paint manufacturing firms coming from different parts of the world, namely from Europe as well as from South-East Asia, Japan, Australia, America, Panama, etc. So far seagoing ships were forced to store enormous quantities of certain types of paint on board in order to renew the paint of the ships whenever required. In the new situation the enterprises operating in different parts of the world and their depots offered access to the type of paint used by a ship at every port of importance even when the local enterprise in the territory of the port did not produce exactly the same paint, and even in this case there were paints used by the given vessels on stock. Furthermore the association extended also to the rationalized production of certain types of paint, to the manufacture of certain brands by all associates, or at least to the keeping on stock of these paints. The last substantial statement of the Commission was that the advantages offered by the association were the preconditions for the development of the technology of the participants to world standards and for the competition with products of world standards with marine paint manufacturing enterprises larger than the associated firms. The Commission went even further: it brought into action its own apparatus for the control and formation of the microstructure of the branch of industry and the enterprises active in it were subjected to investigation. Here the decision of the Commission declared that the members of the association were bound to inform the Commission of any changes associated with membership; the same applied to any amendments of the agreement or changes of any kind carried through in it. Furthermore the members of the association were bound to disclose all decisions of the board of the association, all awards of the tribunal of arbitration organized under Article 23 of the agreement in so far as these awards applied to the interpretation and application of the agreement examined by the Commission. Since the primary motive of the exemption was to assist the medium-size enterprises in creating a rationalized network of distribution and sale on a world-wide scale, it was necessary that the members of the association forwarded annual reports to the Commission of the activities of the association, or of their members at any time, of their new members, and, by enterprise, statements of the quantities of marine paint manufactured by them. Further the parties were bound to inform the Commission of the turnover between them giving figures of the concrete quantities.10 5 The active function of the Commission appeared also in the v,■w of Continental Can to be discussed subsequently. Namely in this case the Commission by the decision of December 9, 1971 decreed that the monopoly in question forward its recommenda10 5For the source see Note 103.

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tions how it intended to bear the consequences of the abuse of the monopolistic position not later than the 1st July, 1972. A reorganization did not, however, take place, nor had any other measures been instituted, because the negotiations between the Commission and the representatives of the monopoly were unsuccessful, moreover Continental Can in its action brought against the Commission petitioned the annulment of the decision of the Commission. In the Istituto case the Commission and then the Court of Justice put an end to the abuse of the monopolistic position by obligating the monopoly to deliveries free of discrimination and not bringing about the distortion of competition.106 172 What was of interest in the Continental Can case107, however, was that here for the first time the issue emerged of the application of Community norms relating to a dominant position or monopoly to extraneous parties. It was the first occasion when the Commission and the Court of Justice of the Community were clearly confronted with the question of the application of Article 86 of the Rome Treaty. It was for the first time that it had to be decided what dimensions were sufficient for the establishment of a dominant position within a definite branch of industry, and so also the practices which stood for the abusive exploitation of the dominant position as defined by Article 86. As regards the judgement in the Istituto case the settlement of that question was easier since it was not without precedent and, in comparison with Continental Can, Istituto was far from being so significant. The facts of the case are more than interesting. The Continental Can Company Inc. is the world’s and also America’s largest concern of the manufacture of modern metal and plastic packing materials.108 In its more than 200 factories and 200 sales agencies altogether 62 000 employees were active. The annual turnover of the concern was in the neighbourhood of 1.8 thousand million dollars. With its controlling power and drive for economic expansion the concern brought about a large international monopoly of an oligopolistic nature. The following are the principal characteristics of this monopoly: (a) It managed to unite or to control seven large European enterprises, which by themselves were parent companies of a number of smaller

106 For details see Chapter V, paragraph 114, supra. 107 The decision of the Commission - Décision de la Commission du 9 décembre 1971 relative a une procédure d’application de l’article 86 du traité CEE - IV/26811 Continental Can Company - published in Journal Officiel, of 8 January 1972, No. L 7; the decision was contested on 9 February, 1972 and the pleading of Advocate General K. Roember - Schlussanträge des General­ anwalts in der Rechtssache ‘6/1972 Europemballage Corp., Brüssel, Continental Can Company Inc. New York’ - took place before the Court on 21 November, 1972 (official publication of the Court of Justice); the judgement was pronounced on 21 February, 1973 (Europarecht, 1973, No. 2 pp. 155 et seq.). 10 8The enterprises which belong to this concern are as follows (with their principal data, with­ out indicating, however, that these, too, had absorged a number of small enterprises and are them­ selves associates of others): Continental Can (principal data aboyé)·, Europemballage Corporation (with headquarters in the United States and Brussels, its data may be derived from those of the fol­ lowing two companies, the one being the holding company of the other); Thomassen andDrijverVerblifa NV, Deventer, the Netherlands, 6900 employes, seven factories, annual turnover 106 mil­ lion units of account (one unit of account = one dollar; owing to the devaluation of the dollar there was a corresponding drop in the turnover); Schmalbach-Lubeca Werke A. G., Brunswick,

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affiliations. For the purpose of the policy of integration of the Common Market in particular two were of significance out of the seven, viz. the Schmalbach-Lubeca Werke A. G. (in the following: SLW), with headquarters in the Federal Republic of Germany, and the other the Dutch concern Thomassen and Drijver-Verblifa N V (in the following: TDV). The combine so created with its 377 factories, 143 000 employees, a large number of subsidiaries and sales agencies, and an annual turnover of 2 607 000 000 units of account, le. at the conversion rate at that time the equivalent of approximately 2.5 billion US dollars dominated the world market of the product, (b) The Continental Can concern bought up these two largest enterprises of the Common Market in this branch of industry, and with its headquarters partly in Brussels, partly in the United States created a holding company, the Europemballage Corporation, which controlled the two principal affiliations and the other European companies (by way of partial capital interests, contracts, patent rights) directly or indirectly, (c) Continental Can exercised its controlling power through full or partial ownership rights, financing policy, representation on the boards, and a complicated system of contracts and agreements (licence agreements, contracts for the delivery of market information, contracts for the fixing of prices and the control of sales), (d) In the process of building up this combine a regrouping took place in the European enterprises of this branch of industry to which through acquisitions close to fifty smaller European enterprises fell victim, (e) Through the partial reorganization of the scope of production of SLW and TDV and the de facto supervening market-sharing these two firms dominated the German and Benelux market, and the one exported to the territory of the other only 0.7—2.5 per cent of their production volume. About 90-100 per cent of the products of the two firms was disposed of in the market of their own territory. Competition earlier existing between them came to an end. (f) The volume of production of several smaller enterprises operating in the Federal Republic of Germany and in the Benelux countries meant no serious competition, (g) The Continental Can Company, earlier a competitor in the Federal Republic of Germany and in the Benelux countries ceased to operate in these markets, because of merging its local interests into SLW and TDV. The legal question centred on the following statements of the Commission: (a) Continental Can is active in the territory of the Common Market, directly or indirectly, therefore it must be considered an enterprise coming under the ruling of Article 86. (b) Since it controls the affiliations of Europemballage Corporation, it determines their economic and market policies, (c) The European affiliations have shares ranging between 50 and 90 per cent in the European market, and may act with no regard to the competition of others, (d) Extraneous smaller enterprises cannot be regarded as serious competitors because for the technological level of the branch of

Federal Republic of Germany, 13 200 employees, fifteen factories and several branches, annual turnover 191 million units of account; Metal Box Company Ltd., London, 50-50 per cent in the United Kingdom and abroad, 52 000 employees, 85 factories, annual turnover 464 million units of account; Superbox SPA, Firenze, 1000 employees, three factories, annual turnover 20 million units of account; J. J. Carnaud & Forges de Basse-Indre, Paris, 8000 employees, nine factories and several branches, annual turnover 111 million units of account. ·

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industry these enterprises are tied by licence agreements to Continental Can, and (e) because in the international money market they may find it harder to contract loans for development than Continental Can, which could finance 60 per cent of its acquisitions e.g. in SLW from Eurodollar and DM sources, (f) Following from all these, Continental Can is in a dominant position, concerning a substantial part of the Common Market, (g) This state of affairs provided the facilities for the abuse of a dominant position, (h) This has found expression in the fact that through concerted practices SLW and TDV have ceased to compete and so in a substantial part of the Common Market competition has been eliminated in the branch of industry in question, (i) The enterprises concerned have restricted competition already earlier through licence agreements or contracts; now, with the concentration of enterprises, competition has ceased to exist both in theory and practice, (j) Consequently the criteria defined by Article 86 of the Rome Treaty must be deemed to be met, therefore by virtue of Regulation No. 17 the Continental Can monopoly must be declared prohibited without any prior decision.109 The Commission therefore calls on Continental Can to put an end to the violation of law so established, and by making use of facilities offered by Regulation No. 17 to put forward its relevant recommendations not later than the 1st July, 1972.110 Instead of resorting to ‘unsuccessful’ recommendations Continental Can contested the decision before the Court of Justice of the Community. From the reasoned conclusion of the Advocate General it can be inferred that the power machinery of the Common Market was hard put to it, it wavered, and sounded the retreat before Continental Can and its associates, we may safely say, before European capital. Namely Continental Can on contesting the decision applied for its annulment and in its pleading did not even conceal the gist of the case. At one place it made it clear that if the Court of Justice put its stamp on the decision of the Commission, then on the domino principle problems would emerge in several other branches of industry. At another place Continental Can argued that if the provisions of Article 86 of the Rome Treaty were applied to cases similar to the one noW discussed, then the interpretation of this Article might lead to conclusions highly undesirable on grounds of industrial policy.111 The Advocate General was in a quandary: in the given phase of the case the greatest pressure concentrated on him. Well, as a matter of fact those principles of the fairness of competition were to face shipwreck which were so often and in so many high-sounding theses meant to maintain the fairness of the system. This explains perhaps the bashfulness of one of the passages of the conclusions of the Advocate General: “Within the scope of the problem of the changes in the conditions of competition it is hard not to take note of the recognition that the establishments of the Commission are not at all places free of problems and doubts; their justification is not beyond all doubts, consequently it may not be claimed in this 109 Economic Competition Regulation No. 1 7,1 9 6 2 o f the Council, which in Article 1 declares that “ . . . any abuse of a dominant position on the market within the meaning of Article 86 of the Treaty shall be prohibited, no prior decision to this effect being required". II *Ibid., in conformity with Article 3, the Commission can oblige the enterprises or the associations of enterprises concerned to put an end to the infringement. I II See p. 10 of the reasoned conclusion of the Advocate General referred to in Note 107 supra.

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point of the economic appraisal either that the decision of the Commission is based on unassailable foundations.” 112 As regards the legal arguments these are simple legal reflections of the intentions of economic policy. One of the lines of argumentation is tending towards producing evidence against the extensive interpretation of Article 86. The article in question contains no concrete thesis relating to the concrete case. The provision does not want to disapprove of the concentration unless it is a means for the purpose of the restraint of competition, for an otherwise disapproved practice or result, unlike Article 66 of the ECSC Treaty for example which really incorporates a monopoly-restricting and controlling provision, merely because the legislator wanted to have it incorporated.113 As regards the development in the European packing materials industry to bring about the result, ie . the concentration, Continental Can did not resort to pressure, hence it did not exploit its dominant position for bringing about the concentration (although there were certain licence agreements and other pressures driving to association, but here TDV and SLW had ‘freedom’ of action); the projection of the provisions of Article 85 prohibiting restraint of competition by means other than association to Article 86 was highly questionable, as Article 86 was unlike Article 85 void of a paragraph (3), which exempted acts of a positive effect merely owing to this positive effect from under the prohibition. Consequently here any recourse to analogy would be fraught with risks. Therefore in view of this arguable interpretation the principle of in dubio pro libertate ought to be observed.114 This is where we are again: in the boat of the ‘freedom party’, sailing on well-known waters.115 On another plane of argumentation the reasoned conclusion condemned the Commission because its economic analyses were not sufficiently convincing at all places. The latter reference too was only meant to be a closing bar or cadence to these analyses. The conclusion, eg. argued that the Commission failed to examine the possible increase of imports as a competition reinforcing factor, it did not study the question of substitutes for the products in question manufactured by other enterprises and their competition-increasing role. It ignored that several firms in the foodstuff industry, if necessary, could themselves take up production of packing materials and consequently their dependence on Continental Can and its associates would diminish. As regards the international element of the case, here even the ‘freedom party’ did not spy problems. In fact not even Continental Can argued that through SLW and TDV it was directly present in the Common Market, therefore the acts of these " 'Ib id ., p. 21. 11 s Article 66 of the ECSC Treaty has established a many-sided control of concentrations. Thus the article prescribes that for each concentration a prior consent shall be required, unless owing to the insignificant dimensions such a consent may be dispensed with (any transaction which would have in itself the direct or indirect effect of bringing about a concentration . . . , shall be submitted to prior authorization of the High Authority). The authorization can be granted when it does not bring about consequences in restraint of competition. For details see Chapter V, paragraph 131, supra. 114 See p. 9 of the reasoned conclusion of the Advocate General (also the source quoted in Note 107 supra). 115 For the arguments put forward by the ‘freedom party*, see paragraph 153 supra.

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companies could be attributed to Continental Can. In addition, the Farbstoffe case figured as a fairly strong precedent in the present instance and the main attack was anyhow directed against the basic issue, Le. whether the Community had the right at all to question the lawfulness of the monopoly by an authoritative act. At this phase the ‘action’ Le. the wrestling of the legal principles of capital and the capitalist State, could be described more appropriately as one in which the issue was force rather than law. It was already foreseeable that whatever turn the case should take capitalism would not perish in its own lawfulness even if in the present case the Court had decided against the monopoly and did not set aside legality. The problem threatens with consequences from other quarters.116 Still reverting to the concrete case we have to state that the Court of Justice has passed the most pragmatic, one may be tempted to say Solomonian judgement, in order to preserve faith in the monopoly-restricting Community law in a way on the one part, and on the other not to prevent a concentration of capitals in concreto. How did the Court manage this? As regards the legal argumentation strictly speaking the Court of Justice admitted the considerations of the Commission. In reality it even went somewhat further when it held that size by itself could also be harmful for economic competition, and therefore merely for their size the giant monopolies can in the given situations be regarded as such conflicting with Article 86116117. To this even the news agencies pricked up their ears. Still they also noticed what appeared on the other side of the Solomonian parts of the judgement. Namely they noticed that the Court of Justice also held that the economic analyses of the Commission failed to prove unambiguously in what products and where Continental Can dominated the market. Therefore the decision of the Commission had to be annuled. The daily press therefore summed up the situation by saying that the Commission had won the war but lost the battle. It was Continental Can that won the battle.118 The question suggests itself, however what is a victorious war worth where there was but one large battle, and this battle was lost.

116 For the theoretical issues o f the relations o f big capital and the capitalist states on the one part, and capitalist law, on the other, see Chapter VIII o f the present work. 117The relevant provision of the judgement reads as follows: ‘5. Ein missbräuchliches Ver­

halten im Sinne von Art. 86 EWAV kann vorliegen, wenn: Ein Unternehmen in beherrschender Stellung diese derart verstärkt, dass der erreichte Beherrschungsgrad den Wettbewerb wesentlich behindert, dass also nur noch Unternehmen au f dem Markt bleiben, die in ihrem Marktverhalten von dem beherrschenden Unternehmen abhängen; die Ausschaltung jeglichen Wettbewerbs ist dabei nicht in jedem Falle unerlässliche Voraussetzung. ' See Europarecht, 1973, No. 3, p. 156. 118 For this part o f the judgement see the source quoted in Note 107. For the response of the news agencies and the press see ‘Trust Busting in the Common Market*, Newsweek, 3 March, 1913, p. 45.

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Chapter VII The State in economy (public enterprises and the economic competition; other direct economic operations o f the State; immunity)

§22

The direct economic operations o f the State - function and the problems o f the public enterprises in the economic integration in general

173 774—5

Introductory remarks The pragmatic policy o f the EEC in the issue o f direct state operations and public enterprises

§ 23

176-8 179 180

Forms o f public enterprises: the struggle o f forms and types

Public enterprises o f the member states Interstate enterprises The common denominators

§ 24

Direction and control o f the public enterprises with special regard to the economic competiton principles o f the EEC

181 -2 183-6 187-8

Compromise and scope o f the EEC regulation Contents o f the dogmatics Practical difficulties now and tomorrow

§ 25

New pathways and the interstate public enterprises in the EEC

189-92 New pathways, worries old and new, therapy and remedies in general 193-5 The joint en terprise 196 The interstate public enterprises 197-8 The immune-reaction or what is going to happen to the sick?

199 200-1

The State in economy v. state immunity The general interrelations o f importance The historical metamorphosis o f immunity

§ 27

Immunity and integration

§ 26

202-3 Dispute on Community and interstate enterprises and immunity 204- 7 The Court o f Justice o f the EEC and immunity 208-12 The European Convention on Immunity - the generalization o f relative immunity

§ 22 173

The direct econom ic operations o f the State - function and the problems o f the public enterprises in the econom ic integration in general

Introductory remarks

173 (a) Since the Community as such, through its agencies and institutions, also appears in the direct economic operations, in this section the direct economic operations and the enterprises of not only the member states of the European Economic Community will be treated but also those of the Community itself.

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(b) As may have been concluded from what has been set forth so far the present work covers the field extending to the part of the regulatory system which has come into being in the sign of the economic integration, the what may be called Community system of legal rules, so far as it concerns enterprises and the economic competition. As the two pillars, enterprise and economic competition, stand for, and mark out, the structural framework of our study, it is only understandable that the present chapter overwhelmingly discusses the enterprises, the municipal public enterprises, the interstate and Community enterprises as well as, in the generalization, the state enterprises as indicated in the introductory remarks —naturally in their relations to the conditions of market competition. However, it is not only from the point of view of competition law that the state enterprises are interested in the Community economic and legal policy, and the Community and European competition law. The state enterprises are participants also of another larger relation, namely of state economic interventionism so characteristic of the monopoly capitalist era. On the basis of this interventionism the capitalist State, or, in the integration, the EEC, wants to perform economic regulatory and directing functions and to this end the State itself accepts a share in concrete economic operations. The State—Community enterprise is but a form of this participation. To have an idea of this participation in its appropriate setting we have to deal, in their principal elements at least, with other essential institutions of the tactical body of instruments of this interventionism, institutions such as the State—Community orders or purchases, the so-called marché public, or the subsidies. As a matter of course the economic competition of the enterprises is affected also by the many other elements of this body of instruments, such as, e.g., fiscal policy, customs, general competition law. What we have in mind here is the body of instruments of the direct economic operations of the State and this activity assuming the form of an enterprise has to be studied in association with government contracts, subsidies and concrete investment credits. Finally, these elements have to be taken into consideration also because in certain individual ventures they jointly embody the State, moreover, as will be seen in the following discussion,1"they often appear even legally intertwined. (c) A theoretical appraisal of the direct economic activities of the State and of state enterprises as specific economic and legal phenomena of modem capitalism on more general lines will be offered in the closing chapter of the present work. Before this can be done the concrete facts of the phenomenon will have to be made subject to an analysis. The most concrete of all concrete facts is the actual number of direct economic operations of the State and of the state enterprises, and their weight in the Common Market. Quantitative information of this role will be provided by economic statistics.2 Further concrete facts somewhat harder to grasp speak of the way how all these are translated into an organizational-legal reality, how they operate, and how they are integrated into the economic-legal structure as a whole. Of this set of problems we shall in the present chapter deal with the pragmatic economic functions allotted to the state participation, the state ‘hands’ in this meaning, with the forms of 1See infra Chapter VIII. 2See Màdl 13, Chapter II.

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state enterprises, the integration of the different state management forms concerning the state enterprises, further with concrete state economic operations and enterprises (supranational enterprises) on Common Market level. The facts concerning the phenomenon ‘state hands in the economy’ - namely facts other than organizational and legal institutions or regulation systems - compiled and analysed in this chapter below are far from being complete in the various categories; but they are perhaps sufficient to ‘foot’ the general laws and tendencies, the general propositions and conclusions drawn in this book. They were meant only to meet this expectation rather than to give a full picture of everything what happened in these spheres (for this we have to refer, e.g., to the corresponding parts of the annual general reports). 174-5

The pragmatic policy o f the EEC in the issue o f direct state operations and public enterprises

174 The European Economic Community, in its general idea of a European economic integration, refrained from touching on the economic and political functions of state or public enterprises operating in the member states. This idea has been given its pithiest expression in Article 222 of the Rome Treaty, viz. that “the Treaty leaves the system of property of the particular States intact” (this is the literal English translation of the German version: Dieser Vertrag lässt die Eigentumsordnung in den verschiedenen Mitgliedstaaten unberührt), a formulation which as an interesting linguistic presentation of an attitude appears in the English text as follows: “This Treaty shall in no way prejudice the system existing in Member States in respect of property”.3 This will say that in this respect the Common Market has brought about no fundamental changes in the policy-making economic and legal considerations concerning either the historic reasons or the rationale of the operation of public enterprises in the capitalist countries. Simultaneously with the general appraisal of the direct role of the State in economy and the potentialities of this role, the search for new pathways in the various agencies of the Common Market now in progress, the agencies of the Common Market have repeatedly made clear their intention to adhere to the policy-making positions taken up in the member states in this respect and to maintain the actual situation as it exists. In its instrument dealing also with the general functions of the public enterprises, the Commission, in 1972, again gave decided expression to its opinion of the stability of its earlier ideas and of the political, economic and legal interests attached to this stability in so far as it established that ‘the participation of the State in economic activities through enterprises which partly or wholly are owned by the State is for a long time past already an important constituent part of the economic order” . The Commission then continued to state that the Treaty calling to life the European Economic Community had brought about no changes in this respect.4 Literature, too, merely postulates reality viz. that “in the meaning of both the Rome Treaty and the ESCS Treaty the member states remained 3See Documents in H ay-Stein, p. 115. 4Competition Policy Report 1971, p. 165. 15 Madl

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the masters of their system of property and by this they remained also masters of the method of distributing the economic functions between the State on the one part and the subjects of private economy on the other, in their countries” .5 If allowance is made for certain differences, the ideas professed by the European Economic Community present substantial similarities also in other direct state economic operations such as government contracts or the granting of state subsidies. For this reason the professional literature in the Common Market synthetizes the economic function of the public enterprises, and in general of the direct presence of the State, from elements developed and proclaimed earlier. Accordingly, the Common Market professional literature wants to discover the role of these institutions in the performance of the following principal functions: (a) the provision of the so-called traditional public utilities, such as water, gas, power supply, transport; (b) the public operation of not very profitable yet essential branches of economy, for this reason not exploited by private capital (or if so, assignable to private capital only by accepting the risk of considerable economic and social contradictions), eg. the total or partial nationalization of the coal and steel industries in certain member states; (c) the guarantee of a balanced economic trend, in general the prevention, relief and curative treatment of the organizational and operational diseases of capitalist economy through state infusions and planning and influencing through public enterprises, the control of the activities of public enterprises at times of upward trends or depressions, or through the development of underdeveloped regions or branches of economy by way of public enterprises, subsidies or credits; (d) in branches of economy highly developed on a world scale, the expansion of the basis of production of the national industry and the improvement of its competitiveness (eg. in Italy in the oil industry, in the Federal Republic of Germany and in France in motor car and aircraft manufacture); (e) the increase of public income for the provision of the financial basis of public institutions, power apparatus and military machinery; the easing of the burden of public finances relying on the income from taxation, or its supplementation by income sources other than taxation.6 For the Common Market and the economic integration public enterprises operating in the member states in the roles outlined above constitute a general problem in so far as European economic integration at the same time stands for an integrated industrial and competition policy. Since, however, in the particular member states the legal position of public enterprises, the control of their activities by public means, so eg. the subsidy policy or the system of government contracts, differ widely from one another, so do also the Community scale general economic position and the competitive situation of these enterprises, moreover owing to the system of subsidies and government contracts, also of the non-public enterprises. The makers of the Rome Treaty of course could not, and did not want to, avoid the solution of the problems so emerging. Therefore, the more important concrete elements of the*

*Ipsen 2, p. 658. 6 Of the general and recent treatments o f the series o f problems see Wenger, pp. 25 et seq; Ipsen 2, pp. 657, et seq.; Klein, pp. 38 et seq.; Bauchet pp. 1 et seq.;Drago, pp. 107 et seq.; Galbraith 1, pp. 407 et seq.; Friedmann, pp. 303 et seq.

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problem and the principal stages in its development shall be dealt with below in more detail.7 175 The Common Market, in addition to continuing the traditional function of public enterprises, thought of taking a few steps further and was in search for new pathways. The Commission - concerning the ‘do not touch’ philosophy of the quoted Rome Treaty Article 222 —e.g. in its report published in 1972 laconically though, still in a peremptory form, expressed its intention to exclude from the conference rooms of the Common Market, and from its whole world, the discussion of the question which of the member States, on what policy-making considerations was taking part directly in economic activities. Or in other words, the Commission refrained from interfering in the domestic policy or the jurisdiction of the states in the one way or the other. Yet the Common Market could not stop short of this. Even if it did not interfere in the internal affairs of the states, it went further in this respect on another path. In the report referred to the Commission, somewhat further, formulated its position as follows: “Development requires from the Commission that it acquires thorough knowledge of non-private economy as a whole and in this process to give attention to the latest developments of the age; development also requires that the EEC supervises the relations of the State and public enterprises in the spirit of the Rome Treaty. The Commission intends to deal with these tasks in the first place in the future.”8 This generality covers serious reality as regards both the past and the future. Here we already have the case of a characteristic problem of the second half of the 20th century, namely that of the phenomenon of the contradiction between the development of the means of production and private property in general, and in particular, the phenomenon of the antagonism of West-European and American economy. Atomic energy, in general the modem energy demands, technical devel­ opment and production, e.g. in the aircraft industry and rocket techniques, international goods and passenger transport of a hitherto unknown volume call for economic enterprises and operations of a very special type. In the capitalist world enterprises of the dimensions required existed only in the United States and in like way only American large enterprises, mostly giant concerns, had the capacity to transact business operations of enormous volume. If West Europe wished to participate in this struggle it would be possible only when the appropriate material basis had been provided in the form of public enterprises or supranational economic concerns within the Common Market. Means and forms of these are manifold. The more significant forms are those of Community and interstate enterprises, semi-public concerns com­ bined with state and Community subsidies and contracts, loose associations, joint enterprises. This is the second larger sphere of issues whose study from close quarters9 still belongs to the authenticity of the picture to be drawn if realities are to be judged appropriately as promised in the introductory remarks.

7See infra Articles 24 and 25. 8Competition Policy Report 1971, p. 165 9See infra Article 25. 15*

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§ 23

Forms o f public enterprises: the struggle o f form s and types

176-8

Public enterprises o f the member states

176 The State performs its direct economic activities, through wholly or partly segregated economic and legal units differing from one another by countries, in a multifariousness of organizational and legal forms. This multifariousness derives its vitality from a variety of national economic and legal peculiarities, and today it has to be reckoned with as reality. This is the case not only because of the different names and type designations, but also because of features of autonomy or restrictions, of fiscal or company law and of other highly concrete economic or legal properties attached to them. The designations themselves, too, differ by the legal systems established in the various member states of the Common Market. Thus e.g. in English legal parlance the term ‘public enterprise’ is the connotation of the capitalist companies, enterprises, etc. which have been entered in the register of companies, have publicly negotiable shares, and whose shares, property positions, etc. are accessible and open to the public in opposition to those forms of companies or associations, whose shares or property positions are not publicly ‘commercialized’, not so easily accessible. It is for this reason that for the designation of the public enterprise in the strict meaning of the term, or of the public enterprise in the concrete sense, in order to distinguish the two categories, mostly the term ‘government enterprise’ is in current use. This is the designation accepted also by the authors of a volume of studies in comparative law recently published in London.10 On the other hand it remains a fact that the fundamental legal instruments of the Common Market, so eg. the Rome Treaty and the Euratom Treaty, use the term ‘public enterprise’ as the designation of enterprises in the strict sense of the term ‘public,’ Le. economic units in the ownership of the State, public institutions, or the Community.I11 Literature in English is always compelled to make clear that the public enterprise in the latter acceptation of the term is not identical with the public enterprise in the general meaning of the term and that in the following discussions the term public enterprise is used to denote public (state or Community) enterprises in the narrower sense of the term.12 The French enterprise publique, too, denotes a variety of forms of association, and the designations used in German law (öffentliche Unternehmung, öffentliche Anstalt, Gemeindebetrieb) have provoked the dispute whether öffentliche Unternehmung should be given priority to öffentliches Unternehmen, or vice versa.13 The war of designations could perhaps be continued with the scientifically not wholly useless consolation that eventually these phenomena cover up some sort of a virtually living and effective content. 177 When by content the organizational and legal systems presenting features of a definite economic policy or economy are understood, in the following discussion we I 0See Government Enterprises. II Rome Treaty, Article 90; Euratom Treaty, Article 195. 12 See Friedmann, pp. 303 et seq.; Schindler, pp. 57 et seq. 13 Wenger, pp. 260 et seq. 228

shall have to define the organizational and legal systems in which the State directly displays its economic activities and through which it may indirectly produce certain effects of economic policy. For a generalization approximating the gist of the issue it appears to be appropriate to analyse the systems established in at least two countries of the Common Market differing from one another by their legal peculiarities and historical traditions, viz, (i) the Federal Republic of Germany and (ii) the United Kingdom. The legal system of the Federal Republic of Germany, which as is known draws the traditonal line between public and private law, recognizes the following organizational and legal forms: (a) The administrative enterprises of local organs, communities (Regiebetriebe), mostly smaller power generating plants and other formations of an economic activity, (b) The public utilities, enterprises of local state organs (Eigenbe­ triebe) such as large power plants, water works and traffic companies, (c) The autonomous administrative enterprises of the Federation and of the federal provinces (verselbständigte Regiebetriebe), such as the state printing office, the federal dairy centre, etc. (d) Public law institutions void of legal personality (Anstalten) such as the Federal Post Office, the Federal Railways, which though as trustees of national property, segregated from other property, nevertheless operate as parts of the entire system of federal public administration in a special form of management and control, (e) Public law institutions and enterprises (Körperschaften) endowed with autonomous legal personality, such as banks and insurance companies, (f) Public or state enterprises operating in forms regulated by private and commercial law, which may take on the forms of enterprises given by company law, and of which there is a fairly large number in the Federal Republic of Germany, among them large joint stock companies operating in the steel, etc. industries, such as the Salzgitter A. G. or the Saarbergwerke A. G.14 This classification has been built on the differences of the organizational forms or the provisions of law governing the formation of the various categories of enterprises. The forms owe their life to provisions of law of various levels mostly, however, to provisions enacted by the legislature. These provisions have also marked out the scope of activities of these enterprises. The degree of autonomy may figure as another criterion of legal classification. Accordingly a distinction may be made between autonomous enterprises endowed with legal personality and non-autonomous enter­ prises. Of the categories of company law the joint stock companies, the limited liability companies and limited partnership companies qualify as autonomous legal persons and so also, within the public law forms and institutions, the Anstalts and Körperschaften. Of the non-autonomous forms the one best known and mostly in currency is that of the Eigenbetrieb and under the same heading the legal structure of the Federal Post Office and the Federal Railways operating in the form of an Anstalt void of legal personality. Naturally, in this connexion the words autonomous and npn-autonomous overwhelmingly stand for the difference of the legal form resorted to, and do not indicate independence or non-independence of the founder public or­ gans. If the State displays its direct economic activities in a legal form governed by 14 Wenger, pp. 122 et seq.; Kaiser, pp. 157-8.

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company law, then the State will avail itself of the controlling and managing facilities given within this definite scope. In general it will make use of the facilities provided by company law institutions (in the shareholders’ meeting the State will stand for the shareholders and consequently management will not as a matter of course be of that nature usual in joint stock companies limited by shares in the general and traditional acceptation of the term). In the legal forms where the direct economic activities of the State are not segregated from public administration or the agencies of public administration, or from the activities of these agencies, as if the channels of another branch of law, và. those of private law were exploited by the management, but all remains within the scope of public law, State interference and management may become even more direct, and the power and ideas of the State will prevail through the legal relations of administrative law. Although for this reason the forms established in public law offer themselves as most appropriate for the direct economic activities of the State, still there is a tendency on the part of the State to have recourse to more elastic forms for its economic activities, in general to the forms and types of company law. By making use of the facilities afforded by company law the State will then enforce its public law ideas and the public commitments of the given assets through forms and means the company law structure offers (by defining the statutes, the structure, the aims of the company, by acting in the ‘election’ and the shaping of the activity of the organs, eta ) As a matter of fact this organizational expedient segregates the activities of a public enterprise in a more effective manner from the cumbrousness of the decision-making mechanism operating within the governing public agencies and from occasionally emerging contingencies, from a variety of voluntaristic developmeots. It is therefore by no means accidental, as stated in the professional literature, that for its economic activities the State, too, migrates into the institutions of private law.15 If now the activities of the economic units of the State are classified on considera­ tion of economy, we shall find that this classification will partly coincide with, partly intersect, the classification on organizational and legal considerations. In, ag., the Federal Republic of Germany public enterprises may by their economic activities be classified as follows: (a) banking and credit institutes; (b) public utlilities and state commercial monopolies; (c) the Federal Railways and the Federal Post Office; (d) radio and television; (e) industrial enterprises of the State operating in company law forms.16 Without enlarging on details we may make the statement that from whatever aspect the different forms and types of state enterprises are surveyed so far no uniform theory of law has been developed concerning these phenomena, and so of course no uniform statutory regulation has become established. In fact their substance consists really in their differentiatedness, multifariousness and their guidedness to concrete objectives.17 15Kaiser, p. 157. 16Kaiser, p. 154. 17 Kaiser, p. 154. Within this multifariousness it is in particular Wenger who offers a com­ prehensive analysis of the development within the various forms of state influence, the degree of autonomy and responsibility, the objectives of public interests, the appropriation of the income,

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178 It is characteristic of the English pragmatic approach that the authors writing on the subject specially emphasize that although public enterprises have come into being, still so far not even the slightest attempt has been made to define the general theoretical notion of the phenomenon, viz. of the economic units of the State, of the public corporations. Consequently, here we have the case of an institution and a notion in a state of permanent change or flux.18 The writing dealing with the legal problems of public enterprises which among others begins its analysis by stating that “neverhteless we should be able to recognize a public corporation when we see one” is perhaps even more characteristic and reflects more adequately the English attitude.19 For, as has been recognized also by British legal literature, in response to factors acknowledged by both jurisprudence and legal practice the direct economic activities of the State have gradually brought forth the corresponding forms also in the law of the United Kingdom. These forms have been accorded ‘civic rights’ also by legal literature. Even if not by giving expression to the niceties and differentiations of the respective branches of Continental law,20 nevertheless English law too, recognizes, the forms of the direct economic activities of the State which have become established. If we now ignore that English form of analysis which classifies the economic units of the State by the governmental agencies or sources of law creating them (Parlia­ ment-act, Crown-order in Council, executive agency-instruction or decree issued by statutory authorization, etc.)21 then the most reasonable approach to the issue would read more or less as follows: “It may therefore be appropriate to define a public corporation in this country as a legal entity established normally by Parliament — but sometimes by a Minister under statutory authority, or by the Royal Prerogative - and always by legal authority (usually in the form of a special statute) charged with the duty of carrying out specified governmental functions (more or less precisely defined) in the national interest, those functions being confined to a comparatively restricted field, and subject to some degree of control by the executive, while the corporation remains juristically an independent entity not directly re­ sponsible to the Parliament. It is a ‘person’ in law . . . , subject to the ordinary rules of the law . . . there is no separate system of administrative law . . . as regards govern­ mental persons” .2 2 Government enterprises on this understanding will on the conditions set forth in the concrete deed of foundation take on the most heterogeneous forms. They may be enterprises under company law (National Bus Company, British Broadcasting Corpora­ tion, British Overseas Airways Corporation), public authorities (Atomic Energy Authority, Television Authority), councils (Central Electricity Council, Gas Council),

the presence in the governing bodies, responsibility to the guiding governmental agencies and the obligation of reporting (see Wenger, pp. 373 et seq.). "Gamer, pp. 3 - 4 ; Friedmann, p. 312. "Garner, p. 4. 30‘There is no clear cleavage between public law and private law, such as may make it necessary to allocate public corporations to one or the other branch of the corpus furis *(Garner, p. 4). 31 Gamer, pp. 8 -9 . 33 Gamer, pp. 4 -5 .

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enterprises (Post Office), boards (National Coal Board, British Railways Board, London Transport Board), to mention the most important designations and forms only, and so also the outstanding government enterprises.23 It should be remembered, however, that the contents of these categories are almost never identical with what the respective designation stands for in Continental law. The designations do not indicate types or categories in the European sense. For the concrete legal contents the concrete legal statute of the concrete economic and legal unit should be consulted. It follows as a corollary that whenever for the better acquaintance we classify the economic units of the United Kingdom government, we shall have to draw up an extremely heterogeneous list to which according to a hardly arguable statement of British legal literature strictly speaking no definite legal significance should be attributed.24 Still according to a more or less given and to a certain degree simplified classification the following forms may be distinguished: (a) government commercial enterprises, when the term commercial should be understood as one implying general legal contents and not narrowed down; (b) government managerial bodies operating public utilities; and (c) economic regulatory and advisory bodies. The sphere of commercial enterprises embraces, because of the presence of the profit-making element in most of them, government economic units operating in telecommunication, power carriers, transport and carriage, in general created by separate acts of Parliament. These enterprises extend from the BBC and the Post Office through the National Coal Board and Atomic Energy Authority to the London Transport Board, the British Overseas Airways Corporation, to the British Waterways Board. The enterprises where the element of profit is absent, form another category. This includes the Water Resources Board, and the Housing corporation. The next category is formed of strictly speaking specialized branches of government agencies, such as the Location of Offices Bureau which disposes of funds to move large offices from the centre of London to the outskirts or to other towns, or the Industrial Reorganisation Corporation, which has a direct economic and authoritative rde in the formation of the industrial structure by the government.25 179 Interstate enterprises 179 If we now add to all these the interstate, or so-called multi-national public enterprises, government economic ventures, their sp far known principal organizational and legal forms, then the sight of the struggle of forms and types will loom up in a way displaying the world of forms and types of all other members of the Common Market. We shall therefore dispense with going further into the study of these forms and types. Of the international public enterprises, too, we shall confine ourselves to a survey of the European enterprises of major importance and to giving the outlines of the legal form of their manifestation. 2 3 For a relatively complete account of the subject see Ibid., pp. 6 et seq. 24‘This division of what is really a heterogeneous list is not of any precise legal significance, but it may help to describe the function of the public corporation in Britain' (Garner, p. 6). 2 5Ibid., pp. 6-8 .

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The United Kingdom is one of the contracting parties at the foundation of the British Commonwealth Pacific Airlines Lté., which though it has been registered in Australia operates under the substantial supervision of the British government. As regards its legal form it is a limited liability company operating under an agreement in conformity with the Common law rules governing companies.26 By way of the Common Market membership of Denmark the Scandinavian Airways System (SAS) has also become associated with the European Economic Community. SAS has been formed as the Consortium of the three national airlines of Sweden, Norway and Denmark. As regards its legal form SAS is a general partnership obligating the partners to mutual cooperation and implying their individual liability. Hence the three states are only indirectly present in the Consortium, moreover the agreement of the three countries for civil aviation signed in 1951 lends a public or state character to the operation of SAS indirectly only.2 7 The Basle-Mulhouse Airport is a public enterprise formed under a convention between France and Switzerland. The convention has, with its minute details and its appendices, created a special ius singulare for the enterprise.28 The European Company for the Chemical Processing of Irradiated Fuels (Eurochemic) has been called to life by a convention of twelve West-European countries in 1957 for research, industrial production and exploitation of atomic energy. As regards its legal and organizational structure it is a joint stock company limited by shares registered in Belgium.29 Since on the part of certain member states of the Common Market the shares of Eurochemic are only owned partly by the respective governments, whereas partly they are held by private institutions (enter­ prises), the case is very much the same as that of the joint enterprises created by the Euratom Treaty, which pursuant to the provisions of the Treaty are supervised by the Common Market authorities, whereas for the purposes of company law each joint enterprise is governed by the municipal law of the country of registration.30 The Company for the Sale of Coal from Lorraine and the Sarre (Saarlor) has been called to life by the interstate agreement signed, in 1956, between France and the Federal Republic of Germany settling the status of the Sane territory after the Second World War. Saarlor again is a joint stock company limited by shares and its function is to mine and market the coal of the Sarre-Lorraine base in conformity with the economic policy approved by the two governments.31 The Jochenstein Kraftwerk AG owes its existence to an interstate agreement of Austria, the Federal RepuSiic of Germany and the State of Bavaria dated 1952. The company has been formed for the purpose to construct a power plant utilizing the water of the Danube for power generation, together with installations for navigation. 26The convention dated 4th August, 1947 and amended in 1949 has been published in 53 U N. Treaties Series, 241. The convention has been reviewed by Fligler, pp. 23-4. 27See the convention in Council o f Europe. European Companies, 41 (1952); reviewed by Fligler, pp. 27-8. 28See Basel-Mulhouse Airport. 29For the text of the convention and the statutes see Eurochemic. 30Euratom Treaty, Articles 45-51. 31 For the text of the convention see Saarlor.

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The members of the joint public enterprise operating in the form of a joint stock company are the corresponding power generating enterprises of the signatory states. The company is governed by West-German law with the limitations specified by the agreement of the founder states (restriction of the sale and purchase of stock, consent of the founder states for the amendment of the statutes, etc.).32 The Internationale Mosel GmbH (Société Moselle) has been created under an interstate convention of the Federal Republic of Germany, France and Luxemburg. The company has been formed for the canalization of the river Moselle, however, with due regard to the demand for electric power, the considerations of agriculture, fishing, hydrology and tourism. The scheme had to be launched under an interstate agreement because of the Moselle’s flowing through the three signatory countries, viz. on a section of 200 kilometres through France, 36 kilometres constitute the boundary between the FRG and Luxemburg, whereas a section of 200 kilometres flows through the FRG. The company has been formed as a limited liability company as defmed by West-German law, and registered in Treves.33 The international venture of the Mont Blanc Tunnel is of special interest on both legal and economic grounds. It has been called to life by a convention sighed by France and Italy in 19S3, for the construction and operation of a tunnel under the Mont Blanc. By virtue of the convention each of the two governments has authorized and organized the formation of a company each. The companies have been endowed with the concessions specified by the convention. Under the convention exclusive rights have been conferred on the two companies for the construction and operation of the corresponding sections of the tunnel. In conformity with the convention the exclusive rights expire on the completion of a term of seventy years. Both companies are limited by shares and transact their business on the conditions of operation and supervision as detailed by the convention. The conditions as agreed upon by the signatories vest in them the right of supervision and control and in given instances that of intervention. The convention provides for the ownership of the investment on the expiry of the concession in so far as it declares that the tunnel with all its installations and equipment will become the common and indivisible property of France and Italy. The two states participate by equal shares in the operation and management, in any profit earned or loss incurred.34 The European Company for the Financing of Railway Equipment (Eurofima) was formed in 1955 with the participation of sixteen West-European countries as the outcome of a convention signed by them. The purpose of this multi-national enterprise is the modernization and standardization of the railways and rolling stock of the West-European railway systems, further the development of a uniform system of financing. Similarly to Eurochemic, Eurofima is a joint stock company whose legal structure, in many respects departing from the traditional, has been brought under regulation by the deed of foundation and the attached statutes as ius speciale. For the3

3 3For the text of the convention see Jochenstein Danube Power Work. 3 3For the text of the convention see Société Moselle. 34 For the text see Mont Blanc Tunnel

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settlement of legal disputes recourse is had to the law of the seat of the company, viz. Swiss law, as a subsidiary law only.35 Since it has European members, too (France and The Netherlands), mention has to be made of the Latin-American Forest Research and Training Institute which owes its life to an interstate agreement signed within, and on the recommendation of,EAO as the joint enterprise of a few Latin-American countries and the two European countries mentioned before. The scope of activities of the Institute embraces research work for the conservation, exploitation and development of Latin-American forest reserves. As regards its form it is an international institute endowed with legal personality. The founder states take part in the operation and management of the Institute, meet the expenses, whereas the real estate (building grounds, buildings, etc.) have been provided by the country of the seat of the Institute, Venezuela, which is also proprietor of these assets.36 As will be seen (infra 180) the one or the other of these interstate enterprises, so e.g. Eurochemic, coalesces also legally with the enterprise forms of Community law, whereas all of them come into contact with the rules of competition law of the Rome Treaty,37 ie. in this sense ‘accordingly’ they are public enterprises of the Common Market. There is, however, a form of enterprise which is in every respect an offshoot of the Common Market. This is the ‘joint enterprise’ brought under regulation by the Euratom Treaty; its operation outside the sphere of atomic energy industry has also been put on the agenda. As for its form and type this is a traditional company organized under commercial law and burdened with a Community system of control, where by the side of the European Community and the member states also private enterprises may figure as founder proprietors.38 180 The common denominators 180 When now search is made for the general interrelations in this rivalry of forms and types the following statements suggest themselves. (a) Partly owing to the peculiarities of national development, partly owing to Ihe historical circumstances existing at their birth and the concrete economic objèctives and those of economic policy the legal forms of the state enterprises present an extremely heterogeneous picture. The multifariousness and complexity manifesting themselves in the legal regulation are by themselves factors, or rather vis inertiae, which will hardly permit the birth of some sort of a uniformity in the regulation, or if it does, only in the principal interrelations and as the outcome of a protracted process of development. It is hardly likely that the ideas of the Common Market in this field will bring forth any considerable unifying effects in the near future. Among others, 35For the text see Eurofima. 36For the text of the foundation document see 390 UN Treaties Series, 228; reviewed by Fligler, pp. 55-7. 37For the legal status of Eurochemic see infra Note 143, to paragraph 196; for the position of government enterprises as well as interstate enterprises, as regards their competition law situation, see infra Article 24. * 3*8For the joint enterprise see paragraphs 194-6, infra.

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and perhaps before all, this is the case because the interests of national capital of the member states will at any time produce the legal form best suiting the concrete power relations, partly or wholly irrespective of whether further complexities will be in­ troduced into the legal display, or whether this legal form will align itself to the process of approximation of company law, t e a process controlled by the Common Market. (b) For its role within the system, multifariousness is, however, not only a negative symptom, (i) The implied premise is always present that there is the legal mecha­ nism (namely the lawyers and their various institutions) to span the gaps arising from multifariousness and to neutralize the negative economic efficacy of multifariousness and complexity, (ii) The capitalist order of society will, and this is essential, never squeeze the economic processes and the ideas of economic policy into the bed of Procrustes of some sort of a pleasing legal harmony. Modern capitalist development resorts to an extremely variable and dynamic body of legal instruments for the achievement of its economic ends, the solution or covering of its social and economic contradictions. Here the State will — sometimes as authority, sometimes as a fellow shareholder, sometimes as a capitalist profiteering party, sometimes as a politician drawing up economic plans, sometimes as a silent partner of an international concern - take on a variety of guises. This tendency is to an extent powerful and it follows from the antagonism of the capitalist production relations and production forces, further from the endogeneous exigencies of trade that in all certainty it may be regarded as one of the general laws of the capitalist systems of regulation in relation to State enterprises. (c) In this circumstance and not in some sort of a juristic pettifogging can be found the origins of the truth of the statement (so often recurring in western literature), namely, that “so far there has been no attempt in any of the capitalist countries possessing state enterprises so as to develop a uniform notion and theory of the state enterprise” . It is characteristic that this statement may be read in the summarizing study of Friedmann where on the basis of a number of studies dealing with the national systems he wants to offer a synthesis of the state enterprises of the Western countries. The synthesis is by itself correct and even interesting, still it is void of any kind of a general theory of the state enterprise.39 This reluctance to develop a general theory of the state enterprise, which has been given expression also in what Gamer says, namely that “we should be able to recognize a public corporation when we see one” ,40 obviously does not stand for a merely casual symptom. It is an indication of peculiarity of the jurisprudence of the capitalist countries that it is firmly in the clutches of the categories of the institutions and doctrines of capitalist company law and that it, by approaching the problems from these traditional categories, is hardly able to postulate theoretically the solutions, fraught with contradictions, even though reality forces it to do so. Namely, some sort of a general theory will have to go down to the foundations. So also to the circumstance that, when the traditional public utilities are ignored in this connexion, the appearance of government or public34 39See Friedmann, p. 312. 4 0 Garner, p. 4.

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enterprises in economy at this rate follows from the principal contradiction of modem capitalism, namely from the contradiction of the forces and relations of production. It appears as if for the theoretical assimilation of this contradiction the phenomenon of modern capitalism in question has turned up in a not sufficiently remote past. The theory of law of the capitalist countries may need some time for the formulation, even if apologetically only, of a more recent conception of this historical process. (d) The greatest merit of an attempt with a claim to a more comprehensive theory has been earned by a dogmatic and comparative elaboration of the forms and types of public enterprises, their concrete internal management and legal implications, by a many-sided historical and comparative presentation of the public enterprise as a concrete and individual economic phenomenon. Here we have in mind the monograph of Wenger.41 The tree is, however, more visible in his work than the forest. As regards the forest, Le. the general social interrelations, the monograph has got as far as the analysis of the ideas of the social democrat theorists and of Marxism, but the author only confines himself to observation, to only outlining and indicating the notional controversies. Nevertheless it is to his credit that he has discovered the core of problem, and - although he does not offer a new theory, or one of his own — he offers legal and dogmatic theoretical formulae and a formal typology restricted to concrete enterprises.42 Here, too, it is his merit that he summarizes every literary and practical antecedent of significance. By denying the existence of any optimal legal and organizational forms to describe the direct economic activity of the State,43 Wenger prefers to concentrate on the general morphology of the organizational forms. Obviously it is hard to argue that at the classification of the forms of state enterprises the extent is determinant to which a state enterprise approximates the independence of a private enterprise; becomes autonomous; breaks away from the decision-making and procedural structure of the traditional mechanism of public administration; frees itself from these ties; and becomes subject to the independent managing power of its leaders. In any case independence will come to an end and stumble upon barriers where it confronts the second principle of classification, viz. that it remains a minimum element of any state enterprise that in the operation of the enterprise, foj the benefit of the objectives of the founder or partner governmental or public law agency and of its economic policy, the corresponding degree of govern­ mental influence should prevail.44* (e) In a search for the common denominators of the legal contents defining the actual managerial and property rights the exigencies of logic will adequately be met by the general definition according to which “the public enterprise is such a legal entity on which the State or the one or the other public law agency, or both in conjunction, are capable of exercising lasting and controlling influence not only by means of general legislation, but also by other means, and whose income partly or wholly rolls into the treasury of the State or into that of public agencies.”4 5 Obviously in this definition 41 See Wenger, p. 116. 42 This work has been reviewed by Màdl, F., in Âllam- és Jogtudomâny 1971, No. 1, pp. 130-2. 43 Wenger, p. 116. 4 4Ibid., p. 116. 4 5Ibid., p. 117.

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any reference of significance to society, even the reference to ownership, is missing. Public property rights manifest themselves at most in the camouflaged form that one of the elements of the notion, viz. the State, exercises its influence not only with the usual means provided by general legislation, but also with other ones, obviously with the means of property rights, this does not, however, alter the fact that after such premisses of strongly formal logic the various organizational forms of the particular legal systems may in general be fitted into Lehmann's classification generally accepted in the West, according to which the typical organizational forms of a public enterprise are the following: (a) the public enterprise which operates in formal dependency (purely administrative enterprise); (b) the autonomous public enterprise (mostly communal enterprises); (c) the public enterprise as an autonomous economic unit; (d) economic corporations endowed with legal personality (by public law); (e) the mixed enterprises; (f) the forms of enterprise association applied by the govern­ mental or communal organs (cartels, interest communities, concerns) in so far as these may through their cooperation be influenced by the State in the same way as public enterprises.46 All this is, however, only what is really in being, the Sein which - as also the ideal type of the public enterprise as defined by Wenger47 — has only a limited theoretical and concrete practical use. The approach to the problem and the practical use arising from it can have their main possibilities and principal scope turned to good account where decision has to be made with respect to what may be considered a public enterprise for practical purposes and what forms of internal management and structures of operation belong in the morphology of public enterprises. For the purpose of theory it may be accidental, but from the point of view of the Common Market it is exactly this field which represents a principal set of problems as regards public enterprises, so among others this will be treated in the following section.

§ 24

181 - 2

Direction and control o f the public enterprises w ith special regard to the econom ic com petition principles o f the EEC

Compromise and scope o f the EEC regulation

181 As has been made clear earlier, market competition of capitalist enterprises is one of the cardinal principles of the economic policy of the European Economic Community. Another principle is that the Rome Treaty “shall in no way prejudice the system existing in the Member States in respect of property” (Article 222). On the other hand in the member states there are many enterprises in public or communal ownership, or operating as public enterprises. Within the limitations of the organizational and legal forms the governments may manage these enterprises in a way that eventually they will find themselves in a preferred position in the market 46Lohmann pp. 81, et seq. 4 7In this ideal type Wenger enumerates all legal elements which as a minimum have to be present in every public enterprise in order to qualify as a public enterprise according to the author’s generalized notion.

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competition. Consequently, the economic competition as one of the principles and the general regulator of economy as a whole could prevail imperfectly only. This would lead to a distortion of the idea of economic integration as formulated by the Rome Treaty, to a number of contradictions in the development of economy destined to be integrated, to unreasonable processes of selection and to several other negative phenomena.48 In contrast to this there is the doctrine outlined before according to which the ideas and ends of economic policy attached to the public enterprises come so to say as part of the sovereignty of the member states within their competence. In fact the public enterprises are the necessary complementary elements of national economy, historically and economically justified. It is this contradiction which explains the endeavour of certain member states of the Common Market (France and Italy) to withdraw the public enterprises completely from the purview of the Rome Treaty, in particular of its principles of competition law. It is quite understandable that this endeavour was particularly marked on the part of France and Italy. As a matter of fact the public sector of economy and capitalist state intervention, both in principle and practice, were especially strong in these countries 49 It is due to this circumstance that eventually the Rome Treaty has reached a compromise, as emphasized by literature.50 The compromise itself has formal elements. One of these is that the provisions governing public enterprises have been given a place in the section of the Rome Treaty dealing with enterprises in general, as last of the provisions, in Articles 85—90, especially in Article 90; although - admittedly - this Article is mostly concerned with the attitude of the member states or with peremptory commands addressed to the member states regarding the public enterprises. Another form of manifestation of the formal elements of the compromise follows from the one referred to before; since here we have the case of commitments of the member states, the compromise extends also to the freedom of establishment as brought under regulation by Article 54, Le. to the obligation of the member states to grant the same rights also to public or communal enterprises. The same applies also to the freedom of the supply of services where in conformity with Article 66 in like way public enterprises may take part. The circumstance, however, that Article 90 on public enterprises expressis verbis appears in the section of ‘Rules Applying to Enterprises’, cannot be misleading. What is essential here as a matter of fact is that here we have the case of the Community appraisal of the ideas of economic policy of the states, of the formulation of these ideas on considerations of the fundamental concept of economic integration as a whole. As an anomaly this follows also from the structural peculiarity, 4 8For a more detailed review of the problem see in the relevant literature, e.g., Mestmaecker, E. Die Vermittlung von europäischem und nationalem Recht im System unverfälschten Wett­ bewerbs. (1969, p. 86.) “Die Grundlagen des Wettbewerbssystems der Gemeinschaften könnten infrage gestellt werden, wenn die Mitgliedstaaten in der Lage wären, das Verhalten von Unter­ nehmen im Wettbewerb als solches zum Instrument staatlicher Wirtschaftspolitik zu machen. Eine solche Möglichkeit besteht, wenn die Mitgliedstaaten als Unternehmen hendeln.” Further, see Ipsen 2, pp. 661 et seq.; Schindler, pp. 58 er seq., in particular the chapter entitled ‘The Necessity of the Provision*. A9See Ipsen 2, p. 661;Emmerich 2, pp. 42-3. S0*Art. 60 . . . ist keine Regelung aus einem Guss und hat KompromisscharakterIpsen 2, p. 661.

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namely in that the section in question has been included in Part Three of the Rome Treaty entitled ‘Policy of the Community’. Finally professional literature, too, has come to the conclusion on this consideration, namely that Article 90 must, to a certain extent, be interpreted independently, irrespective of the divisions and subdivisions of the relevant chapter and section.51 As may be seen, however, the compromise proper is implied in the interrelations of the contents of the regulation. To cast a light on this we have to set out from the fact that the Rome Treaty has brought under regulation the public enterprises and the attitude to public enterprises on the ground of market competition. For an analysis of the contents of economic policy we have to rely on the wording of the regulation (Article 90): “ 1. Member States shall, in respect of public enterprises and enterprises to which they grant special or exclusive rights, neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular, to those rules provided for in Article 7 and in Articles 85 to 94 inclusive. “2. Any enterprise entrusted with the management of services of general economic interests or having the character of a Fiscal monopoly shall be subject to the rules contained in this Treaty, in particular to those governing competition, to the extent that the application of such rules does not obstruct the de jure or the de facto fulfilment of the specific tasks entrusted to such enterprise. The development of trade shall not be affected to such an extent as would be contrary to the interests of the Community. “3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, issue appropriate directives or decisions to the Member States.” 752 An analysis of the legal and dogmatic contents and the principal notional categories of Article 90 will reveal the following principal elements: (a) in the first passage of paragraph 1 the Article uses the notion of a public enterprise without a closer description or définition; (b) in the second passage of paragraph 1 it uses the notion of an enterprise having been granted special or exclusive rights; (c) in the third passage of paragraph 1 the Article prohibits state measures which in respect of such enterprises might conflict with the Rome Treaty, in particular with its Articles 85-94; (d) it constitutes statutory exceptions for enterprises entrusted with the management of services of general interests with the proviso, however, that these shall be exempted from the general rules of competition only in so far as such exemption shall be required for the fulfilment of their functions; (e) even these privileges shall be such as do not conflict with the general interests of the Community; (f) the last paragraph defines the functions of economic policy of the Commission in so far as it has been made the duty of the Commission to supervise and ensure the enforcement of the principles of economic and legal policy as set forth in these paragraphs by having recourse to the means (directives and decisions) applied in general. This is the structure where the Rome Treaty endeavours to resolve the contradictions and the conflicting interests of the domestic economic policy of the S1 For this see Schindler, p. 59, and Ipsen 2, pp. 660-2.

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member states, even as far as this concerns the operation of public enterprises, and those of the general economic policy of the Community. The analysis of the particular elements, however, betrays that these provisions, too, have given birth to a number of problems and contradictions and paves the path to new controversies. 183-6

Contents o f the dogmatics

183 In the opening sentence paragraph 1 speaks of the public enterprise in a strict sense. Its addressees are the member states, namely that they shall refrain from measures, or if there are any, they shall repeal them, which as regards the public enterprises might lead to effects conflicting with the Rome Treaty. Since the Rome Treaty, unlike the ECSC and Euratom treaties,52 does not define with any precision what the term public enterprise denotes, there was a tendency which left it to the municipal legal systems to define the notion of a public enterprise. This would have meant that the enforcement of Article 90 in the member states completely depended on contingencies, because in the member states, as may be inferred from Article 23 of this Chapter, the direct economic activities of the State and the governmental organs are displayed in a multifariousness of the legal forms, where the public enterprise in the public law meaning of the term is but one of the many variants established by law. This already justifies the conclusion that the definition of the notion of a public enterprise could not be entrusted wholly to the municipal law of the member states. The definition had to be one formulated in the spirit of the Rome Treaty, in conformity with the relevant provisions of this Treaty. As may be seen, professional literature has in general reached a stage where according to the virtual role of public presence it considers all public economic formations which - although in the meaning of municipal public law do not qualify as public economic institutions, but take on other legal forms, e.g. operate in conformity with the general company law forms of commercial law —substantially cover up, reflect and serve the direct presence of the government in the sphere of the economy as subjects or legal entities coming within the notion of a public enterprise. In the interpretation of Article 90 essentially the notion as summarized above53 has obtained general currency, and has become the generally professed opinion of West-European professional literature.54 What is specially stressed upon is that in the first sentence of paragraph 1 it is the measures of the government constituting the preferred legal status in question which is in the focal point rather than the public enterprise itself.55 In this sense, as pointed out by the professional literature,56 the Rome Treaty embraces any potential behaviour of the State by which it takes part in the market.57 It may even be a matter of indifference whether the State is merely a partner shareholder or a minority shareholder of a certain form in the commercial company. As a matter of fact the State may for several 52ECSC Treaty, Article 196. 53See paragraph 180 supra. 54Reviewed by Schindler, p. 59\Ipsen 2, p. 663. 5 5Ipsen 2, p. 663. 56 For this see Schindler, pp. 60 et seq. 57Ibid., p. 60.

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reasons, e.g. because it is holder of priority shares each representing twenty votes in the general meeting, or because the other shareholders represent an even smaller interest, find itself in a dominant position even in this case.58 For the purpose of Article 90 “the decisive factor is not the amount of the participation in the capital but rather. . . the influence which the State has on the enterprise, Le. on the management of the enterprise and therefore on the decisions relating to the market activity of the enterprise. Thus the main question is whether the State has de jure or de facto the possibility of control” .59 It is an altogether different question how all these are related to the issue of state immunity, as in point of fact here we have the case of acts originating from state sovereignty or of the manifestation of this state sovereignty. For the time being we would merely note that here the principle of relative immunity dominates.60 184 This general principle, viz. that the State de jure or de facto exercises a direct influence on the market policy of the one economic unit or the other is valid also for the second sentence of paragraph 1 of Article 90. The wish that this influence should not be exploited in a manner conflicting with the freedom of competition, holds also for the special or exclusive rights. These may include a variety of industrial or commercial concessions or monopolies, such as gas, water, power, navigation, etc. These rights may be enacted in a public or private law form, by statute (the introduction of price minima, the preferred government regulation of certain investments).61 According to paragraph 3 of Article 90 it is within the competence of the Commission to make sure to what extent such preferential rights or statutory limitations of competition are justified or lawful from the point of view of Community law as a whole. The function of the Commission extends not only to a revision of the preferential rights or statutory limitations of competition, and to decreeing their termination by way of directives or of a decision, but also to shaping their contents according to the legal interests or such of legal policy as laid down in Community law. 185 In like way it is within the competency of the Commission to establish what comes within the scope of measures in the meaning of paragraph 1. One of the main issues to be settled is whether a measure instituted by domestic legislation may be incriminated by itself, or a concrete and particular governmental action conflicting with the last sentence of paragraph 1 of Article 90 is needed to this end. To enlarge on the relevant literature or its criticism would lead us too far.6 2 The gist of the problem may be summed up as follows: (i) the Rome Treaty itself does not distinguish between governmental measures appearing in the one form or the other; (ii) in the particular member states actions are taken also by statute (formation of enterprises, granting of 58For example, of the capital stock of 246 million DM of the Rheinisch-Westfälische Elektri­ zitätswerke, the State is holder of only 10.4 million DM, still each share held by the State represents twenty votes, so that the 4 per cent of the total number of shares guarantees a majority vote of two thirds. See Huber 1. 59 See Schindler, p. 61. 60For the issue of immunity see infra Articles 26-7. 61 ibid., pp. 64 -5 ; Ipsen 2, pp. 663-4. 6 2For details see Schindler. pp. 65 et seq.

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concessions, the creation and operation of state tobacco and spirit monopolies, etc.) which are apt to produce the results banned by paragraph 1 of Article 90; therefore, (iii) by measures, besides legislation in general, applying to enterprises, all such elements of municipal legislation should be understood in which as regards the enterprises referred to in the first and second sentences of paragraph 1 a will of the government may appear apt to infringe the rules of economic competition. The coercive force of this logic has been admitted also by the professional literature, but, as will be seen,63 practice has not yet ‘dared’ or wanted to enter this path. 186 What is really exciting centres round the interpretation and application of paragraph 2, which grants a statutory exemption from under the general rules of competition law to the category of enterprises which render services of general economic interests and as such are carriers of economic functions of general interests. As may be seen this paragraph is the legal form of the resolution of the conflict of two interests, or of the reconciliation of two interests. On the one side there are the general interests of the Community, within them the interests attached to the enforcement of the principles of competition law of the Rome Treaty. These interests imply that the public enterprises of the member states should also operate in conformity with the general principles and rules of competition law. On the other side there are the recognized, legitimate interests of the member states to bind their public enterprises (hereincluded non-public enterprises by various titles of a status similar to that of public enterprises) to the performance of tasks of general economic interests. Therefore, as for its effects paragraph 2 may be qualified as a block or ‘field’ exemption as regulated by Article 85(3) applying to enterprises active in the specified fields in question.64 There is a difference, however, in so far as exemption from under the cartel rules specified by Article 85 has to be applied for in conformity with Article 85(3) and this exemption may then be granted by the Commission. As regards Article 90(2) there is no need for such a procedure, since this paragraph ensures a special legal status and exemption for the public enterprises in question ex lege. The circumstance that this field exemption may operate only within the limitations of the general interests of the development of the trade between the member states, and that the control and ensurance of this exemption comes within the competence of the Commission, serves the Community institutionalization of the compensation of the two interests referred to above, and within this institutionalization a policy preventing the member states from abusing the rights granted them by the Rome Treaty within this scope. More closely viewed, however, this mechanism of exemption does not imply the exemption of certain enterprise activities wholly and in every respect from under the rules of competition law of the Rome Treaty. They may be granted this benefit only for the performance of concretely defined tasks and of functions of general economic interests. For activities not extending to tasks privileged in the manner as defined the provisions of competition law of the Rome Treaty are valid.65 43See infra paragraphs 187-8. 44For the group exemptions from

the cartel mles o f Article 85 see paragraphs 116 et seq. in Chapter V, supra. 6 5See Priittner N.: Die öffentlichen Unternehmen. Verfassungsfragen zur wirtschaftlichen Betätigung der öffentlichen Hand. (1969, p. 2%l)\Ipsen 2, pp. 6 6 4 -5 .

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Still it remains a problem of extreme complexity to determine in what does in reality the entrusting of public enterprises with the discharge of services or functions of general economic interests consist; to what limits do these general economic interests extend; which of the categories of the general community rules of competition would prevent these enterprises from the exercise of the public functions in question; what is the degree of influence of trade which is anyhow already in conflict with the interests of the Community. The debates provoked by this many-sided problem are fraught with contradiction, while practice is still in a process of unfolding. The conflicting nature of opinions follows from the fundamental problem which was present already at the formulation of Article 90. Opinions were sounded for granting exemptions within the widest possible scope, whereas others were of the belief that exemptions from under the rules of economic competition should be kept within narrow limits. The struggle is waged round the independence or integration of the public sector of the economy and the respective economic policy of the member states. Since under paragraph 2 an exemption can be granted only on the ground of general interest as adjusted to the national economies of the member states, it can hardly be argued that the assessment of the extent to which an exemption is justified will be reasonable and also possible on the recognition of the parameters of domestic economic policy. These parameters may, however, depart from one another to an extent that complete reliance on them might operate towards désintégration. It was for this reason that paragraph 3 was taken up. Notably this paragraph has for ensuring the compensation of Community and state interests created Community rights, which together with the obligations concomitant of them have been conferred on the Commission. At least two functions devolve in this way on the Commission, viz. (i) to establish whether in the one member state or the other those responsible do not go too far when it comes to draw the line to which the domestic parameters (general economic interests) may extend; (ii) to determine whether or not the privileged enterprise should be exempted wholly or partially, and concretely to what extent, from the general rules of competiton, exemptions should be granted for the performance of their functions. —The Commission will in each case proceed on the basis of preliminary investigations and issue directives or pass decisions. By these it may determine the practice of the member states with binding force, still, in conformity with Article 173 of the Rome Treaty, the last word will be pronounced by the Court of Justice. According to majority opinion on the score of general economic interests only enterprises can be exempted which extend essential services for the satisfaction of the vital needs of economy and of the population, and which perform these functions pursuant to measures of the government and not of local authorities. In fact paragraph 2 speaks of general economic interests and it stands to reasons that such interests can be given expression only by the central political agencies of the State.66 According to German law and practice this field comprises enterprises which owing to central 6 6See Schindler, pp. 70-1.

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governmental measures perform services in scopes of general economic interests such as power generation and supply, passenger transport, long distance goods transport, air transport, further health, accident and old age insurance organized and operated under public law. The exemption in question also depends on the obligation to enter contracts ( Vertragszwang) to which the enterprises concerned are subject and by virtue of which they are bound to the continual development of their economic activities for the satisfaction of the interests of the consumers. It is an indispensable formal feature of their specific legal status that they are commissioned by a concrete governmental and legal act for the discharge of the duties specified above.6 7 187-8 Practical difficulties now and tomorrow 187 Now as regards the reality of practice the statement suggests itself, among others, that the public opinion of professional literature may in point of fact also be accepted as reality. Today in particular the Rome Treaty is a reality, together with its system of norms, and also the kind of potency of these norms which without coercive measures, partly, however, through the respect for them, prompts voluntary obedience to the law to a by no means insignificant extent. As a matter of fact the member states (they are the principal addressees) are in the last resort interested in the observance of ‘rules of the game’ of their own. Lasting and significant counter-action of the member states would - instead of the achievement of objectives, and the satisfaction of interests jointly undertaken, Le. the establishment of economic integration - lead to the other direction, Le. disintegration. This is why, like in the German example quoted earlier, there is a tendency to restrict preferences on the ground of functions in fact to enterprises of general economic interest, and in general to apply the principles laid down in Article 90(1) to enterprises operating in branches of economy, e.g. in the motor car industry Renault and the Volkswagen Works, which owing to their position and character so to say prima facie cannot claim the assistance extended in the form of preferences. Within the ‘in general’ category, however, many of the ‘particularly not’ may find a place. This is especially the case in fields where segregation may encounter difficulties. The situation will become a highly complex one when it is remembered that with the expansion of the Common Market regional inequality has become a focal problem of growing intensity. To convey an idea of this regional inequality a single example may suffice. If the average level of the gross national income of the Community of nine member states is expressed by 100, according to latest statistical returns the level of the particular regions differ to an extent from one another that a large part of Italy and almost whole Ireland is below 60 per cent, a small part of the United Kingdom, the larger part of France, a small part of Italy, the Benelux states and the larger part of the Federal Republic of Germany ranges between 100 and 120 per cent, whereas a number of regional units of the Common Market, so the Paris basin, large industrial centres of the Federal Republic of Germany, part of Denmark represent more than

6 7For details see Ipsen 2, p. 666.

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120 per cent.68 The weight of economic, political and social problems rooting in the regional economic contrasts is great to an extent that it was one of the first tasks of the expanded European Economic Community to tackle them. By 1973 the Commission had prepared its comprehensive analysis and report. It is a frequently recurring item in this report that certain member states had among others tried to develop backward regions by the creation and operation of public enterprises. For this purpose, in some of the countries, a fairly voluminous and complicated economic and legal mechanism had come into being. Obviously for the settlement of regional problems the Community cannot give up the role of public enterprises operating in this field and for the purpose outlined.69 This explains why in these regions the enforcement of the general rules of economic competition of the Community has remained a questionable task fraught with contradictions. In order to bring about only a moderate coordination of functions the Community will have to embark on activities of a larger volume than earlier in this field. Namely what the agencies of the European Economic Community have done so far is nothing but deference to the economic policy of the member states. In all likelihood here the conviction finds expression that the various problems of economic development, in particular of regional development, are weighty to an extent that they cannot be tackled unless the states concerned have recourse to actions on a large scale. Consequently the overstraining of the enforcement of the general rules of competition law, a policy which so far has never been resorted to, would hardly coincide with the general economic interests of the Community as a whole. This does not alter the fact, however, that so far the most important judgement passed by the Court of Justice with reference to Article 90 was exaggeratedly reserved at places where it ought not to have been. 188 The facts at issue of Luxemburgische Staatsanwaltschaft and M. Müller and the position taken by the Court in the judgement are briefly as follows.70 Exploiting the chance realized by the interstate enterprise formed for the canalization of the Moselle71 the Luxemburg company Hein & Fils, a firm engaged in river transport, decided to reorganize its shipping business so far transacted on the Moselle, and build and operate a modernized port suitable for lading and unlading vessels plying the new waterway. The firm was granted by the Ministry of Traffic and the International Moselle Commission a ‘provisional and revocable’ authorization, which in fact was withdrawn in the very year (1965). After protracted negotiations the firm received a permit to trans-ship in its port products of quarries and sandpits supplied for its own purposes. 6 8For the data of the regional economic conditions see: Afàdl 13, Chapter 11; in particular, Regional-Bericht 19 73. 6 9For the share of public measures, public or semi-public enterprises in the regional develop­ ment of the particular member states see: Regional-Bericht 1973. (pp. 212 et seq.: ‘Ziele und Instrumente der Regionalpolitik der Mitgliedstaaten*. For the general treatment of the system of institutions of regional economic planning in literature in particular see Weinmann, pp. 71 et seq., who offers a many-sided monographic picture especially of the situation in France. 70 The judgement No. 10/1971 of 14th July, 1971, in Luxemburgische Staatsanwaltschaft v. M. Müller has been published in Amtsblatt C 103, 10th October, 1971, p. 7 and Europarecht, 1972, No. 1, pp. 34-6. 71 See supra paragraph 179.

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The company, however, acted in excess of its rights and carried through trans-shipments of other goods and for the account of others. Since, however, the Société du Port du Mertert, a quasi-public company established by statute, was granted exclusive rights (including tax allowances, subsidies, advisory rights in matters of shipping concessions to third persons) on the Luxemburg section of the Moselle, and since the statutes of foundation inflicted penal sanctions on the infringement of the exclusive rights, criminal proceedings were instituted against the owners of the Hein & Fils company, M. Müller and his associates, and penalties were meted out on them for their unlawful activities. Already the Court of the City of Luxemburg proceeding as court of the first instance established, however, that the public port enterprise had been granted privileges by statute of a kind permitting it to continue its business in a preferred competitive position to the prejudice of any other firm exploiting the same field. The Court of the City of Luxemburg came to the conclusion that in the given branch of economy, in the given geographical region, economic competition had been suspended pursuant to a measure of legislation and that virtually a monopolistic position had been created. The Court of the City of Luxemburg simultaneously established that it had to decide whether the measures of the State of Luxemburg did not conflict with the rules of substantive competition law of the Community, for if so, the legality of the sanctions defined by statute and to be inflicted on the accused would be open to doubt. The Court of the City of Luxemburg did not consider itself competent for the settlement of this conflict among others also for the very reason that according to the Rome Treaty the taking of a position in this matter came within the jurisdiction of the Commission or the Court of Justice of the European Economic Community. Therefore the Court of the City of Luxemburg though defining the punitive sanctions applied to the Court of Justice of the Community for a preliminary ruling as defined by Article 177 of the Rome Treaty as to whether (i) from paragraph 2 of Article 90 of the Rome Treaty, or from Article 90 in general, legal or natural persons could derive any right to contest the legality of a governmental measure only because in their opinion the measure was conflicting with the provisions of Article 90; and (ii) if so whether the municipal laws of Luxemburg in question were in agreement with the provisions of the Rome Treaty, if not, to what extent the two sets of provisions differed from each other. In appellate procedure the Supreme Court of the Grand Duchy of Luxemburg came to more or less the same conclusion as the Court of the City of Luxemburg did. It suspended the judgement of the first instance, moreover, pending the preliminary ruling of the Court of Justice of the Community, set aside the sanctions imposed by the first instance. The Court of Justice of the European Economic Community somewhat simplified the duties which devolved upon it. It refrained from enlarging on issues presenting veritable problems. The principal items of the disposing part of the judgement may be summed up as follows. First of all the EEC Court of Justice established that the conditions set forth in paragraph 2 of Article 90 were in fact applicable to the Luxemburg public port enterprise endowed with the privileges in question. By virtue of governmental 247

measures the enterprise was virtually in a privileged position, so that it could eliminate economic competition on the Luxemburg section of the River Moselle, moreover, to some extent even beyond it. In respect of other enterprises it was strictly speaking in a monopolistic position. In order to offer a reply to the question the EEC Court of Justice had to obtain certainty as to whether paragraph 2 of Article 90 could be invoked for the establishment of such individual rights as had to be recognized also by the domestic courts. There were no definite provisions in paragraph 2 that could have been invoked. Therefore the application of this paragraph presupposed the appraisal of the requirements originating from, (i) the specific obligations of the privileged public enterprises, and (ii) the relation of these enterprises to the general interests of the Community. This appraisal, however, meant the simultaneous appraisal of the ends and principles of the general economic policy practiced by the member states under the supervision of the Commission. This supervisory right had been vested in the Commission by paragraph 3 of Article 90 of the Rome Treaty, so that without the violation of this paragraph as matters stood at the time no individual rights could be based on paragraph 2 of Article 90 which had to be respected by the domestic courts of law. The Commission on its part did not inquire into the relevant municipal laws of Luxemburg, so that the EEC Court of Justice could do nothing in the matter. The decision of the EEC Court of Justice was awaited in great suspense and was, at least in many respects, received with marked disappointment.72 (i) In general because there was a concrete case where the organs of the Community, viz. the Commission, and if this did not, on determining the formal action brought to this forum, the EEC Court of Justice could have taken a definite stand as to the establishment of the geometric mean between the interventionist economic policy of the member states and the more general economic policy of the Community. The EEC Court of Justice let the chance escape and retired to the formal defensive position that the Rome Treaty had authorized the Commission to find this geometric mean; the Commission, however, was silent. Therefore, as matters stood then, the EEC Court of Justice could go no further without the violation of paragraph 3 of Article 90; no direct individual rights could be derived from the Rome Treaty for the benefit of third persons.73 The position taken up by the EEC Court of Justice is arguable from many standpoints. Here are some of them. The provisions of the Rome Treaty regarding monopolies clearly state that the creation of a monopoly is by itself not unlawful. Truly, so far the logic of the EEC Court of Justice was flawless inasmuch as the case referred to a privileged position, a monopoly created by municipal laws. However, the logic of the EEC Court of Justice was false in so far as it had drawn no conclusions from the peculiarity of the monopoly, namely from the fact that the monopoly used its position —as was evident from the facts at issue —for the elimination or restraint of competition. Since the provisions of the Rome Treaty relating to monopolies rule that the exploitation of a monopolistic or dominant position in restraint of competition is by itself unlawful, it may sound rather strange that in a concrete case 73 As regards the reaction to the decision of the Court of Justice for details see Emmerich 2, pp. 37 et seq. 7 3For problems of market domination and monopoly in general see: supra Chapter V.

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the EEC Court of Justice has refrained from establishing the abuse of a privileged position in restraint of competition. It will sound even stranger if we consider the reports published in the press, that the Luxemburg public port enterprise operated with heavy losses and in a manner retarding goods transports, so that the traffic originally foreseen for the Moselle burdened partly the Belgian, partly the German railways.74 Thanks to its monopolistic position the enterprise could thrive notwith­ standing these adverse developments because the loss arising from the carriage of business in manner anything but rational was made good by government subsidies. In the midst of the strong criticism, even the argument could be heard that in the judgement, as passed by the EEC Court of Justice, in reality the interests of Luxemburg were apparently taken into consideration, and not the Community interests, since by the EEC judgement in fact the interventionist policy of Luxemburg was served. The criticism went on saying that the municipal laws of Luxemburg were presumably in conflict with the Rome Treaty, and the outcome of the standpoint adopted by the Luxemburg courts would have led exactly to the contrary of the conclusion eventually come to by the EEC Court of Justice in the position it had taken. The enumeration of attacks, arguments, logical or less logical, the analysis of the judgement in connexion with the Rome Treaty could even be continued.75 The critical remark, however, as if by this judgement the EEC Court of Justice had exempted the activities of general economic interest of the public enterprises of the member states to a general extent from the provisions embodying the ideas of the economic policy underlying the Rome Treaty, and as if paragraph 2 of Article 90 had created a disjunction between the rules of competition of the Rome Treaty and the public sectors of national economies,76 is obviously exaggerated. The decision of the EEC Court of Justice, which in the legal meaning is truly questionable and arguable, is in all certainty not the last word. This, as regards the gist of the case, is vouched for by the predictable developments within the Community. This may be inferred also from the strange term of the judgement according to which ‘as things stand so far’ the EEC Court of Justice has not seen a chance to go beyond the position taken in the judgement, ie. to derive individual rights from paragraph 2 of Article 90, and by this to put into action the ideas embodied by Article 90 purely through individual acts. Two things follow clearly from this position, (i) The weight of the public enterprises and of the public sectors, as well as the tasks following from a variety of incentives, and burdening the economic policy of the State, - before all the political, social and economic burdens of regional development —are great to an extent that the EEC Court of Justice has refrained from acting in a manner prejudicial to state 74For this see Emmerich 2, p. 38. 75Such issues are e.g. whether or not the provisions of Article 90 are directly effective (the majority, logically, answers the question in a positive form; this has been discussed in general in the chapter on the sources of law); whether the addressees of paragraph 2 are necessarily enterprises; whether they may have claims to exemption only to the degree of the reasonable performance of their functions, and not ipso facto; whether tasks of general interests have been entrusted to them and there would have been an occasion to take a stand to this extent, etc. 7i Emmerich 2, p. 46.

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economic policies in these spheres, even though, in view of the microstructure of the concrete issues of fact, the ‘domestication’ of the concrete Luxemburg laws, in their effects restraining competition would not probably have been prejudicial to that economic interventionism which, for historical and economic reasons, tends to swell to yet greater dimensions, (ii) The problem as a whole is of an urgent and complex nature, and one affecting every member state to an extent that in the opinion of the EEC Court of Justice it is indispensable that the Commission vested with the adequate competence by the Rome Treaty should take responsible action in this field. It is beyond argument that the disposing part of the judgement and the reasons given for it so to say expressly invites the Commission to a ‘dance’. This ‘dance’ would in all likelihood be a historical one, as the case is one of the problems of the contradictions of modem capitalism perhaps the hardest to cover up. It is the problem, namely, thrown out by the circumstance that in the attempts to resolve the contradictions between the forces of production and the production relations the State tends to become more and more directly involved in the sphere of economy, still at the same time this provokes ever more anomalies of the system to the surface. The anomalies emerge within the member states partly between private capital and governmental measures meant to bridle or control it, partly between concretely preferred and non-preferred groups of capitalists (the Luxemburg state port enterprise had and still has private shareholders, who obviously rejoice in the present privileged position unlike those capitalists who are at disadvantage by the same measures). There is yet a further anomaly in the divergence of the weight of the interventionist economic policy of the member states and that of the practice of this policy. The list of interests and opposite interests taking part in this ‘historical dance’ could be continued even further. The question remains to be answered whether the upper organs of the European Economic Community striving for the role of an organizer of this great historical ‘dancing party’, so the Commission and in line with its functions, the Council, further the Court of Justice, will be able to mould these historical processes in a way conforming to the general interests of the Community so as to suit, in its most outstanding interrelations, also those of the national capitalist states. One of the elements of this policy is that the Community as such too initiates the foundation and operation of interstate, ie. supranational public enterprises. Here the problems confronting the Community tend to rise in significance, or to double, since (i) for these enterprises, too, all the principles and practical difficulties exist which may be met at granting a preferential treatment to public enterprises and at their adaptation to the ideas of the competition policy of the Community; (ii) to find the optimum method of the formation and operation of the interstate enterprises is a task which implies special problems as well. (These problems will among others be dealt with in Article 25 below.) With respect to the situation outlined above the judgements in Belgische Radio en Televisio and in the Sacchi case764 — both in like way — invoking Article 90 of the Rome Treaty, do not mean a substantial step further towards the settlement of 76 “See judgement No. 127/1973 of 24th March, 1974 in ‘Belgische Radio en Televisie SABAM’ and ‘AG Fonoir’; and the judgement No. 155/1973 of 30th April, 1974 in the ‘Sacchi’ case (publications of the Court).

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the problem. As regards the former case the preliminary ruling given by the EEC Court in this connexion declares that the circumstance by itself that an organization exploiting copyrights otherwise manages such interests that enjoy statutory protection (copyright), does not establish a claim to exemption by paragraph 2 of Article 90 from under the provisions of competition law as laid down in Article 86 of the Rome Treaty. A claim to this exemption can be brought forward only when the monopolistic position and special competences owe their existence to domestic governmental measures. In this respect the judgement in Sacchi is of special importance, as it recognizes the monopolistic position of the Italian Radio and Television as being in agreement with paragraph 2 of Article 90. To this, objections under Article 86 cannot be brought forward if they are based merely on the plea of the monopolistic position or the actual elimination of competition. On the other hand in its preliminary ruling the EEC Court held that an institution privileged in this manner could not discriminate against the subjects-at-law of the member states of the Community either, be it on the ground of fees out of proportion, or discrimination applied in publicity or advertising. In this respect therefore the prohibitive provisions of Articles 86 and 90 were applicable except, however, that the incriminated acts were properly substantiated or indispensable for the performance of certain specific functions. Finally in its judgement the Court held that in these relations, ie. against non-protected competition-defeating actions, the prohibitions laid down in Articles 86 and 90 of the Rome Treaty were directly valid in the entire territory of the European Economic Community, for their enforcement the subjects-at-law of the Community had a subjective right and that the domestic courts of law were bound to enforce these provisions. In these two judgements the mutual relations and contents of Articles 86 and 90 have been given a concrete form. All what has been done beyond this is a surplus to the judgement in Müller & Co., namely that certain unnecessary actions of an otherwise privileged monopoly not required for the exploitation of the privilege or the performance of its functions yet restraining competition, may come into conflict with the provisions of Article 86 unless an exemption has been granted under paragraph 2 of Article 90. Against such actions the injured parties may have recourse to individual subjective rights. This novelty is, however, only a partial answer to the critical questions raised in connexion with the judgement in Müller & Co. § 25

New pathways and the interstate public enterprises in the EEC

189-92

New pathways, worries old and new, therapy and remedies in general

189 Simultaneously with making efforts to synchronize the traditional domestic economic policies of the member states - which is to be reached also through the creation of public enterprises — and to coordinate and integrate these policies — in conformity with the principles of the Community economic policy — the European Economic Community, as has already been discussed77, is in search for new pathways. 7 7See supra paragraphs 181-6.

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This endeavour to find new ways and means owes its origin to new worries, in the last resort to the economic, political and social pressure weighing heavily on the European Economic Community. Pressure is brought to bear on the Community (i) by the disproportionate economic development of certain regions; (ii) by demands attaching to the infrastructure in the process of integration; and (iii) by the need for the development of a competitive technology. The pressure so far borne by national economic policies has partially shifted to the European Economic Community as a new unit and level. Since a number of problems cannot be solved unless by international cooperation, irrespective even of the integration, there is but a reason more why the Community has been forced to the search for new ways and means. It is in this direction that the Community has been marshalled by its very existence and its objective economic conditions. Expectations of a high efficiency of the capitalist economic mechanism, as cherished by the capitalist interests, are being attached to the Community. For example, it may be thought that Sicilian workers will find consolation in the regional economic development scheme of the Common Market, which foresees the industrialization of Sicily and so the stepping up of employment. Their political struggle will therefore be disarmed by the promising outlook of prosperity in Sicily and Southern Italy. — West-European atomic energy industry can be encouraged to continue its desperate fight with American atomic energy industry by holding out to it the promise of help from the European Economic Community, and of state schemes of development to be launched within Euratom, thus e.& the foundation of so-called joint enterprises of the atomic energy industry. Cars, camions and tourists idling by thousands along the French—Italian frontier may find consolation in the Mont Blanc tunnel, which is in process of construction. This tunnel will not only offer facilities to traffic and transport but spare hundreds of thousands a war of nerves to which they were exposed by earlier transport and traffic conditions. All these are but an indication of how the European Economic Community arouse new hopes, covers up and resolves or remedies partly those pressing social, political and economic difficulties and contradictions which, if kept within national limits only, would surely result in higher tensions. 190 Obviously, it is a thrilling question what in the thick of these contradictions and tasks the governing organs of the European Economic Community have done and plan to do, this time not within the scope of activities of the Member States, but within that of the Community as a relatively segregated political and economic entity. The economic activities of the European Economic Community in general present the following facets. The Community has in a relatively many-sided manner explored the situation as implied in the given problems; it has outlined the schemes of economic and legal policies in differently detailed forms; it has instituted a number of concrete Community and governmental measures, among others through the creation of Community and state enterprises. (a) In the regional economic policy the Council and the Commission of the Community have introduced several concrete measures of general validity. Among the measures of general validity mention has to be made first of the decisions and documents of the Commission of the year 1968. These are of significance for two reasons, (i) They inform of the achievements of the regional development of the

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Community and its most pressing problems. Within this scheme of development forty regions and nineteen large areas have been distinguished. The principal concrete economic, social and socio-political peculiarities of these regions and areas have been outlined, together with the trends within them and the means thought convenient and desirable for their development, (ii) The documents and programmes in question offer an idea of the body of instruments serving the interests of achieving the objectives of the regional economic schemes of the Community, together with the body of means considered practicable and desirable on the part of the Community. (These will be dealt with in paragraph 191 infra.) In 1971, in a joint decision of the Council and of the representatives of the governments of the member states, special stress was laid on the tasks of regional economic policy. The decision emphasizes that “for the creation of a true economic community structural and regional measures have to be applied which are apt to bring about the balanced economic development of the Community, the solution of the most important problems for the achievement of this end . . . ” In the wake of this decision the Commission and the Council, in its third programme of medium-range economic development, in 1971, expressis verbis emphasized “the responsibility of the Community by the side of that of the member states in the settlement of the regional economic problems” , and also the determination of the most vital measures erf the following three-year period was given its turn.78 With the expansion of the Common Market also the problems of regional policy tended to grow in acuteness, in particular as regards the northern parts of the United Kingdom and Northern Ireland. The report on the regional economic problems of the expanded Community of the Commission, submitted in May 1973, analysed the earlier regional economic programmes and regulations of the Community in their bearing on the totality of the now expanded Community. In the light of the earlier criteria, viz. the ratio of the per capita national income to the Community average, or the ratio of persons employed in agriculture to the Community average, or the ratio of productivity indices to the Community average, etc. yet more contradictions, yet more difficulties, and yet more tasks made their appearance. The report also offers ideas of how the measures once approved and still necessary may before long be used for the as early as possible solution of the regional problems, at least of the most pressing ones. In this connexion the report refers to one of the fundamental provisions of the Rome Treaty set forth in the Preamble, namely to the commitment of the Community to reduce the differences in the development existing between the various regions. It enjoins on the member states the enforcement of the appropriate programmes in a dramatic appeal to them: “A Community where there are vast differences in the standards of life of its several members will be meaningless for its peoples, moreover it cannot even survive for any length of time, and the population of the Member States will have to doubt the capability of the Community to support and assist the economic regions, historically developed in a way prejudicial to them, in their efforts to raise the standard of life . . . A Community capable only to embrace and advance such economic processes that 7eFor this and the citations see General Report 1971, pp. 139 et seq.; for the general and detailed analysis of the regional economic policy see Ipsen 2, pp. 950 et seq. (Regionalpolitik).

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raise welfare where it is anyhow, must of necessity go into bankruptcy ”79 A major step in the field of the regional policy — besides the general development studies performed with regard to harmonized statistics and comparable data systems in the latest years79a was the adoption of ‘Principles for coordination of regional schemes’ with effect from 1 January 1975, and the decision of Heads of Government “that the European Regional Development Fund, designed to correct the principal regional imbalances in the Community resulting notably from agricultural predominance, industrial change and structural underemployment will be put into operation by the institutions of the Community with the effect from 1 January 1975”.79b Before discussing the Regional Development Fund among the means and instruments in paragraph 191 infra let us present here some guidelines of the Principles which can be considered as generally valid for the EEE policy in this field, (i) “Henceforth, the entire territory of the Community will be covered by these rules, which the Com­ mission proposes to use in applying Article 92 et seq. of the EEC Treaty to regional schemes of aid.” 79c (ii) The Principles developed the aspects of coordination for the whole Community, (iii) In the light of the socio-economic situation of each region the regions have been classified and ceilings of aid intensity have been worked out. (iv) All programmes and means are meant to be implemented in accordance with these requirements, (v) By these steps the Community thought to “take account of the specific economic and social needs of each region . .. and to ensure that competition is not unduly distorted” .79d (b) Infrastructural development, e.g., the development and better coordination of waterways, railways, roads, transport and traffic networks of local and general interests, will of course extend also to ventures which involve large investments and costly technological development, Le. the considerable development of the means of production, and will therefore come within the category to be discussed in (c) below. As stated in a by no means insignificant document on integration: “Economic integration demands a major sustained effort to build a land transportation network and to improve transportation systems of all kinds so as to open the way for the movement of both people and goods throughout the Continent; to establish an adequate and efficient telecommunications system; to install interconnected power systems; and to develop jointly international river basins, frontier regions, and economic areas which include the territory of two or more nations.”80 The integration of the infrastructure, of transport and of the power systems is one of the leading principles of the economic policy of the European Economic Community. This policy finds expression in the fundamental objectives of the Rome Treaty,81 in like 7 9Regional-Bericht 1973, for the quotation see p. 4. 7 9^General Report 1975, pp. 114-5. 7 9bSee the derision of the Meeting of the Heads of Government (held in Paris 9-10 December 1974) in: General Report 1974, pp. 297 et seq.; as to the Principles see General Report 1975, pp. 86-7. 19CGeneral Report 1975, p.86. 19 &General Report 1975, pp. 86 -7 , for the citation see p. XLIII. 80 The citation has been taken from the programme approved by Latin-American governments (reprinted in Vischer, p. 5). 81 Rome Treaty, Article 3(e), Articles 74-84.

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way as in those of the Euratom Treaty,82 in the many directives and individual measures, programmes on this subject,8 3 further in the various forms of European ‘Community-State enterprises’.84 (c) The Commission and other agencies of the Community have repeatedly gauged the situation with a view to creating or developing branches of industry and enterprise units of technologically high standards and competitive with their American opposite numbers. In the course of this process it has been established that although it is relatively difficult to distinguish and to draw a sufficiently sharp line between the traditional branches of industry and those operating on a high technological level, i e. what may be termed technological peak industries (technologische Spitzenindustrien), still this may be feasible as far as the principal indices are concerned. The figures available in this field betray the fairly weak position of West Europe, although in the past decade momentous steps were taken in the development of the top-ranking industries. According to an illustrative series of comparative data eg. the value of the combined output of the ten largest Common Market enterprises (hereincluded also those of the United Kingdom) in the manufacture of heavy machinery for the electrotechnical and electrical industries amounts to slightly more than fifty per cent only of the value of the output of the six largest American concerns in these fields (the respective figures for 1968 are 15.7 and 26.9 thousand million dollars).85 In the aircraft manufacturing industry the ratio of the Common Market and USA output is even worse: the respective figures for 1967 being 3.3 and 23.2 thousand million dollars.86 Similarly it has been found, however, that within the Common Market itself so far few steps have been taken towards the integration of the European top-ranking industries and the improvement of their efficiency. This statement is valid in particular for the direct actions of the organs of the Common Market called to life for this purpose. Still remarkable progress may be recorded, as far as the general legal apparatus is concerned, in trade, technological skill, the approximation of company laws as required by enterprise concentration, the form of large-scale enterprises, etc. This by itself is, however, little for bringing about veritable, concrete and joint concentrations, large-scale investments, drives on a world-wide scale in economy within the Common Market. Experiences so far accumulated of the direct actions of the European Economic Community show that both joint ventures organized and advanced by interstate means and joint ventures chanelled through the organs of the Community operate with considerable difficulties. In interstate organization and financing the difficulties mainly consist in that the intensity of the participation of the particular states, the fluctuations of this intensity in the course of progress, are apt to cause disturbances in production processes insisting on efficacious and dynamic leadership and in the achievement of the ends of commercial policy. For this reason both the89 82Euratom Tteaty, Article 2. 8 3See Industrial Policy 1970, in particular pp. 347 et seq. (‘Internationale technologische Zusammenarbeit und industrielle Entwicklung*); Programme o f Industrial and Technological Policy 1973, A -D , pp. 1 et seq. 84See supra Article 23 and paragraph 193 infra. 85The data have been published in Industrial Policy 1970, p. 341. 96Ibid., p. 344.

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memorandum on industrial policy of 1970 and the 1973 programme of industrial and technological policy have for the effective development of the top-ranking industries with Community organization and support advanced new programmes and proceeded to the elaboration and enforcement of them.8 7 Actions so far taken, or such planned to be taken in the future, are of a great variety. Thus mention may Be made of schemes for integration in company and fiscal laws, schemes namely which would permit concentrations on a larger scale and which have been discussed in several of their interrelations in the present work.8 8 The xole of Euratom in the development of the West-European atomic energy industry has by no means been quite futile, nor is the Concorde programme. Similarly, the interstate mixed-enterprises of West Europe display activities on a fairly large scale. Among the ideas embodied by the programmes of industrial or technological policy there are several promising substantial results. Here we have in mind those concretely elaborated programmes under which the cooperation of the European large enterprises is brought about with the organizational assistance of the Commission through complex contracts, the introduction of purchases and subsidies of the member states and the Community, with legal forms however, which ensure enterprise mechanism of autonomous and dynamic decision­ making. This end is served by what are called Community industrial development contracts of the Commission.89 191 The body of instruments helping the realization of the new ideas outlined in their general and principal interrelations extends to a relatively wide sphere of means. Apart from the general normative measures (L e. general Community law-making) there is a variety of concrete, individual and direct Community actions. (a) In the sphere of regional economic policy and industrial re-structuralization the establishment of long- and medium range programmes and the measures for their execution are of significance. A few striking examples follow. In industrial reshuffling for the execution of inevitable retraining schemes or for necessary moving (regional migration) processes the Common Market operates on annual plans and makes use of means of its own or those of member states.90 The subsidies institutionalized by the member states and distributed by the Community, as one of the general institutions of economic policy, fiirther the coordination of the policies followed by the member states in this field, as well as relations of the Community subsidy policy to the general economic policy, industrial and regional development policy of the Community, would deserve special and 8 7In general see Ibid., pp. 336 et seq. (‘Die Industrieförderung in den Technologischen Spitzenbereichen’) ; Programme o f Industrial and Technological Policy 1973, A -D , pp. 1 et seq. 8 8In particular supra Chapter IV on the approximation of company law. 8 9Industrial policy 1970, pp. 337 et seq. 90 In particular see the sections Sozialpolitik of the annual reports. The Report for 1971 informs us that the Social Fund of the European Economic Community expended a sum corresponding to 56.5 million dollars on retraining and resettlement; the Commission took part in industrial re-shuffling and working site organization schemes (General Report 1971, pp. 194 et teqj; the General Report 1974 makes mention, e.g., of more than 130 000 dwellings financed (pp. 120-31); and according to General Report 1975 the European Social Fund - covering a number of schemes on training, employment difficulties, housing, etc. - got close to 400 million unit of account (pp. 120-1).

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detailed treatment. Among others a separate discussion of the topic would be justified also because here we have the case of one of the most typical and relatively rapidly expanding categories of the interventionism of the monopol-capitalist State.91*In this connexion, however, reference will be made only to the subsidized state and Community schemes advancing definite infrastructural investments and the operation of directly producing industrial units in economically not sufficiently developed regions or schemes· which serve the improvement of the competitiveness of certain large branches of European industry and their development, e.g. shipbuilding, the textile industry, film production and aircraft manufacture.9 2 As to the shipbuilding industry on 10 July 1975 the Council approved a new Directive to find a Community approach on aids to this sector (with a few exception, subsidies must be abolished, aids for the export and sale of ships will be subject to the arrangements made within the OECD, investment grants to shipyards will be subject to an ex post notification procedure accompanied by multilateral discussions),9 2a which through the agency of the European Return Fund (Europäischer Zinsvergütungsfond) provide facilities for infrastructural investments and for the operation and development of directly producing industrial units in the form of favourable terms of financing or credits. In this mechanism the Fund from Community sources refunds a substantial part of interests payable by economic units established and operating in accordance with a given specification.9 3 The repercussions of re-structuralization of agriculture have remained a permanent item on the agenda of the Community. The process was meant to be relieved of much of its burden, e.g. by measures such as the introduction of various change-over bonuses. Thus a bonus of 1500 units of account is paid by the Community for the creation of each working site in industry if employment is provided for agricultural employees.94 The réadaptation of workers programme in the ECSC industries, for which the Community mobilized 20 million units of account in 1975,94a may be taken as another example. It was through the agency of the Community that by regulations promulgated in 1969 and 1970 a system became established which in the form of bonuses partly at least indemnify peasants or agricultural plants for the liquidation of fruit plantations or orchards, in certain regions for the reduction of dairy production, and the reorganization of cattle-breading. The problems, contradic91 The many-sided functions of the Community in matters of subsidies have been defined in Articles 9 2 -4 of the Rome Treaty, Articles 5 4 -6 of the ECSC Treaty. For the development of a uniform policy in matters of subsidy, the general and concrete role of the Community in subsidy policy, see the relevant sections of the Competition Policy Report 1971 (Staatliche Beihilfen, pp. 125 et seq.), or in monographie treatment in Ipsen 2, 669 et seq., Goldman 4, pp. 452 et seq. ('La mise en oeuvre des règles relatives aux aides des états.*) ,2 See General Report 1971, pp. 187 et seq. and Competition Policy Report 1971, pp. 145 et seq. 9^General Report 1975, p. 85. " I n 1971 the Community foresaw a sum corresponding to 250 million dollars for the purpose {General Report 1971, p. 182). 94In 1971 a budgetary appropriation of 250 million units of account was foreseen {Ibid., p. 182). 94*General Report 1975, p. 123. 17 Médl

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tions, the conflict of national interests burdening the agrarian policy of the Common Market are permanently on the agenda, and are reflected, e.g.t in the circumstance that Italy had to be held several times to the observance of Community regulation by way of judicial procedure.9 5 The most important programme — affecting, of course, also agriculture - is the European Regional Development Fund, which was being endowed with 1300 million units of account for the three years 1973/1975, with Italy and the United Kingdom as the biggest consumers (40 and 28 per cent respectively). In 1975 the Fund with its 300 million units of account contributed assistance, helped 1183 investment projects amounting, with the corresponding investments, to 2426 million units of account in total investment value in fields such as industry developing, infrastructure projects and other fields.953 The European Investment Bank is also one of the institutional means of the direct economic activities of the Community, or of the realization of the ideas of Community economic policy. The Bank has been established by the Rome Treaty for these ends. As the banking institution of the Community it operates as a bank, Le. for a profit, partly, however, it functions as an institution destined to carry into effect the economic programmes of the member states and the Community, as defined by Article 130 of the Rome Treaty, on a non-profit-making basis. Among the objectives defined by Article 130 of the Rome Treaty ranking first is the facilitation of the financing of projects for the development of less developed regions. Furthermore the scope of activities of the Bank includes the financing of the modernization of certain branches of industry and of enterprises, when the means available by the respective member states are inadequate for the purpose. Finally the Bank cooperates in the promotion of large-scale economic ventures affecting several member states of the Community. The European Investment Bank grants credits for regional development on preferential terms (in 1971, e.g. credits were advanced for financing 47 projects in the amount of close to 4 billion units of account, Le. about as many dollars that time), it undertakes bankers’ guaranties (in 1971, owing to the limited number of applications made, the amount involved was not excessive, ie. about 345 million units of account), and for the preferential development of the European money market it extends also general credits to the member states.9 6 9 5Regulations of major importance are: Nos 2517/69, 2637/69, 2475/70, 2565/70, 1975/69, 2195/69; cases Nos 3061972 and 39/972 had been beared by the Court of Justice (see publications of the Court); in these the Commission as plaintiff applied to the Court for the issuing of judgement against the Republic of Italy as defendant so as to enforce the Community regulations. 95aSee General Report 1974, p. 302, General Report 1975, pp. 110-1. 9 6Some data of the operation of the European Investment Bank: between 1958 and 1969 the amount shown on the balance sheet rose to 1.6 billion units of account; until 1959 the Bank extended loans and other aids of a total of 1.5 billion units of account to investments of the order of 7.1 billion units of account; the aids were granted for financing 229 larger projects in the member states and 51 projects in the associated states; within the EEC the share of Italy, a country presenting special problems owing to regional underdevelopment, was the largest (141, Le. about 50 per cent of all projects), moreover the development of South Italy constitutes a project worked out in all its details of the Bank (see Europäische Investitionsbank, Jahresbericht 1969, the printed report of the Bank, pp. 108 et seq.; Europäische Investitionsbank: Die Tätigkeit der Bank in da

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Other striking figures are the loans granted in 1975 by the Bank, totalling about 100 million units of account; this brought the total assistance granted by the Bank since its inception in 1958 to about 5700 million units of account as at 31 December 1975, which is surely a massive infusion for the economy of the community.9 68 Chapter III of the ECSC Treaty ('Investments and Financial Assistance’) brings under detailed regulation the ideas of economic policy and programmes of the ECSC in the moulding of the re-structuralization scheme in the coal and steel industries and the way of at least partially overcoming the difficulties apt to arise in this process. One of the items of the programme implies the extension of credits or any other financial assistance from the coordinated means of the member states or from means of the ECSC of its own, for the development of such new projects or branches of industry as lie in the general trend of technological development and are prepared for the absorption and the exploitation in a manner adapted to the changed conditions of the manpower and the assets (buildings, machinery or equipment) of retrogressive branches of industry. In the sign of the execution of the programme outlined in Articles 54—6 of the ECSC Treaty in 1971 with the consent of the Council the Commission decided on the financing of thirty-five larger schemes involving structural changes which represented a total of about 79 161 million units of account. The credit operations made possible the execution of investments of a volume of 379 583 million units of account and the installation of about 16—17 thousand new productive working sites.97 In 1975 the financing of ECSC investments covered a total sum of industrial loans of about 640 million units of account, and these served financing programmes for example in rationalization, and modernization, of collieries, installa­ tion of area heating schemes, extension of coastal plants, vocational training centres, etc.91** In its economic, social and political interrelations the tale of the process of restructuraHzation is best told by the particular example of the coal crisis of 1959-1960, which ultimately led to the putting into operation of the several means of the European Economic Community and the mobilization of its machinery as a whole, but was also, to some extent, liable for the crisis of the European Coal and Steel Community of that time.98 (b) Among the means and measures, applied and foreseen, for the discharge of infrastructural tasks on a European scale and for development schemes in what may be called technological top-ranking industries, there are the subsidies already discussed, the restructuralization and development schemes of the European Coal and Steel Community, the financial operations launched for these objectives, interstate ventures such as the Concorde programme,99 the promotion programmes of the European Investment Bank in these fields, further the programmes covered by government ersten zehn Jahren, 1958-1967, printed report of the Bank, pp. 25 et seq.). The investment policy of the Bank regarding frontier regions comprises 53 regions (see pp. 145 et seq. of the *69 Report). For the 1971 data see General Report 1971, pp. 192-3. "^General Report 1975, p. 48. *7General Report 1971, pp. 189-92. • '^General Report 1975, p. 45. # ,See supra Chapter V, paragraph 140. 99See infra paragraph 198. 17·

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contracts. The investment programmes of the European Investment Bank extend to the construction of modem power generating plants, the extension of the European communication network (construction of motor roads, gas pipelines and harbour installations, etc.), telecommunications networks, in the industrial development of electronics and in chemical industry. The sponsored programmes include partly investments within particular member states, partly developments initiated by a joint decision of enterprises of several member states, in the order of several billions of units of account.100 192 An idea of the weight in economic policy of government contracts is best conveyed by the amounts involved in these contracts.101 The government contract is one of the fundamental instruments of the interventionist economic policy of the member states of the Community and at the same time a significant institution of the direct economic operations of the Community. By the side of the solution of a number of smaller problems, government orders have stood in the European Economic Community for the solution of at least three major problems, and have meant the need for progress towards integration with regard to them. (i) The organs of the Common Market had to realize soon that although not a word was said in the Rome Treaty of government contracts, owing to their repercussions on the whole of economic life and in particular to economic competition, this phenomenon had to be made part and parcel of the economic policy of the integration and in particular of the industrial and competition policy.102 The institutionalization of this phenomenon, a process ranging from the dispute on the differing notional system of government orders and contracts through the clashes of a variety of interests, after delaying actions and hard combats10 3 eventually was given expression in a general programme on the free movement of services,104 to be followed by a set of draft directives and finally in a general Community regulation of government contracts, two directives of the Council and one decision.10 5 (ii) After the government contracts had by way of Community legislation been marshalled into the scope of Community functions and competence, as the second step it devolved on the Community to enforce its coordinating policy, its autonomous functions of economic policy. This before all meant the actual coordination of the marché public systems and policy of the member states. The principal items of the legislation serving this end may be summed up as follows: for the creation of an integrated market and for the enforcement of an integrated economic policy, and in10 10 0For the projects sponsored by the Bank in the branches indicated and their distribution see: Europäische Investitionsbank, Jahresbericht 1969, pp. 110 et seq. 101 Mädi 13, Chapter II, paragraphs 5 2 - 4 . (Just as an example: in France there are more than some major industries in which the marché public is liable for a very high percentage, from 20 up to 99%, of the total sales; so, e.g., in the aircraft industry, shipbuilding, electronics etc.) Industrial, P olicy 1970, p. 133. 102This has been stated by all competent organs of the EEC, see M. Deringer: Rapport au Parlement Européen sur les propositions de directives de la Commission au Conseil pour la secteur des marchés publiques. Journal Officiel de C E., 1965, No. 77, pp. 70 et seq. 10 3For this see Tavernier, pp. 202 et seq. 104‘General EEC Programme of Services’, Title III. 10 5Government contracts 1 - 3

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particular for the creation of a uniform competition policy, the legal and other barriers throwing difficulties in the way of a mutual sharing of the enterprises of the member states in the government contracts of the member states had to be removed;106* government contracts representing 100 000 units of account had to be distributed by way of calling public tenders,10” the regulation defined the public authorities and institutions to which this obligation extended,10 8 and the economic units which could bring forward claims for participation in public tenders;109 it specified the scopes where the states were under no obligation to make their contracts in this system.1101 The legislation brought under regulation the order of public tendering, so it decreed that any government project coming within the purview of this regulation had to be advertised in the official gazette of the Community,112 further it specified the uniform economic criteria for the adjudication of orders.112 A separate ruling, viz. the regulation of the Council, delegated a commission, the Consultative Commission of Government Contracts for the study of problems emerging at the maintenance and development of the marché public so regulated and for the elaboration of proposals to be submitted by anyone of the member states.113 (iii) In the field of government contracts it has been made the task of the member states to pool their financial means with those of the Community for the execution of certain definite projects. These means had to be applied, in the first place spent, for the development of technological top-ranking industries. The purpose is served by programmes partly in progress, partly approved, which in definite branches of industry and for definite projects among others foresee the coordinated and concentrated adjudication of government contracts. These programmes mobilize the enterprises of several member states and concentrate their activities, and will in this way —within the framework of Community industrial development contracts embracing the Common Market, the given member states and enterprises, and with respect to the concerns in question - lead not only to the integration of the marché public of the member states, but also to the execution of larger projects according to plan (research and development, large-scale concentration and organization of production and sales), and in the last resort to the development of the branch of industry in question on a European scale.114 While we shall by-pass the detailed discussion of the projects and the specific types of contracts for cooperation or for a loose association only, we cannot omit to point at two circumstances, (i) Difficulties have already been encountered at the selection of the participants of the projects and also at the

106 Government contracts 1, Article 1. 10 7Government contracts 2, Preamble and Article 3. 108Ibid., Article 1. 109Government contracts 1, Article 1. 110Ibid., Article 2 and Government contracts 2, Articles 4 and 9. 111 Government contracts 2, Article 12. Since then in almost every issue of the official gazette of the EEC (in all official languages) communications or formal invitations for tendering are published. 117Ibid., Article 29. 113 Government contracts 3, Articles 1-3. 114 See Industrial Policy 1970, pp. 357 et seq.

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observance of the new regulations, (ii) It is also likely that Community activity in the background of the economic units called to life in this manner is in conflict with, or anyhow affects, in the one way or the other, the general system of the anti-trust prohibitions concerning the enterprises, according to which the states (Le in the present instance the Community) institute no measures in respect of either state (Community) or, by guaranteeing an exclusive or preferred position, non-state enterprises (economic and legal units, owing to the preferred position so-called pseudo-state enterprises) which in their effects would run counter the rules of competition law of the Rome Treaty.115 The body of instruments of the Community finally includes also Euratom, which in the field of atomic research, development and production in interstate cooperation and in the system of the Euratom Treaty and its institutions unites the material efforts of the member states. Special mention should be made in this connexion of the institution of the joint enterprise constituted by the Euratom Treaty. Through the joint enterprise again the states of the Community appear on the scene with direct economic operations.116 In this connexion mention should be made of projects for the generalization of this form of association within the European Economic Community as a whole. The promotion of a policy with this in view is indicated by programmes of industrial and technological development and other sources.117 To conclude we may also mention the interstate enterprises already reviewed, which are equally items in the interventionist economic policy of the Common Market in a state of progress.118 193-5 The joint enterprise 193 We have now come to the ‘Community-state enterprises’ as the specific institutions of the European Economic Community. These either qualify as interstate (supranational) enterprises of the Common Market under corresponding interstate agreements or conventions, or are the products of the European Economic Community directly, in the formal legal meaning. These enterprises, too, are the means for the achievement of the objectives of the economic policy of the Common Market and of its concrete economic operations. Why these enterprises are special and what still remains to be examined are implied in the facts that (a) their sphere of manifestation is in the first place the European infrastructure and energy production and that, (b) their organizational and legal structures depart from the general. The European interstate enterprises mentioned above display their activities almost without exception in the power industry (atomic energy or electricity) or in the infrastructure (airfields, waterways, air transport, hydroelectric power plants).119 This is naturally accounted for by the European peculiarity that on the European 115 For the treatment of the problem see Article 24 supra. 116See Euratom Treaty Articles 45-51. 117Programme o f Industrial and Technological Policy 1973, Appendix No. 1; Wohlfahrt, pp. 1 et seq. 11s See supra Article 23. 119 See supra paragraph 179.

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continent, unlike the practice of the United States, the infrastructure of transport and power supply are traditionally reckoned mostly among the obligations of the State. Under the changed conditions of today this function of the State is discharged partly by interstate cooperation, or the European Economic Community. Preliminary work done in the European Economic Community justify the prognostication of an intensification of the integrated cooperation of the state transport enterprises. “The various subjects of transport as an economic activity have under present conditions to cooperate in particular with the goal,” reads a relevant recommendation,120 “that the systems operating in the various spheres of passenger and goods transport should advance between the largest possible number of termini with rapid, practical and economical connexions. In Europe a network of intercommunication systems should be created where airports and riverports occupying the same prominent position should dispose over direct railway connexions. It is only a relatively complete system of networks where transport enterprises can operate in an economical way. By economicalness as a matter of course economicalness from the point of view of both the entrepreneurs (transport enterprises) and the consumers making use of the services of transport should be understood. On the part of the consumer this finds expression before all in the extension of the system and its co-ordinated operation, in the comfort, speed and density of transport facilities. On the other side one of the preconditions of all these is that the interconnecting networks and the communication systems should be exploited in the optimum manner. It is exactly the principal function of complex cooperation that it should be capable of removing the obstacles in the way of optimum exploitation.” Under present conditions these goals can be achieved in the first place by the cooperation of the public transport companies of the member states and their international association. This cooperation necessarily will beyond infrastructural development have its effects on the development of a series of interrelated branches of industry (development of new vehicles, the development of equipment for the modernization of port installations, their standardization and standardized production), on regional development schemes (improved infrastructure for the industrialization of backward areas, their better integration into the economic life), moreover it will enable the otherwise non-competitive local enterprises to enter into competition even with larger international enterprises, which through several channels lead to improved services and in general to a more extensive development of the forces of production. Ideas of this kind find themselves stumbling along a course beset by obstacles. Notwithstanding the many asseverations continually sounded of Community commit­ ments national capitalist controversies often are reluctant to submit to larger European, in their last resort naturally, also capitalist systems of interests. It is true though that examples produced by an overstrain of national capitalist interests tend also towards cooperation. An example of the consequences of the want of cooperation and coordination and the prominence given to the prestige outlook is that of the competition of the SECAM and PAL systems in colour television. Notably this struggle for prestige and cut-throat competition in colour television have ultimately led to a ia o See Wohlfahrt, p. 4.

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situation equally prejudicial to both the consumer viewers and the manufacturers concerned in TV production. As is known the two systems of television permit mutual reception only at the expense of extreme complexities. This means at the same time that the particular member states and their manufacturing enterprises operate in the manufacture and marketing of TV sets, owing to the scientific and technological systems applied, under the pressure of strong limitations. This development is regarded as a warning example for the cooperation of the transport services of the member states.121 Owing to the objective peculiarities of this field, namely of traffic and transportation, the programme of the European Economic Community - partly materialized, partly outlined — will of necessity raise the question of the further extension of the international association of the public enterprises. Aircraft, water craft and land vehicles, traffic networks, railway stations and harbours, are owned by various economic units, public and private. In the various branches of transport in general definite systems of administrative rules are valid. International cooperation will have to unite and raise all these elements up to a certain level. The harmonization of enterprise (public and non-public) activities and of the normative systems of public administration, further international enterprise cooperation, cannot be achieved unless by joint action. Reality will through many contradictions and contingencies enforce the development of the two planes, viz. public and non-public, in the mutual joining of forces with growing determination. A form of manifestation of this trend is the ‘European Public Transport Enterprise’ (Öffentliches Verkehrsuntemehmen) which emerged of late in the big pool of ideas and instruments of the European Economic Community. This enterprise was to advance the cooperation in the first place of the member states, or the public transport enterprises of the member states, in transport. The Commission on the 17th September, 1972 submitted its recommendation fora form of company law which it considered most appropriate for the purpose. This meant the extension of the operation of the joint enterprise as brought under regulation by the Euratom Treaty to transport. Like in the exploitation of atomic energy the Commission thought this form of association to be the most appropriate to guarantee the cooperation and merger of public and non-public economic units and of the regulating systems of public administration in traffic and transport. Moreover the Commission took a step further. Notably it suggested that the member states consider the recommended form of cooperation also for use by joint ventures where the case was one of the promotion of Community interests also in prominent scopes of technological development.122 194 As for the legal structure the European Public Transport Enterprise, as joint enterprise, as well as its parent form, the joint enterprise of Euratom, depart from other interstate joint enterprises such as e.g. Eurochemic and several others already discussed.123 All these though have a main peculiarity and therefore several other traits in common. For the formulation of these common features the words of 121 For the economic consequences see Ibid., p. 9. 12 2 For details see Ibid., p. 21 12 3See supra paragraph 179.

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President Roosevelt may be quoted when in 1933 he proposed the creation of the Tennessee Valley Authority in the form of a public venture to Congress: “This type of enterprise demands institutions which have definite corporate status and which are clothed with the power of government but possessed of the flexibility and initiation of a private enterprise.” 124 The interstate joint enterprises are established normally by international agreements. This method is by itself often combined with cumbersome processes of amendment and ratification, with complexities of sovereignty and immunity. Existing agreements in general apply to a single scheme, they create a ius singulare into which dynamism might be instilled by reference to the given municipal company law systems. One of the principal functions of the European Joint Enterprise as a general legal form consists in that this enterprise by having recourse to the general Community rule as a general framework resolves this and other difficulties of a public law nature and settles these on a single occasion once for all, as has been done for joint enterprises in the atomic energy industry by the Euratom Treaty. Another principal function of the joint enterprises is to embody a general legal form which those participating may adopt even if failing a special interstate agreement, and once they have adopted it, embark on activities in the whole territory of the Common Market. The joint enterprises may henceforth dispense with initiating a procedure for establishment, for their movements on a Community scale, for opening up branches and divisions in every member State separately, or with operating in conformity with the provisions of company law differing by member states. When the flexibility of other intentate enterprises is considered, in this interrelation it will be found to be limited also for the reason that other interstate enterprises have been created and are still being created for a particular purpose, a circumstance which attaches the enterprise to a definite country and place, and even to limited concrete tasks. 195 As a possible projection of future legislation the principal elements of the legal structure of the joint enterprise may, on the pattern of the Euratom Treaty, be summed up as follows: (a) A joint enterprise endowed with the benefits defined by the Euratom Treaty cannot be created unless by the express resolution of the Council.125 (b) The Council will give its consent when the Commission submits properly substantiated proposals. These will have to contain the general ideas to be embodied by the enterprise, its detailed plans, the designation of the participants, the ratios of participation, the financial conditions of the construction and operation, the site of the plants to be constructed, the priorities desirable and necessary, the legal instruments of foundation and operation (memorandum of association, statutes). The proposals submitted by the Commission have to make it clear whether the planned joint enterprise is likely to accept a prominent role in the development of nuclear industry within the Community. This is namely one of the preconditions of the formation of the joint enterprise. Nuclear enterprises not laying claims to a prominent position may be formed in conformity with the municipal company law and the municipal law of the member states. A proposal submitted with the unfavourable12 12 4Quoted by Fligler, p. 7. 12 5Euratom Treaty, Article 49.

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opinion of the Commission may notwithstanding be approved by the Council by a qualified majority of votes.126 (c) For giving an opinion on any project the Commission is bound to consult the governments of the member states and may solicit any public or private body likely to provide useful information for its standpoint.127 As has been mentioned in another connexion this provision of the Euratom Treaty is a normative international measure where the phenomenon has been given a legal formulation that the states or community of states take steps qualified by the same instrument as such of general interests, or measures or institutions of public interests dependent on the opinion of interests mostly of private, big capital (industrial economic associations) rather than on that of public law interests.128 (d) The establishment of a joint enterprise may be initiated by the Community (Commission), a member state or any other economic-legal unit. The relatively open character of a joint enterprise is served by the provision that extraneous states, international organizations, moreover the nationals of third states may also participate in the operation of a joint enterprise. All that the Euratom Treaty requires for such a participation is the unanimous consent of the Council. The discriminatory nature of this provision, notably the requirement of a unanimous vote, has been mitigated strongly by the condition that for the participation of the Community as such in like way the unanimous resolution of the Council is required.129 (e) The joint enterprise may by a unanimous resolution of the Council be granted certain economic advantages enumerated in Annex III of the Euratom Treaty. By the resolution of the Council the member states are bound to guarantee these advantages to the joint enterprises if the case is one of economic activities affecting the respective member State or of an advantage which may be provided by such member State. The advantages which have to be defined seriatim may among others consist in the following: the member states by recognizing a public interest according to a municipal legal system may if necessary authorize the acquisition of immovable property for the construction of the plants of the joint enterprise by way of the expropriation procedure; failing an amicable arrangement the joint enterprise may on the terms specified apply for the ex officio grant of licences of patents coming within their scope of activities; the joint enterprises shall be exempted from all duties and charges (e.g. taxes) which for the bringing in of assets for the establishment of the enterprise, transfers, acquisition of immovable property, registration, are chargeable to the enterprise; the joint enterprises shall be exempt from the payment of customs duties and other quasi-customs duty payments; the member states waive any restrictions on entry or residence of both the employees of the joint enterprises and their dependants.130

129 Ibid., Articles 46(2) and 47. 12 nIbid., Article 46 (1). 13‘ For details see supra paragraphs 1 5 1 -2 in Chapter VI on economic associations. 129Euratom Treaty, Articles 46 (1) and 47 (a), (b). 130Ibid., Article 46 (2) Annex III (‘Advantages which May Be Granted to Joint Enterprises under Article 48 of this Treaty’), paragraphs 1-8.

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(f) The economic and legal unit so established shall have legal personality and shall enjoy the most extensive legal capacity granted by the municipal laws to juristic persons (acquisition or transfer of property or its assignment, the right to sue or be sued, etc). On the terms of the provisions of the Euratom Treaty here outlined the legal status of the joint enterprise shall be subject to the provisions of law applicable to the industrial and commercial enterprises of the member states. This law may be defined also by the statutes of the joint enterprise. For an amendment of the statutes the approval of the Council granted on the proposal of the Commission shall be required.131 (g) Litigation concerning joint enterprises, ie. not only disputes of the joint enterprise and other subjects-at-law, but also those of eg. the founder members (Community, member states, private persons) has been referred by the Euratom Treaty to the jurisdiction of the EEC Court of Justice or the competent domestic court of law of the respective State.132 This provision, too, casts a light on the path on which the West-European integration proceeds in the controversy between the economic obligations of the Community or the states, as the case may be, on the one part and on the other, state immunity.133 196 The interstate public enterprises 196 It is due to the singularis ius speciale nature of the legal statute of interstate public enterprises as resulting from a particular interstate agreement that in their statutes identities or parallelities may be established at most for the principal elements of their contents.134* Instead of reviewing the differences or the legal statute of the particular enterprises in the following discussion we prefer to analyse the principal constituting elements which may help to discover identities in the statutes of these enterprises. (a) When now the general analysis of the vast literature and international practice is omitted13s what may be stated is that the deeds of foundation or the memoranda of the interstate enterprises, with due regard to the scope and purpose of the enterprise, provide for their legal personality, as the legal minimum. There are deeds of foundation which guarantee this minimum by granting legal personality in conformity with the law of a definite participating State,136 whereas others recognize a legal personality in agreement with the law of all participating states.137 For a third category of interstate public enterprises the full contents of legal personality are brought under regulation by the memorandum or deed of foundation with a binding 131 Euratom Treaty, Articles 49-50. 132Ibid., Article 49. 13 3For details see infra Articles 26-7. 13 4See supra paragraphs 179-80. 13 5For the analysis see Fligler, pp. 77 et seq. 136 An enterprise of this type is Eurofima operating under Swiss company law; the Interna­ tionale Mosel GmbH (Société Moselle), governed by German law; for details see Fligler, p. 80. 137 An enterprise of this kind is Saarlor, a legal person according to French and German law; the Mont Blanc Tunnel, a combined Italian-French enterprise created by an agreement and endowed, respectively, with Italian and French legal personality (Fligler, p. 81).

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force on all participating countries.138 To ascertain whether this legal personality, beyond the civil law personality, attains the personality (the position of the subject-at-law) of public international law at all, or if so, to what extent, would lead us too far.139 What is essential is that the founder states recognize this legal personality at least in commercial transactions, and as regards public law rights act in conformity with the deed of foundation or memorandum. In what manner and to what extent the deeds of foundation define the legal personality of an enterprise, its limitations, the sphere of application of the normative municipal laws, will in the last resort be determined by the underlying interstate agreements. On this understanding it is a matter of indifference whether legal personality has been brought under regulation by the international agreement itself, or by the statutes being an annex to the latter. Namely in the latter instance the provisions of the statutes in question will qualify as the statutory source promulgated in this sphere of the public authority by the State. In the event of an amendment of the statutes the agreement of the founders will be needed. (b) A salient problem is that of the exercise of control and powers over interstate enterprises. (aa) A sub-question emerging here is that of the power and its control within the interstate enterprise for the concrete economic operations of the enterprise. Dependent on the legal form of the enterprise the subjects of this power are the general assembly of the founders or shareholders, the board of directors, the committee of auditors, or any other organ defined by the legal documents establishing the enterprise. Power itself extends to all economic and legal acts, before all to the making of contracts allowing participation in business transactions, to the appearance before the agencies of public administration or the organs of the judiciary, in so far that these are required for the achievement of the objectives of the enterprise. This power may even extend to the laying of claims to the founder states for definite state support. In conformity with its convention Eurofima e.g. has a right to insist on the governments’ assisting their railway administrations in measures relating to the operations of Eurofima.140 Eurochemic may claim the qualification of its actions for the acquisition of immovable property by the states as such laying in public interest and the acquisition of such property by a procedure of expropriation.141 (bb) The other question is that of the exercise of property rights by the founder states, implying the exercise of their power and supervisory rights over the operation

138 Article 2 of the Eurochemic Convention declares: “La Société jouira de la persomlité juridique. . . La société sera régie par la présente Convention, par les Statuts et, à titre subsidiaire, par le droit de l’État du siège dans la mesure o ù ΰ n ’y est dérogé par la présente Convention ou par les Statuts. ’’ 13 9For this see Fligler, pp. 77 et seq. 140Eurofima, Article 4 (b). 141 Eurochemic, Convention Article 2 (c): "Le caractère d ’utilité publique est reconnue, conformément aux législations nationales, aux acquisitions immobilières nécessaires à l’implanta­ tion des installations de la Société. La procédure d ’expropriation pour cause d ’utilité publique pour être introduit par le Gouvernement en cause conformément à la législation nationale en vue de réaliser ces acquisitions à défaut d ’accord amiable. ’’

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and finances of the enterprise in general. Naturally the principal form of this exercise of property rights is voting and decision-making of the managing organs t>f the enterprise formed of the representatives of the member states. This right extends to the appointment of the Board of Directors by the joint resolution of the member states. Owing to the presence of the representatives of the member states in the majority of questions of outstanding importance the unanimity of votes or a qualified three-quarter majority of votes has become established.141142* In certain cases the direct presence of anyone of the member states may be replaced by a third organ on which the respective State has conferred power to discharge functions in the specified field. The Eurochemic Convention e.g. declares that the enterprise has to forward annual reports to the participating governments. This report has to be submitted not directly to the governments, but to the Special Group of the Steering Committee of the European Nuclear Energy Agency. This Committee is formed of the representatives of the member states. It is the supreme organ of the enterprise and its resolutions qualify as the resolutions of the participating states. The Special Group decides, in general, by a majority of votes, in matters of major importance, by a qualified majority of votes. Its competence extends to the amendment of the statutes, the extension of the term of operation of the enterprise originally called to life for a term of fifteen years, the establishment of new plants, the signature of agreements with third countries, etc. 14 3 (c) The enjoyment of a variety of privileges and immunities is characteristic of most of the interstate public enterprises. It is for this reason that these enterprises have become special concern at the enforcement of the Rome Treaty. As could be seen earlier,144 the Rome Treaty envisages the abolition of the preferences of state enterprises operating in restraint of competition, or at least the placing of these preferences under Community control. For the time being there is a tacit agreement by which an interstate public enterprise founded by an interstate agreement comes under the ruling of Article 90(2) of the Rome Treaty. Literature, however, urges the Community to face the problem of this tacit agreement and asks the question whether a differentiated policy would not be well-advised also in this sphere.145146The sphere of privileges and immunities extends with a character varying by enterprises to benefits such as exemption from taxation of various degrees, exemption from foreign exchange regulations, freedom of money transfers, freedom of employment, the free-of-customs duty importation of the personal property of alien employees, etc. 14 6 Whereas on the one part literature presses for a revision of the various privileges or immunities, or at least their modification in line with the concepts of competition 141 For a detailed analysis see Fligler, pp. 96 et seq. 143Eurochemic, Convention, Article 11 (“Les rapports de la Société soumis à un Groupe Spécial du Comité de Direction de VAgence Européenne pour VÊnergie Nuclèaire,r), and the following articles. Its legal instruments associate Eurochemic with Euratom at several places, so e.g. as regards the agreements with the Euratom countries (Convention, Article 4); the representative of Euratom is a member of the General Assembly (Statutes, Article 10), etc. 144For this see supra paragraph 34. 14 s see Wohlfahrt, p..21. 146For the privileges and immunities see Eurochemic, Convention, Articles 6 -9 ; Eurofima, Articles 7 -9 ; Jochenstein Danube Power Work, Articles 17-8; Société Moselle, Article 46\Saarlor, Article 84; for further details see Fligler, pp. 100 et seq.

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policy as laid down in the Rome Treaty, on the other part it points out that interstate enterprises called to life void of these privileges might fall victim to possible discriminatory measures of the country of the enterprise headquarters, or its various legal and technical limitations, or that the authorities of the country of the enterprise seat might cause trouble in its operations by interfering in them, a contingency which might entail the distortion or frustration of the joint objectives of the participating member states.147 (d) There are divergences as regards the settlement of the question of the court having jurisdiction in legal disputes. There are agreements, such as those for the establishment of Eurofima and Basle-Mulhouse Airport, which recognize the jurisdic­ tion of the International Court of Justice at The Hague in disputes between the legal person created under the agreement and the founders, or between the founders.148 By the Eurochemic Convention the Special Group referred to before has been recognized as the extraneous and primary forum for the settlement of the disputes.149 Another group of interstate enterprises, including the Société Internationale Moselle, the Jochenstein Danube Power Plant and Saarlor,150 refers all disputes of the founder states to arbitration. In the case of these the establishing conventions recognize the binding force of the arbitral awards on the founder states. There is yet another expedient, in the agreement of the Latin American Forest Research and Training Institute which in the event of a dispute provides for the convention of a committee of conciliation formed of the representatives of the members. The parties are bound to consider the recommendations of the committee, still the recommendation itself cannot be enforced.1s 1 Whereas the principal peculiarities of enterprises outlined before hold with more or fewer differences also for the European Investment Bank, this ‘enterprise’ of a special economic and legal structure of the European Economic Community settles its legal disputes in like way in a special manner.152 This peculiarity of the law applied, however, remains a peculiarity only with respect of the forms of settlement outlined above. As far as it follows from the essence of the economic integration, however, it is a natural legal consequence in the field of the law. What is peculiar here is that the Rome Treaty in a fairly detailed form stipulates the14

14 1Jenks, L· W., International Immunities (1961); Fligler, pp. 9 9 -100; Sorenson, pp. 311 et seq. 14 8Eurofima, Article 14; Basel-Mulhouse Apport, Article 20. 149Eurochemtc, Convention, Article 16. 1 50Société Moselle, Article 24; Saarlor, Article 6 of Annex 29 of the Convention; Jochenstein Danube Power Work, Article 25. 1 51 See Article 17 of the Convention, and in general, Fligler, p. 115. 1 53It is a peculiarity of the European Investment Bank that, partly, it operates like any other bank/partly, however, it operates as an institution tied to the objectives of the economic policy of the EEC without profit considerations (ohne Verfolgung eines Erwerbszweckes); it operates with the goals set by the Rome Treaty (Article 130) before it (regional development, technological development and industrial reconstruction, larger joint undertakings); it is the legal peculiarity of the Bulk that in conformity with the Rome Treaty and the Statutes taken up in the Protocol attached to the Treaty it operates partly as a representative institution, partly with operative elasticity (Rome Treaty, Articles 12 9 -3 0 , European Investment Bank, Articles 8-13).

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jurisdiction of the Court of Justice of the European Economic Community in the disputes of the Bank. The jurisdiction of the EEC Court extends to the disputes arising between the member states relating to the Bank, the disputes associated with the obligations of the member states, the disputes between the Bank and the member states, further to disputes associated with the resolutions of the Board of Governors and the Board of Directors.15 3 197-8

The immune-reaction or what is going to happen to the sick?

197 We have to narrow down the question, and in particular the attempted answer to it, even before the tale has been told. The answer, which is attempted in the present work, will necessarily refer to only some of the problems, however, with regard to not quite insignificant interrelations, namely, how the sick, here expressed in general terms ‘modem capitalism in West Europe’, can endure the historical vicissitudes, or put up a good show. Since the present work as a whole analyses the nature and processes of application of the medicins, ie. the body of organizational and legal instruments applied, a short description can be offered at most of the immune-reaction and of the fate of the sick associated with it. This is valid in particular for the direct economic operations of the State, as applied therapeutic means and their concrete effects on the ‘physiology’ of the ‘sick’, the physiology being the mechanism of the economic policy of modern West-European capitalism fraught with contradictions. As is known immune-reaction will turn up at the implantation of foreign tissues. What is asked here is, whether the organism of the recipient accepts the foreign tissue at all and if so, whether in consequence of reception improves the conditions of the functioning of this tissue, or ejects it altogether. As to the naturwüchsig, to use the Marxian term, ie. the original nature of capitalism the outlined degree of state interventionism and its body of instruments appear as an extraneous tissue. In this generality two statements suggest themselves, (i) Although the study of the concrete rate of efficiency of the direct economic operations of the European Economic Community in their economic and statistical analysis is outside the scope of the present work, the figures as far as known and the therapies here outlined so to say locally bear testimony to a sufficiently significant and for the whole cured system to a certain reinforcing efficacy: they camouflage, temporarily cover up, ease the pain and ailments of the sick, and partly cure him. (ii) Against the concrete medicines, or here tissues, applied, some sort of an immune-reaction will in all cases appear, namely the mentioned naturwüchsig interests of capital. Yet under the present technical, economic and social conditions this reaction, too, will be expressed with certain historical experiences and lessons. Therefore (although there is a path, moreover one that beyond certain barriers will lead only through the ‘body’ of the sick, an alternative which understandably is not in the program of the European Economic Community) almost everybody con­ cerned will, in the hope of recovery, though with more or less unwillingness, take note of the bitterness of the pills. Let us see in the following section one or two significant concrete interrelations or examples of this unwillingness. 53Rome Treaty, Article 180.

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198 If only the important interrelations of the phenomena of immune-reaction will be looked for, the fact will loom up clearly that - in response to the pressing economic and political factors already treated before, and to the partially good example of the existing interstate enterprises or Community ventures - the agencies of the European Economic Community will take steps of continually renewed force, i t create frameworks of legal and economic policy, initiate and sponsor concrete projects, etc. for the expansion of the developing and regulatory role of the State or Community ‘hands’. Here the historical experiences and the lessons of ‘counter immune reaction’ will find expression. This cannot, however, camouflage the fact that reality adapts itself slowly and very unwillingly to the ideas synthesized in this connexion on Community level. Big capital, and in general private capital, is unwilling to have its grave dug even through the agency of the European Economic Community, or to retire from the battle-ground of economic activity when this is not advantageous for it. Moreover capital will in a variety of forms, overt and veiled, start counter-attacks. Overt counter-attacks are easy to discover. These are in general predatory acts of certain groups of private capital or power groups, groups namely eager to acquire maximum profits in business and demonstratively keeping out of the system of rules, in the present instance the system of economic and legal policy finding expression in the economic integration of requirements which in the last resort are themselves apologetic formulae of the functioning of the capitalist system of production. The indirect attack, the silent opposition, the tacit boycott, thus before all the impending of state and Community ventures already in progress, the real or evocative increase of the difficulties in the one form or the other, are almost permanently on the order of the day. The Federation of the French Entrepreneurs in its thesis of economic policy of 1965 on the one part emphasizes that “the free establishment and development of enterprises are, under the conditions of the natural laws of economy, irreplaceable sources of the betterment of the living conditions of man” . At another place the same theses point out that “in the management of business of the enterprises power cannot be divided; constant experience shows that any other formula leads to impotence”.154 It is impossible not to discern in these words the opposition to interstate or mixed, or any other enterprises managed through the agencies of the states or the Community, in general to the interference of the State. The 1971 memorandum of the Commission of the European Economic Community, while forestalling the general criticism of capitalist enterprises, itself plays a little bit in favour of this idea. As regards the legal and power aspects of projects organized with State or Community initiative or the Community industrial development contracts, the memorandum lays stress on the by itself well-sounding thesis that “management must in any case be guaranteed by the15

15 4 " . . . La libre création et la libre développement des entreprises dans les respects des lois économiques naturelles sont des sources irremplaçables d ’amélioration de la condition humaine.. En matière de gestion des enterprises l ’a utorité ne peut se partager, l ’expérience constante montre que tous autre formule a l’impuissance. ” The theses have been published by Weinmann, pp. 251-3, in the Annex Thesen des französischen Unternehmenverbandes zur französischen Wirtschaftspo­ litik.’

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application of the latest management methods, and administrative obstacles should be reduced to the necessary minimum, a control system should be created which places responsibility totally and wholly on the associated industrial partners” .15 5 To this general valuation perhaps two eloquent examples can be added which might uncover concrete reality so that it can be subjected to scrutiny. One has to discover real and to a certain degree immanent difficulties, and even capitalist conflicting interests in the way many writers appreciate the Euratom or Concorde programme and even ‘cooperate’ in their difficulties. Servan-Schreiber put it, e.g. that Euratom had achieved remarkable successes. In the solution of the technical conditions of econom­ ical generation of electric power by exploiting atomic energy Euratom outdistanced America. Protracting practices at the execution of the programme may nevertheless bring about a situation where Euratom will be relegated to a place behind America, and forfeit all economic advantages which through the technical solution might have become its share at export sales both in Europe and overseas. Difficulties of manage­ ment and the general attitude in its operation might often become obstacles in the way of the execution of a programme. Two excellent expert presidents of Euratom resigned their post, as they said because of their inability to cope with the handicap the competition of the national policies of the member states, the equality of the traditional categories of national law such as sovereignty, the rights of the member states at decision-making meant in their repercussions on the organization of the project, all combining to defeat the reasonable execution of the programme. The member states form value-judgements widely differing from the prospective advantages of the project: from national self-consciousness and for the safeguard of national interests they adhere in every respect to what may be termed juste retour, to the equitable recovery of their investments, this peculiar theory of economic sovereignty. Their decisive and almost exclusive attitude is the insistence on the guarantee of equal or relatively equal potentialities (often without the equality of investments), an attitude in permanent conflict with economic logic so desirable in an industrial venture (quick re-grouping, courageous acceptance of risks, uniform mechanism of decision­ making not characteristic of political bodies). Sovereignty on a political level and wrangling of interests suppress, impede or even obstruct the rapid realization of ideas of uniform managerial tactics indispensable to the success of the underlying economic venture.156 Strong criticism largely of a similar nature has been sounded against the supersonic aircraft project Concorde launched in interstate cooperation. It is well known from the daily press that on considerations of economic policy of the participating governments and owing to financial difficulties the scheme has passed through several crises. The budget of the programme had been curtailed at times by the French government, at other times by the British government, moreover there was a time when owing to the financial difficulties of the British government the scheme was threatened by complete failure. The French economic and political crisis of 1968 again brought about cuts in the budget of the programme. And the result: the Concorde15 15 5Industrial Policy 1970, p. 362. 15 4Servan-Schreiber, pp. 120 et seq. 18 Madl

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took off years later than originally foreseen. This would have been less critical, as experts wanted to believe. Problems of major order are hidden elsewhere. As French sources held, one of the drawbacks was the permanent crisis and uncertainty aircraft and spacecraft building industry had to cope with: the industry of a complement of several ten thousands of workers and employees was heading for an uncertain future. Owing to the insufficiency of government subsidies, (i) the working hours of the employees of the industry had to be curtailed, and, (ii) some of the manufacturing plants had to be laid off wholly and the workers dismissed.157 Another problem is implied in the fact that owing to the financial difficulties Concorde has, from the point of view of the future of supersonic aviation, become an outdated venture. Namely the Concorde plane is made of a material which may though transgress the sound barrier, still it is unable to go beyond the so-called critical heat threshold (2.2 times the velocity of sound). The number of passengers is 136. Since the plane has fixed wings, its speed cannot be sunk below or raised above, a certain level, a shortcoming which necessitates the construction of large runways for take off and landing. On the other hand there is an American supersonic aircraft, Boeing 2707, the product of a ploject launched later than the Concorde project. The new American supersonic aircraft will be on the production line in all likelihood in the late-seventies if on considerations of environment protection or owing to other considerations Congress actions will not delay the production schedule too much. On all points this latter type of supersonic aircraft, as understood, is superior to the Concorde. Its outer cover is made of titan, so that it endures the heat threshold in question, consequently it has been designed for a speed 2.7 times that of the sound. Its system of wings is adjustable, so that it can fly at very low speed, therefore it can take off or land in airports equipped with the traditional runway. Its capacity will be 300 passengers. This means that Concorde is wholly unable to stand the competition of Boeing 2707. As the saying goes, Concorde signifies the last phase of classical aviation, whereas Boeing 2707 is the first station of the new generation of aircraft, of the age of supersonic flying. Boeing is capable of further development, a property Concorde is lacking. The lesson that may be drawn is that notwithstanding the high costs of investment Concorde, (i) has made its appearance too late in the world market, therefore it can make but little use of the circumstance that in the capitalist countries for years to come the airline companies can change over to supersonic air transport only by placing orders for Concorde; (ii) in the technical sense it is in the long run very non-competitive. This is the worse because in the event of the execution of a more considered and dynamic supersonic programme, a programme less dependent on government budgets, would have guaranteed great advantages for West Europe in this for the future highly important branch of industry.158 As France Nouvelle in its analysis of the scheme writes, through the presentation of a prototype completed at the expense of exorbitant difficulties, French labour and technical skill and industry do not want to gain honour and prestige but, on better terms of economic policy and with a highly developed supersonic aircraft want to create a favourable economic15 15 ’ ‘Concorde’ et ‘Air-Bus* en pied de mur. France Nouvelle, 12. 2. 1969. 15 9Ibid.

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position for Europe . . . In the competition with the United States the time factor counts much.159 According to certain calculations the manufacture of at least three hundred Concorde-type aircraft would render the project profitable. In reality so far orders have come in for by far fewer, even at a time when expectations and interest in civilian supersonic aviation have presented an abruptly rising curve. As is sufficiently known of late, for reasons of environment protection and for fear of accidents, this interest is somewhat on the decline. Consequently, according to economic reports, a dwindling of the eagerness to make good preemptive rights may be recorded. Several airlines have asked for a postponement of signing the contract, because of further environmental, safety and financial studies to be made.160 Only the events of the following years will demonstrate, what is reality in the confidence of the staff directing the execution of the Concorde programme, namely that as was stated for example by H. Ziegler on the international aircraft exhibition in 1973161: no accident is able to kill the future of this plane, other types of planes had accidents too, but this could not hinder their economic success. M. Gallois, a well-known representative of the aircraft industry, the leading consultant of the Société des Avions Marcel Dassault, the largest enterprise of the French aircraft industry, emphasized that competition in the world market with American aircraft industry was possible only by bringing about the cooperation of the European national aircraft industries and state or state-sponsored projects, yet even in this case from the vantage-ground of a good (iie. protectionist) European commercial policy. Being asked on the lesson of the Concorde project he summed up the difficulties as follows: “It looks good in theory because if two or three countries combine to produce a civilian plane, one would imagine that costs could go down and that the market would be bigger. But it hasn’t worked out that way because a successful plane is the product of one man and his team. When you combine the different nations, the final product is more costly, takes more time, and performance is never as good as that achieved by one builder and his team.162 Things are, however, somewhat different from what may be concluded from this. Namely, the same international financial press promised a remarkable success for a European aircraft in progress with the aid of the association of capitalist enterprises: “After fifteen months of intensive planning and research, a pan-European consortium composed of Sweden’s Saab-Scania, British Aircraft Corp., West Germany’s Messerschmitt-Bölkow-Blohm and Construcciones Aeronauticas (CASA) of Spain, started the production process of their ‘Europlane’ (International marketplace, Oct. 2, 1972). The four corporations have started to build the $ 13 1s , For the criticism of the Concorde Programme seeServan-Schreiber, pp. 129 et seq., for the reaction of the economic process to it, e.g.: The Cost of the Money Crisis. Newsweek, 9.12.1968, pp. 55 et seq.; The Fall of a Supersonic Plane. Newsweek, 18. 6.1973, pp. 5 1 -2 (the latter reports on the catastrophe of the Soviet supersonic plane at the Paris international aircraft exhibition). 140See ‘International Marketplace’. Newsweek, 18. 6.1973, pp. 5 0-2. 141 Statement of H. Ziegler, president of the French ‘Aérospatiale’ participating in the manu­ facture of the Concorde plane on the occasion of the Paris international aircraft exhibition; Newsweek, 18. 6. 1973, p. 51. 14 *See ‘Competition Is Going to be Acute*. Newsweek, 4. 6. 1973, p. 56. 18*

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million, short-to-medium-range jetliner and plan to have it in service by 1979. The consortium foresees a market for more than 1 300 of the 120- to 180-passenger aircraft by 1985, with the biggest sales expected in the US. According to its advocates, the Europlane would be twice as quiet as the least noisy jet now flying; its nearest rival, they say, is likely to be the Boeing 528, which is still on the drawing boafds.”163 This example, pars pro toto, perhaps conveys an idea of how the struggle ‘capital v. State’ stands in the sphere of economy. § 26

The State in economy v. state immunity

199

The general interrelations o f importance

199 A characteristic trait of capitalist economic integration is its tendency to increase and gradually consolidate the interference of the State in the economic processes of the countries concerned. Another trait is the effectuation of this interference through the agencies of the integration, viz. the common institutions of public authority and public administration. As regards the legal structure, this tendency will not only lead to the development of a wholly new order of legal norms, to what is called Community law, but also bring about a legislation affecting the economy of the countries concerned, a legislation where state interference will become a reality and which for a substantial part shifts over to the competence of the Community organs. It has already been discussed earlier to what extent this process has encroached on the sovereignty of the states concerned.164 This has been followed by the visualization of the statics and dynamics of capital and enterprises, exactly by way of an analysis of the relevant parts of Community law. In the course of this analysis, however, attention had to be given to the real life of the law, ie. to its actual operation. This again called for a study of the practice of the Commission and the Court of Justice of the European Economic Community, and partly of that of the national judiciaries. And in this process one could witness that in a series of issues of vital importance, affecting the economy of the member states, moreover in certain interrelations even that of third countries, Community and not state administrative and judicial forums decided and imposed directly binding obligations on the member states. It was evident that here there was a case of the dissolution of the traditional and strict immunity of the State or rather of its shift from state level to Community level. The problem itself is, however, a fairly complex one, and for the general theoretical appraisal of integration sufficiently significant so that its special treatment is justified. The problem of immunity does not, however, end here. In the foregoing chapter we have discussed several types of the direct participation of the member states of the Community, or of the Community itself, in particular international economic operations, commercial transactions (establishment of enterprises, investments, credit14

14 3International Marketplace. Newsweek, 77. 6. 1973, p. 38. 14 4Supra Chapter III, paragraph 44.

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operations, purchase, and contracts for construction, etc.).165 The weight of this direct state presence was in capitalism of the second half of the 20th century in the ascendant, and increased in particular within the integration. This development has on the other hand brought about that, as confirmed by a number of concrete examples quoted in the foregoing chapter,166 for the safety and guaranty-interests of the commodity circulation of modern commerce, like any other natural and juristic persons, the State, too, should be obligated to the performance of its concrete commercial obligations, occasionally by the ruling of an extraneous judicial forum. This for its part would imply the raising of the query of the validity of one of the general principles of international law, viz. the principle of State immunity. As is known state immunity substantially implies that states cannot be made subject to the law or to the jurisdiction of other than their own organs, in general of foreign states. This traditional principle of international law applied, and still applies historically and for its contents, to the State as the carrier of sovereignty, to its so-called public law m e imperii acts. Owing to the new developments, le. the proliferation of the commercial or civil law acts of the State this immunity has begun to waver in the sphere called iure gestionis. For socialist jurisprudence the degree of relativization of the State immunity in the capitalist world as indicated by the facts may sound surprising. Hungarian juris­ prudence, mostly in agreement with the historical developments, emphasizes the absolute character of state sovereignty for every act of the State.167 The word ‘mostly’ wants to express that in international trade, in international commercial transactions, it was not even in the socialist countries seldom to waive state immunity for the nonce. Moreover there are new products of socialist legislation which in general declare that a foreign State is not entitled to immunity within the scope of commercial activities displayed outside its official functions. A provision of this kind is Article 47 of the Czechoslovak Act on Private International Law and Procedure of 1963. A similar provision has been taken up in Article 1111 et seq. of the Polish Code of Civil Procedure16 8. Also because of what has been stated above it is only a partly adequate 14 5See supra, Articles 23, 25. 14 4Paragraphs 195-96 supra. 14’ Although in the Diplomâciai és nemzetközi jogi lexikon (Dictionary of diplomacy and international law - ed. by Gy. Hajdu, Akadémiai Kiadô, Budapest 1967) has no entry on immunity nor does the university textbook Nemzetközi jog (International law; Buza-Hajdu) deal specially with it, and discusses diplomatic immunity only (pp. 209 et seq.), and so also the new lecture notes Nemzetközi jog (International law - ed. by Gy. Haraszti, Tankönyvkiado, Budapest 1971, pp. 236 et seq.); this understanding of immunity is clear from the discussion of the textbook on sovereignty (pp. 85 et seq.); from the paragraph of the lecture notes A vitàk elintézésének môdja (The method of settling disputes; pp. 329 et seq.); further, from several passages of works on socialist private international law (see e.g. Vildghy 2, p. 97). - Western literature puts it this way: The Soviet Union and the Central East-European countries continue to adhere to the theory of absolute immunity (Dedk, p. 431). 148The Soviet Union has signed a number of commercial and consular agreements where in respect of and limited to transactions entered into by her foreign trade representations she has given up the immunity of these representations; it is well known that these representations operated as part of the diplomatic representations and so in general they were entitled to the privileges and immunity of the latter (see eg. the Swedish-Soviet agreement of 1927 on the

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presentation of the facts, when socialist legal writers assert that bourgeois law and jurisprudence have developed the notion of relative immunity — namely that while operating in commercial transaction states do not qualify for immunity - over­ whelmingly in view of the strong direct economic actions of the socialist states or for the struggle against the socialist countries and for their discrimination.169 It will be seen that relative, limited or functional immunity is one of the objective laws of the monopoly capitalist economic development describable also as state interventionism. This does not, however, alter the case that relative immunity was resorted to in disputes with socialist countries also without any legal reason. Still this is not the principal motive of its appearance. Under the present condition of development, in the course of socialist economic integration, state immunity has been put in a new light also in socialist jurisprudence. With the proliferation of direct economic and financial undertakings and obligations of the states, the interests attached to performance and the safety of economic transactions have found expression as the recognition of an objective tendency in the jurisprudential problems intensively dealt with also within the Council for Mutual Economic Assistance (CMEA) under the heading ‘State liability for the undertaking of economic obligations’. In the sphere of economic obligations more generally, obligations falling normally under civil or commercial law headingsthe main drift points visibly towards the institutionalization of the quasi civil law liability of the states and governmental agencies and the regulation of this liability by agreements, through channels of public international law.170 One thing is, however, the development of law in the cooperation of the CMEA countries and another the changes in the concept of immunity in the law of the capitalist countries, and in the West-European economic integration. Comparisons, disjunctions, similarities or parallelisms cannot be reached unless through depthanalyses. The present work, however, has been written on the legal development of the West-European integration. What has been set forth above applies only to the more general interrelations of the metamorphosis of immunity. What follows now wants to betray, how does immunity in reality look like in West Europe. Stockholm trade representation of the Soviet Union; in Article 4 o f the 1955 Soviet-Austrian agreement, the legal status of the transactions of the commercial representations has been defined; sources Makarov, vol. II, pp. 45 et seq., 250; United Nations Treaties Series, pp. 304, 314; for the theoretical discussion of this situation in Soviet literature see Boguslavsky, pp. 323 et seq.). It is hard to establish what the relevant provision of the Czechoslovak code of private law wants to express, e.g. whether or not the provision applies to the variety of concrete economic com­ mitments undertaken by the State in the integration, or only to the usual marginal transactions {e.g. the purchases and building repair contracts of diplomatic representations, etc.). The actual interpretation could only be read out from practice followed during periods of any length. So far no such practice is known, at least one which would admit a wider interpretation. As regards the marginal deals, however, these in any case mean the segregation of iure gestionis affairs from the sphere of immunity, in other words, the acceptance of the doctrine of functional or relative immunity in this connexion. 1é * Vilàghy 2, pp. 9 6 -7 . ,7 0 For details see Kàlmân Gy.,A KGST âllamok anyagi felelôssége gazdasagi kôtelezettségvâllalasért (Liability of the CMEA states for the undertaking of economic commitments). Jogtudomänyi Közlöny, 19 72, pp. 290 - 8 ;Mâdl-Sôlyom, pp. 209 et seq. (‘Increase of the liability of states for the performance of their economic commitments’); or of late, Mâdl 12, pp. 265 et seq.

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200-1

The historical metamorphosis o f immunity

200 Going into the details of historical development would lead us too far. This is the case already because until of late the cardinal issue of immunity in international law was not the iure gestionis acts, but the appraisal of the state authority or public law acts of the states and governmental agencies abroad and the privileges enjoyed by the states and their organs as carriers of sovereignty abroad. This is by itself a problem with innumerous ramifications. In this general meaning immunity extends to important issues such as the position of the heads of State and the ministers of foreign affairs under international law; the diplomatic immunities; the partial scopes of the latter (from personal immunity to the law of asylum); the international status and immunity of consular institutions; and the acts of consuls and of international organizations; to important international instruments such as the Vienna Conventions of 1961 and 1963 on diplomatic and consular relations; to problems of particular prominence such as the what are called acts of state doctrine, a doctrine which among others throws out the question of recognition of the extraterritorial effects of nationalization by the countries of the forum (e.g. the problem whether a United States court may question the validity of nationalization in Cuba and on this plea dismiss the action of a Cuban state enterprise for the extradition of assets and property in the United States to the state enterprise and not to the former proprie­ tors),171 and finally to a problem of utmost importance, one which will be dealt with here, namely whether a State can be used and can judgement be given against this State by a forum abroad, when this State has entered into civil law or commercial transactions which come within the specific sphere of civil law or commercial law and are in general entered into by natural persons (enterprises, merchants etc.).172 201 As regards the latter, viz. state participation in civil and commercial law dealings, the historical path was in the beginning a single-track one. The rule of the feudal age, viz. that par in parem non habet imperium was by earlier authors generalized in an absolute form for the relations of states (and of those of the heads of State representing the states). Side by side with this was yet another axiom known in legal history namely that the king can do no wrong, which even today prompts certain Western legal systems to complicated circuitous legal solutions when before their domestic forums they want to have nationals indemnified for losses caused by state organs. The double-track path began when within the first bigger cases attempts were made to lure out the State from this comfortable position and to win a suit against it in the open arena of the law. This happened towards the end of the 19th century. This was exactly at the time when the thesis of the absolute immunity of the State, among others by repelling such attempts, had consolidated to a general thesis of international law and gained universal validity and currency.173 In the period of laissez faire of 171 For details see Mâdl 8, pp. 8 7 -8 ; Deàk, pp. 445-9. 173 For the comprehensive treatment of this ramified problem of immunity seeDeàk, pp. 381 et seq.; Bûza-Hajdù, pp. 209 et seq. 17 3For the treatment of the historical development see Deàk, pp. 424 et seq.; for the immunity of the mediaeval city states see Bùza-Hajdù, pp. 44-6.

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liberal capitalism the defenders of the rampart had it easy, for the State did hardly cross the boundary line of public law and political acts of the sovereigns. As soon as, however, the State in its monopoly capitalistic phase made its appearance in social, political and economic fields which earlier counted as exclusive private fields, the earlier clear-cut border lines and the formerly strong ramparts were ate away by the erosion more and more. Today we are at a point where, except for Britain, in the countries of the European Economic Community (and also the United States of America), immunity has in judicial practice been withdrawn from acts iure gestionis, Le, where relative immunity has received general recognition. This is the substance of the historical metamorphosis, which has been treated with sufficient thoroughness by literature and therefore an adequate acquaintance with the process must be presumed in this connexion.174 § 27

Immunity and integration

2 0 2 -3

Disputes on Community and interstate enterprises and immunity

202 As far as the judicial assessment of the operative economic acts of the states or of the Community as a public law institution are concerned the West-European integration has, to proceed from the individual to the general, brought on the stage the multiplicity of variants of solutions and of concrete individual cases in association with the interstate Community enterprises dealt with in the previous chapter. Since these enterprises owe their life to interstate agreements, the fact that in these agreements the states have refrained from placing their disputes, on the plea of immunity, into some sort of a legal vacuum, and therefore recognized the jurisdiction of the one forum or the other, may formally be valued in a way that here there is a case of the waiver of immunity, an act which any State is free to do at any time. Yet here the substance is hidden in the contents, namely in the circumstance that here we have transactions in general coming within the scope of commercial law and so it was the proper course for the several undertakings of obligations, the foreseeable and unforeseeable, still contingent and in any case complicated disputes of a commercial or civil law nature, to recognize the legal system of the one definite State or the other and consequently the jurisdiction of the forum of this State. This policy was of necessity part and parcel of the establishment and operation of the given enterprises in the same way as money, management and many other things such as statutes, statutes namely which, however detailed, could not eliminate any contingent dispute or settle it beforehand. 203 Among the principal elements of the legal status of these enterprises earlier we have discussed the disputes of the joint enterprise of the Community and the interstate enterprises of the member states, and also the settlement of these disputes.175 The gist of this discussion may as regards immunity be given as follows.

174For treatments of the problem coming within this scope see Deàk, Lauterpacht, Lalive, Sinclair (these authors offer a detailed analysis of judicial decisions demonstrating the change). 17 5See supra Chapter VII, paragraphs 195g and 196d.

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(a) There are several variants of the settlement of these disputes. What is substantially common in these variants is that the establishing legal documents beyond doubt define the forum determining legal disputes and the applicable law. In other words in the given relations the states waive their immunity and assign jurisdiction in possible legal disputes to a forum176 other than their own (at least in respect to one of the parties). (b) The possible forums acting in disputes extend from the International Court of Justice of The Hague,17 7 through the domestic courts of law of the member states178 to the Court of Justice of the European Economic Community or any other agency of this Community.179 (c) Ever since the European Economic Community came to life the general tendency has developed to refer legal disputes to the Court of Justice of the Community or to the courts of the member states.180 204- 7

The Court o f Justice o f the EEC and immunity

204 Perhaps the first question that may be asked here is why is it that we have to deal with the Court of Justice of the European Economic Community in association with immunity. In fact here we have the case of a forum established by a treaty, a forum whose jurisdiction the contracting member states have, in definite questions, recognized of their own will. Consequently the question whether or not the member states may bring forward the plea of immunity has been settled. Yet this still remains a problem, and for that matter quite a substantial one, viz. the institution of immunity. First of all, what may be regarded as a formal argument, the contractual waiver of immunity, is named even by the European Convention on State Immunity as one of the cases of the limitations of the classical immunity of states.181 Even one of the well-known forums of international legal life, viz. the International Court of Justice functions on the principle of voluntary submission.182 The substance, however, is in178*

17‘ See Eurofima, Article \A\BaseUMulhouse Airport, Article 20. 177 Société Moselle, Article 24; Jochenstein Danube Power Work, Article 25, Saarlor, Article 6 of Annex 29. 17 8Article 49 of the Euratom Treaty states that the legal disputes of joint enterprises come within the jurisdiction of partly the Court of Justice of EEC, partly the domestic courts having competence in the matter (‘Subject to the powers conferred on the Court of Justice by the Treaty, litigation concerning Joint Enterprises shall be dealt with by the competent domestic courts or tribunals’). 17*See supra Note 178, and Eurochemic Convention, Article 16 (according to the latter in the first instance litigation should be referred to the Special Group of the Steering Committee of the European Nuclear Energy Agency. Thus Eurochemic have become tied to the forum system of Euratom). 18 0This is indicated by the forum system of Joint Enterprises intended to be developed as a general form, still also by such a unique large institution as Eurochemic. See the two previous notes. 181 See infra paragraph 211. 18 2See Haraszti, pp. 219 et seq.

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the contents. Namely, (i) in the plethora of legal disputes newly brought about or likely to be brought about by the integration, and (ii) in a number of cases which earlier came within the municipal jurisdiction of the one or the other State, jurisdiction has been shifted to a forum relatively segregated from the states. By this act in the also from an international point of view extremely important legal relations, traditional state immunity has been consumed, i.e. factually liquidated. When we now consider this phenomenon in interrelations of the history of the institution of state immunity we cannot but admit the description which in the formulation of a writer of recognized authority reads as “the conventions creating the Community have vested duties and rights in the Court which are as regards both their sphere and the difficulties associated with them without example in history” .18 3 205 What is the question here in a slightly more concrete form? The economic integration, as formulated by the ECSC, the Rome and Euratom treaties, means the coordination of the public law systems of regulation of the member states as relating to economy, ie. of the acts of the states, their subordination to a uniform or integrated control and in this process their development partly into new institutions of law or Community systems of regulation. Facts and practice have shown that in this process an enormous mass of contradictions and disputes is apt to arise. This development has been presumed also by the covenants of foundation. The subjects of these disputes are in the first place the member states and the Community, or its public law organs. Beyond this, however, the integration, through directly regulating and applicable rules, produces a continually growing number of legal relations and disputes between states, Community and private parties. Already at the very beginning two fundamental principles have come to adhere to the legal mechanism of the integration from objective necessity, (i) The absolute need for a forum qualified and authorized to pronounce decisions of a binding force to settle any disputes or contradictions; and (ii) the need for a forum which not only is vested with jurisdiction in individual cases, but has as its function to determine disputes and to marshal the main drift of legal practice in conformity with the ideas of the integration lest these disputes or controversies should, as motivated by the different national or economic group interests, operate towards disintegration. These are the logical and legal premisses which have led to the creation of the Court of Justice and its endowment with a jurisdiction without example, consuming the immunity of the member states to a great extent. At the establishment of the European Coal and Steel Community (ECSC) in the beginning the idea was to establish a political forum of quasi arbitral powers. The idea was, however, dropped soon in favour of a court of judicial character.184 In the charter of the three communities, viz. the European Coal and Steel Community, the European Economic Community and the European Atomic Energy Community the now for all three communities common Court is one of the organs of fundamental importance. It is by all means characteristic of the significance of the Court that whereas e.g. the Euratom Treaty provides in eight articles of the Assembly, in nine articles of the Council in eleven of the Commossion, 18 *Ipsen 2, p. 373. l94Ibid., p. 366.

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it has twenty-five articles on the Court of Justice.185 The same may be said of the ECSC Treaty and the Rome Treaty.186 206 During the twenty years an enormous mass has been written on the principal features and general interrelations of the jurisdiction, functions and judicial practice of the Court of Justice of the European Economic Community. The bibliography of the literature on the Common Market started in 1965 amounts to several volumes. In these this literature has been and is reviewed systematically and broken down to a constant internal structure to make it more accessible to the student.18 7 There is also a large number of recent treatments of a monographic character and papers of principle and theory bearing on the main issues.188 This is associated, (i) with the undoubtedly important role of the EEC Court of Justice, (ii) with the legal thinking of West-European jurisprudence in its study and valuation of the legal practice. Mostly under the impact of Common law interests are tied down by the way how statutory or codified law is translated into practice, and finally, by what the decisions of the enforcing forums mete out to the addressees of statute law rather than by statutory law and the law as codified in the various sources of law. This approach as a matter of course subsists on the fact that, beyond the purely technical application of the law, the EEC Court of Justice has a many-sided creative function. It would cany us too far if we dealt in this connexion with all principal features and general interrelations. (a) Perhaps the most characteristic feature of the EEC Court of Justice is the critical thesis that the important role and jurisdiction of the EEC Court by which, if derivatively and relatively only, it has grown to a power institution above the member states, implies the waiver not only of state immunity but, to a certain extent, also of national sovereignty. This fact has been emphasized not by a single judgement of the EEC Court. When, e.g., Italy in a case of nationalization stood up against a preliminary ruling of the EEC Court applied for by a Milan court of law, the EEC Court held that although it did not argue the position taken by the Italian government as regards the substance of the case still in its association with the Rome Treaty the EEC Court could hear the case, because it clearly followed from the Rome Treaty that in it the member states intended to restrict their sovereign rights.189 Even if it is not justified to exaggerate the waiver of sovereignty190 (in socialist literature it has been stated with good reason that in the Common Market there is no case of a comprehensive or some sort of a va banque waiver or liquidation of sovereignty),191 it remains nevertheless a fact that with its very existence, in parti185E uratom T reaty , Articles 107-14, 115-23, 1 2 4 -5 ,1 3 6 -6 0 . 1**ECSC Treaty, Articles 7 -4 5 ; R o m e Treaty: Assembly, Articles 137, 144, Council, Articles 145-54, Commission, Articles 155-63, Court of Justice, Articles 164-88. 18 7See Jurisprudence européenne. 188The following should be mentioned of the more significant ones: Ax line, BrinkhorstSchermers, Green, Ipsen 2, Lagrange 1, Nicolaysen, Prasch, Robertson, Strauss, Verpraet-Lecerf 18 9See Costa and Enel (Case No. 1964/6); quoted by Brinkhorst-Schemers, pp. 105-7. 1 ,0 See Tervek a szuverenitis felszamolasara (Plans for the liquidation of sovereignty). In B ùza-H ajdù pp. 96 e t seq. 191 See Valki 1 , p. 92.

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cular with its jurisdiction and practice the Court of Justice has on the part of the states reduced and on that of the Community increased what can be given the name of the virtual imperium of a subject of international law, or in general that of sovereignty or status under international law of this subject.192 (b) The following general feature manifests itself in the principal duties or functions of the Court emanating from the foregoing. These functions are the moulding of legal practice for the purpose of integration, the filling of the gaps in the law with creative interpretations, the chanelling of the contradictions of the continually spreading Community law fraught with many anomalies through the integration, the constitu­ tional supervision of the acts of the Council and the Commission, in the disputes between states and Community, or within private parties and the states or Community, the guarantee of the appropriate defence of the litigants in conformity with the ideas embodied by the treaties, in particular the protection of the civil and commercial law subjects of the Common Market against the extensive executive power of the Community or the arguable measures of the Commission, the permanent supervision of the relations between Community law and municipal law, the concrete and dynamic moulding of these relations in judicial practice, the enforcement and development of the economic policy of the Community, in particular of the body of provisions of law governing economic competition and the market mechanism, the development of autonomous principles and methods of the interpretation of Community law, in particular through the reinforcement of the practice of so-called preliminary rulings.19 3 (c) In agreement with the well-known concept of the bourgeois theory of State and law the literature on European law has transferred the theory of a division of the branches of the public power also to the organization of the Community, and regards the Court of Justice of the Community unambiguously as the third branch of public power.194 The Marxist criticism of this theory is sufficiently known in socialist literature. Of the concrete judgements reviewed in the foregoing chapters there are several which for the practice of the Court of Justice demonstrate that the Court is not a sort of segregated or autonomous authority; the critics say rather the opposite, ie. the EEC Court of Justice lags very much behind in the enforcement of a policy of forcing back the interests of certain capitalist groups by the authority or the power the Court really has and the substantiation of which is considered justified also by West-European professional literature.19 5

19 *In general it is valued in this way by EEC literature. See e.g. the expressive title ‘Political Integration by Jurisprudence’ in Green’s work and his valuation, p. 1. 1 9 3Rome Treaty, Article 177; since the Community rules (and so also the treaties) are mostly directly effective and the domestic courts of law apply them directly, disputes may arise before the domestic courts in matters of interpretation, namely the legality of the acts promulgated by Community agencies. For a uniform settlement of disputes the Court of Justice of the Community, in its preliminary ruling, makes its uniformly observable decision known. 19 4So e.g. Ipsen 2, p. 366; and similarly, in a monographic treatment, Green, pp. XXI et seq. 19 5See e.g. the judgements in the Continental Can Company case (Chapter VI, supra) and in that of Luxemburgische Staatsanwaltschaft and M. Müller (paragraph 188, supra).

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207 An idea could be conveyed of the weight and authority of the Court of Justice even more by an analysis which would by way of an adequate classification take up the jurisdiction of the Court in a ratione personae et materiae inventory and subject the activities of the Court to an investigation of sociology and statistics. (As compared with the initial 4—10 cases now annually 70—90 new cases come up before the Court, some of them with judgements covering close to thousand pages, such as e.g., the complex of judgement in the Farbstoffe case, so that the judgements in terms of length in the French edition amounted to 10 000 pages at the end of 1967, an extrapolation of this number to the rest of the judgements could most probably pro­ duce 20 000 pages; according to the General Report of 1973 the Court heard more than 200 cases —a few eloquent data of the activities of the Court.196 It is evident however, even without a classified analysis that, although formally through voluntary submission and by authority vested in it, the Court of Justice of the European Eco­ nomic Community in momentous issues absorbs also such jurisdictions as either owe their origin to the integration, but apply also the states, or had existed also before, but had been assigned to the competent domestic forum before the integration. 208-12

The European Convention on Immunity - the generalization o f relative immunity

208 Although the individual sources of law of the interstate or Community enterprises, and in particular the rather extensive jurisdiction of the Court of Justice of the European Economic Community in economic-commercial or civil law relations have combined to relax the inconvenience of state immunity in a large number of potential cases, relief, however, is still not general. Capital and capitalist economic warfare and the absolutization of the economic rationale of trade, all strive for total victory. Since the factual partial absorption of the immunity of states in the former two spheres, viz. the normatives of interstate or Community enterprises and the rules of the charter of the European Economic Community and norms formulated on its pattem, has to be understood in the strict meaning of the term, Le. it holds for governmental acts performed within the integration only, there still remains the demolition of the surviving bastion of immunity protecting any other state-operative actions or the elements of immunity in question in this general sense. Integration has imparted a significant impact to this tendency from two sides, (i) With the increase of the direct undertaking of obligations by the State and Community from the economic side, or with the legal mechanism outlined earlier also from the legal side, it has not only applied force to the principal buttress of absolute immunity, but also crushed its main pillar. If an army is in permanent advance, this is by itself one of the forces and sources of further conquests. This is the case with immunity too. If the bastions have been conquered at so many places, why not hoist the flag on it? 1’ ‘ The following are the sources and the treatments in literature (where the above data have been taken from): General Reports, in their sections relating to the Court of Justice; as regards the jurisdiction, the corresponding articles of the three fundamental treaties, in literature: Green, Brinkhorst-Schermers, Verpraet-Lecerf.

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Why not strive for complete and universal dominion? And where is the troop that still defends the fortress, when it is almost in possession of the invader, so that the flag is also his? (ii) The other impact, for that matter a more objective one, comes from the fact that integration is driving for unification and harmonization. According to the tendency outlined in the previous section judicial practice though in general signals the gathering of strength of functional immunity, still in the Community countries partly this process has not yet taken place with the same contents, moreover not even to the same extent,197 partly judicial practice in all its forms can in a more contingent manner follow the general principal tendency than a general convention. 209 This was the background when in 1964 the Conference of the West-European Ministers of Justice decided to put the question of state immunity on the agenda, with the view to bringing about a convention.198 As the outcome of this conference on the 16th May, 1972 the European Convention on State Immunity and Additional Protocol was submitted to the Seventh Conference of the European Ministers of Justice for signature. A committee had been placed in charge of codification work, which was completed in fourteen sessions of the committee between 1965 and 1970. Although in the preparatory work also other states of the Council of Europe took part, essentially the convention was brought about and signed by the countries of the European Economic Community, among them also by the United Kingdom, although for reasons of an adversary practice this act required a substantial change in the British concept of the problem.199 210 What are the pillars on which the Convention rests and which are the principal issues it settles? (a) One of the principal issues was whether or not simultaneously with the declaration of relative immunity the Convention also implied the forced execution of judgements pronounced against a foreign State and the obligatory toleration of this execution. Had the drafting committee ignored this issue, (i) the Convention would have turned the doctrine of non-immunity into a lex imperfecta, into a dead letter; (ii) the Convention would have failed to offer anything substantial to the majority of the participating states, which in practice stood already on the ground of relative immunity. The neuralgic spot in the protracted discussions on the issue was what many thought was the too demonstrative humiliation of state sovereignty, a contingency likely to be encountered in sequence in the course of the judicial execution of judgements against the one or the other State. The Convention therefore prohibited the forced execution against a State, still on conditions set forth in Articles 21 and 22 the signatories undertook to carry out the judgements delivered by the courts of the states signing the Convention in legal relations defined by the Convention of their own free will. Against the too extensive or too restrictive interpretation of the 1 ,7 English judicial practice is still inconsistent, the general rule (stiU with many conflicting decisions of the lower instances) being absolute immunity CSinclair, pp. 260-1). 19 8The corresponding decision: “ . . . with a view to choosing the best method of resolving the difficulties existing in this matter, whether by elaborating a Convention or by other means that seem appropriate” , as quoted by Sinclair, p. 266. 1’ ’ The procedure of ratification has still to be instituted; for the antecedents of codification, see Sinclair, p. 266; for the actual practice of the United Kingdom see Sinclair, pp. 260-1.

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Convention both the plaintiff and the defendant states may have recourse to a special forum. This recourse to a special forum would by Article 21 have been made subject to a specific procedural system which could have been brought under legal regulation with much circumstance only. The way out of the quandary has been found by way of a Solomonic provision taken up in Article 21 of the Convention according to which competence has been vested in the court of the country of the defendant. Before this court, either party may apply for a declaration to the effect whether the proceeding court of the foreign State has acted within the purview of the Convention or has gone beyond it, and consequently the party concerned has or has not to carry out the judgement. Part I of the Additional Protocol to the Convention completes it with the optional right of the parties to have Article 21 established by a tribunal consisting of seven members of the European Court of Human Rights. (b) Another issue was how the line should be drawn between acts of sovereignty coming within the scope of immunity and iure gestionis acts not excusable on the plea of immunity. One of the solutions, though rejected on account of opinions diverging by states, would have been to recognize the procedure of the court of the foreign states in commercial and civil law relations to which another State was also party, in a way the domestic courts of this other State proceed against their own State and in cases in which these courts could deliver judgement against their State (the assimilation of the foreign State to the position of the State of the forum before its own courts). Another solution —for its defying attempts at a reassuring and clear-cut formulation in like way rejected —would have beei? the cataloguing of the iure gestionis and the iure imperii acts. A third expedient was eventually adopted by the committee. Accord­ ingly, the Convention in Articles 1—15 defined the cases (exception) in which immunity cannot be claimed whereas the Convention in Article 15, as a residual in general, maintained the absolute immunity of the states. The extent to which the exceptions encroach on the general rule will be discussed below (paragraph 211). (c) The third issue of importance centred round how an act iure gestionis of a signatory should be treated when this act had gone beyond what the Convention recognized as limit. Should the State concerned retreat to within the scope of the Convention, or should it be allowed to stay where it was? Again economy and capital running after its money remained victorious. The Convention namely declares that, as regards the limitation of immunity by signatories to the Convention to the prejudice of other signatories, the former may go even beyond what the Convention recognized, up to the limit which they have drawn or will in the future draw in respect of non-signatories.200 211 The catalogue of cases not coming within the scope of immunity may on the strength of the Convention be drawn up on the following lines. (a) The non-immunity categories as formulated by the initial provisions are not functions of the notion of acts iure gestionis. Thus the State instituting procedure against another State cannot in the same case put in a plea of immunity, nor can the sued State once it instituted a counter-claim.201 Neither can a State plead immunity 100State Immunity, Articles 2 4 -6 . 101 Ibid., Article 1.

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which in any form, e.g. in the contract under litigation, or in an international agreement, or in any phase of the procedure, has submitted itself to the jurisdiction of the court of a foreign State. In this case the entry of appearance in the lawsuit before the forum of the foreign State will also be construed as the waiver of immunity.202 (b) The remaining cases of the catalogue are iure gestionis for which the Convention does not recognize the immunity of the states. If now possible exceptions, e.g. agree­ ments expressis verbis to the contrary, are ignored, iure gestionis are those obligations which will have to be discharged in the country of the forum;203 the contract of employment for work to be performed in the country of the forum;204 legal disputes of enterprises or juristic persons established by the State in conjunction with private parties (natural persons or enterprises) — if the registered office or principal place of business of the legal entity in question is in the country of the forum;205 the industrial, commercial and financial activities of the institutions (agencies, offices) of foreign states established in the country of the forum — when performed in the capacity of a private party;206 cases relating to industrial property registered in the country of the forum —when the injured party as well as the foreign State are, eg. in a case of the infringement of patent rights, litigants in the legal dispute;207 cases relating to the right of the State in respect of immovable property —arising by way of succession if the property is in the country of the forum;208 proceedings relating to damage caused in the country of the forum —if the author of the damage is in the one way or the other present in the territory at the time of the occurrence of the injury;209 proceedings relating to the interpretation of an arbitration agreement - if arbitral procedure takes place in civil or commercial matters and in the country of the forum;2 10 finally there is a general provision in the Convention which as regards property (hereincluded the estate in bankruptcy) assigns control and administration to the lex rei sitae irrespective of whether or not a foreign State has a right in such property and no provisions of the Convention can be given a construction defeating this jurisdiction of a court of a contracting State.2 11

2 02Ibid., Articles 2 -3 . 2 0 3Ibid., Article 4. 2 04Ibid., Article 5. 2 0 3Ibid., Article 6. 2 06Ibid., Article 7. 2 0 7Ibid., Article 8. 2 0 8Ibid., Articles 9 -1 0 ; it should be noted that no connecting factors have been taken up in the Convention on the estate of deceased persons, presumably owing to the difficulty to come to an agreement (so Sinclair, p. 272); the same applies to gifts for the benefit of the State. It would be difficult namely to decide that for an estate scattered over several places the site of which of the items of the estate should constitute the preferred forum. Thus in principle all of them can be considered as appropriate forums, with the proviso, however, that for the State passively affected the denial of execution has been made easier by the Convention as compared to the general regulations (State Immunity, Article 20). 2 0 9State Immunity, Article 11. This article does not, however, apply to damage caused by unfair competition; see Sinclair, p. 271. 210State Immunity, Article 12. 211 Ibid., Article 14.

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212 One would be inclined to speak in this connexion also of a number of other interrelations of the Convention. So, e.g., of how arguable an attempt the Con­ vention is at giving a definition of the State quoad non-immunity,212213 or further­ more that the Convention cannot be applied to proceedings concerning claims relating to the operation of seagoing vessels operated by states, social security, damage in nuclear matters, customs duties, taxes or penalties, or that the Convention in no way affects diplomatic or consular immunity already brought under regulation by public international law, etc. 21 3 This would amount to a more detailed analysis than we have place to. One element, however, should be emphasized, especially because it is related to the process of integration, the circumstance namely which has already been mentioned in another connexion,214 that whereas the Convention itself is partly a product of the process of integration, once it has been created it has changed its role of a result to that of a cause: it operates in the direction* of harmonization of the relevant law and legal practice of the member states. And this tendency is but part of the policy embodied by the integration, Le. to harmonize the legal norms once it has come into contact with, or made use of, them. In the professional press of the United Kingdom, in like way a signatory to the Convention, to quote a single authentic source only, this has been formulated in an unambiguous way: “For the United Kingdom, as a State which has long applied the absolute immunity rule, to have signed a Convention so clearly giving substance to the rule of restricted immunity is surely an indication that serious thought will now be given in this country to taking legislative steps to limit the circumstances in which State immunity can be claimed. At this moment in time, with the recent entry of the United Kingdom into the European Communities, it would seem all the more important for us to seek to align our practice in the field of State immunity more closely with our West-European neighbours.” 2 15

212 Accordingly, the legal unit of the State, however, distinct from it, capable of suing and liable to be sued would not be entitled to immunity, Le. the Convention would not apply to it from the very outset. This formulation is forcible to an extent that as may be expected from the first reactions to it (see Sinclair, p. 278) it is likely to be interpreted very strictly, namely that the question of immunity may be raised any time in the event of sui generis State units although in possession of independent capacity to sue, since as a matter of fact in many countries the political and administrative agencies of state authority and state administration have the right to sue and to be sued in their own name. 213State Im m unity, Articles 2 9 -3 2 ; for the details of the limitations of the operation of the Convention see Sinclair (Exclusions), pp. 281-2. 214 See supra paragraph 208. 31 sSee Sinclair, p. 283.

19 Mâdl

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Chapter V III General and critical synthesis o f the function o f Community law and its institutions

§ 28 213 2 1 4 -5

The function of Community law in general - theoretical projection Concentration and the strength o f contemporary capitalism On the function o f Community law in the general theoretical context o f political economy

§ 29 2 1 6 -8

The economic function of the capitalist State - as argued with jurisprudence From jurisprudence and political economy to the reality o f the economic function o f the modern capitalist State and the EEC On the legal instruments in general

219 § 30 220 221 - 6

Community law as a comprehensive system o f the economic function of the contemporary capitalist State developed for and by the economic integration On the system and the growth o f the forces o f production The system and its institutions pure

§31

Critical epilogue

§ 28

The function o f Community law in general — theoretical projection

213

Concentration and the strength o f contemporary capitalism

213 Here we have an experiment translated into practice to the thesis, or at least to part of it, that in capitalism, and also in its modem form, there are'such forces in operation that will artifically delay the removal of the private property relations which are opposed to the strongly socialized process of production — and that this may yet go on for years to come1. Lenin in his work here referred to stated, projected to the opening years of the century: “The cartels have become the basis of the whole economic life. Capitalism has changed over to imperialism . . . A transition from the capitalist order to a higher order of society and economy.”2 Ever since then the socialization of production and economic concentration is going on uninterrupted. Naturally the intense growth of socialization and concentration is to a great extent associated with the increase of the bases of production in absolute figures. By the side, or perhaps exactly notwithstanding the organizational and legal obstacles of highest complexity and of the most particular kind, the organizing and conquering power of capitalism of a world-wide scale survives and especially in the most critical branches of industry goes on reinforcing its global strategy. Concentration and monopolization,

1Lenin, Op. cit., p. 776. 2Ibid., pp. 690, 773.

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too, are taking on global dimensions and have not yet come to a standstill. As has been seen the Romans could not bring concentration and monopolization to a stop either, notwithstanding the very severe sanctions, viz. the complete confiscation of property and banishment for life.3 And where was the monopolistic dealer in commodities of Antiquity in the relations to the State, compared to his colleagues of today? President Roosevelt insisted on an anti-cartel practice as reinforced in the sign of the New Deal, because, as he stated in his message to Congress, the cartels turned economy into a jungle where only they feel themselves at ease.4 Anti-cartel practice is gathering strength and yet concentration makes progress and this to an extent that it has been made one of the theses of the recent work of Galbraith, viz. that anti-rust legislation is a mere self-deception, as the giants of industry are immune against the antitrust laws.5 It is the principal thesis of Abs, the powerful banker, and of Agnelli, the Italian industrialist intensely cooperating also with the socialist countries —much against the many benevolent representatives of free competition - that big size is the price to be paid for survival.6 To whom does this survival apply? To a large enterprise, or two, only, or to modern capitalism? These statements do not betray it, yet they have both in mind and survival is for the time being going on, moreover it is going on very well. “Modem capitalism is strong, very strong,” says a well-known representative of West-European leftism, “permanently attacks have to be launched against it by Leninism. .. still it is Utopian to state that modem capitalism is not strong,” he continues.7 Lenin too called forth attention to the reinforcement of potentialities of monopoly capitalism: “It would be a mistake to believe that this tendency to decay precludes the rapid growth of capitalism; on the whole capitalism is growing far more rapidly than before.”8 Marxist thinking of political economy says the same today too. All Marxism did was to explore the relations and advanced further in the knowledge of what the strength and growth of modem capitalism display. 214-5

On the function o f Community law in the general theoretical context o f political economy

214 It would expose the present writer to the charge of immodesty if he attempted, what by the way is unnecessary, to explore the technical, economic, social and political, home and world political causes and also the contradictions and tendencies of the relations and growth of modem capitalism which account also for the strength 3For the sources see Note 18 to paragraph 104 of Chapter V, supra. 4For the message of President Roosevelt see supra. Note 30, in Chapter VI, paragraph 105. sSee Galbraith 2; his ideas are frequently quoted also by the Western press, e.g. see the analysis of concentration published in Spiegel (31 January, 1972, No. 31, p. 48), and the Newsweek*s book review: The Public Interest: 1st October, 1973, p. 51. 6For the source of AgnellVs statement see Note 104, Chapter IV; also see in Abs: “Ein weiteres Fortschreiten der Konzentration bei bestimmten Industriegruppen ist unausweichlich. . . ja eine Frage des wirtschaftlichen Überlebens” , in the analysis of Spiegel (Note 5, supra), p. 48. ηΗ. Μ. Enzensberger, writer, is editor of the West-European periodical Kursbuch; see his statement in Valôsàg, vol 1973, No. 7, p. 57. (Conversation on revolution with Hans Magnus Enzensberger in the editor’s office.) 8Lenin, Op. cit., pp. 774 et seq. 19*

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and growth of capitalism of the second half of the 20th century, a strength and growth stronger than the earlier. Relying on the theoretical work of the classics of Marxism Hungarian literature of political economy has made several contributions to the problem.9 Since the present work subjects to an analysis but a single of the ‘attempts at delaying’, notably the organizational and legal mechanism of the Common Market, clearly in the following discussion greater stress will be laid on this organizational and legal element of the whole complex of the cause which enable capitalism to not only survive but also grow. To have an idea of the weight of the problem or of the well-foundedness of this point of view it is worth while to return to a series of Lenin’s economic analyses. Lenin continuing the historical analyses of Marx, namely that free competition gives birth to concentration, and this in turn to monopolies,10 with a plethora of figures and facts produces evidence of how, e . g in Germany and in the United States this concentration has come about in certain branches of industry and what proportions it has assumed. As taught by one of the examples the monopoly Rheinisch-Westfälischer Kohlensyndikat at the turn of the century concentrated 95.4 per cent of coal production in the given region. Another example is that of the large concentration brought about by the American giant Standard Oil Company organized in 1900. A third example is the trust US Steel which in 1901 produced 66.3 per cent of the steel of the United States, and as early as 1907 had 210 180 workers on its payroll.11 From Lenin’s comments on this, and on the analysis containing a large number of other data two factors of the ‘growing strength’ will come into prominence, (i) The ‘technical and production units of immense dimensions’ so created represent a considerable force too.12 (ii) This situation “leads directly to the most comprehensive socialization of production” .13 This, besides enabling — due to the private character of expropriation — the fantastic growth of the profit of capitalists, in particular of the ‘speculative geniuses’, is one of the great sources of the increase of the productive forces and the production, without which Lenin would not have given the name of ‘the immense progress of mankind’ to this phenomenon.14 Although this socialization by way of cartels and other forms of association takes place through the application of various organizational-legal categories, it, as it exists, nevertheless remains the organizational and legal business among capitalist private firms. The reason why the three examples quoted above are of particular interest for the present work lies in the way of how those phenomena are going on amidst the conditions of the second half of the 20th century. It is a matter of indifference that meanwhile the share of US Steel in the American steel production has dropped to 31.9.15 What in fact counts is that US Steel is in spite of this an enormous power; it 9Here we refer to the work of Molnâr, E.; Âdâm 1, 2, 3; Vilâggazdasâg; and literature quoted in these writings. I °Marx 1, pp. 763 et seq. I I Lenin, Op. cit.t pp. 690-1. 12Ibid., p. 691. 1 3Ibid., p. 693. 14Ibid., p. 694. 15For the source see Bain 2, pp. 87 et seq., 125 er seq.

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can dictate prices, especially in conspiracy with two or three other concerns. Still here, and that is specifically new, it may face the opposition and interventionism of the political power. It was believed to be one of the decisive steps of President Kennedy in economic policy when in a political and legal attack launched at it he could compel the American steel giant to abandon the policy of price increases detrimental to the whole American economy.16 At the beginning of the century Standard Oil was a giant and a powerful monopoly. In absolute figures today it is even greater. Still of the legacy of the old Standard Oil today a number of Standard Oil companies participate. This splitting up of the monopoly took place in response to state interventionism.17 As has been seen in Chapter V against the concentration and practices of the Rheinian coal trusts the whole political and legal apparatus of the European Economic Community has taken up the gauntlet.18 Of course there is no question of these forces —or called by their names, State and its political and legal tools - being anti-capitalistic or, in general, hostile to concentrations. The case we have to deal with is that - and this is specifically a phenomenon of our epoch —under the circumstances of state monopolistic capitalism in the intertwining of the State and the dominant forces of economy, or in the often creaking, yet in general smoothly engaging symbiosis of the two forces it has become the share of the State - under the conditions of private property and for the benefit of its system, for the safeguard of the general interests of capitalism —to protect the great entirety against particular predatory actions and, with a variety of means, to step on the scene where the interests of the private market have come to grief. In the sign of this a highly complicated, yet in most of its parts a highly effective national, regional and international system, or rather tissue, of the organizational-legal stratagems and forms of regulation have come into being, in which the capitalist legal systems of the turn of the century could hardly be recognized. Not that because their real or ultimate substance is different, but mainly because the different channels, abstract organizational-legal forms, legal mechanisms developed on the level of public international law, the direct economic-social operations of the states, etc. have created an extremely differentiated body of instruments for the preservation of the fundamental substance, Thurman Arnold19 formulated the concept as early as 1938 that a differentiated folklore of new organizational and legal forms was needed . . . He said that the strongest foe of his own system of ideas was he who believed so much in his ideas that he was unable to adapt these to the new situations and requirements. A by no means insignificant example, a factor of ‘delay’ which has by now grown into a system, one of the sources or at least a catalyst of the ‘growing strength’ of this organizational-legal ‘folklore’ is the legal mechanism of the Common Market. With a certain simplification this mechanism is but the means of state interventionism which

16 For this and for the further development of the case (and steel production) see Mansfield (with the text of Kennedy’s address, pp. 87 et seq.); Kefauver, pp. 108 et seq. 17 See in the ‘List of the 500 greatest Americans.’ (The Fortune Directory of the 500 Largest Industrial Corporations 1971.) Fortune, May 1972, p. 188. 18 See paragraph 140 supra. 19 See Arnold, p. 34.

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has developed into a system, or in the formulation of Molrtàr the system of the two forms of manifestation of state monopoly capitalism, viz. (i) the direct economic operations of thfe State, and (ii) the regulatory actions of the capitalist State, as postulated on the international level.20 In the designation ‘state monopoly capitalism’ the term State is the plus to how Lenin was acquainted with capitalism of the opening years of the century (among the five known criteria defining imperialism the role of the State does not appear)2 1. Similarly, the elements of State and law belong to the substance of capitalism, to the factors of its ‘preserving strength’. All these have, in particular during the latter decades, become also in the West a consciously understood phenomenon. As e.g. Neumann, this renowned mathematician and humanist of Hungarian origin, states in a specially eloquent form, the particular forces of production (such as atomic energy, automation, electronics, climate controlling systems, telecommunications, complex systems of communications) cannot be left at the mercy of private economy, for without state cooperation society, i.e. capitalist society, is unable to cope with the effects of their development, and as Neumann in a particularly plastic formulation has made it clear, the fantastic effects awake the fear of great dangers. In the debate on the bill of atomic energy in the Senate of the United States, in 1946, contr