Abstract
The present article is concerned with the implications for European Community Law of two important examples of recent British legislation in the economic field, namely the Industry Acts 1972 and 1975. In summary, this legislation empowers the government of the United Kingdom to grant large scale selective financial assistance to industry; establishes the National Enterprise Board (NEB) with the responsibility inter alia of extending public ownership into profitable areas of manufacturing industry; creates new powers in relation to the transfer of control over important manufacturing undertakings; and introduces a “planning agreement” mechanism to improve co-ordination between the development of the activities of individual companies and the economic policies of government.1
There are some things with which governments ought not to meddle and other things with which they ought; but whether right or wrong in itself, the interference must work for ill, if governments, not understanding the subject which it meddles with, meddles to bring about a result which would be mischievous.
J. S. Mill
The warm thanks of the authors are due to the Commission of the European Communities for enabling them to visit Brussels in connection with this article and to officials of the Commission and of the Permanent Representation of the U.K. to the European Communities for advice, assistance and information generously given. Without this, the article could not have been written. Any deficiencies are the sole responsibility of the authors.
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References
The Industry Act 1975 also includes provisions requiring the disclosure of information to, and by, companies, which are not relevant to this discussion: see Part IV of the Act, ss. 27–34.
See in general, Mégret et al., Le droit de la CEE, Vol. 4, pp. 379–413; Schrans, “National and Regional Aid to Industry under the EEC Treaty”, 10 C.M.L. Rev. 1973, 174–194; Dashwood, “Control of State Aids in the EEC: Prevention and Cure under Article 93”, 12 C.M.L. Rev. 1975, 39 et seq.
See footnotes 17 and 18 infra.
Unless of course it is a clumsy scheme which subsidises both foreign and domestic producers or consumers. A good example is provided by shipbuilding in the U.K.: see Graham in Beckermann (ed.), The Labour Government’s Economic Record 1964–1970, p. 176.
First Report on Competition Policy (1972), pp. 107–108.
A formulation which must necessarily exclude general macro-economic measures which though perhaps favouring all enterprises in a Member State as compared with similar enterprises elsewhere do not favour “certain” enterprises in the Member State, e.g. a general investment subsidy.
See Whiting (ed.), The Economics of Industrial Subsidies (H.M.S.O. 1975), p. 65.
Commission v. Italy (1974) E.C.R. 709.
Ibid, at 723.
Commission Written Reply No. 48 of July 30, 1963, J.O. 1963, 2235/1.
Cited by Lipstein, The Law of the European Economic Community, (1973), p. 246. See also Veneceslai (1969) Riv. Dir. Eur. 257 at 272.
The term contre partie is used by Scheuing in Les Aides Financières Publiques (Paris, 1974): anglice “consideration”.
See British Oxygen Co. Ltd. v. Minister of Technology (1971) AC 610, for a successful reconciliation of the problems associated with the duty to exercise a discretion and the desire to adhere to a policy. See also Galligan, “The Nature and Function of Policies Within Discretionary Power” (1976), Public Law 332.
In the case of sectoral schemes, where the value of the investment is 3m. u.a. or more or where the value of the aid, expressed as net subsidy equivalent, is 15% or more of the value of the investment.
(1976) at para. 135.
Decision 75/397/EEC, OJ. 1975 L 177/13.
OJ. (Special Edition) (Second Series) IX 1971 57, 60.
See Jordan (1975–6) E.L. Rev. 236.
Decision 72/34/EEC of December 15, 1971. See also Decision 72/173/EEC of April 26, 1972, O.J. 1972, L 105/13.
Case 70/72 Commission v. Germany (1973) E.C.R. 813.
Although formidable problems of measurement remain: see Mellis and Richardson in Whiting (ed.), Economics of Industrial Subsidies H.M.S.O. 1975, p. 23.
Second Report on Competition Policy (1973) para. 123.
Fifth Report on Competition Policy (1975) para. 133.
Such delegation would not affect the status of payments under ss. 7 and 8 as “aid” for the purposes of Art. 92 et seq. In Case 78/76, Firma Steinike und Weinlig (1977) E.C.R. 595, the European Court held that it was immaterial whether aid was granted directly by the State or through the medium of a public or private body.
Special Development Areas Order S.I. 1972 No. 1234; Assisted Areas Order S.I. 1974 No. 1372: Assisted Areas Orders S.I. 1977 Nos. 683 and 706.
Dept. of Industry Press Release No. 25, January 30, 1975.
Industry Act 1972, s7(1).
Industry Act 1972, s7(2).
Reprinted as Appendix E, Annual Report on the Industry Act 1972, HC 619 of 1975–6.
For examples of such aid see para. 18–19 Annual Report HC 620 of 1974–5; paras. 16–17 Annual Report HC 619 of 1975–6.
S.8 (1).
The 1972 Act placed a limit of £ 550 m. This was increased to £ 1600 m. in the Industry (Amendment) Act 1976. For further explanation see Mr. Varley, HC Deb (1975–6) 910 c 579 (2nd Reading).
S. 22 Industry Act 1975, Schedule 4 (2) (d).
S. 9 (4). See e.g. Annual Report, para. 20, HC 620 of 1974–1975.
Cf. the recent controversy concerning aid to pig producers which led to the issuing of an interlocutory injunction by the European Court of Justice: see Cases 31/77R and 53/77R (not yet published).
The Offshore Supplies Interest Relief Grant Scheme under s. 8 was the first: see Sixth Report on Competition Policy, para. 219–221. The second case concerned an investment incentive scheme for the instrumentation and automation sector, also under s. 8: see O.J. 1977 C 8/2. Few details of the latter scheme appear to be available, but it is understood that agreement is near in order to render it compatible with Treaty obligations.
But note the welcome derogation in favour of the Highland and Islands Development Board: see Fifth Report, para. 98.
The new word is “viable”.
Criteria for Assistance to Industry. Notified to Parliament 12 January, 1976. Reprinted as Appendix A to the Annual Report on the Industry Act 1972, HC 619 of 1975–1976.
See Annual Report HC 620 of 1974–5 para. 42.
(1976) at paras. 108–9.
Sixth Report (1977) paras. 232–235. Cf. the Commission’s willingness to hold that the prohibition contained in Art. 4 (c) of the ECSC Treaty was inapplicable with respect to the finance of steel stocks by the British Steel Corporation from the National Loans Fund, ibid, para 263.
Introduced to Parliament HC WA (1973–4) 863c119; Annual Report HC 619 of 1975–6 paras. 49–50.
An interest relief grant permits the supplicant company to seek funds from private sources and it is the subsidy equivalent of a concessionary loan. It has the advantages of being relatively cheap and delegating project appraisal to commercial lenders. In this case the bulk of the risk is borne by the borrower.
For a general discussion of the trade effects of aid, see Denton et al. Trade Effects of Public Subsidies to Private Enterprise (1975).
Fifth Report (1976) para. 17.
E.g. Bator, “The Anatomy of Market Failure”, (1958) Quarterly Journal of Economics.
Fifth Report (1976) para. 118. For a comparative study of British and German state aids, see Corden and Fels, Public Assistance to Industry (1976).
See notes 51 and 52 infra.
This puts into concrete form the obligation imposed on Member States by Art. 5 EEC. Deringer, The Competition Law of the European Economic Community, at p. 227 discusses the reasons for the inclusion in the Treaty of a provision relating specifically to public undertakings.
See Deringer, op. cit. note 50, p. 4 et seq. and p. 227 et seq. and refs; Mégret et al., op. cit. note 2, Vol. 4 p. 105 et seq. and refs.; Lipstein, The Law of the European Economic Community, p. 199 et seq. and refs.
The predominant view is that, although the State or its subdivisions may constitute undertakings in Community law if they carry on economic activities, this cannot be so where “sovereign activity” is involved: see Deringer, op. cit., p. 228–229. Contra, Schindler, “Public Enterprises and the EEC Treaty”, 7 C.M.L.Rev. 1970, 57 at 62–64, who admits that Arts. 85 and 86 might not apply to “sovereign activity” but argues that the concept of “undertaking” may be different in Art. 90.
Industry Act 1975, s. 3 see infra. For a fuller discussion, see Sharpe, The Industry Act 1975, Ch. 3.
Case 155/73, (1974) E.C.R. 409 at 429–430.
See Deringer, op. cit. note 50, p. 232 et seq.; Mégret et al., op. cit. note 2, pp. 84–35; Schindler, loc. cit. at pp. 61–62.
Industry Act 1975, s. 1 (3).
Ibid. s. 6.
Ibid., s. 7.
As to the Guidelines, see further note 74 infra.
The necessity for resorting to Art. 90 (3) is doubted by Deringer, op. cit. note 50 at p. 242.
Examples would be the German alcohol monopoly or the Italian monopoly in manufactured tobacco. For the interaction between Art. 90 (2) and Art. 37, see Mégret et al., op. cit. note 2, Vol. 4, p. 91.
Case 127/73, 1974 E.C.R. 313.
This convenient description is used by Deringer, op. cit. note 50.
Hence a body to which the management of intellectual property rights was entrusted by private contract would not be covered by Act 90 (2). See SABAM and the earlier Decision of the Commission in Re GEMA, O.J. 1971 L 134/15.
See Deringer, op. cit., p. 245 et seq. He argues convincingly that the term “services” must be interpreted more widely in Art. 90 (2) than in Art. 60. On the other hand, “operation of services” cannot be intended to cover every kind of economic activity entrusted to an undertaking in pursuance of public policy goals, since the express reference to fiscal monopolies would then be superfluous. In the two cases where the European Court of Justice has been willing to recognise the existence of an entrusted undertaking, the task in question fell squarely within the interpretation here adopted: see Case 10/71, Müller, (1971) E.C.R. 723 (operation of river port facilities); Case 155/73, Sacchi, (1974) E.C.R. 409 (broadcasting).
Industry Act 1975, s. 2 (2) (a).
Ibid. s. 2 (2) (b).
Ibid. s. 2 (2) (c).
Ibid. s. 2 (2) (d).
“Undertaking in Art. 92 (1) includes public undertakings: see Case 78/76, Firma Steinike and Weinlig, (1977) E.C.R. 595.
For an indication of the Commission’s possible attitude towards the NEB’s financial means, see Sixth Report (1977) para. 263, on the BSC stockholding operation.
Commission Reply no. 48 of July 30, 1963, J.O. p. 2235/1963.
For differences over Rolls-Royce see NEB Annual Report pp. 7–8. The “criteria” for valuation are found in Schedule 2 (6).
National Enterprise Board (Guidelines) Direction 1976 para. 11. This novel form of legal restraint was introduced as a response to criticism of the vagueness of the statutory financial duties in S. 6 and elsewhere. The position seems to be that the NEB owes a duty to the Secretary of State who alone may enforce the duties contained in the Guidelines. This means that the only form of control is both political and centralised; moreover it does not afford a trade competitor any legal remedy. See the application for an interim interlocutory injunction by a number of tanning companies against the NEB: Financial Times 30th April, 1977. This topic is treated at greater length in a forthcoming article.
Ibid. at para. 13.
Ibid. at para. 15.
Sixth Report (1977) para. 192, where it is stated that 50% of all regional assistance at present granted by Member States in the EEC cannot be measured. This is presumably in part, a reference to tax relief offset against future profits. At what rate of interest should future tax remissions—if and when they come into play—be discounted?
The relevant statutory provision is s. 332 (1) of the Companies Act 1948; the voice is that of Managham J. in Re William C. Leith Bros. Ltd. (1932) 2 Ch. 71,77 and Re Patrick and Lyon Ltd. (1933) Ch. 786, 790–1. For a fuller discussion see Sharpe: The Industry Act 1975, pp. 29–32.
Whatever standard may be intended, this is a legal obligation placed on the NEB: we know this by virtue of the heavy type in para. 10. But such an obligation is only likely to be enforeable by the Secretary of State and not by the subsidiary’s creditors, although this is a speculative conclusion.
See J.O. 1972 C 68/5.
(1973) at para. 124.
This was laid down by the European Court in response to the argument, which had been put forward by the Commission, that exclusive dealing agreements, as a class, were automatically caught by Art. 85 (1), although individual agreements might qualify for exemption under Art. 85 (3): see Case 56/65, LTM v. MEV (1966) E.C.R. 235. However, the principle would be equally applicable in the context of Art. 86.
As to whether the NEB is an “undertaking”, see 23 supra. For an example of a public body to which Art. 86 has been held not to apply, see Case 94/174, IGAV (1975) E.C.R. 699.
J.O. 1972 L 7/25.
Emphasis added.
Para. 20 of the Guidelines could be read either way. For an example of cross-subsidisation criticised by the Monopolies and Mergers Commission, see the report on the supply of contraceptive sheaths to the United Kingdom: HC 135 of 1974–1975, para. 209.
See note 51 supra. The quotation is from Cases 6–7/73, Commercial Solvents Corporation (1974) E.C.R. 223 at 254, reproducing the phrase used by the Commission in its Decision, J.O. 1972 L299/51.
See Guidelines, para. 14. See also the declaration in s. 2 (5) of the Act as to the Board’s subjection to the general law.
Case 6/72, (1973) E.C.R. 215 at 245.
Case 155/73, (1974) E.C.R. 409 at 430.
On the application of this requirement under Act 86, see, in particular, Case 6–7/73, Commercial Solvents Corporation [1974] E.C.R. 223 at 252–253.
Case 10/71, (1971) E.C.R. 723.
See Kapteyn and Verloren van Themaat, Introduction to the Law of the European Communities, p. 273.
Case 155/73, (1974) E.C.R. 409 at 430.
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Dashwood, A., Sharpe, T. (1978). The Industry Acts 1972 and 1975 and European Community Law. In: Kapteyn, P.J.G., Ehlermann, CD., Simmonds, K.R., Winter, J.A. (eds) Common Market Law Review. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-3273-0_2
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