Category Archives: Internal Market

The Directive on Late Payment in Commercial Transactions is Published

Directive 2011/7/EU on combating late payment in commercial transactions has been published in the Official Journal. As a general rule, the deadline for both public and private sectors to pay a bill for goods or services will now be 30 days. For business-to-business payments the general deadline is 30 days unless otherwise stated in the contract. The general deadline for public-to-business payments is 30 days.

Looking for the Philosopher’s Stone of Economic Governance Coordination

France and Germany proposed a new way forward for the coordination of economic governance in the European Union. The proposal may be ambitious in scope, but is minimal on detail – the leaked document contains one (1) page only. So how to interpret this?

First of all I am really surprised by the mentoring attitude of Merkel and Sarkozy at the European Council meeting. Wall Street Journal quotes Yves Leterme, the Belgian prime minister:

“There were 18, 19 countries who spoke up to make known their regret on the way it was presented and also on the content. It was truly a surreal summit.”

This misstep will obviously diminish the chance for quick success of the negotiations. Apart from the tactics, however, I am much more interested in the emerging legal obstacles to any compromise. The problem is that too much EU law stands in the way of the proposal in its present form.

The scope of the proposed measures is huge – raising retirement ages across the euro zone, abolishing indexation of wages to inflation, harmonizing corporate and other taxes and instituting a “debt brake” that limits the ability of governments to borrow to fund their spending. Nevertheless, France and Germany seem to believe that this can be done without a proper reform of the Treaties, in some sort of Schengen-like legal framework.

First it’s worth investigating whether the proposals can be introduced as an enhanced cooperation (art. 326 – art. 334 TFEU). Such cooperation must not undermine the internal market or economic, social and territorial cohesion. It must not constitute a barrier to or discrimination in trade between Member States or distort competition between them (art. 326 TFEU). These legal restrictions must be interpreted carefully, and a program to raise the competitiveness of certain Member States may well violate them. An enhanced cooperation also involves a proposal by the Commission and the consent of the European Parliament. It’s approved by the Council with a unanimous vote (art. 329, para. 2 TFEU).

But another way forward may be a Schengen-like legal framework, initially external to EU law. In this case, however, I believe that it must also comply with the criteria set for enhanced cooperation – i.e. it should not undermine the internal market or economic, social and territorial cohesion, and it should not distort competition between Member States. These criteria will be difficult to meet provided that the very purpose of the measures is to improve the competitiveness of the participating Member States. Additionally, it looks like France and Germany do rely on the Commission and the European Systemic Risk Board to perform some functions in this new framework. I can’t imagine how this can be done without someone (for example, the UK), raising the question of the funding of such initiatives by the EU budget. The European Parliament could also have some objections to this.

The most likely (and the slowest) option is Treaty revision. It is also the most legitimate way forward (and maybe the only legal one). True, it would lead to a lot of bargaining and time loss, but it would also bring stability and legal security to this new framework.

Having said this, it’s obvious that some measures must be taken. It’s just that proposing measures without thinking about their legal ramifications is not a good sign for their success. After all, we are talking about unprecedented levels of economic governance coordination. Trying to circumvent Treaty reform may not work simply due to the scale of the proposals.

 

 

Two Important Strategies for the Sustainable Development of the European Union

The European Commission has published in the recent days two communications that touch on important aspects of the sustainable economic development of the EU.

The first is a communication on renewable energy and the progress towards the 2020 targets. The communication presents an overview of the renewable energy industry in Europe, its prospects to 2020 and addresses the outstanding challenges for the development of the sector. The Commission points out that renewable energy constituting 62% of 2009 energy generation investments in the EU. Member States projections show that renewable energy will grow at a faster pace in the years up to 2020 than in the past. Combined Member States expect to more than double their total renewable energy consumption from 103 Mtoe in 2005 to 217 Mtoe in 2020. If all the production forecasts are fulfilled, the overall share of renewable energy in the EU will exceed the 20% target in 2020. The Commission suggests that whilst annual capital investment in renewable energy today averages €35bn, this would need to rapidly double to €70bn to ensure the EU achieves its goals.

The second is a communication on the commodity markets and raw materials. This communication was delayed due to the French request to include measures to improve the transparency of financial and commodity markets. The document makes an overview of developments on physical markets of oil, gas, electricity, agricultural commodities and raw materials. The Commission outlines the growing interdependency of financial and commodity markets and then outlines policy measures for the separate physical markets. The communication then outlines the Raw Materials Initiative and describes the 14 critical raw materials – those who have a particularly high risk of supply shortage and are particularly important for the value chain.

 

 

EU Flagship Initiative on Resource Efficiency Launched

The European Commission has launched a very important flagship initiative on resource efficiency under the Europe 2020 Strategy. The Commission believes that increasing resource efficiency will be key to securing growth and jobs for Europe. It will bring major economic opportunities, improve productivity, drive down costs and boost competitiveness.

The most important medium-term policy measures are:

• An energy efficiency plan with a time horizon of 2020 which will identify measures to achieve energy savings of 20% across all sectors, and which will be followed by legislation to ensure energy efficiency and savings;

• Proposals to reform the Common Agricultural Policy, the Common Fisheries Policy, Cohesion Policy, energy infrastructure and trans-European networks for transport in the context of the next EU budget to align these areas with the requirements of a resource-efficient, low-carbon economy;

• A new EU biodiversity strategy for 2020 to halt further loss to and restore biodiversity and ecosystem services in the light of pressures on ecosystems;

• Measures to tackle the challenges in commodity markets and on raw materials which will, amongst others, periodically assess critical raw materials and define a trade policy to ensure sustainable supplies of raw materials from global markets. These measures will promote extraction, recycling, research, innovation and substitution inside the EU;

• A strategy to make the EU a ‘circular economy’, based on a recycling society with the aim of reducing waste generation and using waste as a resource;

• Early action on adaptation to climate change to minimise threats to ecosystems and human health, support economic development and help adjust our infrastructures to cope with unavoidable climate change;

• A water policy that makes water saving measures and increasing water efficiency a priority, in order to ensure that water is available in sufficient quantities, is of appropriate quality, is used sustainably and with minimum resource input, and is ultimately returned to the environment with acceptable quality.

Commission’s Consultation on Bank Failures – Too Little, Too Late?

The European Commission has launched a consultation on technical details underpinning a European crisis management framework for the financial sector. The main measures proposed:

  • Preparatory and preventative measures such as a requirement for recovery and resolution plans and powers for authorities to require banks to make changes to their structure or business organisation where such changes are necessary to ensure that the institution can be resolved;
  • Powers for supervisors to take early action to remedy problems before they get out of hand such as the power to change the managers;
  • Resolution tools which empower authorities to take the necessary action, where bank failure cannot be avoided, to manage that failure in an orderly way;
  • A framework for cooperation between national authorities.

The two main principles proposed by the Commission are:

  • Effective arrangements which ensure that authorities coordinate and cooperate as fully as possible in order to minimise any harmful effects of a cross-border bank failure, and
  • Fair burden sharing by means of financing mechanisms which avoid use of taxpayer funds.

Now, the problem is that we already have a situation that may well get out of hand. Fortune has quoted Scott Minerd, chief investment officer at Guggenheim Partners, who thinks the entire banking system of Europe could be on the brink of disaster (I recommend reading the whole article). If this is true, the Commission’s initiative will not have the time to translate into meaningful EU policy. More, the proposal is not sufficient to solve the problems of the EU banking sector, which is heavily exposed to sovereign debt.

Scott Minerd says that it’s now up to Germany to take leadership in organizing a fiscal union and creating a common EU bond. He rightly points out that this means a true federalization of the European Union, since fiscal policy will be, to some extent, managed on EU level.

In other words the impending banking crisis in the European Union could result in a true federalization – the dream of the founding fathers of the EU. But it sounds simpler than it actually is. Many things can go wrong, and the markets are not exactly ready to accommodate the Hamletian dilemmas of EU Member State governments. The recent approach of Germany and France to coordinate positions and try to sell them as unconditional proposals is not sustainable. EU governments should discuss options multilaterally, taking into account varying positions and nuances. We need true European consensus on fiscal governance, not empty declarations on the centrality of the Economic and Monetary Union.

Customs: New Security Data Electronic Declaration from 2011

From 1 January 2011, traders are obliged to make an electronic declaration to Customs with security data on goods before they leave or enter the European Union. The type of security data requested from the traders varies according to the means of transport and the reliability of traders involved in the operation (see Annex 30a of Regulation (EEC) No 2454/93). It can include, for example, a description of the goods, information on the consignor or exporter, the route of the goods, and any potential hazards. The time limits for submitting advance security data also vary according to the means of transport: from 24 hours in advance of loading for maritime cargo to 1 hour before arrival for road traffic or even less for certain air transport.

Commission Initiatives on VAT and E-Invoicing

The European Commission has launched two important initiatives respectively on VAT and E-Invoicing.

On VAT the Commission has published a green paper aiming at a public consultation with stakeholders. The main questions:

  • What would be the most suitable VAT arrangements for intra-EU supplies? Is taxation in the Member State of origin still a relevant and achievable objective?
  • Which of the current VAT exemptions should no longer be kept? Should VAT be applied to passenger transport irrespective of the means of transport used?
  • Should the current exemption scheme for small businesses be reviewed and what should be the main elements of that reassessment?
  • What changes should be introduced to improve the neutrality and fairness of the rules on deduction of input VAT?
  • What are the main problems with the current VAT rules for international services, in terms of competition and tax neutrality or other factors?
  • Which, if any, provisions of EU VAT law should be laid down in a Council regulation instead of a directive? Might guidance on new EU VAT legislation be useful even if it is not legally binding on the Member States?
  • Do the current rates structure creates major obstacles for the smooth functioning of the single market (distortion of competition), unequal treatment of comparable products, or leads to major compliance costs for businesses?

The Commission communication “Reaping the benefits of electronic invoicing for Europe” notes that the existing rules that govern e-invoicing in Europe are still fragmented along national lines and most of the potential of e-invoicing is still untapped. The Commission wants to see e-invoicing become the predominant method of invoicing by 2020 in Europe and sets the following priorities:

  • to ensure legal certainty and a clear technical environment for e-invoices to facilitate mass adoption;
  • to encourage and promote the development of open and interoperable e-invoicing solutions based on a common standard, paying particular attention to the needs of SMEs;
  • to support the uptake of e-invoicing by setting up organisational structures, such as national e-Invoicing fora and a European Multi-Stakeholder Forum.