Saturday, 19 April 2008

EU TFEU: Free movement of capital and third countries

The preceding Article 56 of the Treaty establishing the European Community (TEC) and Article 63 of the Treaty on the Functioning of the European Union (TFEU) prohibited all restrictions on the movement of capital and on payments between member states and between member states and third countries.

But the primary goal has been to guarantee the free flow of capital within the European Community (European Union), with third countries subject to exceptions detailed in Article 57 TEC and 64 TFEU.

As regards third countries liberalisation is till professed, but derogations confessed.


***

Article 64 of the Treaty on the Functioning of the European Union (TFEU) is presented as it stands after the intergovernmental conference (IGC 2007) in the Treaty of Lisbon (ToL) and provisionally consolidated by the Council of the European Union (document 6655/08; page 93-94), with the location of the provision added from the table of equivalences (page 460 to 462):

Part Three ‘Policies and internal actions of the Union’

Title IV TFEU (ex Title III) ‘Free movement of persons, services and capital’

Chapter 4 ‘Capital and payments’

Article 64 TFEU
(ex Article 57 TEC)

1. The provisions of Article 63 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Bulgaria, Estonia and Hungary, the relevant date shall be 31 December 1999.

2. Whilst endeavouring to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to the other Chapters of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt the measures on the movement of capital to or from third countries involving direct investment – including investment in real estate – establishment, the provision of financial services or the admission of securities to capital markets.

3. Notwithstanding paragraph 2, only the Council, acting in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament, adopt measures which constitute a step backwards in Union law as regards the liberalisation of the movement of capital to or from third countries.

***

The specific Lisbon Treaty amendments to Article 57 of the Treaty establishing the European Community (TEC) are mentioned in point 60 (OJ 17.12.2007 C 306/55):

CAPITAL

60) In Article 57(2), the words ‘the Council may, acting by a qualified majority on a proposal from the Commission, adopt measures’ shall be replaced by ‘the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt the measures’ and the last sentence of paragraph 2 shall become paragraph 3, reading as follows:

‘3. Notwithstanding paragraph 2, only the Council, acting in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament, adopt measures which constitute a step backwards in Union law as regards the liberalisation of the movement of capital to or from third countries.’

***

For comparison, the current Article 57 TEC looks like this (in the latest consolidated version of the treaties in force, OJ 29.12.2006 C 321 E/64):

Article 57 TEC

1. The provisions of Article 56 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Estonia and Hungary, the relevant date shall be 31 December 1999.

2. Whilst endeavouring to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to the other Chapters of this Treaty, the Council may, acting by a qualified majority on a proposal from the Commission, adopt measures on the movement of capital to or from third countries involving direct investment – including investment in real estate – establishment, the provision of financial services or the admission of securities to capital markets. Unanimity shall be required for measures under this paragraph which constitute a step back in Community law as regards the liberalisation of the movement of capital to or from third countries.

____________________________________________________________________
A footnote to Article 57 TEC adds the following information: Article amended by the 2003 Act of Accession. See Appendix at the end of this publication.

***

The European Convention proposed the following Article III-46 of the draft Treaty establishing a Constitution for Europe (18.7.2003 C 169/34-35):

Article III-46 Draft Constitution

1. Article III-45 shall be without prejudice to the application to third countries of any restrictions which existed on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment — including in real estate —, establishment, the provision of financial services or the admission of securities to capital markets.

2. European laws or framework laws shall enact measures on the movement of capital to or from third countries involving direct investment — including investment in real estate —, establishment, the provision of financial services or the admission of securities to capital markets.

The European Parliament and the Council of Ministers shall endeavour to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to other provisions of the Constitution.

3. Notwithstanding paragraph 2, only a European law or framework law of the Council of Ministers may enact measures which constitute a step back in Union law as regards the liberalisation of the movement of capital to or from third countries. The Council of Ministers shall act unanimously after consulting the European Parliament.

***

Article III-157 of the Treaty establishing a Constitution for Europe added the effects of the 2003 Accession Treaty (OJ 16.12.2004 C 310/66-67):

Article III-157 Constitution

1. Article III-156 shall be without prejudice to the application to third countries of any restrictions which existed on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment — including investment in real estate, establishment, the provision of financial services or the admission of securities to capital markets. With regard to restrictions which exist under national law in Estonia and Hungary, the date in question shall be 31 December 1999.

2. European laws or framework laws shall enact measures on the movement of capital to or from third countries involving direct investment — including investment in real estate, establishment, the provision of financial services or the admission of securities to capital markets.

The European Parliament and the Council shall endeavour to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to other provisions of the Constitution.

3. Notwithstanding paragraph 2, only a European law or framework law of the Council may enact measures which constitute a step backwards in Union law as regards the liberalisation of the movement of capital to or from third countries. The Council shall act unanimously after consulting the European Parliament.

***

What, if anything, happened to Article 57 TEC during the post-Nice treaty reform cycle?

Article III-46(1) of the draft Constitution was essentially the same as Article 57(1) TEC, but the Accession Act 2003 added the last sentence on national law in Estonia and Hungary and the stand-still date of 31 December 1999 to the latest consolidated TEC version.

Article III-46(2) of the draft Constitution was arguably easier to read than Article 57(2) TEC. The European Convention proposed its general terminology concerning legislative acts – European laws or framework laws – and substantially the extension of the ordinary legislative procedure (co-decision) to the movement of capital to or from third countries.

Backsliding on achieved liberalisation regarding third countries became Article III-46(3) in the draft Constitution instead of the last sentence of Article 57(2) TEC. Unanimity in the Council was retained, but the European Parliament was to be consulted.

Compared to the draft Constitution the Constitutional Treaty inserted the last sentence on the new member states Estonia and Hungary into the first paragraph of Article III-157.

In Article III-157 Constitution ‘a step back’ became ‘a step backwards’, but otherwise the draft and the Constitution have the same wording.

The Treaty of Lisbon, Article 64 TFEU, takes over as horizontal amendments ‘Union law’ instead of ‘Community law’ and ‘the Treaties’ instead of ‘this Treaty’ from the draft Constitution and the Constitutional Treaty.

The new entrant Bulgaria is added to Estonia and Hungary at the end of paragraph 1. The dash between ‘real estate’ and ‘establishment’, mislaid by the Constitution Article II-157(1) and (2), was retained in Article 64(1) and (2) TFEU as part of the Article 57(1) and (2) TEC text.

The ordinary legislative procedure is adopted in Article 64(2) TFEU, substantially in line with the European Convention’s proposal and the agreement by the IGC 2004.

When the last sentence of Article 57(2) TEC is deleted and replaced by the third paragraph the Lisbon Treaty Article 64 TFEU adopts, the wording resembles a hybrid between all the reform stages.

***

Article 64(1) is a stand-still clause as regards capital movements to and from third countries. Its subject matter covers direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets.

The stand-still date is 31 December 1993 for Union law and national law in general, except for Bulgaria, Estonia and Hungary where the date is 31 December 1999.

The Appendix to the latest consolidated version of the current treaties ‘Amendments fo primary legislation further to the accession of the Republic of Bulgaria and Romania to the European Union’ contains the following text concerning the Treaty establishing the European Community (OJ 29.12.2006 C 321 E/327):

1. The last sentence of Article 57(1) shall be replaced by the following:

‘In respect of restrictions existing under national law in Bulgaria, Estonia and Hungary, the relevant date shall be 31 December 1999.’

This has now been inserted into the Treaty of Lisbon (TFEU).

New restrictions can be introduced only according to the special legislative procedure requiring unanimity in the Council (paragraph 3).

***

As regards further reading, I refer the interested reader to yesterday’s post ‘EU TFEU: Free movement of capital’.


Ralf Grahn