VOLUME 3, NUMBER 2 February 1991

BRITTAN APPLAUDS US BANKING PROPOSALS

EC Financial Services Commissioner Sir welcomed recent US Treasury proposals to reform the US banking industry as a positive move in the same spirit as the EC's plan for a single market in banking after 1992. "I am delighted to see these new plans, which have been partly brought about by our new EC banking legislation. By the begin­ ning of 1993 we will have created the largest and most open banking market in the world. We have chosen to do this without using threats against countries whose markets are more restrictive; the news from America shows that persuasion and example work. The new proposals go in the same direction as our own single market legislation," said Sir Leon. Sir Leon was pleased that the US proposals would scrap barriers to interstate banking within three years and would permit com­ mercial operating in the US to expand into investment services such as insurance, mutual funds and securities like some European "universal" banks. Still, these proposals must still clear Congress. According to Sir Leon, 'The opening up of markets is a double blessing: it benefits domestic business and those who gain access from outside. The American plans will certainly strengthen the US system, but will provide opportunities for European institutions as well."

PROGRESS ON EC-EFTA them more willing to compromise as far as the institutional EUROPEAN ECONOMIC AREA process is concerned. Austria has already applied to join the EC, Sweden has decided to apply this year and Norway is seri­ After months of difficult negotiations, the EC and EFTA ously considering an application. (European Free Trade Association) have signalled their intention to conclude a treaty by the end of June, which would create a common market of 380 million people - the so-called Euro­ RUDING COMMITTEE EXPLORES pean Economic Area (EEA). COMPANY TAXATION AFTER 192 In essence, an EEA would extend much of the EC's legisla­ tion to the EFTA countries (Switzerland, Sweden, Norway, A high level committee has been set up by the Commission Iceland, Finland, Austria and associate Liechtenstein), especially to study whether the achievement of the single market will single market legislation. EC External Affairs Commissioner make a certain degree of corporate tax harmonization neces­ and Austrian Economic Affairs Wolfgang sary. Chaired by former Dutch Finance Minister Schussel, current holder of the rotating EFTA presidency, and composed of well-known company tax experts from busi­ recently reported progress both on defining the EC laws which ness and academia, the group's goal is to produce a report should form the basis of the agreement and on safeguards and within one year that answers the following questions: Do the exceptions from certain EC rules that the EFTA countries con­ differences between the member states' company tax regimes sider inapplicable. Thus far, these two areas have presented distort competition, hindering the proper functioning of the sin­ serious obstacles in the negotiations. gle market? Are EC measures (e.g harmonization) necessary? Despite this breakthrough, however, tough decisions must And if so, in what areas and in what of priority? still be taken on the creation of a dispute settlement body on EC Tax Commissioner Christiane Scrivener suggested that the EEA issues, on whether EFTA should establish a supranational committee should look at the main differences (and there are executive like the EC's Commission and on EEA decision mak­ many) in the member states' tax laws that might influence ing (i.e. how much input will EFTA have in formulating the investment decisions and where firms' declare their profits. EC legislation that directly affects EFTA), which is the Once these disparities among the national tax regimes linchpin of the negotiations. are known in light of their effect on corporate decision­ According to Andriessen, the ambitions of some making, the committee will try to determine whether EFTA members to use the EEA as a transitional phase market forces can be trusted to remedy the situation on the way to full EC membership should make or whether Community measures are needed. *** * * * * * *__, ______~ * * If any EC action proves necessary, its port policy experts to examine the medi­ environmental performance. The Com­ coverage and instruments must comply um and long term transport and mission has circulated the draft proposal with the principle of subsidiarity (i.e. communication problems within the EC among industry associations and EC anything that can be better done at a and with respect to the internal and government experts for comment. local, state or regional level should not external dimensions of the single mar­ Under the draft, the Commission has be done at a Community level). ket. Dubbed "Transport 2000", the group listed 58 individual industries which it recently reported the results of its ambi­ wants to conduct these yearly audits, tious study, calling for radical action to including, for example, chemical, phar­ COMMISSION CLEARS prevent an imminent European trans­ maceutical, plastic, cement, glass, CONTESTED ATT-NCR MERGER port crisis. detergent, paper and board, artificial Pulling no punches, the group fiber, food product and motor vehicle The EC Commissio'n has ruled that accuses the member states of a lack of manufacturers. The Commission wants the US firm AT& T's takeover bid for coherent transport policy which has led every site in over half of these industries another US company, NCR Corpora­ to an overcrowding of infrastructure - to conduct an audit. For other industries, tion, neither creates nor strengthens a especially road and air. This has the thresholds would be generally low dominant position in EC -markets. increased pollution, made transport less and based on the number of employees Hence, the Commission will not safe and traffic too congested. Further, in the operation. oppose the operation (if AT& T's con­ the study concludes that the cost of EC Audits would have to be "verified by tested bid proves successful) because transport is too low, and it calls for a independent, registered environmental it is compatible with the EC's new new system in which the user pays the auditors", and each member state would merger regulation which has been in full cost of the service through fees and have to set up a professional body of force since September 1990. variable taxes (rather than by fixed road "green" auditors for external verification In reviewing the case, the Commis­ taxes as at present). purposes. Some of the items covered in sion analyzed the "vertical and The report suggests a number of far­ an audit would be "pollution discharge conglomerate aspects of the merger. reaching improvements in EC transport control, monitoring and reduction," Concerning the "vertical" element, networks. First, transport should be "energy choice and reduction of energy although NCR is not one of the largest made more competitive by curtailing use," "waste transportation, elimination overall manufacturers of computer member state subsidies for weaker and recycling," and "product planning." A hardware, it has a strong position in the transport forms, by deregulating all summary of the audit's results would ATM (automatic teller machines), elec­ transport sectors and by harmonizing have to be made available to the public. tronic cash register and electronic point applicable taxes. Second, major con­ Although some large EC companies of sale markets, while AT&T exhibits a struction projects should be designed to with environmentally sensitive opera­ wide range of activities in markets fill international gaps in infrastructure, tions already conduct these types of which are linked to the workstations not at relieving congestion peaks. Third, audits, the Commission's far-reaching business. In particular, AT&T has con­ there should be fair competition proposals have already met resistance trol of the UNIX operating system between different forms of transport. from some industry associations on the software's source. The "conglomerate Finally, it recommends the establish­ cost issue. aspect" covered the possible technical ment of a European infrastructure fund synergy of AT& T's telecommunication to finance urgent construction and and computer networking with NCR's maintenance work through a special SCRIVENER PROPOSES workstation business. levy on transport users based on their FUEL TAX TARGETS In both cases, the current availability energy consumption. of the UNIX operating system to com­ Although the report does not neces­ In order to protect the environment petitors ensures that the AT&T - NCR sarily reflect the Commission's and to bring widely differing EC fuel combination will not become a anti­ viewpoints, EC Transport Commissioner excise taxes closer together for the competitive force. Still, the Commission generally welcomed the single market, the Commission has will continue to monitor the potential group's findings. proposed target rates and bands for new entity so that a dominant position excise duties on gasoline and diesel in certain markets does not emerge. fuel. EC Tax Commissioner Christiane EC "GREEN" AUDITS Scrivener remarked that the rates INTHE CARDS would "give a clear signal to cut carbon EC TRANSPORT POLICY dioxide emissions and protect the OVERHAUL URGED The Commission is preparing a environment." directive that would compel the lion's Under the directive, excise rates Last February the Commission share of industrial plants in the EC to on diesel fuel would have to be within selected a group of independent trans- prepare annual "green" audits of their a band of 245 to 270 ecu(ecu1 =$1.40) EURECOM,FEBRUARY1991,PG.2 ______*** ** ** ~======::r======::::::::=:=::11111m11a..**** * per 1,000 liters by January 1, 1993 - an increase of 32% to 43% from the band first suggested in 1989. This obligatory band would mean higher excise revenues in seven EC countries while three would remain unchanged and only two - and Ireland - would lose revenue. For gasoline, the Commission has proposed excise tax "targets" of 495 ecu per 1,000 liters for leaded gasoline and 445 ecu per 1,000 liters for unleaded gas. (The lower tax on unleaded gas would encourage its use.) Unlike the diesel band, the gasoline "targets" would not be binding, but if member states change rates between now and 1993, they would have to move toward the suggested rate. As yet, no date has been set for the gasoline target rates. The effect of these proposals on the member states would be significant: excise duties comprise a third of all indi­ rect tax receipts in the EC, and fuel charges have the largest share of the environmental standards. The charter .. .IN BRIEF excise category. As with all Community requires approval from the EC govern­ tax legislation, however, these proposals ments before an international confer­ .. .The EC sees no direct threat from require unanimous consent in the Coun­ ence can be called in the second half the proposed North American free cil. Although the directive has a good of this year. trade zone between the US, Mexico chance of passing at this point, every­ A single European market in energy and Canada, which would create the body knows how difficult tax directives would decrease Europe's dependence world's largest economic bloc with a are for the member states. on Middle East oil and would allow the population of 360 million. "As long as Soviet union to develop its vast but such regionalism does not go against inefficient energy sector (40% of the the GATI process, there should be no COMMISSION ADOPTS world's natural gas reserves and 7% problem," said an EC spokesman. The EUROPEAN ENERGY CHARTER of currently accessible oil supplies) Commission does not see the US more proficiently through Western regional initiative as the beginning of Despite cooling relations with the European investment that would be the world breaking up into competing Soviet Union, the Commission has freed from restrictions and guaranteed trade blocs in frustration at the lack of adopted a draft European Energy Charter repatriation of profits. progress in GATI. under which Western Europe would be EC Energy Commissioner Antonio .. .The European Court of Justice able to tap the Soviet Union's huge Cardoso E Cunha said the charter's recently ruled that an EC country can­ energy resources in return for invest­ success depends on political condi­ not expel citizens from another ment in technology, technical expertise tions, particularly relations between the member state because they do not and infrastructure. This follows Dutch EC and the Soviet Union, but that belong to a social security plan. It Premier ' suggestion, "nothing so far gives us the impression decided that could not deny a voiced at the EC's Dublin summit last that the (Soviet) authorities are any residence permit to a French citizen June, to create a giant European free less interested than they were some who was working as a waitress without trade zone for energy that would include months ago." enrolling in Belgium's social security the Soviet Union. Cardoso also stressed that the term system. "Member states are not autho­ In the Commission's view, the draft "European" should not b_e viewed as rized ... to refuse a residence permit to charter would commit signatories to a excluding Mediterranean countries with Community nationals because they are free market in energy, and should cover major energy links to the EC or the US, not conducting their activities in con­ access to and exploitation of energy which would certainly be involved formity with social legislation." The resources, investment rules, research through US ownership of many EC EC's founding Treaty of Rome and oth­ energy firms. er legislation guarantee citizens the ------EURECOM,FEBRUARY1991,PG.3and development, safety norms and right to work freely throughout the ... British companies, by far the total) worth $2.6 billion. Community, said the Court. biggest M&A players in Europe, con­ ...The Institute on Western Europe ... Eurostat, the EC's statistical arm, tinued their Continental onslaught in at Columbia University is holding its • estimates that the average EC unemploy­ 1990 by increasing their EC cross-bor­ eighth annual graduate student confer­ ment rate dropped to 8.3% in 1990 from der takeovers by 57% to a total value ence - entitled "Western Europe at the 8.9% in 1989. This continues the down­ of $6.9 billion. According to KPMG Crossroads: Difficult Choices Ahead" ward trend in average EC unemployment Peat Marwick, this rise bucked the - on April 4-6. The conference offers that began in 1985 when the figure was general trend: there was a 40% drop an exceptional setting for young schol­ 10.8%. EC Economics Affairs Henning in the overall dollar value of cross­ ars to present their work in European Christophersen expressed satisfaction border deals between EC firms last Affairs and to learn from their peers. with the 1990 decrease, but voiced con­ year. British firms overwhelmingly pre­ For more information, please contact cern over the monthly rise in December ferred a French diet, as they made 62 the Institute on Western Europe at to 8.4%. Forecast GDP growth of 2.2% acquisitions in (27% of the UK (212) 854-4618. in 1991 would not be enough to reduce unemployment further, he said. On the inflation front, EC consumer prices rose 5.7% during 1990 compared with a 5.3% rise in 1989, but the recent fall in oil prices (if it proves sustainable) augers well for price stability this year. ... Three former communist countries - Czechoslovakia, Hungary and Poland - have started talks with the EC Com- EURE:COM Monthly bulletin of European Community Economic and Financial News mission on associate membership to the Community. 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