Issue No. 441 Report No. 321, June 30, 1977
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Issue No. 441 Report No. 321, June 30, 1977 IN THIS ISSUE page Connnunity: Rulings Due Soon in 'Milk Powder Cases' •.•. l Alignment Sought of Export Credit Insurance Terms ••.•• 2 Germany: Tax Bill Barely Passes in Lower House ••••.•.• 3 Apprentice Hiring Grants to Be Tax-Exempt •........•... 4 France: Retirement Age Temporarily Cut to 60 Years .... 5 Ireland: Fianna Fail Wins; Relations With U.K ••.•.•••. 6 Britain: New Bermuda Air Agreement With U.S ...•.••.•.. 7 Switzerland: Finance Problems After VAT Rejection ••.•. 7 Community: The European Court of Justice will soon render its judg •Rulings Due ments in four out of a total of eight pending cases involv Soon in 'Milk ing last year's Council Regulation 563/76 on the compulsory Powder Cases' purchase of milk powder. The outcome could produce lasting effects on the Connnunity's policy-making powers if the jus tices accept the arguments of the Advocate General. The justices must decide on a constitutional issue: how far may the Connnission and the Council of Ministers go in leg islating economics, in this instance agricultural policy? According to Advocate General. Francesco Capotorti, the Council went too far and violated the principle of propor tionality by adopting the, regulation. This principle is not expressly contained in the Treaty of Rome, but under case law of the European Court of Justice it has become part of EC law since it is embedded in the law of all mem ber states. Adopted on March 15, 1976, Regulation 563/76 required breeders, whenever they imported or purchased vegetable feeding stuffs such as soybeans and rapeseed, to also buy certain quantities of the more expensive skimmed-milk pow der from the intervention agencies. The measure was de signed to dispose of 400,000 tons of the Connnunity's 1.3- milfion-ton surplus of milk powder, but it succeeded in This Issue Is in two pa.ris, eonslsting of 80 p,i«es. This Is Pa.rt l. --------- COMMON MARKET REPORTS, Issue No. 441, June 30, 1977. Published weekly by Commerce Clearing •House, Inc., 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription rate $490 per year. Second-class •postage paid at Chicago, Illinois. Printed in U. S. A. All rights reserved . EUROMARK.ET NEWS. - , p, 2 . • Milk Powde,r get'ting rid of oniy 200 ,OOO tons, The measure produced a. (contd.) gry reactions from many animal breeders in the Common Mar ·kect because it raised production costs and thus cut into prbflts, · Four German chicken farmers sued both the Commission and the Council for some $100,000 in damages (Case Nos. 83 and 94/76, 4 and 15/77). They charged discriminatory treatment because they ended up paying for a problem actu ally caused by the dairy farmers. They also argued that Reg, 563/76 was unreasonable and unfit to achieve th~ ob jective sought. Another argument was that the measure could not be reconciled with Treaty Article 39, which pro vides, among other things, for a rational development of agricultural production (Common Market Reports, Par. 405), Plaintiffs do not believe that the Coriununity's system of price intervention and subsidies serves rational develop ment because it has produced large milk surpluses while .raising production costs. AG Capotorti did not agree with the plaintiffs' argu ment that they were discriminated against nor did he see a violation of Treaty Article 39. He believed, however, that the Commission and the Council should have resorted tooth er, less expensive and less burdensome methods for the farming sector as a whole. This the Community actually di after the measure had expired: the Council cut the price and production of skimmed-milk powder and adopted a progra to stimulate milk consumption in schools. But Capotorti be lieved that there are still other ways, including destroy- ing milk. The other cases also pending were referred by German and Dutch courts which have asked the Court of Justice for preliminary rulings on whether Reg. 563/76 was valid (Case Nos. 114, 116, 119, and 120/76). Alignment of The Commission's recent draft directive on credit insurance Export Credit and export credit guarantees is designed to narrow the dif Insurance Terms ferences in member-:state practices that distort competition among Common Market enterprises exporting to third coun tries. Once these differences are.minimized through par tial harmonization, the Commission believes that EC-based businesses will be more inclined to cooperate in the search for markets outside the Common Market because they no long er would need to outbid each other in regard to financial terms, which are heavily influenced, if not controlled, by .member state governments. the draft. wo'uld stop short of total harmonization. It would require the Council of Ministers to merely establish coi:nm_o_n ·_pr.inciples_ for _credit insurance and export cred. it • guara~tees on sales of goods and services to buyers in third countries·~ for the most part governments or state • •EUROMARKET NEWS - p. 3 urance enterprises in the East Bloc and developing countries • • ntd.) Thus the measure would leave the member states some leeway, so that insurers (usually government institutions) and guarantors (sometimes government agencies but more fre quently private banks) could draw up policies and set in surance premiums within the framework of the uniform prin ciples. One of the major rules would be that whenever an ex porter agrees to sell goods or services to a third-country buyer on a credit basis and insures himself against the risk of nonpayment by taking out credit insurance, he could not obtain coverage for more than 95% of the contract's value; hence, he would always have to bear a small portion of the risk. The credit is usually provided by the export er's bank, which obtains a guarantee against nonpayment of the credit from a credit insurance institution. In recent years a new method of financing credits has found accept ance: the exporter's bank grants a loan directly to the buyer. (The bank still seeks a guarantee from a credit.in surer.) One connnon principle for both types of guarantees would be that in the case of nonpayment by the buyer be cause of the exporter's fault (belated delivery, for exam ple), the credit insurance institution could proceed di rectly against the exporter to recover the amount the bank granted to the buyer. No attempt would be made at this point to narrow, let alone harmonize, the premium rates. But the draft would require member states to provide the Connnission with the details of insurance rates and practices, and Connnission officials hope to use the information to study the ultimate goal of uniform premiums. Germany: With the German government barely having squeezed its tax Tax Bill bill through the lower house of Parliament, the fate of the Passes measure hinges now on action in the Opposition-controlled Lower House Bundesrat. The bill provides for increased exemptions and higher children's allowances for individual taxpayers. More important for the economy, it also would raise the value-added tax rate from 11 to 12% (5, 5 to 6% for food items) and would lower the net worth tax rates payable by individuals 'and companies from 0.7 to 0.5% and from 1 to 0. 7%, respectively. Further, businesses would benefit from substantially .increased exemptions applicable to municipal business taxes. (Doing Business in Europe, Par. 30,935.) Although the Schmidt administration usually can count on a. 10-vote margin in the lower house, five rebellious left-wing Social Democratic deputies nearly put the coali tion government to a test of survival, with two of them voting against the measure and three abstaining. Their ma jor objection to the bill: the reduction of the net worth EUROMARKET NEWS - p. 4 • Tax Bill tax rates would benefit the rich (costing the treasury an. (contd.) estimated DM 1,5 billion annually), while the VAT rate in crease would considerably burden low-income families be cause of higher food and utility bills and the proposed higher children's allowances would not sufficiently compen sate large families. Administration officials, on the other hand, defended the pl"oposa1 by saying that it would improve the investment climate and thereby boost employment. They pointed out that the net worth tax burden on companies is heavier than that on individuals since a corporate taxpayer is entitled to a DM 10,000 exemption, while an individual taxpayer with a wife and two children may claim various exemptions total ing DM 280,000. Many critics see in the measure a belated correction of the 1974 tax reform law, which raised the net worth tax rates and repealed the rule that made the net worth tax a deduc.tible item on individual and corporate tax returns. Leaders of the two state governments formed by coali tions of Christian Democrats and Free Democrats have indi cated that they would support the measure in the upper house if a satisfactory compromise can be found for a new VAT revenue-sharing arrangement sought by all 11 states. The states at present get 31% of the DM 65 billion in tot. VAT revenue. In the future they want a bigger slice oft VAT. pie because 1) expenditures are rising as the result programs outlined in federal legislation and 2) they would stand to lose a total of DM 1. 5 bi 11 ion annually through the proposed net worth tax reduction (all receipts from this tax flow into the state treasuries). Apprentice German employers can be sure that the grants they would re Hiring Grants ceive under pending legislation for each newly hired ap To Be Tax-Free prentice will be tax-free.