%HKLQGWKH&RXQFLO$JHQGD 7KH&RPPLVVLRQªV,PSDFWRQ'HFLVLRQV

6XVDQQH.6FKPLGW



0D[3ODQFN,QVWLWXW*HVHOOVFKDIWVIRUVFKXQJ /RWKULQJHU6WU '.|OQ *HUPDQ\

7HOHSKRQH  )[  03,I*'LVFXVVLRQ3DSHU (0DLO LQIR#PSLIJNRHOQPSJGH ,661¥ +RPH3DJH KWWSZZZPSLIJNRHOQPSJGH 'HFHPEHU  03,)*'LVFXVVLRQ3DSHU

$EVWUDFW

7KLVSDSHUFRQWULEXWHVWRWKHRQJRLQJGLVFXVVLRQDERXWWKHVFRSHIRUDXWRQRPRXV DFWLRQ RI VXSUDQDWLRQDO RUJDQL]DWLRQV LQ WKH (XURSHDQ 8QLRQ IRFXVVLQJ RQ WKH (XURSHDQ&RPPLVVLRQ,QWKHOLWHUDWXUHWKHLQGHSHQGHQFHRIWKH&RPPLVVLRQLV IUHTXHQWO\ TXHVWLRQHG ZKLOH WKH UHODWLYH DXWRQRP\ RI WKH (XURSHDQ &RXUW RI -XVWLFHLVOHVVFRQWHQWLRXV7KH&RPPLVVLRQªVSRZHULVODUJHO\UHODWHG¥DQGUH VWULFWHG ¥ WR LWV UROH DV DQ DJHQGDVHWWHU 3DUWLFXODU HPSKDVLV LV DFFRUGHG WR LWV DJHQGDVHWWLQJSRZHUVDVDQDYHQXHRILQIOXHQFH:KDWKDVVRIDUEHHQVHOGRP UHFRJQL]HGLVKRZWKH&RPPLVVLRQFDQSURILWIURPLWVVSHFLILFUROHLQWKHVXSUD QDWLRQDO OHJDO V\VWHP , SUHVHQW HPSLULFDO HYLGHQFH VKRZLQJ KRZ WKH &RPPLV VLRQFDQWDNHDGYDQWDJHRIWKHVXSUHPDF\RI(XURSHDQODZDQGIRUFHWKH&RXQ FLO WR DFW 7KHUHE\ LW PDQDJHV WR LQIOXHQFH WKH FRXUVH RI (XURSHDQ LQWHJUDWLRQ ODUJHO\ LQGHSHQGHQWO\ EHQHILWWLQJ IURP WKH JUHDWHU DXWRQRP\ RI WKH (XURSHDQ &RXUW

=XVDPPHQIDVVXQJ

'LH*UHQ]HQGHU+DQGOXQJVIlKLJNHLWVXSUDQDWLRQDOHU2UJDQLVDWLRQHQLQGHU(8 ZHUGHQKHIWLJGHEDWWLHUW,QGHU/LWHUDWXUZLUGGLH8QDEKlQJLJNHLWGHV(XURSlL VFKHQ *HULFKWVKRIV DQGHUV DOV GLH GHU .RPPLVVLRQ NDXP EH]ZHLIHOW 0LW GHQ +DQGOXQJVP|JOLFKNHLWHQ GHU .RPPLVVLRQ EHVFKlIWLJW VLFK GLHVHU %HLWUDJ 6LH ZHUGHQ LQ GHQ PHLVWHQ $QDO\VHQ PLW LKUHP 9RUVFKODJVUHFKW YHUEXQGHQ 'DJH JHQZLUG]XZHQLJEHDFKWHWLQZHOFKHP0D‰HGLH.RPPLVVLRQYRQGHQLKULP VXSUDQDWLRQDOHQ5HFKWVV\VWHP]XJHGDFKWHQ$XIJDEHQSURILWLHUHQNDQQ$QKDQG HLQLJHU%HLVSLHOH]HLJHLFKZLHGLH.RPPLVVLRQLKUH5ROOHDOV+WHULQGHU9HU WUlJH GD]X QXW]HQ NDQQ GHQ 0LQLVWHUUDW ]XP +DQGHOQ ]X ]ZLQJHQ $XI GLHVH :HLVH YHUPDJ GLH .RPPLVVLRQ GLH (XURSlLVFKH ,QWHJUDWLRQ ZHLWJHKHQG HLJHQ VWlQGLJ ]X EHHLQIOXVVHQ 'DEHL SURILWLHUW VLH YRQ GHU JU|‰HUHQ 8QDEKlQJLJNHLW GHV(XURSlLVFKHQ*HULFKWVKRIV 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

&RQWHQWV

 ,QWURGXFWLRQ 

 7KH'HEDWHG$XWRQRP\RIWKH&RPPLVVLRQ 

 7KH6XSUDQDWLRQDO6KDSLQJRI'HFLVLRQV   %H\RQG$JHQGD6HWWLQJ7KH&RPPLVVLRQªV5HVLGXDO3RZHUV   1HJRWLDWLQJLQWKH6KDGRZRI1HJDWLYH,QWHJUDWLRQ   &KDQJLQJWKH'HIDXOW&RQGLWLRQ 

 /LPLWVWR$FWLRQ 

 &RQFOXVLRQ 

5HIHUHQFHV 

6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

 ,QWURGXFWLRQ

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

3DUWLFXODUO\LPSRUWDQWLQWKLVUHVSHFWKDVEHHQWKHDQDO\VLVRIWKH&RPPLVVLRQªV DJHQGDVHWWLQJ SRZHUV 6WHXQHQEHUJ  6FKQHLGHU  *DUUHWW7VHEHOLV  %DVHGRQWKHVSHFLILFGHFLVLRQUXOHVRIWKH(XURSHDQOHJLVODWLYHSURFHGXUHV WKHFKDQQHOVWKURXJKZKLFKWKH&RPPLVVLRQFDQH[HUWVXSUDQDWLRQDOLQIOXHQFHRQ (XURSHDQGHFLVLRQVKDYHEHHQSUHFLVHO\GHILQHG

,QWKLVSDSHU,DUJXHWKDWWKHUROHSOD\HG\WKH&RPPLVVLRQLQWKH&RXQFLOªVGH FLVLRQPDNLQJKDVVRIDUEHHQRQO\SDUWLDOO\UHYHDOHG7KLVLVEHFDXVHVWXGLHVXVX DOO\WUHDWWKHGHFLVLRQPDNLQJRIWKH&RXQFLOLQLVRODWLRQLJQRULQJWKHIDFWWKDWLW LVHPEHGGHGLQDVXSUDQDWLRQDOOHJDOFRQWH[W$QDO\VHVRIWKHLPSDFWRIGHFLVLRQ UXOHVQRUPDOO\DVVXPHDGHIDXOWFRQGLWLRQ 2VWURPI WKDWLVVWDEOH7KXV JRYHUQPHQWVFKRRVHEHWZHHQWKHVWDWXVTXRDQGWKH&RPPLVVLRQª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¥-XQH,ZRXOGOLNHWRWKDQNDOOWKHSDUWLFLSDQWVDWWKHSDQHORQQHZLQVWL WXWLRQDODSSURDFKHVWR(XURSHDQLQWHJUDWLRQIRUWKHLUUHPDUNV0RVWRIDOO,DPJUDWHIXO IRUGHWDLOHGFRPPHQWVWR:HUQHU(LFKKRUVW3KLOLSS*HQVFKHO+DQV:LOO\+RKQ)ULW]: 6FKDUSI *HUDOG 6FKQHLGHU DQG $ODVGDLU

&RPPLVVLRQKDVYHU\IDUUHDFKLQJLPSOLFDWLRQVIRUDQDO\VHVRIWKH&RXQFLOªVGHFL VLRQPDNLQJ

,EHJLQZLWKDVKRUWUHYLHZRIKRZWKH&RPPLVVLRQªVUROHKDVEHHQFRQFHSWXDO L]HGLQWKHOLWHUDWXUH$IWHUGLVFXVVLQJWKHGLIIHUHQWSRZHUVWKDWWKH&RPPLVVLRQ KDVDWLWVGLVSRVDO,SUHVHQWGLIIHUHQWFDVHVZKHUHWKHVHULJKWVKDYHEHHQLQIOXHQ WLDO IRU VXEVHTXHQW &RXQFLO GHFLVLRQV VKRZLQJ KRZ WKH &RPPLVVLRQ PD\ FRP ELQHLWVGLIIHUHQWFRPSHWHQFHV6XEVHTXHQWO\,H[DPLQHWKHJHQHUDOFKDUDFWHULVWLFV RIWKHFDVHVSRLQWLQJWRWKHLPSOLFDWLRQVIRUDQDO\VHVRIGHFLVLRQPDNLQJLQWKH (8,FORVHE\FRQVLGHULQJWKHUHOHYDQFHRIWKHLGHQWLILHGPHFKDQLVPV

 7KH'HEDWHG$XWRQRP\RIWKH&RPPLVVLRQ

7KH GHJUHH RI WKH &RPPLVVLRQªV DXWRQRP\ LV ZLGHO\ GHEDWHG %HIRUH DOO HOVH SURYLQJ DQ LQGHSHQGHQW LPSDFW RI VXSUDQDWLRQDO DFWRUV RQ WKH FRXUVH RI (XUR SHDQ LQWHJUDWLRQ LV FHQWUDO IRU WKRVH DXWKRUV LQWHUHVWHG LQ UHIXWLQJ LQWHUJRYHUQ PHQWDOLVW H[SODQDWLRQV 6DQGKROW]   ,Q DGGLWLRQ LQVWLWXWLRQDOLVW DQDO\VHV KDYH EHFRPH PRUH LPSRUWDQW DLPLQJ QRW VR PXFK WR GHWHUPLQH ZKHWKHU WKH &RPPLVVLRQPD\H[HUWLQIOXHQFHEXWXQGHUZKLFKFLUFXPVWDQFHV 3ROODFN 

7KH&RPPLVVLRQª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ªVLQIOXHQFHDVDQDJHQGDVHWWHU6LQFHWKH&RXQFLOQHHGVWRDFWXQDQLPRXVO\ ZKHQHYHULWZDQWVWRDOWHUD&RPPLVVLRQSURSRVDOWKHVHSURSRVLWLRQVDUHPRUH

  2IFRXUVHDGHWHULRUDWLQJUDWKHUWKDQVWDEOHVWDWXVTXRZLOODOVRKDYHFRQVHTXHQFHV IRU WKH (XURSHDQ 3DUOLDPHQW 6LQFH LW IDYRXUV PRUH LQWHJUDWLRQ WKH 3DUOLDPHQW VKRXOGVXSSRUWWKH&RPPLVVLRQªVXVHRI7UHDW\UXOHVWRSXWSUHVVXUHRQWKH&RXQFLO +RZHYHUVLQFHWKH3DUOLDPHQWGRHVQRWSDUWDNHLQGHFLVLRQVWDNHQXQGHU(XURSHDQ FRPSHWLWLRQODZZKLFKKDYHSDUWLFXODUUHOHYDQFHLQWKLVFRQWH[WLWLVLQDYHU\DP ELYDOHQW SRVLWLRQ WRZDUGV WKH &RPPLVVLRQªV XVH RI WKHVH SRZHUV 7KHUHIRUH LWV EH KDYLRXULVYHU\FDVHVSHFLILFDQG,ZLOOQRWDQDO\]HLWDQ\IXUWKHU 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

HDVLO\ DGRSWHG WKDQ FKDQJHG ,Q SUDFWLFH WKLV DOORZV WKH &RPPLVVLRQ WR SLFN DPRQJ GLIIHUHQW ZLQQLQJ FRDOLWLRQV WKH RQH SURSRVDO WKDW LV FORVHVW WR LWV RZQ SUHIHUHQFHV *DUUHWW7VHEHOLV 'HSHQGLQJRQWKHGLVWULEXWLRQRISUHIHU HQFHVLQWKH&RXQFLOUDWLRQDOFKRLFHLQVWLWXWLRQDOLVPPD\GHOLQHDWHSUHFLVHO\WKH UROHWKH&RPPLVVLRQFDQSOD\XQGHUGLIIHUHQWGHFLVLRQPDNLQJSURFHGXUHV6XFK DQDO\VHVDOVRLQFOXGHWKHUROHRIWKH(XURSHDQ3DUOLDPHQWXQGHUWKHPRUHUHFHQW FRGHFLVLRQSURFHGXUH 6FKQHLGHU*DUUHWWD 

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jYLVWKLUGSDUWLHVE\OHWWLQJDQLQGHSHQGHQWDJHQWRYHU  03,I*'LVFXVVLRQ3DSHU

YLHZLPSOHPHQWDWLRQ)URPDUDWLRQDOFKRLFHSHUVSHFWLYHJRYHUQPHQWVZLOORQO\ GHOHJDWHULJKWVWRWKHH[WHQWWRZKLFKWKHEHQHILWVRIGHOHJDWLRQRXWZHLJKWKHSRV VLEOH FRVWV DULVLQJ IURP §DJHQF\ ORVV¨ JLYHQ WKDW WKH DJHQW LV ERXQG WR SXUVXH VHOILQWHUHVWV WKDW PLJKW GLYHUJH IURP WKH LQWHQWLRQ RI WKH SULQFLSDOV 1ROO :HLQJDVW 

(PSLULFDOO\LWLVGLIILFXOWWRSURYHPHPEHUVWDWHFRQWURORUODFNRIFRQWUROEDVHG RQVLQJOHFDVHV 6FKPLGW (VVHQWLDOO\JRYHUQPHQWVPD\KDYHDQLQWHUHVWWR KLGH WKHLU UHVSRQVLELOLW\ EHKLQG WKH &RPPLVVLRQªV DFWLRQ %HFDXVH EODPH DYRLGDQFHLVVRDWWUDFWLYHIRUWKHP :HDYHU LWLVKDUGWRHVWDEOLVKZKHWKHU WKH&RPPLVVLRQRYHUVWHSSHGLWVFRPSHWHQFHV,WLVWKHUHIRUHPXFKPRUHXVHIXOWR H[DPLQHWKH&RPPLVVLRQªVDELOLW\WRDFWDFURVVVHYHUDOFDVHVDQDO\]LQJWKHH[WHQW WRZKLFKWKH&RPPLVVLRQªVUHODWLYHLQGHSHQGHQFHLVFRQWLQJHQWRQGLIIHUHQWIDF WRUV ¥ PRVW RI DOO RQ JRYHUQPHQWDO FRQWURO 3ROODFN   7R JLYH DQ H[DPSOH 6DQGKROW]  KDVUHFHQWO\DUJXHGWKDWWKH&RPPLVVLRQªVXVHRIVSHFLDOFRP SHWLWLRQ ODZ SRZHUV LWV SUHURJDWLYH WR LVVXH &RPPLVVLRQ GLUHFWLYHV XQGHU $UW  LQWHOHFRPPXQLFDWLRQVSROLF\GHPRQVWUDWHVWKHVLJQLILFDQWH[WHQWRIORVVRI JRYHUQPHQWDO FRQWURO :KHQ FRPSDULQJ WKH WHOHFRPPXQLFDWLRQV FDVH WR VLPLODU &RPPLVVLRQSODQVIRUWKHOLEHUDOL]DWLRQRIHQHUJ\QHWZRUNVDQGSRVWDOVHUYLFHV KRZHYHU,IRXQGWKDWJRYHUQPHQWDOFRQWURORIWKHXVHRIWKHVH&RPPLVVLRQSRZ HUV LV DOO EXW DEVHQW JLYHQ WKDW WKH &RPPLVVLRQ KDG WR EDFN GRZQ LQ WKHVH LQ VWDQFHV 6FKPLGW 

,QJHQHUDOGHVSLWHWKHDPRXQWRIZRUNEHLQJGRQH&RPPLVVLRQULJKWVRWKHUWKDQ WKRVHUHODWLQJWRDJHQGDVHWWLQJDUHUDUHO\DQDO\]HG /DIIDQ 7KH&RPPLV VLRQHQMR\VVLJQLILFDQWSRZHUVDVDJXDUGLDQRIWKH7UHDW\DQGXQGHU(XURSHDQ FRPSHWLWLRQODZ:KLOHLQGLYLGXDOFDVHVWXGLHVKDYHSRLQWHGWRWKHVLJQLILFDQFHRI WKHVH ULJKWV %XOPHU E

7KRXJKWKHDWWHPSWWRHVWDEOLVKWKHSUHFLVHFRQGLWLRQVRIWKHDXWRQRP\RIVXSUD QDWLRQDODFWRUVVHHPVWREHWKHPRVWIUXLWIXOZD\IRUZDUGIRUDQDO\VHVRI(XUR SHDQLQWHJUDWLRQ,FDQQRWYHQWXUHTXLWHWKDWIDULQWKHSUHVHQWSDSHU:KLOH,FDQ RQO\SURYLGHVXJJHVWLRQVUDWKHUWKDQSUHFLVHJXLGHOLQHVDVWRWKHFRQGLWLRQVXQ GHUZKLFKWKH&RPPLVVLRQFRPSHWHQFHV,GLVFXVVPD\EHFRPHUHOHYDQWWKHV\V 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

WHPDWLFHYLGHQFHRIKRZWKHVHOLWWOHUHFRJQL]HGULJKWVPD\JLYHWKH&RPPLVVLRQ OHHZD\DJDLQVWWKHPHPEHUVWDWHVKDVLPSRUWDQWLPSOLFDWLRQVIRUH[SODQDWLRQVRI &RXQFLOGHFLVLRQPDNLQJ

 7KH6XSUDQDWLRQDO6KDSLQJRI'HFLVLRQV

7KHVXSUDQDWLRQDOFKDUDFWHURIWKH(XURSHDQOHJDOV\VWHPLVWKHPRVWGLVWLQFWLYH WUDLWRI(XURSHDQLQWHJUDWLRQWKDWVHWVLWDSDUWIURPRWKHUIRUPVRILQWHUQDWLRQDO FRRSHUDWLRQ&RPSOHPHQWLQJLQWHUJRYHUQPHQWDOGHFLVLRQPDNLQJLQWKH&RXQFLO WKHGLUHFWHIIHFWDQGVXSUHPDF\RI(XURSHDQODZKDYHORRVHQHGLQWHUJRYHUQPHQ WDOFRQWURO1HLWKHUWKHVXSUDQDWLRQDOIHDWXUHVRI(XURSHDQGHFLVLRQPDNLQJFRP SULVLQJ WKH &RPPLVVLRQªV UROH DV DJHQGD VHWWHU QRU WKH SRVVLELOLW\ RI TXDOLILHG PDMRULW\YRWLQJQRUWKHSDUWLFLSDWLRQRIWKH(XURSHDQ3DUOLDPHQWDUHFRQVLGHUHG WREHDVVLJQLILFDQWDVWKHVXSUDQDWLRQDOFKDUDFWHURIWKH(XURSHDQ&RXUWZKLFKLV HYHQUHFRJQL]HGE\LQWHUJRYHUQPHQWDOLVWV 0RUDYFVLN 

:KLOHLWLVPXFKOHVVLQYROYHGWKDQWKH&RXUWWKH&RPPLVVLRQDOVRWDNHVSDUWLQ WKHVXSUDQDWLRQDOOHJDOV\VWHP,WLVWKHJXDUGLDQRIWKH7UHDW\DQGDVVXFKLWKDV WKHUHVSRQVLELOLW\WRVDQFWLRQLQIULQJHPHQWVRIWKH7UHDW\FDOOLQJXSRQWKH&RXUW LI QHFHVVDU\ ,Q DGGLWLRQ (XURSHDQ FRPSHWLWLRQ ODZ SURYLGHV WKH (XURSHDQ &RPPLVVLRQ ZLWK FRQVLGHUDEOH FRPSHWHQFHV PDNLQJ LW LQWR WKH §ILUVW VXSUDQD WLRQDOSROLF\¨ 0F*RZDQ:LONV 

7KHVH ULJKWV RI WKH &RPPLVVLRQ DV , ZLOO VKRZ FDQ EH XVHG WR FRPSOHPHQW LWV UROHDVDJHQGDVHWWHUPHDQLQJWKDWLWKDVFRQVLGHUDEOHLQIOXHQFHRQWKH&RXQFLOªV GHFLVLRQPDNLQJZKLFKKDVJRQHDOPRVWXQUHFRJQL]HGLQWKHOLWHUDWXUHWRGDWH

 %H\RQG$JHQGD6HWWLQJ7KH&RPPLVVLRQªV5HVLGXDO3RZHUV

6R IDU WKHUH KDV QRW EHHQ DQ\ V\VWHPDWLF DQDO\VLV RI KRZ WKH &RPPLVVLRQ PD\ HPSOR\LWVGLIIHUHQWULJKWVLQRUGHUWRSODFHWKH&RXQFLOªVGHFLVLRQVLQDVXSUDQD WLRQDO OHJDO FRQWH[W WKRXJK WKLV SRVVLELOLW\ RI WKH &RPPLVVLRQ KDV DSSHDUHG LQ VHYHUDO FDVH VWXGLHV %XOPHU E &RZKH\  0RQWDJQRQ   7KH VSHFLDOSRZHUVWKH&RPPLVVLRQPD\GUDZRQHVVHQWLDOO\UHO\RQWKHVXSUHPDF\ DQG GLUHFW HIIHFW RI WKH 7UHDW\ªV UXOHV %HFDXVH RI WKHVH FKDUDFWHULVWLFV DV , ZLOO VKRZH[SOLFLWGHFLVLRQPDNLQJRIWKH&RXQFLOLVQRWDOZD\VUHTXLUHGEHIRUHVXE VXPLQJQDWLRQDOSROLFLHVXQGHUWKH7UHDW\  03,I*'LVFXVVLRQ3DSHU

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§QHJDWLYHLQWHJUDWLRQ¨,WFRPSOHPHQWVDQGLQIOXHQFHVPHDVXUHVRI SRVLWLYH LQWHJUDWLRQ DJUHHG RQ LQ WKH &RXQFLO ZKLFK HVWDEOLVK FRPPRQ UXOHV RI PDUNHWVKDSLQJ 3LQGHU6FKDUSIE 

7KHUHOHYDQFHRIWKHGLUHFWVXEVXPSWLRQRIQDWLRQDOUHJXODWLRQVXQGHU(XURSHDQ ODZLVVWUHQJWKHQHGWKURXJKRWKHUFRPSHWHQFHVRIWKH&RPPLVVLRQQDPHO\WKH DGPLQLVWUDWLYHSRZHUVLWHQMR\VXQGHU(XURSHDQFRPSHWLWLRQODZ$UWLFOHVDQG DUHGLUHFWHGDWSULYDWHDFWRUVSURKLELWLQJFDUWHOVDQGWKHDEXVHRIGRPLQDQWSRVL WLRQV)RUWKHLUDSSOLFDWLRQE\WKH&RPPLVVLRQDQGQDWLRQDODXWKRULWLHV$UWLFOHV ¥ FRQWDLQ WKH SURFHGXUDO UXOHV $UWLFOHV  WR  GHDO ZLWK WKH DFWLRQV RI PHPEHUVWDWHVZKRVHSRWHQWLDOWRJUDQWVSHFLDOULJKWVRUVWDWHDLGWRHQWHUSULVHVLV UHVWULFWHG7KH&RPPLVVLRQHQMR\VYHU\IDUUHDFKLQJULJKWVLQWKHLPSOHPHQWDWLRQ RI(XURSHDQFRPSHWLWLRQODZZKLFKDUHEDVHGSDUWO\RQWKH7UHDW\DQGSDUWO\RQ &RXQFLOUHJXODWLRQVVXFKDV5HJXODWLRQ1RZKLFKZDVDJUHHGXSRQLQ IRU WKH DSSOLFDWLRQ RI $UWLFOHV  DQG  7KH PHPEHUVWDWH JRYHUQPHQWV RQO\ KDYHOLPLWHGIRUPDORSSRUWXQLWLHVWRLQIOXHQFHWKHZD\WKH&RPPLVVLRQKDQGOHV LWVFRPSHWLWLRQODZSRZHUV

7KXVWKHJRYHUQPHQWVRQO\SDUWDNHLQWKHLPSOHPHQWDWLRQRI$UWLFOHVDQG WKURXJK DGYLVRU\ FRPPLWWHHV JLYLQJ WKH &RPPLVVLRQ WKH ILQDO GHFLVLRQ SRZHU 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

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§WKHLU¨ FRPPLVVLRQHUV DQG WKH &RPPLVVLRQ DV D ZKROH ZKHQ FRQWURYHUVLDO PHDVXUHV DULVH VR WKDW WKH\ PD\ VXFFHVVIXOO\ SUHYHQW QHJDWLYH GHFLVLRQV 5RVV ¥ 

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

SHWLWLRQ ODZ ZKLFK QRUPDOO\ H[HPSWV FHUWDLQ DUHDV VXFK DV WKH FODVVLF XWLOLWLHV DQGZKHUHLWLVWDNHQIRUJUDQWHGWKDWSDUOLDPHQWUHPDLQVIUHHWRUHJXODWHFHUWDLQ DUHDVRIWKHHFRQRP\2QWKH(XURSHDQOHYHOPHPEHUVWDWHVDUHGHQLHGWKLVIUHH GRP ZKLFK ZRXOG DPRXQW WR D GLVWXUEDQFH RI WKH VLQJOH PDUNHW :KHUHDV QD WLRQDO FRPSHWLWLRQ UXOHV DUH RQH NLQG RI VHFRQGDU\ ODZ RQ WKH (XURSHDQ OHYHO WKH\KDYHWKHVWDWXVRISULPDU\ODZ 6FKDUSID $QGHYHQWKRXJK(XUR SHDQFRPSHWLWLRQODZRQO\DLPVWRRXWUXOHKLQGUDQFHVRIWKHVLQJOHPDUNHWDQG GRHV QRW ERWKHU ZLWK SXUHO\ QDWLRQDO FRQFHUQV WKH OLNHOLKRRG RI VXFK GLVWXU EDQFHVKDYHEHHQLQWHUSUHWHGYHU\EURDGO\6LQFHDFRXQWU\ªVQDWLRQDOUHVWULFWLRQV DOPRVWDOZD\VKDPSHUDSRWHQWLDOHFRQRPLFDFWLYLW\RIRWKHU(XURSHDQQDWLRQDOV LQDGGLWLRQWRJRYHUQLQJLWVRZQFLWL]HQVWKHUHDUHLQIDFWIHZLQKHUHQWO\QDWLRQDO DIIDLUV

7DEOH  VXPPDUL]HV WKH GLIIHUHQW ULJKWV ZKLFK WKH &RPPLVVLRQ PD\ H[HUFLVH ,GHDOO\WKH&RPPLVVLRQPD\VWDUWWRDSSO\LWVSRZHUVLQDOODUHDVQRWH[HPSWHG E\ WKH 7UHDW\ªV UXOHV LQWHUIHULQJ VHULRXVO\ ZLWK WKH QDWLRQDO RUGHUV RI PHPEHU VWDWHV,WLVLPSRUWDQWWRQRWHWKDWWKLVGRHVQRWSUHVXSSRVHWKDWWKH&RPPLVVLRQ LVLGHRORJLFDOO\SUHFRPPLWWHGWRDIUHHPDUNHW5DWKHULWLVVXIILFLHQWQH[WWREH LQJHPSLULFDOO\SODXVLEOHWRDVVXPHWKDWWKH&RPPLVVLRQKDVDQLQVWLWXWLRQDOL]HG VHOILQWHUHVWLQIXUWKHULQJ(XURSHDQLQWHJUDWLRQDVWKLVDOORZVLWWRFRQVROLGDWHDQG H[SDQG LWV FRPSHWHQFHV DV D FRUSRUDWH DFWRU 6FKQHLGHU:HUOH  6FKLPDQN   %HFDXVH WKH 7UHDW\ IDYRUV QHJDWLYH RYHU SRVLWLYH LQWHJUDWLRQ 6FKDUSI E WKH&RPPLVVLRQªVDFWLRQZLOOUHIOHFWWKLVELDV0RUHRYHUQHJDWLYHLQWHJUD WLRQPD\EHSXUVXHGE\WKH&RPPLVVLRQQRWRQO\EHFDXVHLWVHHNVWRDFFRPSOLVK WKH7UHDW\ªVJRDOVEXWDOVREHFDXVHLWPD\EHDWWUDFWLYHDVDEDVLVIURPZKLFKWR SURSRVHSRVLWLYHUHJXODWRU\PHDVXUHVWRWKH&RXQFLO6LQFHPHPEHUVWDWHVDUHUH OXFWDQWWRVHHQDWLRQDOUHJXODWLRQVVXUPRXQWHGE\D(XURSHDQIUHHPDUNHWWKH\ KDYHDQLQFHQWLYHWRDJUHHWR(XURSHDQZLGHUXOHVRIPDUNHWVKDSLQJ

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



 ,ZLOOQRWLQFOXGHFDVHVZKHUHMXGLFLDOSROLF\PDNLQJUHSODFHVGHFLVLRQVRIWKH&RXQ FLO LQ DQ RXWULJKW ZD\ VHH 3HVFDWRUH   6XFK DQ H[DPSOH LV JLYHQ E\ 6WHLQ   )ROORZLQJ D &RXUW UXOLQJ &DVH   WKH &RPPLVVLRQ H[FOXGHG WKH 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

Table 1 Different commission powers

Competence Directed at Procedure Infringement State actors Interaction between Commission and member state procedure (Art. 169), on allegations, reference to the European Court relating, for example of Justice to insufficient market freedoms Control of cartels Private actors Commission decisions (Art. 85) amounting to: Appeal Prohibition of abuse of Private actors Prohibiting the action, market power (Art. 86) requiring alterations, and/or to the imposing fines. Control of subsidies State actors (Art. 92–94) European Control of the granting State actors Decision or directive of special rights prohibiting the action or Court of Justice (Art. 90) requiring alterations

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

 1HJRWLDWLQJLQWKH6KDGRZRI1HJDWLYH,QWHJUDWLRQ

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

3KLOLS0RUULVFDVHWKHUHVLVWDQFHRIWKHPHPEHUVWDWHJRYHUQPHQWVFRXOGEHEUR NHQ ,Q WKLV FDVH WKH &RXUW LPSOLFLWO\ DFFRUGHG WR WKH &RPPLVVLRQ WKH ULJKW WR FRQWUROPHUJHUVRQWKHEDVLVRI$UWLFOH

)ROORZLQJWKH&RXUWUXOLQJFRPSDQLHVLQFUHDVLQJO\QRWLILHGWKH&RPPLVVLRQRQ SODQQHG PHUJHUV $W WKH VDPH WLPH WKH &RPPLVVLRQ DFWLYHO\ KLJKOLJKWHG WKH GUDZEDFNVDQGWKHXQFHUWDLQW\RIWKHQHZVLWXDWLRQZKLFKFRLQFLGHGZLWKWKHLQ FUHDVHGEXVLQHVVDFWLYLW\LQWKHFRXUVHRIFRPSOHWLQJWKHVLQJOHPDUNHW:LWKRXW &RXQFLO UHJXODWLRQ WKHUH ZDV QR WKUHVKROG IRU QRWLILFDWLRQV KRVWLOH WDNHRYHUV ZHUHQRWLQFOXGHGDQGWKHSURSHUW\ULJKWVLQYROYHGLQPHUJHUVFRXOGQRWEHGHDOW ZLWKDSSURSULDWHO\ %XOPHUE 

7KXVZLWKWKH&RXUWªVUXOLQJWKHVWDWXVTXRFKDQJHGFRQVLGHUDEO\DOWHULQJWKH GHIDXOWFRQGLWLRQRIWKHJRYHUQPHQWV:KHUHDVEHIRUHWKH\FRXOGFKRRVHEHWZHHQ WKHLUQDWLRQDOUHVSRQVLELOLW\DQGDQHZ(XURSHDQFRPSHWHQFHWKH\QRZIDFHGD SRRUO\ GHILQHG (XURSHDQ FRPSHWHQFH WKH\ KDG QRW KDG DQ\ LQSXW LQ EULQJLQJ DERXW7KLVPDGHLWGHVLUDEOHWRUHSODFHLWZLWKDPRUHH[SOLFLW(XURSHDQSRZHU ZKRVHFRQGLWLRQVWKHJRYHUQPHQWVZRXOGVSHFLI\

)URP WKH &RPPLVVLRQªV SHUVSHFWLYH WKH JUHDW DGYDQWDJH RI WKLV PHUJHU UHJLPH XVLQJ$UWLFOHZDVWKHXQFHUWDLQW\WKDWLWJHQHUDWHG7KLVVHUYHGWRSXWSUHVVXUH RQWKHGRXEWLQJPHPEHUVWDWHVWRVHWWOHIRUDEHWWHUZRUNHGRXWDQGSRWHQWLDOO\ PRUHOLPLWHGPHUJHUUHJXODWLRQ%\DFRPELQDWLRQRIOXFNDQGVNLOOWKH&RPPLV VLRQKDGPDQDJHGWRFUHDWHDSUREOHPZKLFKWKH&RXQFLOIHOWFRXOGEHHDVHGRQO\ E\SDVVLQJWKHOHJLVODWLRQLWKDGSUHYLRXVO\UHIXVHGWRFRQVLGHU $OOHQDOVRFLWHGLQ3ROODFN

,QWKHFDVHRIPHUJHUFRQWUROWKH&RPPLVVLRQZDVHDVLO\DEOHWREXLOGDSURSRVDO RQWKHIDLWDFFRPSOLRIWKH&RXUW$VLPLODUFDVHFDQEHIRXQGLQWKHOLEHUDOL]DWLRQ RI URDG KDXODJH +pULWLHU   ,Q  UHVSRQGLQJ WR D FRPSODLQW E\ WKH (XUR SHDQ3DUOLDPHQWWKH&RXUWUXOHGWKDWWKH&RXQFLORI0LQLVWHUVKDGYLRODWHGWKH 7UHDW\E\IDLOLQJWRUHDOL]HWKHIUHHGRPWRSURYLGHVHUYLFHVLQWKHWUDQVSRUWVHFWRU )RUWKHPHPEHUVWDWHVWKHUXOLQJ§ZDVDQLPSOLFLWWKUHDWWKDWLIWKH&RXQFLOGLG QRWUHGUHVVWKHVKRUWFRPLQJVLQURDGWUDQVSRUWTXLFNO\WKH&RXUWZRXOGGLUHFWO\ DSSO\WKH7UHDW\žZKLFKFRXOGKDYHPHDQWWKHLQVWDQWDQHRXVOLEHUDOLVDWLRQRI WKH URDG KDXODJH PDUNHW¨

7KH&RPPLVVLRQKRZHYHUGRHVQRWKDYHWRUHPDLQUHODWLYHO\SDVVLYHOLNHWKLV ZKLFKPD\EHVKRZQZKHQORRNLQJDWWKHOLEHUDOL]DWLRQRIDLUWUDQVSRUW7KLVZDV   $FFRUGLQJWR

WKHILUVWLQVWDQFHRIWKH&RPPLVVLRQXVLQJ(XURSHDQFRPSHWLWLRQODZVXFFHVVIXOO\ IRUWKHOLEHUDOL]DWLRQDQG(XURSHDQUHUHJXODWLRQRIDVHFWRU $UJ\ULV¥ 6WULYHQV:HLJKWPDQ I &XOOHQ

$UXOLQJE\WKH(XURSHDQ&RXUWRI-XVWLFHFKDQJHGWKLVVLWXDWLRQ,QWKHFDVH1RX YHOOHV)URQWLq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ªVSURSRVDOV WKH§ILUVWSDFNDJH¨ 7KXVWKH&RPPLV VLRQVXFFHVVIXOO\JRWWKH&RXQFLOPRYLQJE\WKUHDWHQLQJGHFLVLRQVEDVHGRQ$UWL   ,QWKH&RPPLVVLRQKDGDOUHDG\RSHQHG$UWLFOHSURFHHGLQJVDJDLQVWVHYHQ PHPEHUVWDWHVZKRKDGQRWVXSSRUWHGWKH&RPPLVVLRQª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

FOHZKLFKZRXOGKDYHEHHQPRVWFRVWO\IRUWKHPHPEHUVWDWHVªDLUOLQHV§,IWKH &RXQFLORI0LQLVWHUVZLVKHGWRFRQWUROWKHVSHHGDQGLQWHQVLW\RIFRPSHWLWLRQLW ZDVLQWKHLUSRZHUWRGRVRE\LQWURGXFLQJDSSURSULDWHGHUHJXODWRU\PHDVXUHV¨ %XWWRQ   %XLOGLQJ RQ WKLV ILUVW DJUHHPHQW WKH VHFRQG DQG WKLUG SDFN DJHVRIDLUWUDQVSRUWOLEHUDOL]DWLRQVXEVHTXHQWO\OHGWRIXOOFRPSHWLWLRQE\$SULO 

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

RQO\LPSRUWDQWWRQRWHWKDWGHFLVLRQPDNLQJRIWKH&RXQFLOFRXOGKDYHEHHQSUH SDUHGLQDVLPLODUZD\

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§*OREDO 2QH¨  $IWHUWKHDJUHHPHQWEHWZHHQWKH)UHQFKDQG*HUPDQJRYHUQPHQWVZDVUHDFKHG WKH &RPPLVVLRQ OLEHUDOL]HG WKH XVH RI DOWHUQDWLYH QHWZRUNV WKURXJKRXW WKH (8 XQGHU $UWLFOH  IURP PLG RQZDUGV :KHQ DSSURYLQJ DOOLDQFHV EHWZHHQ RWKHUQHWZRUNRSHUDWRUVWKH&RPPLVVLRQVLPLODUO\LPSRVHGWKHOLEHUDOL]DWLRQRI DOWHUQDWLYH QHWZRUNV DV D SUHFRQGLWLRQ VR WKDW PHPEHU VWDWHV OLNH 6SDLQ ZKLFK KDGEHHQJUDQWHGDQH[WHQVLRQZHUHSXWXQGHUSUHVVXUH

7KHH[DPSOHRI$WODVLQSDUWLFXODUHOXFLGDWHVKRZPLVOHDGLQJLWPD\EHWRUHDG LO\FRQFHLYHWKHDFWLRQVRIWKH&RPPLVVLRQDVEHLQJLQRSSRVLWLRQWRWKHJRYHUQ PHQWV 7KH )UHQFK DQG *HUPDQ SRVWDO PLQLVWHUV KDG HQFRXUDJHG WKH OLEHUDOL]D WLRQ RI DOWHUQDWLYH QHWZRUNV DW D &RXQFLO PHHWLQJ LQ  DOWKRXJK *HUPDQ\ ODFNHGDVXIILFLHQWGRPHVWLFPDMRULW\IRUVXFKDVWHS2WKHUJRYHUQPHQWVEDFNHG E\ PRVW QDWLRQDO WHOHFRPPXQLFDWLRQV RSHUDWRUV KDG RSSRVHG WKLV PHDVXUH /LQNLQJWKH$WODVDSSURYDOZLWKDSDUWLDOQHWZRUNOLEHUDOL]DWLRQVHWDQLQFHQWLYH IRUWKHWHOHFRPPXQLFDWLRQVRSHUDWRUVWRGURSWKHLUUHVLVWDQFH6LQFHDOORSHUDWRUV ZHUHDFWLYHO\VHDUFKLQJIRUFRRSHUDWLRQSDUWQHUVWRLPSURYHWKHLUSRVLWLRQRQLQ WHUQDWLRQDO PDUNHWV LW PDGH QR VHQVH IRU WKHP WR ULVN WKHLU IXWXUH E\ FOLQJLQJ RQWRWKHLUPRQRSROLHVDOLWWOHELWORQJHU  03,I*'LVFXVVLRQ3DSHU

7KXV(XURSHDQWHOHFRPPXQLFDWLRQVSROLF\JLYHVVHYHUDOH[DPSOHVRIPHDVXUHVRI QHJDWLYHLQWHJUDWLRQKHOSLQJWRDFKLHYHDFRPPRQSROLF\7KHDQWLFLSDWHGRSSR VLWLRQ RI PHPEHU VWDWHV LV EURNHQ E\ HQIRUFLQJ FRPSHWLWLRQ ODZ *RYHUQPHQWV DQG377VDUHLVRODWHGLQFRQIURQWLQJWKHGHPDQGVRIWKH&RPPLVVLRQ(YHQZKHQ VHYHUDO PHPEHU VWDWHV DUH FRQFHUQHG WKH\ DUH UDUHO\ LQIRUPHG DERXW WKH RWKHU FDVHVDQGFRXQWU\VSHFLILFGLIIHUHQFHVPDNHGLUHFWFRPSDULVRQVRIWKH&RPPLV VLRQªVDFWLRQGLIILFXOW$VDUHVXOWWKH&RPPLVVLRQKDUGO\ULVNVWKHEXLOGLQJXSRI D FRDOLWLRQ DPRQJ WKH FRQFHUQHG PHPEHU VWDWHV DLPHG DW EORFNLQJ WKH FKDQJH $OWHUQDWLYHO\WKH&RPPLVVLRQPD\WU\WRWLHRWKHUGHFLVLRQVWRWKHUHTXLUHPHQW RIOLEHUDOL]DWLRQXVLQJLWVSRZHUVXQGHUFRPSHWLWLRQODZDVDKRVWDJHDVWKH$W ODVH[DPSOHKDVVKRZQ

2WKHUXWLOLWLHVPRQRSROLHVKDYHEHHQWDFNOHGLQDVLPLODUZD\6KRUWO\DIWHUVWDUW LQJWRGHILQHD(XURSHDQSROLF\IRUQHWZRUNEDVHGHQHUJ\WKH&RPPLVVLRQLQ LQLWLDWHG LQIULQJHPHQW SURFHGXUHV DJDLQVW WKH H[LVWLQJ LPSRUW DQG H[SRUW PR QRSROLHVIRUHOHFWULFLW\DQGJDVLQWHQPHPEHUVWDWHV$WWKHVDPHWLPHDQDWWHPSW IDLOHG WR OLEHUDOL]H QHWZRUNEDVHG HQHUJ\ YLD $UWLFOH  GLUHFWLYHV LQ WKH VDPH ZD\ WKH &RPPLVVLRQ KDG GRQH LQ WHOHFRPPXQLFDWLRQV $OVR WKH LQIULQJHPHQW SURFHHGLQJVSURJUHVVHGYHU\VORZO\LQGLFDWLQJWKDWPHPEHUVWDWHVª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

7KXVSRVWDOSROLF\DOVRVKRZVWKHFRQWLQJHQFLHVRIWKH&RPPLVVLRQªVVXFFHVVLQ XVLQJ LWV UHVLGXDO ULJKWV 7KH &RPPLVVLRQª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

 &KDQJLQJWKH'HIDXOW&RQGLWLRQ

$OO WKH H[DPSOHV SUHVHQWHG VKDUH D VLPLODULW\ 7KH DSSOLFDWLRQ RI WKH 7UHDW\ªV UXOHV HLWKHU GLUHFWO\ E\ WKH &RPPLVVLRQ RU E\ ZD\ RI WKH &RXUW FKDQJHV WKH VWDWXVTXRSRVLWLRQRIWKHPHPEHUVWDWHVLQYROYHGLQDSDUWLFXODUFDVH:KHUHDVD &RPPLVVLRQ SURSRVDO WR WKH &RXQFLO ZDV RQFH UHMHFWHG DV EHLQJ XQIDYRXUDEOH FRPSDUHGWRWKHVWDWXVTXRDQDJUHHPHQWRIWKH&RXQFLOLVQRZEHLQJVRXJKW,Q YLHZRIWKHGHWHULRUDWLQJGHIDXOWFRQGLWLRQDMRLQW(XURSHDQSROLF\EHFRPHVPRUH DWWUDFWLYH

1H[WWRWKLVFRPPRQEDFNJURXQGRIDFKDQJHGGHIDXOWFRQGLWLRQWKHFDVHVGLV FXVVHGFDQEHGLVWLQJXLVKHGLQWRWZRVXEJURXSV,QWKHILUVWVHWRIFDVHVWKH&RP PLVVLRQHPSOR\VDGLYLGHDQGFRQTXHUVWUDWHJ\,QWKHVHFRQGJURXSWKHLPSOL FDWLRQVRI(XURSHDQODZVHUYHDVDWKUHDWPDNLQJWKHDGRSWLRQRI&RXQFLOPHDV XUHVSUHIHUDEOH

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ªV LQWHU 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

Figure 1 Divide and conquer: The example of ground handling

I, E, IR, Commission GR, L D, F, DK, B Proposal , NL

Monopoly Liberalization changed national positions after the Commission’s intervention

YHQWLRQV ,Q WHOHFRPPXQLFDWLRQV WKH FDVHV ZHUH IROORZHG E\ D &RPPLVVLRQ GL UHFWLYHLQVWHDGRID&RXQFLOGLUHFWLYH XVLQJ$UWLFOH EXWWKLVGRHVQRWDOWHU WKHIDFWWKDWLWZDVWKHGLYLGHDQGFRQTXHUVWUDWHJ\WKDWDOORZHGWKH&RPPLVVLRQ WRPLQLPL]HRSSRVLWLRQ

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§SUHYHQWLQJ ZRUVH¨ PD\ DOVR UHIHU WR GLUHFW ILQDQFLDO ORVVHV WKH LPSHQGLQJ ILQHV WKHPHPEHUVWDWHVZHUHDEOHWRDYRLGE\DGRSWLQJWKHILUVWSDFNDJHIRUDLUWUDQV SRUW OLEHUDOL]DWLRQ DUH DQ H[DPSOH $QRWKHU SRVVLELOLW\ LV WKDW WKH &RPPLVVLRQ DFKLHYHVDJUHHPHQWE\LPSRVLQJRSSRUWXQLW\FRVWVLQUHODWHGDUHDV/LQNLQJWKH DSSURYDORIWKH$WODVFRRSHUDWLRQWRWKHOLEHUDOL]DWLRQRIDOWHUQDWLYHQHWZRUNVLV DQH[DPSOHIRUWKLVZKLFKKDGDQLPPHGLDWHLPSDFWRQRWKHUPHPEHUVWDWHVHD JHU WR VHH WKHLU QDWLRQDO RSHUDWRU SDUWLFLSDWH LQ LQWHUQDWLRQDO YHQWXUHV7KH &RPPLVVLRQªVEURDGSRZHUVLQWKHDGPLQLVWUDWLRQRI(XURSHDQODZJLYHLWDPSOH VFRSH WR GHVLJQ SUHUHTXLVLWHV IRU WKH DSSURYDO RI PHUJHUV RU VWDWH DLGV RU WR WKUHDWHQLQTXLULHVLQWRHVWDEOLVKHGQDWLRQDOSUDFWLFHVLIDJRYHUQPHQWPDLQWDLQVLWV RSSRVLWLRQ WR SURSRVHG OLEHUDOL]DWLRQ PHDVXUHV +RZHYHU VLQFH VXFK D OLQNDJH ZLOOEHUDUHO\PDGHDVRSHQO\DVWKHRQHEHWZHHQWKHDSSURYDORI$WODVDQGWKH OLEHUDOL]DWLRQ RI DOWHUQDWLYH QHWZRUNV LW LV GLIILFXOW WR HVWDEOLVK WKH UHOHYDQFH RI WKLVSRVVLELOLW\

  $JDLQWKHFRPPRQPHDVXUHZDVSDVVHGDVD&RPPLVVLRQGLUHFWLYH  03,I*'LVFXVVLRQ3DSHU

Figure 2 “Preventing worse”: The example of electricity

Commission F I D Proposal UK

SQ planned SQ l Monopoly liberalization unplanned liberalization

Commission + Court of Justice

SQ = Status Quo

7KH§SUHYHQWLQJZRUVH¨VWUDWHJ\PD\EHLOOXVWUDWHGRQWKHEDVLVRIWKHHOHFWULFLW\ FDVH0HPEHUVWDWHVKDGGLIIHULQJLQWHUHVWVVLWXDWHGEHWZHHQWKHPDLQWHQDQFHRI WKH PRQRSROLHV ZKLFK ZDV WKH VWDWXV TXR DQG ZDV SUHIHUUHG E\ )UDQFH  DQG D VXEVWDQWLDOSODQQHGOLEHUDOL]DWLRQ ZKLFKZDVIDYRUHGE\WKH8. ,WLVQRWQHFHV VDU\KHUHWRQRWHWKHSRVLWLRQRIDOOPHPEHUVWDWHV:KDWLVZRUWKQRWLQJLVWKDW WKH HOHFWULFLW\ FDVH LV RQH RI GH IDFWR XQDQLPRXV GHFLVLRQPDNLQJ JLYHQ WKDW )UDQFHªVSRVLWLRQDVWKHODUJHVWH[SRUWHURIHOHFWULFLW\LVWRRFHQWUDOWRGUDZXSDQ DJUHHPHQWDJDLQVWLW%\DSSO\LQJWKH7UHDW\ªVUXOHVGLUHFWO\WRWKHHOHFWULFLW\PR QRSROLHV WKH &RPPLVVLRQ ZLWK WKH KHOS RI WKH &RXUW FRXOG WKUHDWHQ DQ XQ SODQQHGOLEHUDOL]DWLRQ:KDWLVLPSRUWDQWLVWKDWWKLVQHZVWDWXVTXRZDVPXFK PRUHGLVWDQFHGIURP DQGWKHUHIRUHOHVVLQOLQHZLWK WKHRXWFRPHVSUHIHUUHGE\ WKHPHPEHUVWDWHVWKDQWKH&RPPLVVLRQªVSURSRVDOIRUDGLUHFWLYH)DFHGZLWKWKLV QHZGHIDXOWFRQGLWLRQRIDFWLRQJRYHUQPHQWVDJUHHGRQWKHGLUHFWLYH

7KH §SUHYHQWLQJ ZRUVH¨ VWUDWHJ\ UHOLHV KHDYLO\ RQ WKH KLJKO\ QHJDWLYH FRQVH TXHQFHVIRUWKHPHPEHUVWDWHV5XOLQJVRIWKH&RXUWRQWKH7UHDW\ªVUHOHYDQFHLQ QHZSROLF\ILHOGVDUHGLIILFXOWWRSUHGLFWDQGFDQKDUGO\EHLQIOXHQFHGIURPWKH RXWVLGH$QGRQFHWKH\KDYHEHHQPDGHWKH\DUHGLIILFXOWWRDOWHU$VWKH7UHDW\ FDQ RQO\ EH FKDQJHG E\ XQDQLPLW\ LQWHUSUHWDWLRQV RI LWV REOLJDWLRQV IRU VHFWRUV ZKLFKKDYHQRWEHHQLQWHJUDWHGDOZD\VSRVHDKLJKULVN,IWKH&RXQFLODJUHHVRQ VHFRQGDU\OHJLVODWLRQKRZHYHUEHIRUHWKH&RXUWKDVPDSSHGRXWLWVLQWHUSUHWD WLRQWKHODWWHULVKLJKO\XQOLNHO\WRGHYLDWHIDUIURPWKH&RXQFLOªVSODQIRUDFRP PRQVHFWRUDOSROLF\

7KHVH DGYDQWDJHV IRU WKH &RXQFLO RI FRQWUROOLQJ WKH IXWXUH VKDSH RI SROLF\ DUH HYHQVWURQJHUZKHQZHWDNHLQWRDFFRXQWWKHGLVDGYDQWDJHVWKDWHQVXHRQFHGLI IHUHQWOHJDOFDVHVHQFURDFKRQHVWDEOLVKHGQDWLRQDORUGHUV6LQFHRQO\LVRODWHGDV SHFWV RI WKHVH RUGHUV DUH UDLVHG LQ FRXUW SURFHHGLQJV DQG WKH UHSHUFXVVLRQV RI 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

UXOLQJVRQRWKHUPHPEHUVWDWHVDUHGLIILFXOWWRHVWDEOLVKDYHU\IUDJPHQWHGDQG XQFHUWDLQOHJDORUGHUUHVXOWV,QYLHZRIWKHQHHGIRUORQJWHUPSODQQLQJDQGWKH VLJQLILFDQW VXQN FRVWV LQYROYHG VXFK D VFHQDULR LV WKH ZRUVW SRVVLEOH RSWLRQ IRU WKHHVWDEOLVKHGDFWRUV7KXVE\EHLQJLQDSRVLWLRQWRFUHGLEO\WKUHDWHQOLWLJDWLRQ WKH &RPPLVVLRQ KDV WKH SRVVLELOLW\ WR DOWHU WKH SUHYLRXVO\ UHMHFWHG RSWLRQ RI D FRPPRQ(XURSHDQSROLF\LQWRDVHFRQGEHVWVROXWLRQWKDWFRPHVQH[WWRWKHQRQ GHIHQGDEOHVWDWXVTXR

%RWK§GLYLGHDQGFRQTXHU¨DQG§SUHYHQWLQJZRUVH¨DUHFORVHO\UHODWHG7KH\PD\ EH HPSOR\HG VHSDUDWHO\ EXW WKH\ PD\ DOVR FRLQFLGH 7KLV FDQ EH GHPRQVWUDWHG DJDLQE\XVLQJWKHHOHFWULFLW\FDVH2IWKHWHQPHPEHUVWDWHVRULJLQDOO\LQYROYHGLQ WKH LQIULQJHPHQW SURFHHGLQJV VRPH OLNH 'HQPDUN DQG ,UHODQG LQLWLDWHG WKH UH TXLUHGGRPHVWLFFKDQJHV'HSHQGLQJRQZKHWKHUWKHLUGRPHVWLFVLWXDWLRQZDVDO UHDG\FRPSDWLEOHZLWKWKHSURSRVHGGLUHFWLYHDIWHUWKLVPRYHIRUERWKPHPEHU VWDWHV WKH SURFHGXUHV PD\ KDYH WULJJHUHG DQ LQWHUHVW LQ D (XURSHDQ UHIRUP WKURXJKWKHDGRSWLRQRIWKHGLUHFWLYH

7KHWZRVWUDWHJLHVFRPSOHPHQWWKHRIWHQDQDO\]HGULJKWRIIRUPDODJHQGDVHWWLQJ ,Q SDUW WKH\ DUH HYHQ QHFHVVDU\ WR IXOO\ XQGHUVWDQG WKH IRUPDO DJHQGDVHWWLQJ SRZHUV 7KXV LW LV RQO\ ZKHQ ZH FRQVLGHU WKH &RPPLVVLRQªV DGGLWLRQDO ULJKWV WKDWLWVRSWLRQWRZLWKGUDZSURSRVDOVIURPWKH&RXQFLOFDQEHYLHZHGDVDFUHGL EOHWKUHDW$VWKH&RPPLVVLRQPD\RIWHQEHDEOHWRXVHVLQJOHFDVHVWRSXVK(XUR SHDQ OLEHUDOL]DWLRQ RI D VHFWRU IXUWKHU WKDQ FRXOG UHVXOW IURP WKH &RXQFLO ZLWK GUDZLQJLWVSURSRVDOVEHFRPHVDYLDEOHDOWHUQDWLYHIRUWKH&RPPLVVLRQ,QFRQ WUDVWZKHQFRQVLGHULQJ&RXQFLOGHFLVLRQPDNLQJLQLVRODWLRQVFKRODUVRIWHQQH JOHFWWKLVSRVVLELOLW\ *DUUHWWD*DUUHWW7VHEHOLV $VLWLVDVVXPHGWKDW WKH &RPPLVVLRQªV DJHQGDVHWWLQJ ULJKW LV LWV PDMRU PHDQV RI IXUWKHULQJ LQWHJUD WLRQDQGWKDWLWVSURSRVDOVZLOOVXSSRUWWKLVDLPLWPDNHVQRVHQVHIRUWKH&RP PLVVLRQWRWKUHDWHQDSRVVLEOHZLWKGUDZDO

7KHVH WZR VWUDWHJLHV JLYH WKH &RPPLVVLRQ D YHU\ LPSRUWDQW OHYHU DJDLQVW WKH PHPEHUVWDWHVIRUZKLFKLWLVSULPDULO\GHSHQGHQWRQWKH(XURSHDQ&RXUWRI-XV WLFHVXSSRUWLQJLWVOHJDOLQWHUSUHWDWLRQV,ZLOOQRZGLVFXVVWKHSRWHQWLDOUHOHYDQFH DQGOLPLWVRILQIOXHQFLQJWKH&RXQFLOªVGHFLVLRQPDNLQJXVLQJWKHVHVWUDWHJLHV  03,I*'LVFXVVLRQ3DSHU

 /LPLWVWR$FWLRQ

§'LYLGHDQGFRQTXHU¨ DQG §SUHYHQWLQJ ZRUVH¨ DUH SRZHUIXO PHFKDQLVPV %XW KRZUHOHYDQWDUHWKH\"'RWKH\RQO\DSSO\WRPRUHRUOHVVPDUJLQDODUHDVDQGH[ KDXVW WKHPVHOYHV LQ WKH H[DPSOHV SUHVHQWHG" &DQ WKH\ DOVR DFFRXQW IRU PRYHV WRZDUGSRVLWLYHLQWHJUDWLRQDQGQRWRQO\IRUPDUNHWPDNLQJ"0RUHRYHUWRZKDW H[WHQWLVWKHLUDSSOLFDWLRQFRQWLQJHQWRQGLIIHUHQWIDFWRUVVXFKDVVHFWRUFKDUDF WHULVWLFVDQGPRUHLPSRUWDQWO\RQWKHVXSSRUWRIPHPEHUVWDWHJRYHUQPHQWV",V LWSRVVLEOHIRUJRYHUQPHQWVWRNHHSWKHVHPHFKDQLVPVDWED\E\FRQWUROOLQJWKHLU DJHQW&RPPLVVLRQ"

6HFWRUVSHFLILF FKDUDFWHULVWLFV ILUVW RI DOO PD\ KDYH DQ LPSRUWDQW LPSDFW RQ WKH &RPPLVVLRQªV XVH RI LWV SRZHUV 7KXV WHOHFRPPXQLFDWLRQV ZLWK LWV VHFWRUDO JURZWKDQGYHU\VLPLODURUJDQL]DWLRQDWWKHQDWLRQDOOHYHORIIHUHGH[WUHPHO\ID YRUDEOHFRQGLWLRQVIRUWKH&RPPLVVLRQªVXVHRILWVSRZHUVZLWKPDQ\ODUJHXVHUV DQGVHUYLFHSURYLGHUVEDFNLQJVXFKDVWUDWHJ\,QFRQWUDVWWKHKHWHURJHQHRXVRU JDQL]DWLRQRIHOHFWULFLW\V\VWHPVDWWKHQDWLRQDOOHYHODVZHOODVWKHUDWKHUVWDJQDQW GHYHORSPHQWRIWKLVVHFWRUDQGRISRVWDOVHUYLFHVPDGHLWPXFKPRUHGLIILFXOWIRU WKH&RPPLVVLRQWRGHVLJQDQGWRJDUQHUVXSSRUWIRULWVSODQVDPRQJSULYDWHDQG JRYHUQPHQWDODFWRUV 6FKPLGW 

0HPEHUVWDWHJRYHUQPHQWVKDYHUHQRXQFHGIRUPDOFRQWURORIWKH&RPPLVVLRQªV DSSOLFDWLRQRIFRPSHWLWLRQODZ$WPRVWWKH\SDUWLFLSDWHLQDGYLVRU\FRPPLWWHHV *RYHUQPHQWVDQGWKH&RPPLVVLRQDUHSXWPRUHFOHDUO\LQDQDGYHUVDULDOSRVLWLRQ ZKHQWKH\DUHLQYROYHGLQLQIULQJHPHQWSURFHHGLQJVWKH&RXUWRI-XVWLFHGHFLGHV RQHYHQWXDOO\,QIRUPDOO\KRZHYHUJRYHUQPHQWVPD\KDYHDQLPSRUWDQWLQIOX HQFH RQ WKH &RPPLVVLRQ DV WKHLU QDWLRQDO &RPPLVVLRQHUV DUH NQRZQ WR OLVWHQ FORVHO\WRWKH§FRXQWU\WKH\NQRZEHVW¨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ªVLQWHUYHQWLRQV7KLVPDNHV LWTXLWHGLIILFXOWIRUWKHJRYHUQPHQWVWRRSSRVHWKH&RPPLVVLRQLQDVLPLODUZD\ WKH&RXQFLOFDQUHMHFWDSURSRVDO

  ,QWHUYLHZZLWK&RPPLVVLRQRIILFLDO-DQXDU\ 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

6RPHWLPHVWKH&RPPLVVLRQPD\SXUVXHLWVSODQVHYHQWKRXJKJRYHUQPHQWVKDYH PRXQWHGWKHLURSSRVLWLRQDVWKHHQHUJ\FDVHVVKRZ:KLOHLWPDGHFRQFHVVLRQVLQ WKH VSHHG ZLWK ZKLFK LW FRQGXFWHG WKH LQIULQJHPHQW SURFHHGLQJV WKH &RPPLV VLRQGLGQRWEDFNGRZQHQWLUHO\$IWHULWKDGDOUHDG\JLYHQLQZKHQLWFKRVHQRW WR XVH LWV VWURQJHU LQVWUXPHQW RI DQ $UW  GLUHFWLYH WKH &RPPLVVLRQª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

7KXVWKH&RPPLVVLRQFDQSURILWGLUHFWO\IURPWKH&RXUWªVJUHDWHUDXWRQRP\7KH GLIILFXOW\ WKH PHPEHUVWDWH JRYHUQPHQWV KDYH ZKHQ WKH\ WU\ WR LQIOXHQFH WKH &RXUWªV UXOLQJV KDV EHHQ ZLGHO\ GHEDWHG %XUOH\0DWWOL  *DUUHWW E  3DUWO\LWLVDUJXHGWKDWWKHODFNRIJRYHUQPHQWDOLQWHUYHQWLRQZLWKWKH&RXUWUH IOHFWVWKHIDFWWKDWWKH&RXUWFORVHO\IROORZVWKHPHPEHUVWDWHVªZLVKHVZKLOHRWK HUVHPSKDVL]HWKH:HVWHUQWUDGLWLRQRIDQLQGHSHQGHQWMXGLFLDU\,QDUHFHQWDUWL   +RZHYHUVHYHUDOPHPEHUVWDWHVFRXOGHLWKHUFRQYLQFHWKH&RPPLVVLRQLQWKHFRXUVH RIWKHH[DPLQDWLRQVWKDWWKH\GLGQRWKDYHWKHDOOHJHGPRQRSROLHVRUWKH\FKDQJHG WKHLUGRPHVWLFUXOHVWRFRQIRUPZLWKWKH&RPPLVVLRQªVUHTXHVWV LQWKLVUHVSHFWWKH LQIULQJHPHQWSURFHHGLQJVKDGD§GLYLGHDQGFRQTXHU¨HIIHFW   03,I*'LVFXVVLRQ3DSHU

FOH.DUHQ$OWHU  JLYHVDFRQYLQFLQJWKUHHWLHUHGH[SODQDWLRQIRUWKH&RXUWª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§MRLQWGHFLVLRQWUDS¨ 6FKDUSI $VORQJDVWKH&RXUWªVYHQWXUH IDYRUVDWOHDVWRQHJRYHUQPHQWLWLVXQOLNHO\WKDWWKHXQDQLPLW\UHTXLUHGWRUH WXUQWRWKHIRUPHUVWDWXVTXRZLOOEHUHDFKHG7KXVWKHLQWHUHVWRIVRPHJRY HUQPHQWVLQWKHOLEHUDOL]DWLRQRIURDGKDXODJHDLUWUDQVSRUWSRVWVWHOHFRPPXQL FDWLRQVDQGHOHFWULFLW\PDGHLWLPSRVVLEOHWRSUHYHQWIXUWKHUSUHVVXUHIRUOLEHUDOL ]DWLRQWKURXJKD7UHDW\UHYLVLRQ

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

7KHH[DPSOHV,KDYHJLYHQDOOUHODWHWRWKHLQWURGXFWLRQRIFRPSHWLWLRQLQSUHYL RXVO\ PRQRSROL]HG DUHDV &DQ WKH &RPPLVVLRQ WKHUHIRUH RQO\ LQIOXHQFH WKH &RXQFLOLQWKHGHVFULEHGZD\ZKHQGUDZLQJRQLWVVSHFLDOFRPSHWLWLRQODZSRZ HUV" $QG LV LW RQO\ QHJDWLYH LQWHJUDWLRQ WKDW FDQ EH IXUWKHUHG" (XURSHDQ ODZ GUDZV D GLVWLQFWLRQ EHWZHHQ WKH GLIIHUHQW PDUNHW IUHHGRPV ZKLFK SURKLELW WKH GLVFULPLQDWLRQ RI FURVVERUGHU PDUNHW WUDQVDFWLRQV DQG WKH FRPSHWLWLRQ UXOHV

  3HWHUVª   UHFHQW FULWLTXH RI WKH XVH RI WKH MRLQWGHFLVLRQ WUDS LQ (XURSHDQ LQWH JUDWLRQVWXGLHVIDLOVWRQRWLFHWKLVSRLQW%HFDXVHRIWKHWUDSDGYDQFHVPDGHE\MXGL FLDO SROLWLFV FDQ KDUGO\ EH UHSHDOHG E\ WKH JRYHUQPHQWV 3HWHUVª DUJXPHQW WKDW WKH GHHSHQLQJLQWHJUDWLRQLVVKRZLQJWKHPDUJLQDOLPSRUWDQFHRIMRLQWGHFLVLRQWUDSVLVD VWHSLQWKHZURQJGLUHFWLRQ 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

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

$PRQJ WKH FDVHV SUHVHQWHG WKH LQIULQJHPHQW SURFHHGLQJV DJDLQVW HQHUJ\ PR QRSROLHV VHUYH DJDLQ DV DQ H[DPSOH :KLOH WKH FRPSHWLWLRQ ODZ SRZHUV FRXOG KDYHEHHQXVHGWKH&RPPLVVLRQEDVHGLWVLQIULQJHPHQWSURFHHGLQJVRQWKHQHF HVVDU\DEROLWLRQRILPSRUWDQGH[SRUWPRQRSROLHVWRDVVXUHWKHIUHHGRPRIJRRGV 7KH OLEHUDOL]DWLRQ RI LQVXUDQFH VHUYLFHV PD\ VHUYH DV DQRWKHU H[DPSOH KHUH %DVHGRZ :KLOHWKLVKLJKO\UHJXODWHGVHFWRUOHGWKH&RPPLVVLRQWRD IHZ H[DPLQDWLRQV EDVHG RQ FRPSHWLWLRQ ODZ LQ WKH EHJLQQLQJ RI WKH HLJKWLHV *UHDYHV ¥  WKH DGRSWLRQ RI WZR GLUHFWLYHV ((& DQG ((& LQWKH&RXQFLOZDVIXUWKHUHGE\DUXOLQJRIWKH&RXUW &DVH ZKLFK GHWHUPLQHG WKDW WKH IUHHGRP RI VHUYLFHV FRXOG EH DSSOLHG WR WKLV VHFWRU *UHDYHVI %HIRUH*HUPDQ\LQSDUWLFXODUKDGUHTXLUHGSURYLGHUVWREH HVWDEOLVKHGLQWKHLUWHUULWRU\ZKHQSURYLGLQJVHUYLFHV

7KXVWKH&RPPLVVLRQPD\DOWHUQDWLYHO\GUDZRQ7UHDW\UXOHVRWKHUWKDQFRPSH WLWLRQODZWRVHWLQFHQWLYHVIRU&RXQFLOGHFLVLRQPDNLQJ$VWKH7UHDW\ªVVWUHQJWK OLHVLQPDUNHWPDNLQJWKHSXUVXLWRIPDUNHWIUHHGRPVZLOOKDYHSDUWLFXODUUHOH YDQFH7KHVFRSHUHPDLQLQJIRUOHJLWLPDWHQDWLRQDOPDUNHWLQWHUYHQWLRQLQWKHVH FDVHVUHOLHVRQWKH&RXUWª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

JXPHQWWKDWQRFRPPRQSROLF\KDGEHHQDJUHHGXSRQVRIDUPDNLQJLWOHJLWLPDWH WRKROGRQWRLWVWUDGLWLRQDOQDWLRQDOV\VWHPRIJRYHUQDQFH+RZHYHULIDSUHYLRXV &RXQFLODJUHHPHQWRQDFRPPRQSROLF\ZDVJHQHUDOO\DSUHFRQGLWLRQIRUWKH SOLFDWLRQ RI WKH 7UHDW\ªV UXOHV WKHUH ZRXOG KDUGO\ EH DQ\ VFRSH IRU XVLQJ WKH 7UHDW\WRSXWSUHVVXUHRQWKH&RXQFLO7KH&RPPLVVLRQªVSXUVXLWRIQHJDWLYHLQ WHJUDWLRQ LV WKXV VXEMHFW WR D GLIILFXOW EDODQFLQJ DFW FKDQJHV WKDW DUH WRR IDU UHDFKLQJFDQQRWEHUHTXHVWHGDWRQFHEXWLQFUHPHQWDOVWHSVPD\EHWDNHQ

7KH SUHFLVH VFRSH RI WKH OHJDO H[HPSWLRQV IURP WKH PDUNHW IUHHGRPV LV SDUW RI VXFKDQHYROXWLRQDU\LQWHUSUHWDWLRQ3ULQFLSDOO\WKHPDUNHWIUHHGRPVPD\EHUH VWULFWHGLILWLVLQWKHFRPPRQLQWHUHVWDQGLIWKHPHDVXUHVDUHSURSRUWLRQDWHDQG QRQGLVFULPLQDWRU\7KHSUHFLVHH[WHQWRIVXFKDOHJLWLPDWHFRQILQHPHQWLVGLIIL FXOWWRSUHGLFWKRZHYHU,QWKHDIRUHPHQWLRQHGLQVXUDQFHFDVHIRULQVWDQFHQH[W WRHPSKDVL]LQJWKHIUHHGRPRIVHUYLFHVWKH&RXUWUHFRJQL]HGWKHQHHGIRUUHJX ODWLRQLQDZD\WKDWUHVWULFWHGWKH&RPPLVVLRQªVOHHZD\PRUHWKDQKDGEHHQH[ SHFWHG 3RRO 

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§LPSRUW¨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

FRPSHWLWLYH SUHVVXUHV WR WKH VDPH H[WHQW 6LQFH JOREDOL]DWLRQ VHULRXVO\ UHVWULFWV WKHDXWRQRP\RIQDWLRQVWDWHVWRGHWHUPLQHWKHLUSROLFLHVLQGHSHQGHQWO\LWLVLP SRUWDQW WR GUDZ GLVWLQFWLRQV DPRQJ VHFWRUV DV WR WKHLU UHODWLYH GHSHQGHQFH RQ JOREDO PDUNHWV 6FKDUSI   7KH FRQVWUXFWLRQ LQGXVWU\ ¥ GHDOLQJ LQ LPPRELOH UHDO HVWDWH ¥ FRXOG EH UHODWLYHO\ SURWHFWHG IURP JOREDO PDUNHW SUHVVXUHV ,W LV WKHUHIRUHEHFRPLQJYHU\LPSRUWDQWIRU(XURSHDQODZQRWWRUDLVHWKHVHFRPSHWL WLYHSUHVVXUHVDUWLILFLDOO\DQGQRWWRVXEMHFWVHFWRUVWKDWDUHVWLOOUHODWLYHO\ VKHO WHUHGWRDOHJDOO\LPSRVHGFRPSHWLWLRQ

,QWKHODVWIHZ\HDUVWKH&RXUWKDVJHQHUDOO\VWDUWHGWRDOORZPRUHVFRSHIRUQD WLRQDOSROLFLHVLQSDUWLFXODULQLWVFDVHODZUHODWLQJWRXWLOLWLHV,QLWVYHU\UHFHQW UXOLQJRQWKHLPSRUWDQGH[SRUWPRQRSROLHVIRUJDVDQGHOHFWULFLW\RI2FWREHU  WKH &RXUW WKXV VLGHG ZLWK WKH PHPEHU VWDWHV DJDLQVW WKH &RPPLVVLRQ +RZHYHUWKLVGRHVQRWPHDQWKDWWKHVHPRQRSROLHVFDQEHPDLQWDLQHGXQGHUWKH 7UHDW\VRWKDWWKHPHPEHUVWDWHVUHPDLQXQGHUSUHVVXUHHYHQWKRXJKLWLVPRGH UDWHG

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

2QWKHRWKHUKDQGWKHUHKDVEHHQVRPHLPSDFWRQWKHRYHUDOO(XURSHDQVLWXDWLRQ DQGRQWKH&RXQFLOªVGHFLVLRQPDNLQJ7KH&RXUWKDVVWHDGLO\H[SDQGHGLWVLQWHU SUHWDWLRQRI$UWLFOHLQRUGHUWRHQIRUFHQRWRQO\DIRUPDOFRQFHSWEXWDOVRD VXEVWDQWLYHRQHRIHTXDOLW\ )HQZLFN+HUYH\ )RULQVWDQFHWKH&RXUW KDVUXOHGLQVHYHUDOFDVHVWKDWRFFXSDWLRQDOSHQVLRQVFRQVWLWXWHSD\7KH&RXUWªV LQIOXHQFH LV ZHOO GHPRQVWUDWHG E\ WKH IDPRXV %DUEHU SURWRFRO DGGHG WR WKH 0DDVWULFKW 7UHDW\ WKDW UHVWULFWHG WKH UHWURVSHFWLYH YDOLGLW\ RI WKH %DUEHU MXGJH PHQW *DUUHWW HW DO ¥  :KLOH LW LV QRW SRVVLEOH WR SURYH ZKHWKHU WKH &RPPLVVLRQ KDV XVHG $UWLFOH  IRU D §SUHYHQWLQJ ZRUVH¨ RU D §GLYLGHDQG FRQTXHU¨VWUDWHJ\ZLWKLQWKHVFRSHRIWKLVSDSHULWLVFOHDUWKDWFDVHODZKDGDQ LPSDFWRQWKH&RXQFLO7RJLYHDQH[DPSOHLQWKH.RZDOVNDUXOLQJWKH&RXUWHV WDEOLVKHGWKDWFHUWDLQSURYLVLRQVWKH&RPPLVVLRQKDGSURSRVHGIRUOHJLVODWLRQRQ SDUWWLPHZRUNHUVZHUHDOUHDG\IROORZLQJRXWRI$UWLFOH 0RUHI   03,I*'LVFXVVLRQ3DSHU

,QSULQFLSOHUXOHVVXFKDV$UWLFOHFRXOGOHDGWRDVLWXDWLRQZKHUHVXEVWDQWLYH ULJKWV ZHUH LPSURYHG WKURXJKRXW WKH &RPPXQLW\ WKURXJK MXGLFLDO SROLWLFV DQG SUHVVXUHRQWKH&RXQFLO+RZHYHUWKHHIIHFWRI$UWLFOHVKRXOGQRWEHRYHU HVWLPDWHG :KLWHIRUG   §$OWKRXJK WKH &RXUW PD\ RFFDVLRQDOO\ IDYRXU VXE VWDQWLYH HTXDOLW\ ž LW ZLOO GR VR RQO\ ZKHUH WKH LPSDFW RQ WKH PDUNHW ZLOO EH PLQLPDO,QYLHZRIWKLVREVHUYDWLRQWKHDVVXPSWLRQWKDW(&ODZLVSDUWLFXODUO\ EHQHILFLDO WR ZRPHQ VKRXOG EH YLHZHG ZLWK FDXWLRQ¨ )HQZLFN+HUYH\  *LYHQWKDW$UWLFOHLVDQH[FHSWLRQDOSURYLVLRQDQLQFHQWLYHWRKDU PRQL]H VRFLDO SROLF\ ZLOO PRVWO\ DULVH IURP WKH GLIIHUHQW PDUNHW IUHHGRPV $V WKHVH PD\ XQGHUPLQH WKH VRFLDO VHFXULW\ V\VWHPV RI WKH ULFKHU PHPEHU VWDWHV SUHVVXUHVDUHPRVWOLNHO\WROHDGHLWKHUWRDXQLODWHUDOORZHULQJRIVWDQGDUGVLQWKH FRXQWULHV FRQFHUQHG RU WR D KDUPRQL]DWLRQ RQ D ORZ FRPPRQ GHQRPLQDWRU DPRQJ PHPEHU VWDWHV UHSUHVHQWLQJ GLIIHUHQW OHYHOV RI GHYHORSPHQW 6WUHHFN ¥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

,QVXPPHPEHUVWDWHFRQWURORIWKH&RPPLVVLRQSRVHVDUHODWLYHOLPLWWRLWVDF WLRQV :KLOH JRYHUQPHQWDO SUHVVXUH FDQ FXUE WKH &RPPLVVLRQªV SODQV VLJQLIL FDQWO\LWLVRQO\LQYHU\UDUHFDVHVWKDWWKHDSSOLFDWLRQRIWKH7UHDW\PD\EHSUH YHQWHGDOWRJHWKHU$VORQJDVVRPHSULYDWHDFWRUVKDYHDVWURQJLQWHUHVWLQUHDOL] LQJWKH7UHDW\ªVPDQGDWHDQGVHHNWKHDVVLVWDQFHRIWKH&RXUWZKLFKLQWXUQDFWV XQGHUPXFKPRUHOLPLWHGGLUHFWLRQRIWKHPHPEHUVWDWHVMXGLFLDOSROLF\PDNLQJ WRWKHVDPHHIIHFWFDQKDUGO\EHSUHYHQWHG$OOWKHQGHSHQGVRQWKH&RXUWRI-XV WLFHDQGZKHWKHULWIROORZVDOLQHRIUHDVRQLQJWKDWIDYRUVWKHVLQJOHPDUNHWRQH VLGHGO\RUZKHWKHULWDFFRUGVPRUHDXWRQRP\WRPHPEHUVWDWHVDVLWKDVUHFHQWO\ EHHQVHHQWREHGRLQJ1HYHUWKHOHVVWKHLPSDFWRIWKH&RPPLVVRQªVDFWLRQDQGRI WKHVXSUHPDF\RIWKH7UHDW\DIIHFWVWKHUHDOL]DWLRQRIWKHPDUNHWIUHHGRPVPRVW VWURQJO\7KLVUHIOHFWVWKHELDVRIWKH7UHDW\WRZDUGVQHJDWLYHLQWHJUDWLRQ2QO\LI VXEVWDQWLYH ULJKWV KDYH EHHQ ODLG GRZQ IRU ZKLFK $UWLFOH  VHHPV WR EH WKH 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

PRVWQRWDEOHH[DPSOHFDQUHFRXUVHWRSULPDU\ODZIDFLOLWDWHVWHSVWRZDUGSRVL WLYHLQWHJUDWLRQ%H\RQGWKLVSRVLWLYHLQWHJUDWLRQFDQRQO\EHIXUWKHUHGLQGLUHFWO\ DQGLQDQDPELJXRXVZD\$VQDWLRQDOV\VWHPVRIJRYHUQDQFHDUHEHLQJXQGHU PLQHGWKURXJKWKHDSSOLFDWLRQRIWKHPDUNHWIUHHGRPVLQFHQWLYHVDUHODLGWRUH HVWDEOLVKUHJXODWLRQRQWKH(XURSHDQOHYHO*LYHQWKHYHU\GLIIHUHQWVWDWHRIGH YHORSPHQW DPRQJ PHPEHU VWDWHV UHJXODWLRQ RQ D KLJK OHYHO LV XQOLNHO\ WR EH DFKLHYHG 6FKDUSIE 

 &RQFOXVLRQ

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§SUHYHQW ZRUVH¨ WKH SUHYLRXVO\ UHMHFWHG FRPPRQ SROLF\ SURSRVDO EH FRPHVDVHFRQGEHVWVROXWLRQIRUWKHJRYHUQPHQWV

7KLVUHOHYDQFHRIWKH&RPPLVVLRQª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

%XWWKHRSWLRQVDYDLODEOHWRWKH&RPPLVVLRQDQDO\]HGWKURXJKRXWWKHSDSHUDOVR KDYH UHSHUFXVVLRQV IRU LQVWLWXWLRQDOLVW DQDO\VHV $OWKRXJK LW LV VXUSULVLQJ JLYHQ :HLOHUªV  VHPLQDODQDO\VLVRIWKH§GXDOFKDUDFWHURIVXSUDQDWLRQDOLW\¨WKDW  03,I*'LVFXVVLRQ3DSHU

HPSKDVL]HGWKHFRQQHFWLRQEHWZHHQWKH&RXQFLOªVLQWHUJRYHUQPHQWDOLVPDQGWKH VXSUDQDWLRQDOOHJDOFRQWH[WLQVWLWXWLRQDOLVWDQDO\VHVRIWHQIRFXVRQWKH&RXQFLOªV GHFLVLRQPDNLQJLQLVRODWLRQ%XWWKH&RPPLVVLRQªVSRVVLEOHPDQLSXODWLRQRIWKH GHIDXOWFRQGLWLRQRIWKHPHPEHUVWDWHVLVQRWDWDOOLQVLJQLILFDQWIRUWKH&RXQFLOªV RSHUDWLRQDQGFDQEHDWOHDVWDVLPSRUWDQWDQDYHQXHRILQIOXHQFHDVWKH&RPPLV VLRQªVDJHQGDVHWWLQJULJKWV7KHOLNHOLKRRGRIJRYHUQPHQWVDFFHSWLQJD&RPPLV VLRQSURSRVDOFOHDUO\GHSHQGVRQWKHYDOXHRIH[LVWLQJDOWHUQDWLYHVDPRQJZKLFK WKHGHIDXOWFRQGLWLRQLVSDUWLFXODUO\VLJQLILFDQW$VWKHVXSUDQDWLRQDOOHJDOFRQWH[W PD\EHGHFLVLYHIRUWKH&RXQFLOªVDFFHSWDQFHRI&RPPLVVLRQSURSRVDOVIDLOXUHWR WDNHLWLQWRDFFRXQWLVFHUWDLQWREHDWOHDVWDVGLVWRUWLQJDVWKHUHFHQWO\FULWLFL]HG QHJOHFWRIDFFRXQWLQJIRUWKHSUREDELOLW\RIGLIIHUHQWFRDOLWLRQVLQWKH&RXQFLOGH SHQGLQJRQZKHWKHUWKHJRYHUQPHQWVKDYHH[WUHPHSUHIHUHQFHVRUQRW *DUUHWW 7VHEHOLV 

7KH &RPPLVVLRQªV DELOLW\ WR LQIOXHQFH WKH &RXQFLO EH\RQG VHWWLQJ LWV DJHQGD IL QDOO\ VKHGV OLJKW RQ WKH FRQFHSWXDOL]DWLRQ RI WKH &RPPLVVLRQªV DXWRQRP\ 7KH &RPPLVVLRQLVJHQHUDOO\VHHQWREHDFWLQJZLWKLQWKHERXQGDULHVVHWE\LWVSULQFL SDOV WKH PHPEHU VWDWHV 3ROODFN    7KH &RXUW LQ FRQWUDVW PD\ KDYH JUHDWHULQGHSHQGHQFHVLQFHD7UHDW\UHYLVLRQ¥WKHXOWLPDWHVDQFWLRQ¥LVKDUGWR DGPLQLVWHU $OWHU  *DUUHWW HW DO   :KDW KDV EHHQ RYHUORRNHG VR IDU LV WKDWWKH&RPPLVVLRQPD\EHQHILWIURPWKH(&-ªVJUHDWHUFDSDFLW\IRU DFWLRQ %\ FUHGLEO\WKUHDWHQLQJMXGLFLDOSROLF\PDNLQJIURPWKH&RXUWWKH&RPPLVVLRQPD\ FRPSHOWKH&RXQFLOWRWDNHDFWLRQ 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

5HIHUHQFHV

$OOHQ'DYLG&RPSHWLWLRQ3ROLF\3ROLFLQJWKH6LQJOH0DUNHW,Q+HOHQ:DOODFH :LOOLDP:DOODFH HGV 3ROLF\0DNLQJLQWKH(XURSHDQ8QLRQ2[IRUG2[IRUG8QLYHU VLW\3UHVV¥ $OWHU.DUHQ-:KR$UHWKH§0DVWHUVRIWKH7UHDW\¨"(XURSHDQ*RYHUQPHQWVDQG WKH(XURSHDQ&RXUWRI-XVWLFH0DQXVFULSWIRUWKFRPLQJLQ,QWHUQDWLRQDO2UJDQL]DWLRQ $OWHU.DUHQ-6RSKLH0HXQLHU$LWVDKDOLD-XGLFLDO3ROLWLFVLQWKH(XURSHDQ&RP PXQLW\ (XURSHDQ ,QWHJUDWLRQ DQG WKH 3DWKEUHDNLQJ &DVVLV GH 'LMRQ 'HFLVLRQ ,Q &RPSDUDWLYH3ROLWLFDO6WXGLHV  ¥ $OWHU.DUHQ--HDQHWWH9DUJDV6KLIWLQJWKH'RPHVWLF%DODQFHRI3RZHULQ(XURSH (XURSHDQ/DZDQG8.*HQGHU(TXDOLW\3ROLF\3DSHUSUHVHQWHGDWWKHUG$PHULFDQ 3ROLWLFDO6FLHQFH$VVRFLDWLRQ&RQIHUHQFH:DVKLQJWRQ'&$XJXVW¥ $UJ\ULV17KH((&5XOHVRI&RPSHWLWLRQDQGWKH$LU7UDQVSRUW6HFWRU,Q&RP PRQ0DUNHW/DZ5HYLHZ  ¥ %DVHGRZ-UJHQ'HUHJXOLHUXQJVSROLWLNXQG'HUHJXOLHUXQJVSIOLFKWHQ¥9RP=ZDQJ ]XU0DUNW|IIQXQJLQGHU(*,Q6WDDWVZLVVHQVFKDIWHQXQG6WDDWVSUD[LV¥ %HKUHQV 3HWHU  'LH .RQYHUJHQ] GHU ZLUWVFKDIWOLFKHQ )UHLKHLWHQ LP HXURSlLVFKHQ *HPHLQVFKDIWVUHFKW,Q(XURSDUHFKW¥ %XOPHU6LPRQ-D7KH*RYHUQDQFHRIWKH(XURSHDQ8QLRQ$1HZ,QVWLWXWLRQDOLVW $SSURDFK,Q-RXUQDORI3XEOLF3ROLF\  ¥ %XOPHU6LPRQE,QVWLWXWLRQVDQG3ROLF\&KDQJHLQWKH(XURSHDQ&RPPXQLWLHV7KH &DVHRI0HUJHU&RQWURO,Q3XEOLF$GPLQLVWUDWLRQ  ¥ %XUOH\$QQH0DULH:DOWHU0DWWOL(XURSH%HIRUHWKH&RXUW$3ROLWLFDO7KHRU\RI /HJDO,QWHJUDWLRQ,Q,QWHUQDWLRQDO2UJDQL]DWLRQ¥ %XWWRQ.HQQHWK7KH/LEHUDOL]DWLRQRI7UDQVSRUW6HUYLFHV,Q'HQQLV6ZDQQ HG  7KH6LQJOH(XURSHDQ0DUNHWDQG%H\RQG/RQGRQ5RXWOHGJH¥ &RZKH\3HWHU)7HOHFRPPXQLFDWLRQV,Q*DU\&\GH+XIEDXHU HG (XURSH $Q$PHULFDQ3HUVSHFWLYH:DVKLQJWRQ'&7KH%URRNLQJV,QVWLWXWLRQ¥ &XOOHQ 3HWHU*HRUJH 1

)XFKV *HUKDUG  3ROLF\0DNLQJ LQ D 6\VWHP RI 0XOWL/HYHO *RYHUQDQFH ¥ 7KH &RPPLVVLRQRIWKH(XURSHDQ&RPPXQLW\DQGWKH5HVWUXFWXULQJRIWKH7HOHFRPPXQL FDWLRQV6HFWRU,Q-RXUQDORI(XURSHDQ3XEOLF3ROLF\  ¥ *DUUHWW *HRIIUH\ D )URP WKH /X[HPERXUJ &RPSURPLVH WR &RGHFLVLRQ 'HFLVLRQ 0DNLQJLQWKH(XURSHDQ8QLRQ,Q(OHFWRUDO6WXGLHV  ¥ *DUUHWW*HRIIUH\E7KH3ROLWLFVRI/HJDO,QWHJUDWLRQLQWKH(XURSHDQ8QLRQ,Q,Q WHUQDWLRQDO2UJDQL]DWLRQ  ¥ *DUUHWW*HRIIUH\5'DQLHO.HOHPHQ+HLQHU6FKXO]7KH(XURSHDQ&RXUWRI-XV WLFH1DWLRQDO*RYHUQPHQWVDQG/HJDO,QWHJUDWLRQLQWKH(XURSHDQ8QLRQ0DQXVFULSW IRUWKFRPLQJLQ,QWHUQDWLRQDO2UJDQL]DWLRQ *DUUHWW *HRIIUH\*HRUJH 7VHEHOLV  $Q ,QVWLWXWLRQDO &ULWLTXH RI ,QWHUJRYHUQPHQ WDOLVP,Q,QWHUQDWLRQDO2UJDQL]DWLRQ  ¥ *UHDYHV5RVD(&&RPSHWLWLRQ/DZ%DQNLQJDQG,QVXUDQFH6HUYLFHV(XURSHDQ3UDFWLFH /LEUDU\/RQGRQ&KDQFHU\/DZ3XEOLVKLQJ +pULWLHU$GULHQQH0DUNHW0DNLQJ3ROLF\LQ(XURSH,WV,PSDFWRQ0HPEHU6WDWH 3ROLFLHV7KH&DVHRI5RDG+DXODJHLQ%ULWDLQWKH1HWKHUODQGV*HUPDQ\DQG,WDO\,Q -RXUQDORI(XURSHDQ3XEOLF3ROLF\  IRUWKFRPLQJ .HUI 0LFKDHO  7KH 3ROLF\ RI WKH &RPPLVVLRQ RI WKH ((& 7RZDUG 1DWLRQDO 0R QRSROLHV,Q:RUOG&RPSHWLWLRQ/DZDQG(FRQRPLFV5HYLHZ  ¥ .HUUHPDQV %DUW  1RQ,QVWLWXWLRQDOLVP 1HR,QVWLWXWLRQDOLVP DQG WKH /RJLF RI &RPPRQ'HFLVLRQ0DNLQJLQWKH(XURSHDQ8QLRQ,Q*RYHUQDQFH  ¥ /DIIDQ%ULJLG)URP3ROLF\(QWUHSUHQHXUWR3ROLF\0DQDJHU7KH&KDOOHQJH)DFLQJ WKH(XURSHDQ&RPPLVVLRQ,Q-RXUQDORI(XURSHDQ3XEOLF3ROLF\  ¥ /DYGDV.RVWDV0DULD0HQGULQRX&RPSHWLWLRQ3ROLF\DQG,QVWLWXWLRQDO3ROLWLFVLQ WKH(XURSHDQ&RPPXQLW\6WDWH$LG&RQWURODQG6PDOO%XVLQHVV3URPRWLRQ,Q(XUR SHDQ-RXUQDORI3ROLWLFDO5HVHDUFK  ¥ /HLEIULHG6WHSKDQ3DXO3LHUVRQ6HPLVRYHUHLJQ:HOIDUH6WDWHV6RFLDO3ROLF\LQD 0XOWLWLHUHG(XURSH,Q6WHSKDQ/HLEIULHG3DXO3LHUVRQ HGV (XURSHDQ6RFLDO3ROLF\ %HWZHHQ)UDJPHQWDWLRQDQG,QWHJUDWLRQ:DVKLQJWRQ'&%URRNLQJV,QVWLWXWLRQ¥ 0DMRQH *LDQGRPHQLFR  7KH (XURSHDQ &RPPXQLW\ $Q §,QGHSHQGHQW )RXUWK %UDQFKRI*RYHUQPHQW¨",Q*HUW%UJJHPHLHU HG 9HUIDVVXQJHQIUHLQ]LYLOHV(XURSD %DGHQ%DGHQ1RPRV¥ 0DMRQH*LDQGRPHQLFR7KH(XURSHDQ&RPPLVVLRQDV5HJXODWRU,Q*LDQGRPHQLFR 0DMRQH HG 5HJXODWLQJ(XURSH/RQGRQ5RXWOHGJH¥ 0F*RZDQ /HH6WHSKHQ :LONV  7KH )LUVW 6XSUDQDWLRQDO 3ROLF\ LQ WKH (XURSHDQ 8QLRQ&RPSHWLWLRQ3ROLF\,Q(XURSHDQ-RXUQDORI3ROLWLFDO5HVHDUFK¥ 0RQWDJQRQ 3HWHU  5HJXODWLQJ WKH 8WLOLWLHV ,Q 3HWHU 0RQWDJQRQ HG  (XURSHDQ &RPSHWLWLRQ3ROLF\/RQGRQ3LQWHU3XEOLVKHUV¥ 0RUDYFVLN $QGUHZ  /LEHUDO ,QWHUJRYHUQPHQWDOLVP DQG ,QWHJUDWLRQ $ 5HMRLQGHU ,Q-RXUQDORI&RPPRQ0DUNHW6WXGLHV  ¥ 0RUH *LOOLDQ  6HYHUDQFH 3D\ IRU 3DUW7LPH :RUNHUV ,Q (XURSHDQ /DZ 5HYLHZ  ¥ 1LFRODLGLV.DO\SVR0XWXDO5HFRJQLWLRQ$PRQJ1DWLRQV7KH(XURSHDQ&RPPX QLW\DQG7UDGHLQ6HUYLFHV'RFWRUDO'LVVHUWDWLRQ&DPEULGJH+DUYDUG8QLYHUVLW\ 6FKPLGW7KH&RPPLVVLRQ V,PSDFWRQ'HFLVLRQV 

1ROO5RJHU*%DUU\5:HLQJDVW5DWLRQDO$FWRU7KHRU\6RFLDO1RUPVDQG3RO LF\,PSOHPHQWDWLRQ$SSOLFDWLRQVWR$GPLQLVWUDWLYH3URFHVVHVDQG%XUHDXFUDWLF&XO WXUH,Q.ULVWHQ5HQZLFN0RQURH HG 7KH(FRQRPLF$SSURDFKWR3ROLWLFV1HZ

6FKPLGW6XVDQQH.6WHULOH'HEDWHVDQG'XELRXV*HQHUDOLVDWLRQV(XURSHDQ,QWH JUDWLRQ7KHRU\7HVWHGE\7HOHFRPPXQLFDWLRQVDQG(OHFWULFLW\,Q-RXUQDORI3XEOLF3RO LF\  ¥ 6FKPLGW6XVDQQH.&RPPLVVLRQ$FWLYLVP6XEVXPLQJ7HOHFRPPXQLFDWLRQVDQG (OHFWULFLW\XQGHU(XURSHDQ&RPSHWLWLRQ/DZ,Q-RXUQDORI(XURSHDQ3XEOLF3ROLF\   IRUWKFRPLQJ 6FKQHLGHU*HUDOG7KH/LPLWVRI6HOI5HIRUP,QVWLWXWLRQ%XLOGLQJLQWKH(XURSHDQ 8QLRQ,Q(XURSHDQ-RXUQDORI,QWHUQDWLRQDO5HODWLRQV  ¥ 6FKQHLGHU9RONHU5D\PXQG:HUOH,QWHUQDWLRQDO5HJLPHRU&RUSRUDWH$FWRU"7KH (XURSHDQ &RPPXQLW\ LQ 7HOHFRPPXQLFDWLRQV 3ROLF\ ,Q .HQQHWK '\VRQ3HWHU +XPSKUH\V HGV  7KH 3ROLWLFDO (FRQRP\ RI &RPPXQLFDWLRQV /RQGRQ 5RXWOHGJH ¥  6FKXOWH%UDXFNV 5HLQKDUG  2UGQXQJVSROLWLVFKH XQG JHPHLQVFKDIWVUHFKWOLFKH $V SHNWHGHUHXURSlLVFKHQ7HOHNRPPXQLNDWLRQVSROLWLN,Q-RDFKLP6FKHUHU +UVJ 1D WLRQDOH XQG HXURSlLVFKH 3HUVSHNWLYHQ GHU 7HOHNRPPXQLNDWLRQ %DGHQ%DGHQ 1RPRV ¥  6WHLQ7RUVWHQ5LFKWHUUHFKWZLHDQGHUVZRDXFK"'HU*HULFKWVKRIGHU(XURSlLVFKHQ *HPHLVQFKDIWHQ DOV §,QWHJUDWLRQVPRWRU¨ ,Q 5LFKWHUOLFKH 5HFKWVIRUWELOGXQJ )HVWVFKULIW GHU-XULVWLVFKHQ)DNXOWlW]XU-DKU)HLHUGHU5XSUHFKW.DUOV8QLYHUVLWlW+HLGHOEHUJ+HL GHOEHUJ&)0OOHU¥ 6WHXQHQEHUJ %HUQDUG  'HFLVLRQ0DNLQJ 8QGHU 'LIIHUHQW ,QVWLWXWLRQDO $UUDQJH PHQWV/HJLVODWLRQE\WKH(XURSHDQ&RPPXQLW\,Q-RXUQDORI,QVWLWXWLRQDODQG7KHRUHWL FDO(FRQRPLFV -,7(   ¥ 6WUHHFN:ROIJDQJ)URP0DUNHW0DNLQJWR6WDWH%XLOGLQJ"5HIOHFWLRQVRQWKH3R OLWLFDO(FRQRP\RI(XURSHDQ6RFLDO3ROLF\,Q6WHSKDQ/HLEIULHG3DXO3LHUVRQ HGV  (XURSHDQ6RFLDO3ROLF\%HWZHHQ)UDJPHQWDWLRQDQG,QWHJUDWLRQ:DVKLQJWRQ'&%URRN LQJV,QVWLWXWLRQ¥ 6WULYHQV 5REHUW(OL]DEHWK :HLJKWPDQ  7KH $LU 7UDQVSRUW 6HFWRU DQG WKH ((& &RPSHWLWLRQ5XOHVLQWKH/LJKWRIWKH$KPHG6DHHG&DVH,Q(XURSHDQ&RPSHWLWLRQ/DZ 5HYLHZ¥ :HDYHU5.HQW7KH3ROLWLFVRI%ODPH$YRLGDQFH,Q-RXUQDORI3XEOLF3ROLF\   ¥ :HLOHU-RVHSK7KH&RPPXQLW\6\VWHP7KH'XDO&KDUDFWHURI6XSUDQDWLRQDOLVP ,Q