Issue No. 281 Report No. 240, June 5, 1974 IS ISSUE page to Break the Council Stalemates? ••••• ! Elections Bring Surprise Shift to Left •••• 2 Switzerland: Plans for New Curbs on Aliens Influx ••••• 3 Sweden: Agreement on Financing of Reform Package •••••• 4 Portugal: Decrees on Minimum Wage, Price Controls ••••• 5 Euro Company Scene .................••..•.......•...•.• 6 As a possible way to overcome the persisting stalemate sit­ uation in the Council of Ministers, the EC's principal de­ cision-making body, Commissioner Albert Borschette has recommended a modified procedure to ensure at least partial adoption of proposals submitted by Brussels. In cases where only a qualified majority can be secured for a Com­ mission proposal normally requiring unanimous approval, Borschette suggests that the decision become binding at least for those member states that had backed the proposal. For.the dissident countries the Commission would propose transitional steps until these states, too, could accept the decision. The transitional measures could be agreed upon either by the Connni.ssion or the Council. Borschette believes that adoption of his recommenda­ tion would revive some 350 draft proposals now stalled in the Council, mostly directives seeking to harmonize nation­ al rules in various sectors. No action has been forthcom­ ing on them either because the Treaty of Rome requires unanimous adoption - as provided, for instance, by Article 100 on all harmonization proposals (Common Market Reports, Par. 3301) - or because a member state cannot be outvoted on issues conflicting with its own "vital interests." The latter clause goes back to the 1966 Council resolution amounting to a de facto amendment to the Treaty following France's boycott of the Council sessions. As the head of the Commission's directorate of compe­ tition, Borschette is of course aware that his idea, if ac- --------This issue ls in two pans, eonsistlng of 136 pages. This Is Part I.-------­ COMMON MARKET REPORTS, Issue No. 281, June 5, 1974. Published weekly by Commerce Clearing •· Inc., 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription rate $425 per year. Second-class • e paid at Chicago, Illinois. Printed in U. S. A. A 11 rights reserved. EVROMARKET NEWS - p. 2 • EC Stalemates cepted, could entail some discrimination and distortion of (contd.) competition: member states that complied with, say, a tech­ nical directive could temporarily block imports of certain products from states that had opposed the directive. But even this drawback, Borschette believes, would be prefera­ ble to the Community's present state of stagnation. Other Commission officials so far have declined to comment on Borschette's concept, which he outlined at the recent Luxembourg Trade Fair (Corronon Ma:t'ket Reports~Pa:t>, 9655), But it obviously will have to be seriously con­ sidered in Brussels, especially since it also would amount to a Treaty amendment. Nevertheless, the Commission is pondering a number of other options as well in efforts to break the impasse in the Council, Luxembourg: The unexpected results of Luxembourg's parliamentary elec­ Elections Bring tions on May 26 may lead to the formation of a government Surprise Shift that excludes the conservative Christian Socialists for the to the Left first time in more than half a century. With the loss of three mandates, the party now holds only 18 of the 59 seats in Parliament. (The number of seats in the assembly had been raised from 56 to 59 as a result of Luxembourg's low­ ering the voting age from 21 to 18 years.) The winners of the elections were the Socialist Work­ ers' Party, which drew 29% of the vote and now holds 17 • seats, and the Liberals, with 22.1% and 14 seats. The chances of a coalition administratioTh without the Christian Socialists would depend on the finding of a common base by the Liberals and the Socialist Workers' Party, This alli­ ance possibly could be joined by the Social Democrats, who polled 9.1% of the vote and wound up with five mandates, one less than before. The Grand Duchy, the Community's smallest member state with a population of only 350,000, had been previously gov­ erned by a coalition of the Christian Socialists and the Liberals, resting on a 32-member majority in Parliament, In fact, the Christian Socialists had been Luxembourg's governing party for 55 years, and their Prime Minister, Pierre Werner, had held his office since 1959, Germany: The German Bundestag's tax committee, after weeks of mara­ Compromise on thon sessions, finally has returned the individual income Income Tax tax reform bill to the floor for adoption, but not without Reform Bill some heavy editing of the government's original proposal. A number of amendments written into the measure would bene­ fit individual as well as corporate taxpayers, One of them concerns maximum deductions allowed for business gifts: the government wanted to limit the deduction to DM 10 for each gift item, while the Opposition wanted DM 100, The compro­ mise version puts the limit at DM 50, with the provision • •EUROMARKET NEWS - p, 3 Income Tax that each item must be readily identifiable as a promotion­ (contd.) al gift (by bearing the imprint of the company's name, etc.) Another bone of contention was the deductibility of business expenses such as luncheons. The government, bound by a campaign promise, had planned to eliminate this tax privilege once and for all, especially since it is fre­ quently abused. But the tax committee insisted that "rea­ sonable" expenses should continue to be deductible, although the taxpayer claiming the deduction would be re­ quired to list on a special form the business partner's name, purpose of the meeting, and the proprietor's endorse­ ment, in addition to the amount and date. Tax committee members are not too optimistic about the future of the measure in its entirety. The bill is bound to wind up in conference· again because no draft tax legis­ lation can become law without approval of the Opposition- contro; 1 led Bundesrat, the upper house. Though the business. gift and entertainment expense amendments most likely will find the necessary support, other and far more basic issues also require a compromise before enactment. The government coalition parties continue to feel very strongly about con­ cepts such as tax relief for low and medium incomes, cash payments for children, and a higher tax rate on upper income brackets. The Opposition is just as adamant in in­ sisting that the proposed tax relief would only be tempo­ rary, since continuing inflation would not only eat up the initial benefits but eventually would even worsen the tax­ • payer's position as he moves into higher income brac~ets because of inflationary wage increases. With government and Opposition so far apart on basic issues, it is anyone's guess on what the final compromise will be (Doing Business in Europe, Par. 30,680), · Switzerland: A government-proposed amendment to Switzerland's Aliens Law Amendment Seeks would enable cantonal authorities for the first time to New Curbs on limit the number of foreigners who settle in the country Aliens Influx without taking up employment (pensioners, for instance). The amendment also would reduce further the number of aliens employed in sectors so far exempt from immigration curbs (Doing Business in Europe, Pars. 29,115 and 29,465), among them artists and members of the liberal professions. Other sectors that would be affected by restrictions on the hiring of aliens would include farming, hospitals, homes for children and the aged, and education. Non-Swiss physi­ cians or attorneys could no longer take for granted the freedom to settle anywhere. The government's latest move does not come as a sur­ prise in view of the major policy objective of stabilizing the percentage of aliens in the country, an aim that is as- • EUROMARKET NEWS - p. 4 • Aliens Curb sured of broad political support. In 1973. some 1.05 mil­ (contd.) lion out of a total Swiss population of 6.3 million were aliens, of which 660 9 000 were employed. The various exemp­ tions listed in the Aliens Law last year again enabled some 40,000 foreigners to move to Switzerland to work or retire. This trend could be stopped in the future, since the amend­ ment even calls for cancellation of valid residence permits and a stop to the issuance of new ones. Sweden: The Social Democrat minority government apparently has Agreement on averted the need to call new Swedish elections this year by Financing of gaining the opposition Liberals' agreement on the financing Reforms of a series of reforms. This support of the compromise deal will assure the Olof Palme administration of a 190- vote bloc in the 350-seat Riksdag when the economic policy measure comes up for a vote. The proposals provide for in­ come tax and surtax reductions for most income groups next year. for the abolition of employee contributions to the health insurance system, and for an increase in old-age pensions. The legal retirement age is to be lowered from 67 to 65 years as of July 1, 1976, Almost the entire burden of the package will have to be assumed by the employers, whose social benefit costs would go up by a total of 8 billion kronor. Employer con­ tributions to the health insurance plans would be raised. of 1975, those toward the old-age pension system would go up in steps to reach a specified level in 1977, and those toward the supplementary pension programs would be in­ creased as of Jan. 1, 1977, The Liberals, in defending their collaboration with the government on this package, take credit for having turned back a Social Democrat proposal for a drastic boost in the employer payroll tax, which would have hurt business and industry even further.