• Issue No. 221 Report No. 210, April EC Launches Monetary Fund The European Community has moved considerably closer to mon­ etary integration with the formal establishment of its Monetary Cooperation Fund, the supposed forerunner of a common central banking system. The April 3 inauguration - coming two days after the deadline date originally set by last fall's Paris Summit - had been delayed by a long skirmish between Luxembourg and the U.K. over where the Fund's headquarters should be established. Unable to settle the dispute but pressed to get the Fund on its way, the Council of Ministers finally emerged with the compro­ mise that Luxembourg should be the provisional home until a final • decision is made by J.une 30. Britain had insisted that Brussels should be the seat of the Fund. Luxembourg is basing its claim on a 1965 EEC agreement hold­ ing that member states "shall be prepared to install in or trans­ fer to Luxembourg other Community bodies and services, in partic­ ular those dealing with finance, insofar as their smooth operation shall be ensured." That promise was in compensation for the loss of the Coal and Steel Community and Euratom administrations, which were shifted from Luxembourg to Brussels in 1965. The compromise now reached did not come about without a con­ cession by Luxembourg, however: its government agreed not to re­ sist examination of the privileged tax status of holding companies in Luxembourg conducted as part of the EC's tax harmonization ef­ forts, provided such action would not discriminate against Luxem­ bourg. This matter was specifically brought up by Germany and France in a rider to the protocol establishing the Fund. Closer to a European Company Statute? Work on the Draft Statute of the European Stock Corporation has been accelerated in order to present it soon to the Council of Ministers for a decision on whether the concept should be intro­ duced throughout the community. The draft already reflects changes from the European commission's original proposals, taking into account some of the objections raised by the EC's Economic and Social Committee as well as by memaer state governments. But not all differences are cleared up - the ministers still will have to find compromise solutions in specific areas. ---------This Issue is in two parts, eonslstlng of 2&.I pages, This is Part 1.--------­ CO:l.H!ON MARKET REPORTS, Issue No. 221, April 10, 1973. Published weekly by Commerce Clearing HoU:se, Inc., 4025 \V. Peterson Ave., Chicago, Illinois 60646. Subscription rate $350 per year. Second-class postage •paid at Chicago, Illinois. Printed in U. S. A. All rights reserved . EUROMARKET NEWS - p. 2 • The statute would provide the initial framework for a European­ type company governed by uniform Community law enforced by the Euro­ pean Court of Justice. It would ease certain operations involvinq companies from different EC states, i.e., mergers, creation of hold­ ing companies and joint subsidiaries, etc. But it is not intended as a substitute for the harmonization of national company rules nor would it replace these; instead, it would complement them. Progress on the formulation of the concept so far has been blocked mostly by the issue of employee representation on supervi­ sory and managing boards. The version submitted by the Commission provided for one third of the supervisory board's members to be elected by members of the company's national works councils from a list naming the company's national and European works council mem­ bers, union representatives, and workers. The Commission proposed that each managing board would have one director responsible for personnel matters and labor relations. This concept, largely pat­ terned after the German statutory model, has aroused a great deal of opposition, notably in France and Italy, but recently in the U.K. as well. Some of the diverging views are reflected in the opinion given by the Economic and Social Committee. It is now for the Council of Ministers to find a solution offering a compromise between the Commission's proposal and the differing views of the several member state governments. Some Concessions for Norway, If ... The EC's foreign ministers have handed the Commission a broad­ er mandate in its negotiations with Norway over a free-trade agree­ ment. The Community is prepared to liberalize terms for Norwegian metal exports provided certain Community products are given easier access by Norway. This offer may come just in time for the embattled Oslo gov­ ernment, which stands accused by Opposition forces of having re­ sorted to an "act of desperation" in order to obtain EC concessions • for Norway's vital aluminum exports. It was revealed that, without informing Parliament in advance, Oslo had approached France with the offer of placing an order of up to 800 million kroner ($137.9 million) for French antiaircraft missiles. France has been the fiercest opponent to any liberal Community concessions for Norway after that country failed to ratify the accession treaty. The Korvald Administration in Oslo depends on a quick free­ trade agreement with the Community for its own political survival. It had assumed power on its claim that such a settlement would es­ sentially offer Norway the advantages but not the obligations of EC membership. And it set April 1 as the latest target for such an agreement - a deadline that has now been missed. 'Nationalization Fund' Worries Sweden A temporary "buyers' strike" at the Stockholm Stock Exchange has been one of the reactions to a Swedish government proposal that many regard as "the foot in the door" for nationalization. The administration of Olaf Palme said it will shortly introduce legislation enabling the government to invest its huge social se­ curity assets in the stock of domestic corporations, A fund to be set up later this year would begin investments in 1974 with an initial 500 million kronor ($11,1 million). But future legisla­ tion would authorize the government to divert more pension assets to the state fund without specific parliamentary approval. Sweden's social security system - the General Old-Age Insur- • • EUROMARKET NEWS - p. 3 ance (ATP) - was set up in 1960 and has been fed by extremely high compulsory contributions. Its assets of 57 billion kronor ($13.1 billion) compare to the 40 to 50 billion share value of Sweden's private stock corporations. Most of the ATP assets are tied up in government bonds and investment credits. But given the same rate of contributions, they will reach 180 billion by 1980. This, in theory, would enable the government to buy up all Swedish stock within seven or eight years. The government proposal, of course, does not carry things that far, and one of its provisions is that investment would be governed by profit expectations. The proposed legislation is expected to become a major cam­ paign issue prior to this fall's elections. The non-socialist op­ position parties see it as "the most serious socialization attempt in Swedish history." Industry resentment centers on the fact that the proposal is in stark contrast to a recommendation put forward last year by a research commission which included Opposition mem­ bers. That report laid emphasis on providing business with ATP funds but said that fund management should never buy more than 5% of a company's stock and that it should be subject to parliamentary control. U.K. Moves on Pyramid Selling A government proposal to outlaw pyramid or multi-level selling is contained in a consultative document issued by the U.K.'s Dept. of Trade and Industry. The document offers a broad definition of the types of selling systems that will be prohibited, namely, "any arrangement for the supply of goods or the provision of services under which a benefit is conferred on a participant by reference to the introduction, whether by him or someone else, of further • participants." (The essential characteristic of pyramid selling is that, ultimately, what is being sold is distribution rights to a product rather than the product itself). In releasing the document, the DTI has obviated the need to introduce a "regulating code" for this type of marketing and has made a clear distinction between pyramid selling and other legiti­ mate forms of marketing such as franchising or direct selling. After obtaining reactions from business, the government hopes to introduce the legislation in the form of an amendment to the Fair Trading Bill currently under consideration. A few companies prominent in the pyramid-selling market were quick to announce that they "welcomed" the proposals and that they were making "contingency arrangements." They may well have been surprised by the government's hard-nosed attitude, although the handwriting has been on the wall. Last year, consumer group pres­ sure had led to the compulsory dissolution of a pyramid-selling cosmetics company, Koscot Interplanetary. Treasurers Shy Away From TDAs The Tax Deposit Accounts introduced in the recent U.K. Budget have not found favor with company treasurers handling the finances of some of Britain's largest corporations, ac.cording to a sample poll conducted by a leading daily. The TDAs were introduced in an effort to accelerate the flow of funds into the Exchequer - and thus out of circulation - by offering 2.5% over the Treasury Bill rate for money deposited with the Inland Revenue for payment of mainstream corporation tax. Most treasurers, according to the Daily Telegraph survey, have • EUROMARKET NEWS - p. 4 • not been attracted since they prefer term deposits at a fixed rate. They do not feel that the TDAs can compete with other market rates available. The success of the program, designed to finance the gov­ ernment's borrowing requirement, is thus in question.