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DOCUMENTS "COM"
COM(82)126
Vol.1982/0044

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COMMISSION
OFTHE
EUROPEAN COMMUNITIES
Genera!SecretariatCOM(82)126 final
Brussels,lQthr,arch<|93?
FOROFFICIAL USEONLY
ACCESSION NEGOTIATIONS WITHPORTUGAL
RIGHTOFESTABLISHMENT
ANDFREEDOMTOPROVIDESERVICES
(Commission communication totheCouncil)
C0M(82)126final

INTRODUCTION
I.GENERAL CONSIDERATIONS
r .
Atthe17th meeting oftheConference atDeputy level thePortuguese
delegation submitted a.statement summing upitsposition onright of
establishment"'"# Ithadpreviously *submitted twopartial statements on
right ofestablishment (atthe7thand13th meetings oftheConference
atDeputy level )•
Thefirst examination ofCommunity secondary legislation inthis field
tookplace atthebeginning of1980^,andthePortuguese delegation was
notified oftheresults andtechnical conclusions ^*Afurther interim
examination took place inMarch 1981 }theresults aresetoutinthe
5léth Commission Report *
ThePortuguese delegation 'slatest statement contains specific requests
onbanks ,insurance }cinemas andtravel agencies *However ,discussion
ofthese four sectors ispreceded byageneral reservation *ThePortuguese
delegation points outthat thestudy oftheconsequences ofadoption of
theacquis communautaire inPortugal isnotyetcomplete ,andreserves
theright ,should serious problems arise inanysector ,torequest such
temporary derogations asitconsiders necessary before fulfilling the
obligations ofCommunity membership *
Forthetime being atleast ,thegeneral reservation should beregarded
ascovering allsectors other than those forwhich specific requests have
been made *Sofar ,itsexact scope isunclear *Neither isitclear whether ,
inthefour seotors dealt with inthelatest statement ,therequest made
bythePortuguese authorities isfinal ,orwhether additional points
might beadded atalater stage *
JcONP-P /2/82*
^C0NF-P/ll/80andC0NP-P/10/81,
■TSee 6thCommission Report (C0M(8o)523final ,18September 1980),
^C0NP-P/45/80*
->0014/81/521final ,22September 1981 .

II.RMOVALOPTHEPORTUGUESE RESERVATION
GiventheuncertaintyattachingtothepositionofthePortuguese
delegation)theCommissionisobliged -tomakeitsproposalconditional *
ItproposesthatthePortuguesedelegation,beforereceivinganyanswer
toitsrequests,shouldberequiredtowithdrawinfullitsgeneral
reservation andconfirmthattherequestsmadewithregardtothefour
sectorsdealtwithspecifically arefullandfinal#
TheCommission,feels,inshort,thatbeforetheCommunityreturnsan
answeritshouldmakesurethattherewillbenofurtherPortugueserequests
fortransitional measuresortemporaryderogationsinthischapterfor
thesectorswhichhavenotbeendealtwithspecifically#
Accordingly,thefollowingproposalsareconditional onwithdrawalof
thereservation *
ShouldthePortugueseauthoritiesindicatethattheywouldreplacethe
generalreservation byareservationcoveringseveralspecificsectors,
theCommunitywouldhavetoassessthesituationandseewhethernegotiations
onthischaptershouldcontinuealongthelinessetoutbelow,inthelight
oftheoverallimportanceofthesectorsforwhichareservationismaintained
andthenatureofthespecificderogations requested *

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III.DIRECTINVESTMENTS INPORTUGAL
A*Generalconsiderations
r-
ThePortugueseauthorities haverequestedatransitional measureinthe
capitalmovementssectorforinvestmentsinPortugalmade"byresidents
oftheMemberStates*Accordingtoitslateststatementoncapitalmovements,
thePortuguesedelegationisproposingtheestablishment ofatransitional measure
onthefollowinglines:
(i)direotinvestmentswhich,foragivenproject,donotexceedan.
amounttobedeterminedwillbeliberalizedinthefirstyear
followingaccession;
(ii)theceilingwillberaisedeachyearbynotlessthan20$in
relationtotheamountfixedforthefirstyearfollowingaccession;
(iii)directinvestmentswillbefullyliberalizedontheexpiryofthe
periodofapplicationofthetransitional measure*
ThePortuguesedelegationhasnotspecifiedthefigurebelowwhichtransactions
wouldbefreefromcontrol*IntechnicaldiscussionswiththeCommission,however,
thePortuguesedelegationhassuggestedthefigureof15millionescudos,
equivalenttoaround170000ECU,
ThepracticaleffectofthePortugueseproposalwouldbetosubjectalarge
proportionofinvestments byCommunityenterprises-andinsomecasesbynatural
persons-toasystemofcontrolwhichcouldgiverisetodiscrimination and
wouldveryseriouslyaffectrightofestablishment andnon-discrimination between
nationalsoftheotherMemberStatesasregardsfinancialparticipation inthe
capitalofcompanieswithinthemeaningoftheTreaty*TheCommunityhasdrawn
thePortuguesedelegation'sattentiontothispointandhasurgedthatthis
requestforatransitional measurebeconsideredinthecontextofrightof
establishment ,aswhatisinvolvedisfirstandforemostaderogationfromthe
Communityacquisinthatsector*

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Accordingly,theCommunityhassofarrejectedthePortugueserequest,arguing
thatPortugal,moreover,needsasmuchinvestmentaspossibleinorderto
ensureitseconomicdevelopment *
BeforeexaminingthePortuguesedelegation's^requestingreaterdetail,the
Commissionmustemphasizethatafavourableresponsetothisrequestwould
implyafavourablereplytothespecificrequestrelatingtorightof
establishment inthebankingsector,asbankscannotbeestablishedwithout
substantialfinanoialbacking.Thesamesituationcoulddevelopwith
regardtoinsurance,thoughtoalesserdegree*
Suchanapproachwouldnot,ontheotherhand,haveanyseriousconsequences
forquestionsrelatingtothecinemaindustryandtravelagencies*Thesewill
havetobedealtwithinanycase*
B*EvaluationofthegroundsforthePortugueserequest
In"~itsstatementof14Januaryoncapitalmovements,thePortuguesedelegation
putforwardanumberofargumentsformaintaining asystemofcontrolfora
five-yearperiods
(a)theneedforPortugaltoensurethatexternalmeansoffinancingbe
allocatedaseffectively aspossibleandinaccordancewiththecountry's
economicdevelopmentpriorities j
(b)theneedtokeeppressureonPortugal'sinternalcreditresourceswithin
limits{
(c)theneedtoavoidtheunfavourableeffectsonthebalanceofpayments
stemmingfrominvestments whichhaveasubstantial importcomponentorwhich
giverisetocapitaloutflows.
Initsearlierstatementsonthequestion,andmoreparticularly incontacts
withtheCommission,thePortugueseauthorities hadstressedthefollowing
additionalpoints:

-5-
(i)thesectorsofstrategiceconomicimportancemust"beprotected,
particularly thoseusingnaturalresourcesinshortsupply,those
whichareverylabourintensiveor,lastly,thosewhoseproduction
isofparticularinterestfortechnological progress:
ν.
(ii)itisessential,topreventthePortugueseeconomyfrombeingweakenedas
aresultofcompetition frompowerfulnon-Portuguese firmsorthe
saleofnationalenterprisestonon-residents atdisadvantageous prices.
InitscontactswiththePortugueseauthorities,theCommissionhasgathered
thattheirmainconcernwasforthestructuralweaknessofPortugueseindustry#
Certainverylabour-intensive Portugueseindustriescouldrunintodifficulties
asaresultofcompetition fromnewandmoreproductiveinvestmentsinthesame
sectorofactivity;suchasituationcouldhaveimplications foremployment.
Eveniftheyaregiventemporaryprotectionagainstthisthreat,however,they
willhavetofaceuptoimportsofcompetitive productsofCommunityoriginas
aresultoftheestablishment ofthecustomsunionsaidtheabolitionofexisting
tradebarriers,aprocesswhichwillhavetocommenceasfromaccession*
Thereareprobablypoliticalorpsychological considerations underlyingthe
Portugueserequestaswell,whicharedifficulttoevaluatebutcanperhapsbe
seenasageneralfearthatcompleteliberalization ofdirectinvestments may
leadtolossofcontrolovercertainsectorsofPortugueseindustryandhence
overindustrialpolicy.
AccordinglytheCommission,whilemaintainingitsreservations withregardto
theeconomicargumentsputforwardbythePortuguesedelegation,doesnotwish
toruleoutcompletelythepossibilityofatransitional measureinthissector.
Suchameasurewould,however,havetobeforareasonablyshorttime,should
bebasedonaconsiderably higherfinancialceilingthantheonesuggestedand

-6-
would have tobesubject ,inoases ofintended rejection ,toprior '
authorization bytheCommission *
A3regards theduration ofanysuch transitional measure ,theCommission
considers that aperiod offive years isnotjustified andwould prefer
ashorter one *
Thefollowing should be -taken into account indetermining aceiling :
(i)thelonger theperiod adopted ,thehigher theinitial ceiling would
have tobeandthegreater would betheneed toraise theceiling
progressively ,onthelines suggested bythePortuguese delegation
itself }
(ii)aceiling aslowastheoneproposed bythePortuguese delegation
would ofnecessity result inanexcessively bureaucratic structure
asaresult ofthelarge number ofdecisions that would have tobe
-taken inconnection with individual projects ,most ofwhich decisions
would notprevent theeconomic orpolitical effects feared byPortugal ;
(iii)thePortuguese delegation hasnotproduced anyargument insupport ofthe
figure proposed fortheceiling#
C. COMMISSION PROPOSALS
Although ithasadopted aprudent andreserved attitude tothePortuguese
delegationls request -which establishes aprecedent inaccession negotiations -
theCommission would notbeopposed totheestablishment ofaspecific system
foraperiod ofthree years# Under such asystem thePortuguese authorities
would have control over anyproject forinvestment originating from theother
Member States oftheCommunity ,provided itexceeded acertain level *Any
investment below this ceiling would beliberalized automatically asfrom
accession *
Forthefirst year ,starting from thedate ofaccession ,theamount oftheceiling
would be 5 million ECU*TheCommission has adopted this figure onthebasis
ofthedata atitsdisposal concerning thesize ofsmall andmedium-sized enterprises
intheCommunity andinPortugal andtheaverage investment perperson employed .

-7-
Theceiling of 5million ECUwould subsequently feeraised each
year by20%inrelation totheamount fixed forthefirst year .
Investment projects foramounts inexcess ofthis ceiling would
beBubiect toprior authorization asfollows :
τ .
Foranyproject subject tosuch authorization ,thePortuguese
authorities will have toadopt aposition not later than onemonth after
theapplication ismade .Failing theadoption ofaposition within this
time ,theplanned investment would bedeemed tobeauthorized .
Should thePortuguese authorities propose torejeet aninvestment project ,
they would beobliged toinform theCommission before theexpiry of
theperiod referred toabove .TheCommission will state itsposition ,
within onemonth ofthedate ofbeing informed ,onthegrounds ofthe
proposed rejection ,spelling outwhere appropriate anyaccompanying terms
and conditions .
Initsappreciation ,tjieCommission would take particular account
ofthefact that theinvestments coming from other Member States ofthe
Community should facilitate thecreation ofnewjobs ,thespread ofnew
technology andthedevelopment ofvocational training .
However ,theCommission would authorise arefusal inacase where it
confirmed thepresence ofelements negative forPortugal 'seconomic
development and itsharmonious integration into theCommunitv .Inthis
context theCommission would inparticular authorise arefusal inthecase
ofaproject likely tohinder theorderly process ofadjustment ofthe
structure ofthe sector concerned .
Where theCommission refuses toauthorize thederogation requested by
Portugal ,theinvestment project will automatically beapproved .
Inanycase ,thetreatment accorded toinvestors whoarenationals of
aMember State oftheCommunity maynotbeless favourable than that
accorded tonationals ofnon-member countries .
Attheendoftheperiod adopted ,direct investments will befully liberalized .

IV.SECTORAL REQUESTS
(a)Banks andcredit establishments
(i)ThePortuguese delegation isasking forafive-year derogation from
thetime ofaccession "before applying therelevant Community legislation .
y .
During thefive years it.-would reserve theright tointroduce asystem
ofcase-by-case prior authorisation fortheestablishment ofnewcredit
institutions onPortuguese territory .
TheCommission 'scompromise proposal ondirect investment inPortugal
bynon-residents (seeSection III)would apply tobanking asmuch as
anyother sector .Itwould enable thePortuguese authorities forthe
duration ofthederogation (theBame forallsectors )tocontrol and
regulate theestablishment ofnewbanks inPortugal ,onthelines set
outintheproposal .That being thecase ,theCommission does not see
thepoint ofhaving anextra derogation forthebanking sector ,asrequested
bythePortuguese delegation .
The Commission therefore considers that the acquis communautaire in
banking should apply asfrom accession .
(ii)ThePortuguese delegation mentioned thepossibility ofnegotiating
the list ofcredit establishments referred toinArticle 2of
Directive 77/78o/EECof12December 1977 should thetechnical adaptations
notproduce satisfactory solutions .
Intheabsence ofaspecific request atthis stage ,theCommission
considers nodecision isnecessary .

(b)Inaurance
InthissectorPortugalisrequestingafive-yeartemporaryderogation
beforeapplyingthecoordinatingdirectives73/239/EECof24July1973
and79/267/EECof25March1979-
Insupportofitsrequest,thePortuguesedelegationpointedoutthat
implementation ofthesedirectiveswouldinvolveradicalchangesin
thepresentPortugueseinsurancesystem,muchlegislative workwould
havetohedoneandlousinessesgiventimetoadjusttothenew
arrangements .
Aswithhanking,theCommission'scompromiseproposaloninvestment
couldalso,thoughtoalesserextent,applytotheestablishment of
insurancefirms.RegardingDirectives73/239and79/267,forwhich
thetransitionperiodisrequested,theCommissionwouldmakethe
followingpoints.
Thedirectivesreplacedthedepositsystemwithasetofrulesrequiring
-firmstoestablishasolvencymarginandaguaranteefundattheir
headoffice.
Allowingatemporaryderogationontheimplementation ofthesedirectives
wouldstrikeattheheartoftheacquiscommunautaire ininsurance
andcouldresultinseveredistortions ofcompetition .
TheCommissiondoesnotfindtheweight,oflegislative andbusiness
changetobeaccomplished beforeaccessionanymorepersuasiveanargument
herethaninotheraccessionnegotiations .Theinsurancemarketin
Portugalisalreadyfairlyconcentrated ,whichisboundtomakeiteasier
forexistingfirmstoadapttotheCommunitysystem.

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Toconclude,theCommissionthinksthePortuguesedelegation's
requestforatransitional measureshould "berefusedandthat
Directives73/239/EECand79/267/EEC,liketheotherdirectives:;
existinginthissector,shouldheappliedasfromaccession.
(c)Cinema ?,
ThePortuguesedelegationis.askingforaperiodoffiveyearsfrom
accessiontoadoptin.fulltheacquiscommunautaire inthissector,
i.e.Directives63/607&£15October1963,65/264of13May1965»68/369of
15October1968and70/451of29September1970.
Sincethemainpurposeofthesedirectives,however,wastoeliminate
discrimination onthebasisofnationalityduringthe1958-1970
transitionperiod,andmostoftheirprovisionshavebecomeredundant
nowthatArticles52and59oftheEECTreatyaredirectlyapplicable,
thePortuguesedelegationisreallyaskingforaderogationfromthese
fundamental articlesthemselves .
Theargumentsadvancedinsupportoftherequestessentiallyreflect
culturalandpoliticalconsiderations ,therebeingnocogenteconomic
reasonsonwhichtobaseanobjectivescrutinyoftherequest.TheCommission
feelsitmightbepossibletoagreetothederogationprovided,however,
thenegotiations onrightofestablishment producedareasonableoutcome.
(d)Companylaw
TheCommissionnoteswithsatisfaction thatPortugalhasacceptedDirectives
68/151of9MarchI968,77/91of13December1976,78/855of9October1978
and78/660of25July1978asfromaccession.

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(e)Travel agencies andtourism
Therequest forathree-year derogation applies tothenon-diBcrimination
principle ,failing acoordinating directive inthis sector .Itisnot
clear howcompliance with that principle could appreciably affect
amarket which acoording tothePortuguese *statement isalready
dominated byforeign firms ..
TheCommission proposal ondirect investments would appear tobeof
little relevance inthis sector ,since little capital iBnormally
required fortheestablishment ofagencies .Since thederogation isrequested
forashort period only ,theCommission considers itmight begrafted
providing theoverall outcome ofthenegotiations inthis chapter
issatisfactory .