Involvement with the European Economic Community:
Some Canadian Considerations
D. Lasok*
Canada, having invested in the battlefields of Western Europe,
carries on as a partner in the North Atlantic Defence Organization
and through her recent agreement with the European Economic
Community (hereinafter referred to as the E.E.C. or the Com-
munity) has now added a further dimension to her involvement
with the old Continent.
Canada’s contracting partner is not a state but the European
Economic Community which, as a regional organization and the
world’s most powerful trading bloc, has already made a great impact
on world trade and is likely to develop its political potential. Through
a network of treaties the E.E.C. has built a new pattern of inter-
state trade whilst the long arm of its law has secured control not
only of its indigenous commercial life but also, in some respects,
of the activities of multinational enterprises operating within the
geographical limits of the Common Market.
From the Community’s point of view the Canadian involvement
has to be seen in the context of its own global connections; from
the Canadian point of view the involvement is with a new interna-
tional polity acting in its own capacity which will also affect
Canada’s trade relations with its constituent parts and, albeit in-
directly, with the world. The purpose of this article is to better
acquaint Canadians with their new trading partner.
I. THE E.E.C. AS AN AUTONOMOUS ENTITY
1. The E.E.C. and its law
The present European Community represents in a political sense,
an unfulfilled dream, the “Grand Design” of Henri IV, King of
France (1589-1610)
to which Winston Churchill, pleading for a
United Europe, alluded in his speech to the Hague Congress in
1948. In a juristic sense it is founded in the three Communities
(Coal and Steel, Euratom and the Economic Community) set up by
* L. en Dr., LL.M., Ph.D., Dr. Juris, of the Middle Temple, Barrister; Visiting
Professor, McGill University, Montrdal.
19761
EUROPEAN ECONOMIC COMMUNITY
the Treaties of Paris (1951) and Rome (1957) ,respectively.’ Of the
three, the E.E.C. is an example of a “funotional federation”la and a
cornerstone of a West European Union. As a result of the merger of
the institutions of these three Communities by the Treaty of Brussels
(19 65 )lb we now have a supra-national organization operating in
three distinct economic fields but aspiring to the economic and
political integration of its members.
The E.E.C. is sometimes described as a federation, sometimes as
a confederation, but although it reflects both concepts it fits neither
exactly. As a political animal it is without a pedigree; it is a cross-
breed of the two concepts but has more pronounced federal than
confederal characteristics. Although it is based on a treaty, the
Treaty of Rome is more a “constitution” and a law-generating device
than an inter-state contract and source of state obligations. The
Treaty, “concluded for an unlimited period” (art.240) creates the
European Economic Community (art.1) whose task it is to promote,
through the instrumentality of a common market and the approxima-
tion of the economic policies of the member states, “a harmonious
development of [their] economic activities, a continuous and bal-
anced expansion, an increase in stability, an accelerated raising of
the standard of living and closer relations between [them]”.? In
other words the object is not a loose association of states, con-
federation, but political integration through economic integration.
In order to achieve this object the member states have set up supra-
national institutions and, as in the case of a federation, surrendered
a portion of their sovereignty to the Community. As a result the
institutions have been endowed with executive, legislative and ju-
dicial powers and the Community has become an autonomous legal
person.
In the opinion of the Community Court of Justice, the Com-
munity “constitutes a new legal order in International Law for
whose benefit the states have limited their sovereign rights, albeit
within limited fields and the subjects of which comprise not only
the member states but also their nationals”. Although Community
‘Treaty establishing the European Economic Community, Institutions of
the European Communities (1973).
iaAn expression coined by Harold Laski in an introduction to his Liberty
in the Modern State (1948), 14 et seq.
lb Treaty establishing a single Council and a single Commission of the
European Communities, OJ. No.152, 13 July 1967, p.2 .
le The Treaty of Rome, supra, note 1, art2.
2 Case 26/62, Van Gend Loos v. Nederlandse Administratie der Belastingen
E1963] C.M.L.R. 105, 129.
McGILL LAW JOURNAL
[Vol. 22
law (composed of treaties and legislation derived from the Corn-
munity Institutions) has a limited field of operation it is all-pervasive
in its sphere as it applies not only to the member states and their
nationals but also to the member states in their relations with the
outside world !and to foreigners (more appropriately foreign en-
terprises) involved in commercial activities within the Community.
Certain provisions of Community law are “directly applicable”,
that is, capable of creating directly and immediately in the territory
of the member states rights and obligations for individuals;8 other
rules are “indirectly applicable”, that is, addressed to the member
states who, in turn, have to implement them by their own legislative
methods. The former resemble federal laws, the latter treaty obliga-
tions which proceed from state sovereignty but nevertheless, by
virtue of the “self-executing” nature of the Treaty of Rome, leave
only the choice of the method of implementation to the member
states.
Whilst the power to legislate, albeit under the authority of the
Treaty, is the “first and most essential means by which a supra-
national organisation endeavours to carry out its objective”, 4 the
supremacy of Community law is an absolutely necessary condition
of the efficacy and, indeed, workability of the system. Supremacy is
nowhere mentioned in the official texts of Community law but is
implicit in the federalist concept of the Community. The principle
has been -formulated and reiterated by the Community Court in a
number of cases5 and has never been challenged. In the Walt Wilhelm
case the Court held that:
… the E.E.C. Treaty instituted its own legal order, integrated into the legal
systems of the member states which has priority before their courts. It
would be contrary to the nature of such a system to accept that the
member states may take or maintain in force measures liable to com-
promise the useful effect of the Treaty.
In another case, where the validity of a Community regulation was
challenged as incompatible with the German Constitution, the
3 Case 57/65, Ea. Altons Liitticke GmbH v. Hauptzolland Sarrelouis [1971]
C.M.L.R. 674; Case 13/68 Salgoil S.p.A. v. Italian Ministry of Foreign Trade
[19693 C.M.L.R. 181; Case 31/74 Filippo Galli, Preliminary Ruling requested by
the Pretore di Roma [1975] E.C.R. 1, 70.
4 P. Guggenheim, Organisations dconomiques supranationales, inddpendan-
ce et neutralitd de la Suisse (1963) 82 (II) Rev. de Droit Suisse 247.
5 E.g., Van Gend, supra, note 2; Case 6/64 Flaminio Costa v. ENEL [1964]
C.M.L.R. 425; Case 14/68, Walt Wilhelm v. Bundeskartellamt [1969] C.M.L.R.
100, 119; Case 11/70, Internationale Handelsgesellschaft GmbH v. Einfuhr und
Vorratsstelle ffir Getreide und Futtermittel [1972] C.M.L.R. 255.
5 Walt Wilhelm, ibid., 119.
1976]
EUROPEAN ECONOMIC COMMUNITY
Community Court ruled that “no provisions of municipal law of
whatever nature may prevail over Community Law … lest it be
deprived of its character as Community Law and its very legal
foundation be endangered”Y Thus it can be said that the doctrine
of supremacy flows from the purpose -and function of the Community
on the one hand and, on the other, the pooling of sovereignty, re-
sulting from a partial transfer of legislative, executive and judicial
powers to the Community Institutions.
2. The Institutions
The Constitution of the E.E.C. appears to have been devised on
a federal pattern. As in a state, the direction of the Community is
under the control of the political organs: the Assembly, the Council
of Ministers and the Commission. The judicial function is vested
in the Court of Justice.
The Assembly consists of “representatives of the peoples” of the
state members of the Community.7-
the strength of -the representa-
tion being weighted according to the size of their respective popu-
lations. By article 138(2) of the Treaty of Rome, as amended by
article 4 of the Adaptation Decision8 and article 10 of the Act of
Accession,9 the member states are committed to the election of
their representatives by “direct and universal suffrage””‘ which,
according to the recent understanding, ought to take place simul-
taneously in all the member states in 1978. It -should be noted that
the Assembly, though aspiring to the role of a European Parliament
has no legislative power but merely exercises political control of the
Community and acts as a deliberative and consultative body. In
its limited capacity it is nevertheless concerned with the fortunes
of the Community and its policies, including the external relations
of the Community.
The Council of Ministers is the supreme organ of the Community
for it represents the sovereignty of the member -states. It consists of
the representatives of the governments, each government, in the
spirit of equality, sending one delegate to the meetings “la The res-
7 1nternationale Handelsgesellschaft, supra, note 5, 283.
7a The Treaty of Rome, supra, note 1, art.137.
8 O.J. 1973, No.L.2, of 1 January 1973.
9 “Act annexed to the Treaty of Accession” signed on January 22, 1972,
Institutions of the European Community (1973).
10 See Draft Convention adopted by the Assembly on January 14, 1975:
Bulletin of the European Communities (1975) Part 1, 95 et seq.
lOaTreaty of Rome, supra, note 1, art.148.
McGILL LAW JOURNAL
[Vol. 22
ponsibility for the execution of the objectives laid down by the
Treaty falls upon this body and, therefore, the Council legislates,
takes the most important decisions and co-ordinates the economic
policies of the memberstates.lb However, these powers are exercised
in conjunction with the Commission.
The Commission is a truly Community institution. It consists
of 13 members chosen for their “general competence and total in-
dependence”lc by member states unanimously0 ” though, in fact, the
commissioners are the political nominees of the member states and
the Community bureaucracy. The powers of the Commission can be
described as powers of initiative, preparation and decision. It for-
mulates recommendations and opinions on matters with which the
Treaty is concerned and participates in the work of the Council
and the Assembly. It legislates within its specific functions and
exercises executive powers to carry out the tasks entrusted to it by
the Council. It can also impose fines upon undertakings which break
the rules on competition7le In the -field of external relations, as we
shall see later, the Commission and the Council act together accord-
ing to an established pattern.
The function of the Court of Justice is to “ensure observance of
the law in the interpretation and application of the Treaty”. 0 f
Composed of nine Judges and assisted by four Advocates-General
chosen from persons of proven independence and qualified to hold
the highest judicial offices in their countries 0’
the Court is an in-
ternal court of the Community. In this sense it resembles more a
federal court than the International Court of Justice at The Hague.
Its jurisdiction, defined by the Treaty,” though confined to the
administration of Community Law, -does not supersede that of the
member states. However in some respects the Community Court
has exclusive jurisdiction, for example, in actions against member
states, and actions against Community institutions. In disputes
between the member states arising from the Treaty obligations””
and actions in respect of the alleged breaches of the Treaty by
the member statesu1b the member states have agreed not to submit
lob Ibid., art.145.
loc Ibid., art.157.
lod Ibid., art.158.
lOe Ibid., art.89(2).
‘Of Ibid., art.164.
lOg Ibid., art.167(1).
:t Ibid., arts.164, 169, 170, 173, 183.
“I Ibid., art.182.
11b Ibid., art.170.
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EUROPEAN ECONOMIC COMMUNITY
their differences to any other method of settlement than that
provided by the Treaty.ll e It follows that recourse to international
law, whether by the states’2 or the Court 3 has become somewhat
limited. In actions against Community institutions the Court operates
very much on the lines of the French Conseil d’Etat upon which
it appears to have been model-led and whose remedies it has adopted
and developed.14
It should be noted that, in the context of the external relations
of the Community, the Court had an opportunity of pronouncing
upon the respective functions of the Commission and the Council
of Ministers’ 5 and has recently delivered an advisory opinion on the
question submitted by the Commission as to whether an international
agreement about to be concluded is compatible with the Treaty.’6
II. THE LEGAL PERSONALITY OF THE E.E.C.
1. The new “Collective”
In the words of a former President of the Community Court,
Judge Donner,’7 the member states of the E.E.C. have undertaken
their obligations “not simply on a reciprocal basis but primarily
towards the new collectivity they set up”. The legal personality of
the E.E.C. is one of the results of this undertaking. In the terse
statement of article 210 of the Treaty that “the Community shall
have legal personality” the founder states have created a new
international person. This they can do as collective -makers of
international law.’8
lie Ibid., art.219.
‘2 Case 7/61, Re Quantitative Restrictions on Italian Pork Imports [1962]
C.M.L.R. 39.
‘ 3 Case 8/55, Federation Charbonni~re de Belgique v. High Authority [19561
2 Recueil 151, 199; Case 21-24/72, International Fruit Company v. Produktschap
voor Groenten en Fruit [19721 Recueil 1219; Case 9/73, Schlilter v. Haptzollamt
Lirrach [19731 E.C.R. 1135; Case 4/73, Nold v. E.C. Commission [1974] E.C.R.
491;
[19741 2 C.M.L.R. 338; Case 41/74 Van Duyn v. Home Office [19751 1
C.M.L.R. 1.
14D. Lasok and J.W. Bridge, Introduction to the Law and Institutions of the
European Communities 2d ed. (1976), 169 et seq.
‘5 Case 22/70, Commission v. Council [1971] C.M.L.R. 335.
10 OJ. 1975, No. C.268 of 22 November 1975.
17A.M. Donner, The Constitutional Powers of the Court of Justice of the
European Communities (1974) 11 C.M.L.Rev., 127, 128.
18 Cf. Charter of the United Nations, arts.104 and 105.
McGILL LAW JOURNAL
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2. Status in the Member States
According to article 211 “in each of the Member States, the
Community shall enjoy the most extensive legal capacity accorded
to legal persons under their laws; it may, in particular, acquire or
dispose of movable and immovable property and may be party to
legal proceedings”. This legal personality “exists in public law by
virtue of the powers and functions which belong to the Commu-
nity”. 9 With the extensive legal capacity of the Community go the
privileges and immunities of the officers and premises “necessary
for the performance of their tasks”. 20 Furthermore the assets and
revenues of the Community are exempt from taxation;2’ customs
duties and restrictions do not apply to goods or publications in-
tended for the official use of the Community and the official com-
munications of the Community are free from censorship and enjoy
the privileged treatment customarily accorded to those of diplomatic
missions. 2 The members and servants of Community institutions
are issued with laissez-passer for the purpose of their travels and
enjoy immunity from proceedings in respect of acts done in their
official capacity.2 The privileges and immunities are also extended
to the diplomatic missions of non-member states accredited to the
Community. 2
3.
International status
The hallmark of a person at international law is the capacity to
send and receive envoys and to make treaties. The E.E.C. enjoys
both these attributes. Article 210 of the Treaty, as we have observed
earlier, expressly confers legal personality upon the E.E.C. whilst the
treaty making power has been defined in articles 113, 114, 228 and
238. As a result of the former, the E.E.C. has been recognized by
the majority of the members of the United Nations Organization
(including the Vatican and China) with whom diplomatic relations
19 Cases 43, 45 and 48/59, Von Lachmiiller et al. v. E.C. Commission (1959)
6 (II) Recueil 933, 952.
20 The Brussels Treaty of Merger (1965), art28 and Protocol on the Privileges
and Immunities of the European Communities annexed thereto, arts.1 and 2.
21Protocol, ibid., art.3.
22 Ibid., arts.4 and 6.
23Ibid., art.7.
2 4 In Case 5/65, Sayag v. Leduc [1969] C.M.L.R. 12, the Community Court
held that a Euratom official, not being employed as a chauffeur by the
Commission was not entitled to immunity in respect of a road traffic accident
caused while driving guests of the Commission in his own car.
25 Protocol, supra, note 20, art.17.
1976]
EUROPEAN ECONOMIC COMMUNITY
have been established. These diplomatic missions are independent of
the “normal” relations between states as even the member states
have ambassadors to the E.E.C. who, in addition to diplomatic
representation, perform a useful function as “Resident Ministers”
serving as deputies for Ministers at the Council of Ministers. Canada
has had a mission at the E.E.C. since 19682″ while an E.E.C. mission2 ‘
was established in Ottawa in February 1976 in anticipation of
stronger links arising from the present Agreement.
4. E.E.C.’s trade and association agreements
A distinction is -made between treaties (whether bilateral or
multilateral) involving states and international organizations (art.
228) and agreements establishing an association (art.238). The
treaties range from trade agreements to purely technical accom-
modations such as the recent one with Austria 8 to facilitate the
transit of goods. External trade agreements have been concluded
with a number of countries all over the world. By the end of 1975
the E.E.C. had become party to “trade agreements” with nine
European and two Middle East countries, to “commercial co-opera-
tion” agreements with two Asian acountries, to “textile agreements”
with eight Asian countries, to “trade agreements
in handicraft
products” with nine Asian countries, and to trade agreements with
four Latin American countries. 9 While these agreements differ in
detail (and it is perfectly possible for a country to be party to more
than one) they usually provide for preferential reductions in Com-
munity tariffs in relation to the countries and commodities involved.
The purpose of an association agreement is much wider. It
creates a customs union between the Community and the associate
state with, in some cases, the provision of financial loans to the
associated state and, in others, the extension of other Community
benefits. Such agreements have been made with Greece and Turkey
with the object of bringing these countries gradually into the Com-
munity. (Similar agreements have been made with Malta, Cyprus,
Morocco and Tunisia, but without any view to future membership in
the Community.)
26At present headed by Mr M. Cadieux.
27Headed by Mr C. Heidenreich, previously assistant to the head of the
E.E.C. Mission in Washington.
28 Regulation on the conclusion of the Agreement between the E.E.C. and
the Republic of Austria, Reg. 1850/75, 0.. 1975, No.L.188/1.
29Commission of the European Communities, Information on External
Relations, 115/76.
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In addition to bilateral agreements there are also multilateral
association agreements with groups of countries which are the
former colonies of the member states of the Community. These
agreements are -designed to promote the economic and social de-
velopment of these countries and to establish economic links giving
their exports preferential treatment and bringing them within the
European customs union. These groups have been brought into this
relationship by conventions signed in African capitals: Yaounde
(1964 and 1969), Arusha (1968-9) and Lome (1975). The latter has
replaced the Yaounde and Arusha Agreements and extended the
benefits of the Treaty to 46 states of the African, Caribbean and
Pacific group (ACP)
including 21 members of the British Com-
monwealth.
In addition to relations with non-member states the Community
has established links with international organizations, viz. the United
Nations Organization and the International Labour Office. Moreover
the Commission is represented in the Council of Europe; it partici-
pates in the work of the Organization for Economic Co-operation
and Development and ‘tariff negotiations with the General Agree-
ment on Tariffs and Trade. Discussions have also begun with the
Comecon (East European Council for Mutual Economic Co-opera-
tion) with the object of finding a common platform for trade and
eventually replacing the existing bilateral agreements between the
Comecon members and the member states of the E.E.C. 30
The Treaty provides for different procedures to conclude these
arrangements but, while the authority to sign agreements is vested
in the Council, the other institutions also play an active role. 1
Article 228(1) provides that agreements between the Community
and one or more states or international organizations shall be
negotiated by the Commission and concluded by the Council after
consulting the Assembly. Article 238, on the other hand, referring
specifically to “association agreements”, omits the Commission and
states that these agreements shall be concluded by the Council after
consulting the Assembly. In practice, however, the Commission is
always involved not only as negotiator but, generally, as the institu-
tion responsible for the external affairs of the Community. 2 A
30 Commission of the European Communities, The European Community
and East European Countries, 91/75.
31 See Case 22/70, Commission v. Council [1971] C.M.L.R. 335 which explains
32 One of the present Commissioners, Sir Christopher Soames, is
the
the respective roles of the Commission and Council.
“Foreign Minister” of the Community.
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EUROPEAN ECONOMIC COMMUNITY
certain working order has been established in which the institutions
act harmoniously together, the Commission being entrusted with the
preparatory work and the technical details, the Council laying down
guidelines in substance and procedure, deciding controversial nego-
tiating points and, finally, concluding the agreement. A degree of
political control over the international commitments of the Commu-
nity is in the hands of the Assembly while the Court has power to
determine the legality of the agreement. It is important to bear in
mind that although these agreements are concluded by the E.E.C.
in its autonomous capacity they are binding not only on the E.E.C.
institutions but also on the member states of the Community42, In
this way, as in a federation, the treaty-making power is exercised by
the central authorities but the resulting benefits and burdens are
attributed to the members of the collective.
5. Member states’ trade agreements
Membership in the Community entails a number of positive and
negative obligations. In Commission v. Council, which was concerned
with the treaty-making power of the Community and that of the
member states, the Community Court stated that:
… by the terms of art.5, the members states are required, on the one hand,
to take all appropriate measures to ensure the carrying out of the oblig-
ations arising out of the Treaty … and, on the other, to abstain from any
steps likely to jeopardise the attainment of the purposes of the Treaty.33
Having decided that the power of concluding agreements with
non-member states belongs to the Council, with the Commission per-
forming the functions of a negotiator, the Court pointed out that
where the Council and Commission act within the authority given to
them by -the Treaty the member states have no right of acting
individually in such a matter 4
It should be borne in mind that this limitation of the treaty-
making power of sovereign states merely reflects the division of
labour between the Community and its members and operates only
within the concept of the Common Market. Thus “within the specific
domain of the Community, i.e. for everything which relates to the
pursuit of the common objectives within the common market the
institutions are provided with exclusive authority …. Outside the
domain of the Community, the governments of the member states
32a Treaty of Rome, supra, note 1, art228(2).
33 Case 22/70 (1971) C.M.L.R. 335, 355.
341bid. See also Case 1/75, Re the O.E.C.D. Understanding on a Local Cost
Standard (1976) 1 C.MLJ.R. 85.
McGILL LAW JOURNAL
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retain their responsibilities in all sectors of economic policy”.3 5
This means in effect that the member states are free to enter into
treaties with other states but must bear in mind their Community
obligations while doing so.”” Objectively they do not lack the ne-
cessary capacity for the Community has not reached as yet the
stage of a federal state which as a rule concentrates the treaty-
making power in the hands of the federal government. Rather the
member states are subject to a self-imposed restraint.
The object of the Community is to contribute “to the harmonious
development of world trade, the progressive abolition of restrictions
on international trade and the lowering of customs barriers ’35 b
through the instrumentality of a Common Commercial Policy of
the Community. However, before such policy can be enforced the
trade relations of the member states with the outside world have to
be co-ordinatedssc such co-ordination being directed towards the
acceptance of common principles with regard to “changes in tariff
rates, the conclusion of tariff and trade agreements, the achievement
of uniformity in measures of liberalisation of trade, export policy
and measures to protect trade such as those to be taken in case
of dumping and subsidies”. 3rd
By the end of the transitional period” the external tariff around
the Community and the tariff agreements shall be controlled com-
pletely by the Community.
Practical difficulties, not to mention the reluctance of the member
states to surrender to the Community their freedom of action and
political influence through external trade, have contributed to the
delay in the formulation of a Common Commercial Policy. Thus
so far only tariff agreements and agreements with regard to agricul-
tural produce can be ,said to be firmly governed by a common com-
mercial policy, the former because the Community is a customs
union, the latter because the Community has a Common Agricul-
tural Policy. Several other measures have been taken by the Com-
munity in order to strengthen the Community position. Thus Regula-
tion 459/6837 adopted in 1968, very much in line with article VI
of the G.A.T.T. and the anti-dumping code devised during the Ken-
35 Case 30/59, Gezamenlijke Steenkolepmijnen in Limburg v. High Authority
(1961) 7 Recuel 1, 43-45.
35a Treaty of Rome, supra, note 1, art.234.
Srb Ibid., art.110(1).
.Sc Ibid., art.111.
S5dlbid., art.113(1).
a( Le., 1968 for the original six members and 1977 for the three new members.
37Anti-Dumping Regulation, Reg.459/68, 1.0. 1968, No.L.93/1.
1976]
EUROPEAN ECONOMIC COMMUNITY
nedy Round, provided for protective measures in respect of what
are considered the abnormal practices of exporters to the E.E.C.
countries, i.e. dumping and export premiums and subsidies.
Liberalization of trade began with agreed lists of products free
from restrictions to be adopted by all the member statese8 with the
effect that, while the regulatory power of the E.E.C. has increased,
the individual member states have lost some of their bargaining
counters used in their political and commercial relations with third
countries.
Imports are now subject to two regulations, one in respect of
trade with non-communist countries-9 and another in respect of
state-trading countries4 As the lists are by no means complete the
member states still enjoy a certain measure of autonomy though
both regulations provide that the Council, acting on a proposal from
the Commission, may extend the list of products free from import
restrictions. Exports to third countries are, in principle, free4′ but
there are certain items to which the member states may within
their discretion apply restrictions.
These regulations are further subject to “a common procedure
for the administration of quantitative quota! 42 which governs tech-
nical details and provides for consultations between the member
states and the Community. However, despite these developments a
great deal remains yet to be done in order to harmonize national
trade into a Community system.
Bilateral trade agreements, being the rule rather than the ex-
ception, have attracted the attention of the Community. Since 1960
the Community has adopted certain measures in order to incorporate
into bilateral treaties clauses providing for the revision of these
agreements in the light of the emerging commercial policy of the
Community, limiting the duration of such agreements and providing
a procedure for prior consultation in respect of new agreements and
modifications of existing agreements. In 1969 the Council adopted
a decision on “the progressive unification of the agreements in the
matter of the commercial relations between member states .and third
1439/74, 1.O. 1974, No.L.159/1.
38 Liberalization of Trade, Council decision, 1.0. 1962, No.90, 2353/62.
39 Imports Regulations, Reg.1025/70, 1.0. 1970, No.L.124/6; repealed by Reg.
40 Import Regulations, Reg. 109/70, J.O. 1970, No.L.19/1 extended by Reg.
469/76, OJ. 1976, No.58/1. See also updated version of the Annex to Reg.
OJ. vol.18 C. 287/55 of 15 December 1975 and Council Decision on unilateral
import arrangements of 29 December 1975, No.75/788; O.J. Vol.18 No.L.3321.
4 Exports Regulations, Reg.2603/69, 1.O. 1969, No.L.324/25.
42 Quantitative Quota Procedure, Reg.1023/70, J.O. 1970, No.124/1.
McGILL LAW JOURNAL
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countries and of the negotiations of Community agreements”.43 The
decision provided for a procedure of prior information and con-
sultation in respect of the extension of trade agreements with third
countries and laid down that, as of January 1, 1970, in principle,
trade agreements shall be negotiated by the Community. Such
negotiations will be carried out by the Commission on its own
initiative or at the request of a member state or a third country.
A member state may be authorized to negotiate on its own but is
subject to compulsory consultations and the guidelines resulting
therefrom.
New members of the Community (Denmark, Eire and the United
Kingdom) had to adapt their existing trade commitments to the
spirit of article 234(2) of the Treaty of Rome (1957) and article
108 of the Act of Accession (1972), and since accession, apply the
principles mentioned above to their trade relations with the out-
side world.
It is clear from the foregoing that a new pattern of world trade
is being developed, influenced by the emergence of the Community.
In this process the traditional role of the sovereign state has been
displaced by that of the Community acting on behalf of all the
member states. It is not surprising, therefore, that Canada’s trade
negotiations with Western Europe should be channelled through the
E.E.C. and not its individual member states.
III. THE 1976 AGREEMENT BETWEEN CANADA AND THE E.E.C.
1. Canada’s external trade
Canada’s external trade, usually showing a healthy surplus, is
predominantly dependent upon the United States. The United States
is Canada’s most important trading partner taking nearly 70% of
Canadian exports and providing almost the same proportion of
imports;44 the E.E.C. comes next and Japan third. In contrast, trade
with the United Kingdom and the E.E.C. countries has been in
steady decline. In 1938 all Canadian trade with the United Kingdom
stood at 31%; it dropped to”17% in 1948, 13% in 1958, 7% in 1968
and 5% in 1974. The corresponding figures for the E.E.C. (including
the United Kingdom) were 36%, 22%, 20%, 13% and 11%.
43 Notification of Treaties, Council Decision, J.O. 1969, No.L.326/39, 69/494.
44Commission of the European Communities, Canada and the European
Community, 113/76, p.6.
1976]
EUROPEAN ECONOMIC COMMUNITY
The volume of American investments in Canada was in 1971 five
times that of the E.E.C. countries and Canadian investments in the
United States four times that in the E.E.C. countries.
Clearly this imbalance is disadvantageous both to Canada and
the E.E.C. Whilst Canada may wish to attain greater commercial
independence from the United States and, in the process, cannot
ignore the growing importance of the E.E.C., to the Community
Canada represents not only an opportunity for commercial expan-
sion and investment but also a source of valuable raw materials
especially timber, non-ferrous metals (i.e. copper, zinc, nickel),
uranium and oil. Canada’s agricultural resources are of particular
value to an over-populated Europe. Therefore trade between Canada
and the E.E.C. can develop on a complementary basis, raw and semi-
manufactured materials being traded for industrial products, con-
sumer durables and manufactured foodstuffs.
As the industrial E.E.C. countries individually can no longer
play a totally independent role in international trade, the E.E.C. as
a single entity has become Canada’s new trading partner.
2. Preliminaries to the agreement
Despite the Ottawa Agreement of 1932 by which Canada and the
United Kingdom enjoyed reciprocal preferences, Canada strongly
supported the British application for membership in the E.E.C.
This support was also forthcoming during the unfortunate period of
British “re-thinking”, engineered by party politics and resulting in
the so-called “fundamental re-negotiations” and the Referendum of
1975. Clearly, as far as Canada was concerned it was not just a
question of the changing pattern of trade with Britain, it was a
question of Canada’s participation in world trade in general and her
involvement with the E.E.C. in particular. In this, the trade relations
with the United Kingdom played a certain part. As a result of her
membership_ in the Community, Britain had to discontinue pre-
ferences and had to adopt by stages the Common External Tariff
of the Community together with the Common Agricultural Policy.
This considerably affected her trade with Canada, but since the
other member states were in a similar position (especially as regards
agricultural produce) Canada’s trade with them was also affected.
Prior to British accession, Canada had expressed an interest
in the E.E.C. as a possible trading partner and this was reciprocated
at the meeting of the Heads of Government of the Six in October 1972
when they welcomed “a constructive dialogue” between Canada and
the E.E.C. The contact established, meetings have taken place from
McGILL LAW JOURNAL
[Vol. 22
time to time between the Commission and Canadian government
officials, members of the European and Canadian Parliaments, Ca-
nadian Ministers and the E.E.C. Commissioners, and in March 1975
the Canadian Prime Minister during his European tour “puzzled the
Europeans” by his open advocacy of closer links with Europe.41 In
fact they should not have been puzzled by the object of his mission,
which was to “seek assurance that Canada’s desire to create a
contractual link with the European Community …
is well un-
derstood and supported by the Governments of the Nine”, or by
his statement that he did not want Canada’s identity to be absorbed
in the American melting pot.40 6
During 1975 the Commission exchanged letters with the Canadian
Government on the subject of cooperation in the field of environ-
mental control, i.e. the protection of the natural environment, the
assessment of the risks of pollution and the definition of quality
targets for water.
In October 1975 a delegation from the European Parliament met
their counterparts in Ottawa and, at the close of their meeting issued
a joint communiqug embracing the following desiderata:
1) A continuous rapport between the two Parliaments;
2) The conclusion of an agreement between the E.E.C. and Ca-
nada on trade and economic cooperation;
3) The completion of reciprocal diplomatic representation by
installing an E.E.C. mission in Ottawa;
4) Canadian
representation at
(December 1975) on monetary cooperation; 47
the Rambouillet Conference
5) The unification of Europe whilst preserving the national
identities of the member states;
6) The interest in foreign and multi-national investments vital
to both Canada and the E.E.C. as well as its member states.
These contaots have undoubtedly tested the idea of a Canadian
involvement with the E.E.C. to be formalized by reciprocal diploma-
tic representation and an appropriate agreement.
3. E.E.C. negotiation mandate
Canada’s aide-mrmoire of 20 April 1974, proposing a “direct
contractual link between Canada and the Community” leading to the
“development of long-term commercial and economic relations”
45According to The Times, March 11, 1975.
46The Times, March 4, 1975.
47 In fact, Canada was not represented.
1976]
EUROPEAN ECONOMIC COMMUNITY
was the first move in the exploratory phase. The Commission in its
communication to the Council responded with a suggestion for a
“broad Community framework for economic and commercial co-
operation … extending well beyond the field of classical trade
policy”.4 8 The Council gave its blessing to the idea, stressing the
traditional ties with Canada and expressing the desire for the further
strengthening of these ties.
In December 1975 the E.E.C. was almost ready to open negotia-
tions with a view to establishing a treaty framework for commercial
and economic cooperation. According to the E.E.C. procedure the
negotiation mandate of the Commission had to be adopted by the
Council but certain points had to be settled first. One of the pre-
liminary difficulties arose from the reservation on the access to raw
materials raised by Denmark, the other was the problem of the
contracting party. The Danish objection was overcome by a com-
promise formula; the parties to the agreement should endeavour to
ensure access to resources without discrimination or instability of
supplies. The problem of the contracting party was one of principle,
i.e. whether the agreement was to be concluded by the E.E.C. alone
or by the E.E.C. and the member states together. The problem was
solved in favour of the Community approach; the agreement should
be concluded by the Community in its corporate capacity on the
understanding that it should not preclude the conclusion of bi-
lateral agreements between Canada and any of the nine members of
the E.E.C. It goes without saying that such bilateral agreements
must conform to the Community rules and cannot derogate from
the agreement.
Two further points were referred to the Committee of the
Permanent Representatives of the member states. Some member
states felt that the “most favoured nation clause” to be included
in the agreement should not imply any tariff discrimination either in
favour of a third country (e.g., the United States) or in favour of one
member state to the detriment of the others (e.g., in favour of the
United Kingdom). The Committee recommended a general clause
to satisfy these reservations. Secondly, as regards the scope of non-
discriminatory access to raw materials, some member states insisted
that Canada should cease discriminatory practices respecting ex-
ports of oil products and should, accordingly, grant the E.E.C. equal
treatment. The Committee resolved that this was not only a postulate
to be included in the negotiations mandate but also a point to be
settled by negotiations.
48Supra, note 44, 2.
McGILL LAW JOURNAL
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4. The agreement
The negotiations went through three phases. In the first phase
(11 March, 1975) the negotiators reached a broad consensus on the
general aims and structure of the Agreement; in the second phase
(24-25 March, 1976) the representatives examined the Draft Agree-
ment and in the third phase (2 June, 1976) the final draft of the
Agreement was accepted.
The “Framework Agreement for Economic and Commercial Co-
operation” represents a new chapter in the global trade involvement
of the E.E.C. Its novelty lies in the fact that it is the first of its
kind between industrialized parties. Its scope is broadly traced for
it is a “framework” of cooperation. This means two things: that it is
“evolutionary” in the sense that further progress will be marked by
specialist developments from the broad bases of the Agreement; and
that the Agreement will not preclude bilateral treaties between
Canada and the E.E.C. countries.
The concept of the “cooperation” envisaged in the Agreement
rests on three elements:
1) Economic cooperation as outlined by the statement of common
objectives and the means by which these objectives are meant
to be achieved;
2) Commercial cooperation reiterating the adherence to G.A.T.T.
and opening avenues for the expansion and liberalization of
trade;
3) A Joint Cooperation Committee to promote the execution of the
Agreement.
The Agreement, set for an unspecified period, may be terminated
by either party after five years, subject to a year’s notice. It sets no
limits on the scope of the cooperation but envisages a pragmatic ex-
pansion. In the field of economic cooperation nothing is excluded
a priori, leaving the parties to extend their involvement as their need
and common interest may require. Therefore it opens opportunities
for the mutual exploration of industrial potential, the promotion
of technical, scientific and technological developments, and the
exploitation of supply sources and markets. Consequently one would
first expect a surge of activity in the field of exploration and in-
formation, then increased investments and individual or joint ven-
tures both in Canada and the E.E.C. countries as well as third
countries. In the field of commercial cooperation the parties’
adherence to the principles of G.A.T.T., i.e. the most favoured nation
clause, non-discriminatory expansion and liberalization of trade
should provide a new impetus to Canada’s trade with Europe.
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EUROPEAN ECONOMIC COMMUNITY
Perhaps the most interesting feature of the Agreement is the
Joint Cooperation Committee. The nature and the potential of the
Agreement require appropriate machinery at a sufficiently high
level in order to provide direction and stimulus on the one hand
and, on the other, to channel ideas and energy to the most promising
areas. The concept of a “directed” economy which dominates both
the member states and the Common Market is reflected here. How-
ever, because the Committee will not be able to cope with every
detail it is envisaged that several sub-committees will be formed in
order to deal with specific sectorial problems, for example, timber,
non-ferrous metals, oil, uranium, scientific collaboration.
The negotiations were completed on June 2, 1976, and the ne-
gotiators went back to their respective principals for the final
approval of the text. The Agreement was signed on July 6, 1976 and
became effective on October 1, 1976. However not -all the details
were finalized. The vital question of E.E.C. access to Canadian
natural resources in exchange for the access of Canadian finished
products to the Common Market has proved too difficult to solve
in view of the -fact that the member states’ involvement had to be
ascertained. Rather than prolonging the negotiations the parties
agreed to proceed to the final text leaving the matter unresolved.
It will be -dealt with in a supplementary Note which will be append-
ed to the Agreement.
5. The long arm of E.E.C. law
As we have observed earlier the E.E.C. has developed its own
system of law which operates in the territories of the member states
and claims supremacy over national law. However, the long arm
of the E.E.C. law also has an extraterritorial reach as within its
field of application it purports to control “European” individuals
and enterprises operating outside the Community as well as foreign
individuals and enterprises operating within the Community. It
follows that Canadian business interests can be affected irrespective
and quite independently of the Agreement. Some powerful multi-
nationals have learned this to their cost.
6. E.E.C. competition law
The E.E.C. competition policy is one of the pillars of the Com-
mon Market. The Treaty of Rome endeavours to set up a system
“ensuring that competition in the common market is not distort-
McGILL LAW JOURNAL
[Vol. 22
ed” 4 The backbone of that system is formed by articles 85 and 86
addressed to “undertakings” generally. Since the rules have been
drawn generally the competition area has become a battlefield not
only for commercial interests but also for legal wit.
As the term “undertaking” has not been defined in the Treaty
one has to assume that it applies to a broad assortment of entities
irrespective of their formal legal status as long as they can sue and
be sued and as long as they have resources, should a punitive sanction
be imposed.
The Community Court explaining the word “undertaking” stated
in one case that “an enterprise is constituted by unitary organisation
combining personal, material and immaterial elements attached to
an autonomous juristic subject and pursuing permanently a definite
economic objective”. 49 It follows that an undertaking has to be en-
dowed with juristic and economic autonomy and has to be engaged
in the production or distribution of goods or services. However its
geographical situation or political allegiance is unimportant as it
comes under the rules whether it is situated in or controlled from
outside the E.E.C A problem did arise in connection with sub-
sidiaries which, though juristically autonomous, were not econo-
mically independent of their parent companies. Thus in Re Chris-
tiani and Nielsen0′ a Dutch subsidiary wholly owned by its Danish
parent-company was held unable to engage in independent commer-
cial activity. Therefore, decided the Commission, the sharing of
markets was nothing but a distribution of tasks within a single
economic unit. In Re Kodak52 the Commission held that the European
subsidiary of an American company, acting on instructions from the
parent-company could not have been in competition with the latter.
However the relationship between the subsidiary and the parent-
company has to be considered and in certain circumstances the acti-
vities of the former may, despite its separate legal personality, be
imputed to the latter.9 3
Article 85 of the Treaty prohibits as
… incompatible with the common market: all agreements between un-
dertakings, decisions by associations of undertakings and concerted
practices which may affect trade between Member States and which have
705-706.
48a Supra, note 1, art.3(f).
49 Case 19/61, Mannesman A.G. v. High Authority (1962) 8 Recueil 675,
6ORe Grossfilex (decision of the Commission) (1964) 3 C.M.L.Rev. 257.
51 Case 69/195 (1969) C.M.L.R. D.36.
52 Decision of the Commission, Case 70/332 [1970] C.M.L.R. D.19.
53 Case 48/69, LC.L and others v. E.C. Commission (1972] C.M.L.R. 557.
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EUROPEAN ECONOMIC COMMUNITY
as their object or effect the prevention, restriction or distortion of com-
petition within the common market.
The same article lists agreements and practices which in parti-
cular are considered to have that effect. These include: price fixing,
limiting or controlling production, markets, technical developments
or investments, market sharing, applying dissimilar conditions for
equivalent transactions with other trading parties and making con-
tracts conditional upon acceptance of supplementary obligations. It
follows that any enterprise entering the Common Market must fami-
liarize itself with the activities prohibited by the Treaty and the
many precedents which illustrate the operation of the competition
rules of the Community.
The prohibited activities must “affect” trade between states in
order to constitute an infringement of the law. The word “affect”
has been interpreted extensively probably in analogy to “interstate”
commerce in the United States. The Ulm casel explains the positions.
There was an exclusive dealing agreement between a German com-
pany A and a French company B, whereby B became exclusive dealer
for the sale of machinery in France and the French overseas terri-
tories. In a dispute between A and B, B argued that, the agreement
was void under article 85 of the Treaty whilst A asserted the opposite.
The Community Court, on a reference from a French court, held that
such an agreement must be considered in its economic context and
the Court must decide whether it is likely to prevent, restrict or
distort competition to a “noticeable extent”. Several factors deter-
mine the extent of the agreement, i.e. the nature and quantity of the
product which is the object of the agreement; the position and size
of the parties to the agreement in the particular market; the
isolated nature of the agreement or its position in a series of similar
agreements, and the severity of the clauses which aim at the
protection of the exclusive rights involved 5
In another leading case- the Court held that “the contract …
on the one hand by preventing undertakings other than Consten
importing Grundig products into France, and on the other hand by
prohibiting Consten from re-exporting those products to other coun-
tries of the, Common Market, indisputably affects trade between
member states”.
ACase 56/65, Technique Miniare v. Maschinenbau Ulm GmbH [1966]
C.M.L.R. 357.
65 Ibid.
51 Cases 56 and 58164, Etablissements Consten S.A.R.L. et Grundig-Verkaufs-
GmbH v. Commission de la C.E.E. [1966] C.M.L.R. 418, 472.
McGILL LAW JOURNAL
[Vol. 22
The prohibited activities may be exempted from the rigour of
article 85 if they contribute to improving the production or distri-
bution of goods or to promoting technical or economic progress
while allowing consumers a fair share of the resulting benefit as
required by artiole 85(3).
The practical conclusion with regard to activities caught by article
85(1) and (2) is that they must cease or be suitably amended and,
if they can be exempted, the undertaking concerned must apply to
the Commission for a declaration that article 85(1) is inapplicable.
If in doubt the undertaking ought to apply to the Commission for
a “negative clearance”. In all these cases the prescribed procedure
has to be followed.
While article 85 prohibits certain activities which may affect
interstate trade and are likely to distort competition within the
Community, article 86 prohibits the abuse of a “dominant position”
which has a similar effect. A dominant position (though not defined
in the Treaty) means, in effect, a monopoly within a given sector of
the economy. Article 86 further enumerates such abuses. The phrase
“dominant position” was defined by the Community Court in the
Sirena case where the Court held that an undertaking is not in a
dominant position by the sole fact of being able to prevent
… third parties from selling in the territory of a member state products
bearing the same trade-mark; moreover, since art.86 requires that this
position covers at least a “substantial part” of the common market, it is
necessary that it has the power of preventing effective competition within
an important part of the market, considering also the possible existence
and the position of producers or distributors of similar or substitute
products …
According to article 86 “abuse” consists of:
(a) directly or indirectly imposing unfair purchase or selling prices or
other unfair trading conditions;
(b)
of customers;
(c) applying dissimilar conditions to equivalent transactions with other
trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the
other parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of
such contracts.
limiting production, market or technical development to the prejudice
Abuse of the dominant position has to affect trade between the
member states of the Community and can be perpetrated by “one or
more undertakings”.
67 Case 40/70, Sirena s.r.. v. Eda s.r.. [1971] C.M.L.R. 260, 275.
1976]
EUROPEAN ECONOMIC COMMUNITY
7. Determination of and sanctions for infringements
Infringements of articles 85 and 86 may be checked either by the
member states or the Commission. Both national and Community
law are competent but, since the latter has to be implemented by
the member states and will prevail in case of conflict, the member
states will apply Community rules if they happen to be more stringent
than their own.
The Commission has to deal with alleged infringements either
ex officio by virtue of its duties under the Treaty 8 or at the instance
of interested parties, i.e. states, undertakings or individuals. The
Commission will use its own machinery of investigation and will
reach a decision in accordance with the prescribed procedure. 9 If
an infringement has been proved the Commission will make the ap-
propriate decision, make recommendations and apply sanctions as
prescribed by the Treaty. The Treaty provides for three different
sanctions: nullity of the offending practice, fines and penalties.
The Commission may inflict heavy fines upon undertakings guilty of
infringements of articles 85 and 86 and also of the supply of false or
misleading information or of refusal to submit to an investigation
irrespective of whether the undertaking is controlled from within
or without the Community. Penalties may be imposed in order to
oblige the offender to cease the infringement, supply the information
required or submit to any investigation ordered by the Commission.
The decisions of the Commission which impose a pecuniary
obligation upon persons other than states are by virtue of article
192(1) of the Treaty subject to an enforcement procedure which is
in the hands of the member states. All the decisions of the Com-
mission are subject to judicial review by the Community Court.6
8. Enforcement against “foreign” undertakings
“Foreign” undertakings, that is to say entities controlled from
outside the Community, have often come to grief with Community
law and have, to their cost, learned that they could not rely on the
immunity of an “outsider”. In this context Community law applies
not only to situations in whioh a “foreign” undertaking is caught
58 Art.155 and Raglement d’application des articles 85 et 86, R~g.17, J.O. 1962,
No204/62 amended by Rig.59, 118, and 2822, J.O. 1963, No.2696/63 and 1.O.
1971, No.L.285.
59 Rg.17, ibid., art.
60R~g.17, ibid., art.15.
1Treaty of Rome, supra, note 1, arts.172, 173(2), 175(3).
n1.
McGILL LAW JOURNAL
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together with a Community undertaking but also if neither un-
dertaking happens to have a seat in the territory of any member
state as long as their activity has an effect in the Community. Further-
more even an activity which relates exclusively to exports to coun-
tries outside the Community by an undertaking (whether Community
or “foreign”) operating within the Community can become an in-
fringement of the Community competition law if it has repercussions
on the competitive structure of the Common Market or, to use the
technical term, it “affects trade between member states”. Consider
the following examples.
At the instigation of the trade organizations of various industries
using dye-stuffs the Commission investigated price increases of
dye-stuffs allegedly imposed by a common agreement and found
that increases affecting some 60 companies both in the E.E.C. and
outside. The Commission imposed fines for infringing article 85(1)
on several companies including a British Company (I.C.I.) and two
Swiss companies who appealed to the Community Court contending
inter alia that, because they were not based in the E.E.C., the Com-
mission had no jurisdiction. The British company I.C.I. in particular
contended that contracts to supply its European subsidiaries were
governed by English Law and therefore all these activities, being
carried out in the United Kingdom (prior to United Kingdom mem-
bership), were not subject to E.E.C. Law.62 The Court rejected this
argument and confirmed the fines.
In his Opinion the Advocate-General cited various national laws
and compared the jurisdiction of the E.E.C. (though not a state) to
that of states in similar situations and concluded that:
… art.85 indisputably gives as the sole criterion the anti-competitive effect
in the Common Market, without taking into account either nationality or
the locality of the headquarters of the undertakings responsible for the
breaches of competition. The same applies to art.86.PS
He suggested three conditions as criteria for the applicability of
E.E.C. law, viz. the imposition of direct and immediate restrictions
on the Common Market by the agreement or concerted practice;
the reasonably foreseeable effect (intentional effect being unneces-
sary); and the substantial effect produced in the Commuunity.”
In Biguelin Import Co. v. G.L. Import Export S.A. 5 a Belgian
company, by an agreement with a Japanese company, became the sole
62 Cases 48, 49, 51-57/69, I.C.L Ltd and others v. E.C. Commission, [1972]
C.M.L.R. 557.
03 Ibid., 601.
fl Ibid., 603-4.
65 Case 22/71 [1972] C.M.L.R. 81.
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EUROPEAN ECONOMIC COMMUNITY
distributor for Belgium and France of pocket lighters manufactured
by the latter. Later a subsidiary of Bdguelin took over the sole
distributorship and concluded a new agreement with the Japanese
company. In Germany Gebriider Marbach became the sole distributor
of the Japanese lighters. In 1969 Import Export company imported
into France a quantity of these lighters via Germany and Gebriider
Marbach. The B6guelin companies brought an action in France
against Import Export and Gebrider Marbach claiming damages for
unfair competition and an injuction to prohibit these companies
marketing the product in France. The defendants argued that the
agreements (of which the Commission received no notification)
were void as contrary to article 85 despite the fact that one of the
contracting parties was situated outside the E.E.C. The Community
Court, on reference from the French commercial court, held that the
agreements, to be incompatible with article 85, must be “capable
of affecting trade between member states” and have “the object
or effect” of interfering with “competition within the Common
Market”YIa The fact that one of the parties was an outsider was
immaterial as long as the agreement produced harmful effects
within the Common Market.
In the Franco-Japanese Ballbearings Agreement66 case the Com-
mission issued a declaration that an agreement between French and
Japanese manufacturers aimed at regulating imports into France
from Japan and increasing prices constituted an infringement of
article 85(1). The Commission distinguished between measures taken
by the Japanese Government in pursuance of trade agreements bet-
ween the E.E.C. and Japan and agreements or concerted practices
between Japanese undertakings and those operating in the E.E.C.
The former, being “acts of external commercial policy” are outside
article 85; the latter are within article 85 “irrespective of whether or
not they are lawful under Japanese law and irrespective of whether
or not they are undertaken unilaterally by Japanese enterprises or in
concert with European enterprises”.0 In view of the share of the
French market by the Japanese, the agreement had as its object “the
restriction of competition” and was intended “to neutralize the
function of price competition”. It was declared illegal.
In the Franco-Taiwanese Mushroom Packers Agreement case”8
the Commission ordered five French mushroom packers to terminate
65a Ibid., 95.
6674/634/EEC [1975] 1 C.M.L.R. D.8.
67 See also Opinion relating to imports of Japanese products in the Com-
munity, J.O. 1972, No.C.111/13 of 21 octobre 1972.
68 OJ. 1975, No.L.29/26 of 3 February 1975.
McGILL LAW JOURNAL
[Vol. 22
their agreement, the main purpose of which was the partition of the
German market between French and Taiwanese packers. Moreover,
in view of price fixing to the detriment of German consumers, the
Commission imposed fines upon the French parties to the agreement.
No fine was imposed upon their Chinese counterpart as they were un-
aware of the Commission Opinion 9 published in the Official Journal
shortly before the -agreement was made relating to the extraterritorial
effect of Community Law and the extraterritorial jurisdiction of the
Commission. The Commission clearly wished to remind private un-
dertakings that they must refrain from attempting to restrict or
regulate imports into the E.E.C. by means of agreements which in
effect distort competition in the common market.
Equally decisive, though more lenient, was the Commission’s ap-
proach to a Brazilian exporter of coffee The Istituto Brasileiro de
Caf6 restricted its sale of roasted coffee to France and Italy and
prohibited them from exporting the raw coffee it sold to them. It was
advised to change its policy of discrimination between competitors
in the business and grant them access on equal terms to its European
source of supply.
Recently a conflict between the principle of free movement of
goods and the protection of industrial property rights (e.g., patents,
trade marks) came to a head in the field of competition. The simple
question “When are such rights abused?” cannot ‘be answered in
simple terms but it is clear that such rights when faced with the rules
of competition will not provide absolute protection in the E.E.C.7
This ought to be borne in mind by undertakings involved with the
Common Market irrespective of whether they rely on their industrial
property rights for protection of their interests or compete with
holders of patent or trade marks. In particular when drafting agree-
ments their legal advisers must consider the position carefully. For
example, the Commission rules in reference to an agreement of the
Davidson Rubber Company72 (an American company, two Italian,
one French and one German company were involved),
that a
“non-aggression” clause in a patent and “knowhow” agreement was
incompatible with article 85(1). However, an agreement of A. Ray-
mond and Company” did not contravene article 85(1) because the
6Ibid.
70oBulletin of the European Communities (1975) Part 12, para2128.
71 See Van Zuylen Frares v. Hag [1974] 2 C.M.L.R. 127 (trade marks).
7272/237/EEC [1972] C.M.L.R. D.52.
7372/238/EEC [1972] C.M.L.R. D.45.
19761
EUROPEAN ECONOMIC COMMUNITY
clause did not affect competition in the Common Market. This was
an agreement between a French and -a Japanese company, all being
involved in the manufacture and sale of component parts used in
the construction and equipment of motor vehicles. Eventually, the
exclusive licensing agreements concluded by the American company
and its E.E.C. partners were amended in conformity with the sug-
gestions made by the Commission.
Clearly, when in doubt, protection ought to be sought under
article 85(3) but here the legal adviser must be familiar not only
with the substantive law of the Community but also the relevant
procedures. Above all he ought to realize that exemptions under
article 85(3) are available to enterprises from outside the Common
Market on the same terms as to Community enterprises. Exemptions
from the application of article 85(1) may be obtained but the en-
terprise must submit to further controls by the Commission; en-
quiries must be answered and activities monitored. The saga of the
Transocean Marine Paint Association, which has so far registered
three Commission Decisions and a judgment of the Community
Court, provides a good illustration of the ramifications.
In 1959 eighteen producers of marine paints created the Trans-
ocean Marine Paint Association so that they could pool their in-
dividual knowledge and expertise and produce marine paints of a
uniform quality and according to identical formulae, selling them
under the same trade mark. By this means they could build up a
world sales network. This is particularly important for producers
of marine paints because they can only compete effectively if they
can provide buyers with paints of -identical composition and quality
in all ports of a substantial size. Although membership of the Asso-
ciation entailed restrictions on competition between the members
themselves this was compensated by the possibility of competition
with the big international marine paints producers. Most of the
members were established in states outside the Common Market.
The Commission was notified of the agreement in 1962, the noti-
fication being accompanied, as is customary, with an application
for a negative clearance, i.e. a declaration that the agreement was
not prohibited by the Treaty. In 1966 the agreement was amended
when the Commission informed the Association that certain pro-
visions, involving prohibitions on the export by one member of paints
into the territory of another member without the latter’s consent,
and on manufacturing paints for non-members, were incompatible
with article 85.
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In 1967, the Commission decided 74 that the agreement fell within
the prohibition of article 85 as it prevented members of the Associa-
tion, especially those established within the Common Market, from
carrying on intensive competition with each other. However, the
agreement was saved by the exemption under article 85(3) because:
1) membership in the Association allowed an undertaking to provide
an effective service for purchasers of marine paints on a global
basis without having to create its own distribution network; 2) the
agreement benefited the consumer by enlarging the supply of marine
paints; 3) the restrictions in the agreement were justified by the
objectives they attained and did not go beyond what was needed to
attain them; 4) the share of the Association in the market of marine
paints within the Common Market was not great enough to threaten
the elimination of competition. The exemption was granted from
1966 to 1972 and the prohibition, which applied from 1962 (the date
when Regulation 17 came into force) until 1966 when the agreement
was amended, was lifted. The Commission’s decision was made sub-
ject to the submission of an annual report on the Association’s activi-
ties, productions and sales and on notification to the Commission of
any changes in membership, or in the agreement itself, and any
arbitral awards made under the agreement.
In 1972 the Association applied for extension of the exemption
and a decision was made in 1973.7
1 The Commission noted that the
total turnover of the Association had since 1967 increased consider-
ably, its share of the market amounting to 5-10%. Nevertheless the
conditions for exemption were still fulfilled and exemption was ex-
tended to 1978. The Commission decided that some restrictions con-
sidered essential in 1967 were no longer justified now that the share
of the Association in the market had risen, most of the rise being ac-
countable to a Japanese undertaking. It was discovered that two
members of the Association belonged to undertakings already en-
joying a strong position in the general paints market. The Commis-
sion considered whether such close links might affect the ex-
emption or whether they might necessitate the withdrawal of the
members concerned or the removal of the close links in order to gua-
rantee genuine cooperation between the Association and its competi-
tors. As a result it added a further condition to those already applying
to the exemption (these now included the requirement that the agree-
ment be amended to remove the provisions which were declared to be
no longer justifiable), that the Commission be informed of any links
74Decision 67/454/EEC [1967] C.M.L.R. D.9.
7574/16/EEC [1974) 1 C.M.L.R. D.11.
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EUROPEAN ECONOMIC COMMUNITY
or financial participation between a member and a non-member
undertaking. The Association appealed to the Community Court of
Justice against the imposition of this condition and it was declared
void by the Court76 for breach of procedural requirements. The
Commission then issued another decision 7
7 the condition now affect-
ing links between members of the Association or between a member
and any other enterprise in the paint sector as a whole (not just
marine paints) where the non-member carries on business directly
or indirectly within the Community. The link is now defined as 25%
financial participation or shared -directors or managers.
Less complex was the case of the agreement between Europair
International S.A. and Duro-Dyne Corporation,'” concerning an
American manufacturer of products designed mainly for use in
heating and air-conditioning installations, and a European distribu-
tor. The latter was granted exclusive general distributorship covering
not only the E.E.C. countries but also South Africa and Switzerland.
The agreement was capable of affecting trade in the E.E.C. and was
of a restrictive character but the parties were able to convince the
Commission that the existence of a single exclusive dealer res-
ponsible for the import of an extensive range of American products
into the whole E.E.C. territory contributed to an “improved dis-
tribution of these products within the E.E.C.”. Moreover the agree-
ment made the promotion of the product easier, permitting more
extensive marketing to be undertaken and ensuring continuity of
supplies while rationalizing distribution. Since the agreement related
to products complementing and supplementing those of Europair’s
own manufacture, the latter was in a position to offer a greater
selection of heating and air-conditioning components to consumers
and so allowed “consumers a fair share of the resulting benefit”.
Exemption was granted under article 85(3).
The operation of article 86 (abuse of a dominant position) in
respect of enterprises based outside the E.E.C. has come up in three
leading cases.
Continental Can Company Inc. of New York by a number of take-
overs of European companies specializing in various kinds of con-
tainers and metal lids for glass jars, concentrated in its hands control
of the relevant industry to the extent that competition in the field
was in danger of being eliminated. The Commission, in order to
prevent this, initiated a procedure against Continental Can and its
70 Case 17/74 [1974] 2 C.M.L.R. 459.
7775/649/EEC, O.1. 1975, No.L.280 of 5 November 1975.
7875/74/EEC [1975] 1 C.M.L.R. D.62.
McGILL LAW JOURNAL
[Vol. 22
subsidiary Europembalage, set up in Delaware, and ordered these
companies to -divest themselves of the newly acquired control over
certain European companies. The companies applied for annulment
of the Commission decision on the ground, inter alia, that the Com-
mission was unable to show in which market or markets these com-
panies were supposed to have abused their dominant position. The
Court held that “abuse may occur if an undertaking in a dominant
position strengthens such position in such a way that the degree of
dominance reached substantially fetters competition”7 9 but found
that the Commission’s Decision had not sufficiently explained the
facts on which it was based.
In the second case8 the Commercial Solvents Corporation, a com-
pany incorporated in Maryland, having its principal office in New
York, had an almost global monopoly of the manufacture of certain
drugs used for medical purposes. It acquired control of an Italian
company which acted as a reseller of the product in Italy and through
this intermediary denied the supply of the product to another Italian
company, a customer of the former who was unable to obtain the
product on the world market. The disappointed customer complained
to the Commission which, having investigated the matter, ordered
the American company and its Italian subordinate to supply the
required product under the threat of substantial penalties. An appeal
was lodged to the Community Court which held that there was in this
case an abuse of a dominant position. The Court felt that behind
the refusal to supply the product there was a desire to eliminate
that user from competition in the manufacture of the drug. The
Court saw nothing objectionable in the Commission ordering the
offending party to bring the infrigement to an end by selling the
necessary supplies to the complainant. It brushed aside the argument
that the Commission Order went outside the territory of the E.E.C.
and that the supplies in question, being in excess of the E.E.C. needs,
reflected the complainant’s activities in the world market.
In the third leading cases”, the Commission decided that an
American multinational, incorporated in New York, abused its dom-
inant position in the banana market:
a) by requiring its distributor/ripeners in Benelux, Denmark, Germany
and Ireland to refrain from reselling its bananas while still green;
Inc. v. E.C.Commission [1973] E.C.R. 215, 244-245.
79 Case 6/72, Europemballage Corporation and Continental Can Company
80 Cases 6-7/73, Istituto Chemioterapico Italiano S.p.A. and Commercial
Solvents Corporation v. Commission of the E.E.C. [1973] E.C.R. 357; [1973]
C.M.L.R. 361; [1974] 1 C.M.L.R. 309.
80a Re The United Brands Co. (Chiquita Bananas) [1976] C.M.L.R. D.28.
19761
EUROPEAN ECONOMIC COMMUNITY
b) by, in respect of its sales of “Chiquita” bananas, charging other trading
parties (distributor/ripeners other than the one group it controlled
in the member states above) dissimilar prices for equivalent trans-
actions;
c) by imposing unfair prices for the sale of “Chiquita” bananas on its
customers in Benelux, Denmark and Germany; and
d) by -refusing to supply “Chiquita” bananas to a Danish customer.
The Commission imposed a heavy fine, ordered that these practices
cease and imposed a penalty of $1,000 per day while the practices
continued.
Within the Common Market the Community rules of competition
fall into the category of “directly applicable” rules; they are applied
by the Community institutions and by the member states8’ and
prevail over more lenient domestic rules. In this respect they may
create new “commercial torts”82 and rights enforceable by private
citizens. Should a sanction be applied at both the Community and
national level the Commission, in fixing the amount of a fine, ought to
take into consideration the sanctions already imposed in respect of
the same infringement by the member state. If both infringements
are identical the Commission is obliged to set-off the fine imposed
by it against the fine imposed by the national authorities. There is
no set-off if the infringements, although arising -from the same
situation, are in essence different in nature or take effect outside
the E.E.C. territory. Thus it was held83 that fines imposed by a United
States court could not be set off against fines imposed by the Com-
mission in respect of the -same cartel because the offence against
the American anti-trust law was different from the offence against
the E.E.C. competition law.
CONCLUSION
We can say in conclusion that the E.E.C. competition rules are
almost as stringent as the American anti-trust law upon which they
have been modelled. They are applied fairly but strictly and their
severity does not stop at the territorial frontier of the E.E.C. Al-
though the severity of their application has not reached as yet the
81 Case 127/73, Belgische Radio en Televisie v. SABAM
[1974] 2 C.M.L.R.
238, 271.
82 See English case Application des Gaz S.A. v. Falks Veritas Ltd [1974] 2
C.M.L.R. 75, 85.
83 In Case 7/72 Boehringer Mannheim GmbH v. E.C. Commission [1973]
C.M.L.R. 864, ‘887.
McGILL LAW JOURNAL
[Vol. 22
limits of the American practice (which in one case” has upset Cana-
dian interests and public opinion and in another, 85 led to an in-
ternational incident and a modification of the judgment 6) there is
no reason to believe that multi-national undertakings can take
shelter behind their non-E.E.C. status.
The E.E.C. is Canada’s newest trading partner and despite
the doubts expressed by journalists and others as to its necessity, a
trading agreement between Canada and the E.E.C. will ensure con-
tinuance of mutually beneficial trading relations with the European
nations. Previous bilateral trading agreements with individual mem-
ber states had expired or become obsolete. And the trading situation
in Europe had changed significantly; member states have lost their
previously unfettered -freedom to enter into trading agreements.
The economic potential of European trade is enormous but it is vital
that Canadian business interests be well-informed of the legal rami-
fications of European commercial law; they will undoubtedly be
affected in the future.
84 U.S. v. I.C.I. et at. 100 F.supp.504 (1951)
85 U.S. v. Watchmakers of Switzerland, Information Center Inc. (1962) Trade
(S.D.N.Y. 152).
Cases (CCH) 70,600 (S.D.N.Y.).
86 U.S. v. Watchmakers of Switzerland, Information Center Inc. (1965) Trade
Cases 71, 352.
