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UNCLAS SECTION 01 OF 18 BRUSSELS 000176 
 
SIPDIS 
 
STATE FOR EEB/IFD/OIA - DAHN, TWALSH, EUR/ERA 
TREASURY FOR DO/JWALLACE 
USDOC FOR ITA/JKOZLOWICKI 
PLEASE PASS TO USTR - JKALLMER 
OPIC FOR RO'SULLIVAN 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD ELAB PGOV OPIC KTDB USTR EUN
SUBJECT: EU INVESTMENT CLIMATE STATEMENT, 2010 
 
REF : 09 STATE 124006 
 
BRUSSELS 00000176  001.4 OF 018 
 
 
¶1.  Per reftel, this is the 2010 Investment Climate Statement for 
the European Union.  Post will email Word versions as instructed in 
reftel.  The statement covers the following categories: 
 
--Openness to Foreign Investment 
--Conversion and Transfer Policies 
--Expropriation and Compensation 
--Dispute Settlement 
--Performance Requirements and Incentives 
--Right to Private Ownership and Establishment 
--Protection of Property Rights 
--Transparency of Regulatory System 
--Efficient Capital Markets and Portfolio Investment 
--Political Violence 
--Corruption 
--Bilateral Investment Agreements 
--OPIC and Other Investment Insurance Programs 
--Labor 
--Foreign-Trade Zones/Free Ports 
--Foreign Direct Investment Statistics 
--Web Resources 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
EU Treaty Provisions Governing Investment/Historical Background 
 
¶2.  The European Union has one of the most hospitable climates for 
U.S. investment in the world, with the historical book value of U.S. 
investment in the 27 EU member states exceeding $1.6 trillion.  This 
is a result, in part, of the process of European integration.  The 
1957 Treaty of Rome (now renamed, with the December 2009 entry into 
force of the Lisbon Treaty, the "Treaty on the Function of the 
European Union" - TFEU) established the European Community among six 
European countries (Belgium, France, Germany, Italy, the Netherlands 
and Luxembourg; this has now grown into a European Union of 27 
countries covering virtually all the territory of Europe.  TFEU 
Article 43 requires all of these EU "Member States" to provide 
national treatment to investors from other Member States regarding 
the establishment and conduct of business. 
 
¶3.  The TFEU also continues and deepens the Treaty of Rome's "four 
freedoms" (free movement of capital, labor, goods and persons) 
within the European Union.  The free movement of capital requirement 
in particular benefits all potential investors, whether they 
originate from an EU Member State or not.  Investors in principle 
are guaranteed national treatment.  Finally, any violation of these 
rights can be adjudicated by the European Court of Justice, which 
may hear cases related to violations of Treaty rights directly, or 
overturn national court decisions found inconsistent with the 
Treaty.  This was a remarkable achievement, given that the six 
original signatories to the Treaty had been at war with one another 
just over a decade previously. 
 
¶4.  The 1986 Single European Act further reduced barriers to 
intra-EU investment, and legislation adopted subsequently even 
created opportunities for companies from one Member State to receive 
better than national treatment in another Member State.  For 
example, in the financial services sector, German universal banks 
can conduct securities business freely in other Member States, even 
if local banks are not allowed to offer these services domestically 
by their local licensing authority. 
 
¶5.  Prior to the 1992 Treaty on the European Union (TEU, often known 
as the "Maastricht" Treaty), the Community had virtually no role in 
determining conditions that would affect the entry of investors from 
third countries into the territories of the Member States.  Member 
States were compelled by the Treaty to grant national treatment to 
investors from other EU countries (including subsidiaries owned by 
third countries), but could erect and maintain barriers to investors 
coming directly from non-EU countries, consistent with their 
international obligations.  These obligations include the Treaties 
of Friendship, Commerce and Navigation (FCNs) and Bilateral 
Investment Treaties (BITs) which the United States has with most EU 
countries, as well as obligations under the OECD codes on capital 
movements and invisible transactions.  The only role Community law 
played was to ensure that a foreign-owned company that was 
established in one Member State received non-discriminatory 
treatment in other Member States, as mandated under Article 43 of 
the TFEU. 
 
¶6.  EU power to regulate Member State treatment of incoming foreign 
 
BRUSSELS 00000176  002.4 OF 018 
 
 
investment increased considerably in 1993.  A Treaty revision that 
year abolished all restrictions on the movement of capital, both 
between EU Member States and between Member States and third 
countries (Article 56).  However, Member State measures in force on 
December 31, 1993 denying national treatment to third-country 
investors were grandfathered.  The Treaty (then Article 57) 
expressly provided for the adoption of common regimes in these 
areas: "The Council may, acting by a qualified majority on a 
proposal from the Commission, adopt measures on the movement of 
capital to or from third countries involving direct investment 
establishment, the provision of financial services or the admission 
of securities to capital markets.  Unanimity shall be required for 
measures under this paragraph which constitute a step back in 
Community law as regards the liberalization of the movement of 
capital to or from third countries."  The generally accepted 
interpretation of this provision was that EU law governed the 
treatment of incoming investments (excepted where grandfathered 
provisions existed) and their treatment after establishment, while 
the Member States were responsible for ensuring the treatment of 
their investors outside the territory of the EU. 
 
¶7.  In June 1997, the European Commission issued a Communication 
clarifying the scope of EU Treaty provisions on capital movements 
and the right of establishment.  The Commission was reacting to 
limits that some Member States had imposed on the number of voting 
shares investors from other Member States could acquire during 
privatization.  The Commission stressed that free movement of 
capital and freedom of establishment constitute fundamental and 
directly applicable freedoms established by the Treaty.  Nationals 
and companies of other Member States should, therefore, be free to 
acquire controlling stakes, exercise the voting rights attached to 
these stakes and manage domestic companies under the same conditions 
laid down by a Member State for its own nationals.  The European 
Court of Justice ruled in three precedent-setting cases in 2002 
against golden shares in France, Belgium and Portugal, triggering 
several infringement actions by the Commission.  The Court 
subsequently ruled against golden share cases in other Member 
States. 
 
¶8.  In June 2007, a new EU Directive to strengthen investor 
cross-border voting rights came into force.  The Directive bolsters 
cross-border investment by abolishing shareholder voting impediments 
then prevalent in several Member States, such as the inability to 
vote electronically or by proxy.  It is not yet clear how the 
Directive is being implemented by the affected Member States and 
whether the Commission will need to take legal action to compel 
implementation. 
 
¶9.  As discussed in more detail in the Capital Markets section 
below, in November 2007, the EU's Markets in Financial Instruments 
Directive (MiFID) came into force.  This law seeks to eliminate many 
barriers to cross-border stock trading by establishing a common 
framework for European securities markets, increasing competition 
between market exchanges, raising investor protection and providing 
investors a broader range of trading venues.  It gives EU securities 
exchanges, multilateral trading facilities and investment firms a 
"single passport" to operate throughout the EU on the basis of 
authorization in their home Member States.  MiFID is broadly 
considered a success. 
 
¶10.  At the Commission's request, and in order to identify possible 
areas of improvement, the Committee of European Securities 
Regulators (CESR) is evaluating MiFID's impact.  CESR's preliminary 
assessment has shown that the introduction of MiFID significantly 
changed the secondary markets landscape across Europe, in particular 
through the introduction of new Multilateral Trading Facilities 
(MTF) platforms, increasing competition between trading venues, 
resulting in downward pressures on direct execution costs. 
 
¶11.  However, market participants expressed concerns over: 
 
-- a number of pre-trade transparency issues ranging from 
interpretation issues, to potentially undesirable impacts on 
innovation and an unlevel playing field between various trade 
execution venues; 
 
-- market data fragmentation, in particular that there would be a 
need for better quality of post-trade data and a consolidated set of 
market data; 
 
-- the existence of a level playing field among trading platforms, 
both by regulated markets vis-`-vis MTFs and by regulated markets 
and MTFs vis-`-vis investment firms' OTC activities. 
 
 
BRUSSELS 00000176  003.4 OF 018 
 
 
The report is expected to be finalized during the first quarter of 
¶2010. 
 
¶12.  In January, 2008, the European Commission proposed to remove 
barriers to cross-border venture capital investment and fundraising. 
 The Commission proposal would authorize national regulators to 
recognize venture capital funds operating in other EU Member States 
in order to help innovative small businesses access risk capital. 
The Commission invited Member States, when reviewing existing or 
adopting new legislation, to enable cross-border operations and 
consider mutual recognition of venture capital funds. 
 
Lisbon Treaty Impacts 
 
¶13.  The entry into force in December 2009 of the Lisbon Treaty 
changes EU jurisdiction over direct investment issues in major 
respects.  Full implications of Lisbon in this area are still 
unclear, however, and will need to be agreed upon by EU 
institutions.  As noted above, after the Maastricht Treaty the EU 
and the Member States essentially divided responsibility for the 
treatment of foreign investment, with EU law covering investment 
inflows and post-establishment treatment within the EU, while the 
member states remained "competent" for some aspects of establishment 
of foreign investments and for protections for their investors 
overseas.  Article 207 of the Lisbon Treaty, however, now brings 
"Foreign Direct Investment" under the umbrella of the EU common 
commercial policy, making it an exclusive EU competence.  FDI is not 
defined in the treaty, though, leaving the practical implications of 
the Treaty for EU external investment policies still to be defined. 
 
¶14.  If, as expected, the term "Foreign Direct Investment" is 
interpreted broadly, this would extend EU authority over much of the 
subject matter, including both internal and external investment 
liberalization and investment protection, heretofore addressed by 
Member State International Investment Agreements.  The EU will gain 
the ability to negotiate Bilateral Investment Treaties (BITs) or 
investment chapters of Free Trade Agreements.  Also, the Lisbon 
Treaty requires the consent of the European Parliament for new EU 
investment agreements. 
 
¶15.  A narrow definition of FDI, on the other hand, may potentially 
not limit authority of Member States to pursue external protections 
in their BITs.  If Member States and the Commission cannot agree on 
a common definition of FDI treatment under Lisbon, it likely would 
fall to the European Court of Justice to provide clarity.  The EU is 
thus likely to only gradually extend its activity in the area of 
investment agreements, given the time it will take to clarify and 
define the issues above.  In the meantime, EU Member State 
investment treaties will remain in force. 
 
U.S.-EU Efforts to Promote Open Investment 
 
¶16.  In November 2007, the United States and the European Commission 
under the umbrella of the Transatlantic Economic Council (TEC) 
launched a "U.S.-EU Investment Dialogue" to reduce barriers to 
transatlantic investment and promote open investment regimes 
globally.  Thet recently he Dialogue prepared fo discussing 7urther Investment 
Dialogue 
meetings Qn 2010, and continue to discuss the evolving EUrole with 
respect to foreign investment in other fora. 
 
Ownership Restrictions and Reciprcity Provisions 
 
¶17.  EU Treaty Articles 43 (Qstablishment) and 56/57 (capital 
movements) hQlped the EU to create one of the most hospitablQ legal 
frameworks for U.S. and other forei'n investment in the world. 
However, restrictions on foreign direct investment do exist.  UnderQ 
EU law, the right to provide aviation transpoQt services within the 
EU is reserved to firmsrovide maritime transport services within 
certain EU Member States is also estricted.  Currently, EU banking, 
insurance Qnd investment services directives include "reciprocal" 
national treatment clauses, under which financial services firms 
from a third country may be denied the right to establish a new 
business in the EU if the EU determines that the investor's home 
country denies national treatment to EU service providers.  In 
addition, as with the United States, a number of regulatory 
 
BRUSSELS 00000176  004.4 OF 018 
 
 
measures, particularly in the financial sector, are also subject to 
"prudential exceptions" and thus are not guaranteed national and 
most favored nation treatment under the EU's GATS and other 
international commitments. 
 
¶18.  In March 2004 the Council of Ministers approved a Directive on 
takeover bids ("Takeover Directive"), which sought to create 
favorable regulatory conditions for takeovers and to boost corporate 
restructuring within the EU.  The Directive authorizes Member States 
and companies to ban corporate defensive measures (e.g. "poison 
pills" or multiple voting rights) against hostile takeovers.  It 
includes a "reciprocity" provision to allow companies that otherwise 
prohibit defensive measures to sue if the potential suitor operates 
in a jurisdiction that permits takeover defenses.  Article 12.3 of 
the text is ambiguous as to whether the reciprocity principle 
applies to non-EU firms.  However, the preamble states that 
application of the optional measures is without prejudice to 
international agreements to which the Community is a party.  France 
has indicated its intent to apply reciprocity to third countries. 
Some other Member States appear to be leaning in the same 
direction. 
 
¶19.  The Takeover Directive was due to be implemented by Member 
States by May 20, 2006, but full implementation was delayed.  By 
February 2007, seventeen Member States had transposed the Directive 
or adopted necessary framework rules.  Other Member States 
implemented the Directive throughout 2007-08. 
 
Energy Sector Liberalization 
 
¶20.  In September 2007 the European Commission introduced 
legislation intended to increase competition and investment in the 
gas and electricity sectors, featuring controversial plans to 
separate the production and distribution arms of large integrated 
energy firms.  After a year of negotiation over competing proposals, 
the French Presidency of the EU forged a political compromise during 
the EU Energy Ministers meeting of October 10, 2008.  On June 25, 
2009, after passage by the European Parliament, the European Union 
officially adopted the Third Energy Package, legislation consisting 
of two directives and three regulations designed to promote internal 
energy market integration and to enhance EU energy security. 
 
¶21.  Specifically, the legislation mandates the separation of energy 
production and supply from transmission through the unbundling of 
European energy firms.  The objective is to create a level playing 
field by preventing companies engaged in the generation and 
distribution of gas and electricity from using their privileged 
position to prevent access to transmission systems or limit 
connectivity of transmission networks.  The original concept, which 
mandated full ownership unbundling, has been broadened and permits 
energy firms that operate within the European market three options: 
1) full ownership unbundling; 2) an Independent System Operator 
(ISO); and 3) an Independent Transmission Operator (ITO). 
 
¶22.  Additionally, the package includes a "Third Country Clause" 
that requires all non-EU countries to comply with the same 
unbundling requirements as EU companies before they are certified to 
own and/or operate transmission networks in the Common Market. 
Moreover, the clause permits Member States to refuse a foreign 
company certification/permission to acquire or operate a 
transmission network - even if it meets other requirements - if it 
is deemed to have a potential negative impact on the security of 
energy supply of an individual Member State or the EU as a whole. 
Member States are required to seek the opinion of the Commission 
with regards to the unbundling requirement and "security of supply" 
issue.  The Commission's opinion is not binding, but Member States 
must take it into consideration.  Member States have up to 18 months 
to put most of the package into effect; however, implementation of 
the Third Country Clause can take up to three-and-a-half years. 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶23.  Europe's single currency, the Euro, and the eleven remaining 
national EU Member State currencies are freely convertible.  The EU, 
like the U.S., places virtually no restrictions on capital 
movements.  Article 56 of the EU Treaty specifically prohibits 
restrictions on the movement of capital and payments between Member 
States and between Member States and third countries, with the 
grandfathered exceptions noted above.  The adoption of the Euro in 
16 of the 27 EU Member States has shifted currency management and 
control of monetary policy to the European Central Bank (ECB) and 
the EU Council of Ministers.  In recent years, EU members Malta and 
Cyprus adopted the Euro on January 1, 2008; Slovakia adopted the 
 
BRUSSELS 00000176  005.2 OF 018 
 
 
currency a year later, on January 1, 2009. 
 
¶24.  Remaining new EU Member States must join the Euro upon meeting 
specific economic convergence criteria although no time limit is 
placed for the application process to be completed.  The global 
financial crisis initially led some countries outside of the 
Eurozone, including Denmark, to consider accelerating entry into the 
zone.  More recently, however, high deficits and debt crises in 
Greece, and to a lesser degree Portugal and Spain, have raised 
questions over the stability of the Eurozone.  While Estonia, with 
relatively high macroeconomic stability, seeks to enter the Eurozone 
in 2011, most other remaining EU members are expected to enter in 
2014 or later. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶25.  The European Union does not have the authority to expropriate 
property; this remains the exclusive competence of the Member 
States. 
 
DISPUTE SETTLEMENT 
------------------ 
 
¶26.  Foreign investors can, and do, take disputes against Member 
State governments directly to local courts.  In addition, any 
violation of a right guaranteed under the EU law - which has been 
ruled supreme to Member State law, including constitutional law - 
can be heard in local courts or addressed directly by a foreign 
investor with a presence in a Member State to the European Court of 
Justice.  Further, all EU Member States are members of the World 
Bank's International Center for the Settlement of Investment 
Disputes (ICSID), and most have consented to ICSID arbitration of 
investment disputes in the context of individual bilateral 
investment treaties.  While the EU is not itself a party to ICSID or 
other such arbitration conventions, it has stated its willingness to 
have investment disputes subject to international arbitration. 
 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶27.  The approach of the ten-year anniversary - January 1, 2009 - of 
the implementation of European Economic and Monetary Union sparked 
interest in a coordinated tax policy among some EU officials. 
Subsequently, however, Member States and key Commissioners rejected 
proposals to move toward tax harmonization or create a "common 
consolidated tax basis" across Member States.  European Union grant 
and subsidy programs are generally available only for nationals and 
companies based in the EU, but usally on a national treatment 
basis.  For more information, see Chapter 7 "Trade and Project 
Financing" in the EU Country Commercial Guide as well as individual 
Country Commercial Guides for Member State practices. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶28.  The right to private ownership is firmly established in EU law, 
as well as in the law of the individual Member States.  See 
individual country commercial guides for EU Member State practices. 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶29.  The EU and its Member States support strong protection for 
intellectual property rights (IPR) and other property rights.  The 
EU and/or its Member States adhere to all major intellectual 
property rights agreements and offer strong IPR protection, 
including implementation of the WTO TRIPS provisions.  Together, the 
U.S. and the EU have committed to enforcing IPR in third countries 
and at our borders in the EU-U.S. Action Strategy endorsed at the 
June 2006 U.S.-EU Summit. 
 
¶30.  In October 2007, the U.S. and key trading partners announced 
their intention to negotiate an Anti-Counterfeiting Trade Agreement 
(ACTA) in order to bolster efforts to combat counterfeiting and 
piracy by identifying a new, higher benchmark for enforcement that 
countries can join on a voluntary basis.  Talks continued through 
2009, with a 7th round occurring in January 2010 in Mexico. 
 
¶31.  Despite overall strong support for IPR enforcement, several EU 
Member States have been identified in the U.S. Special 301 process 
due to concerns with protection of certain intellectual property 
rights.  The United States continues to be engaged with the EU and 
individual Member States on these matters. 
 
BRUSSELS 00000176  006.4 OF 018 
 
 
 
Enforcement of Intellectual and Industrial Property Rights 
 
¶32.  In April 2004, the EU adopted the Intellectual Property 
Enforcement Directive (IPRED) 
(http://ec.europa.eu/internal_market/iprenfor cement/ 
directives_en.htm).  This Directive requires Member States to apply 
effective and proportionate remedies and penalties to form a 
deterrent against counterfeiting and piracy and harmonizes measures, 
procedures, and remedies for right holders to defend their IPR 
within Member States.  Remedies available to right holders under 
IPRED include the destruction, recall, or permanent removal from the 
market of illegal goods, as well as financial compensation, 
injunctions, and damages.  Although Member States were to have 
transposed the Directive into national legislation by April 2006, 
Luxembourg, the last to do, implemented IPRED in May 2009. 
 
¶33.  In January 2008 the European Court of Justice (ECJ) issued a 
decision confirming that EU rules do not require countries to 
disclose names of Internet file sharers in civil cases.  Spanish 
firm Promusicae and other European rights holders had hoped that the 
ECJ would rule that Telefonica (a Spanish Internet service provider) 
had to provide the proper data to protect its property rights.  The 
Court, however, ruled that Member States could - but do not have to 
- require communication of personal data to ensure effective 
copyright protection in the context of civil proceedings as long as 
such national laws are not in conflict with the fundamental EU 
rights of respect for private life and protection of personal data. 
 
¶34.  At the 2nd High Level Conference on Counterfeiting and Piracy 
April 2, 2009, the Commission launched the European Observatory on 
Counterfeiting and Piracy.  The role of the Observatory, which is 
composed of private industry representatives and designees chosen by 
Member States, is to serve as the central resource for gathering, 
monitoring and reporting information related to IPR infringement in 
the EU.  The first meeting of the Observatory took place September 
4, 2009.  Two initial subgroups were created to look at issues 
surrounding data gathering and existing legal frameworks. 
 
Specific Enforcement Measures 
 
¶35.  Copyright: In 2001, the EU adopted Directive 2001/29 
establishing pan-EU rules on copyright and related rights in the 
information society.  In December 2006, the Council and Parliament 
passed an updated version of the 2001 Copyright Directive modified 
to clarify terms of copyright protection.  This new Directive 
entered into force in January 2007.  The Directive is meant to 
provide a secure environment for cross-border trade in 
copyright-protected goods and services, and to facilitate the 
development of electronic commerce in the field of new and 
multimedia products and services.  Authors' exclusive reproduction 
rights are guaranteed with a single mandatory exception for 
technical copies, and an exhaustive list of exceptions to copyright 
which are optional for Member States in terms of including them in 
national law.  The Commission released a comprehensive 
anti-counterfeiting plan, including criminal enforcement of IPR, 
which was supported by the Council in September 2008. 
 
¶36.  In April 2009 the Parliament approved a Commission proposal to 
extend term of copyright protection for performers and record 
producers from 50 to 70 years.  The proposal also contains a new 
claim for session players amounting to 20 percent of record labels' 
offline and online sales revenue, a 'use-it-or-lose-it' provision 
that allows performers to recover their rights after 50 years, 
should the producer fail to market the sound recording, a so-called 
'clean slate' which prevents record producers from making deductions 
to the royalties they pay to featured perormers.  The text also 
invites the Commission to conduct a separate impact assessment on 
audiovisual performers and to come forward with appropriate 
proposals in the course of 2010. 
 
¶37.  The Commission launched a public consultation on a reflection 
paper on the challenge of creating a European Digital Single Market 
for creative content like books, music, films or video games.  The 
focus on the consultation, open from October 22, 2009 to January 5, 
2010, was to solicit views from rightholders, consumers, and 
commercial users regarding the digital availability of content in 
Europe.  The consultation will be used to inform the Commission's 
crafting of consumer- and competition-friendly rules needed to 
create a genuine Single Market for creative content on the 
internet. 
 
¶38.  On December 14, 2009, the European Union and Member States 
ratified the World Intellectual Property Organization (WIPO) 
 
BRUSSELS 00000176  007.4 OF 018 
 
 
Copyright Treaty and the WIPO Performances and Phonograms Treaty. 
¶39.  Trademarks: Registration of trademarks with the European 
Union's Office for Harmonization in the Internal Market (OHIM) began 
in 1996.  OHIM issues a single Community Trademark (CTM) that is 
valid in all EU Member States.  In October 2004 the European 
Community acceded to the World Intellectual Property Organization 
(WIPO) Madrid Protocol.  The accession of the Community to the 
Madrid Protocol established a link between the Madrid Protocol 
system, administered by WIPO, and the Community Trademark system, 
administered by OHIM.  Since October 2004 Community Trademark 
applicants and holders have been allowed to apply for international 
protection of their trademarks through the filing of an 
international application under the Madrid Protocol.  Conversely, 
holders of international registrations under the Madrid Protocol are 
entitled to apply for trademark protection under the Community 
trademark system.  The link between the OHIM and the WIPO 
registration systems allows firms to profit from the advantages of 
each while reducing costs and simplifying administrative 
requirements. 
 
¶40.  On March 31, 2009, the Commission announced new, lower fees and 
simplified procedures for EU-wide trademark rights, eliminating 
registration fees and reducing application fees by 40 percent.  The 
new rates entered into force May 1, 2009, and applications for 
trademarks can be done online.  In October 2009 the Commission 
awarded a contract for a study on the trade mark system in Europe to 
the Max Planck Institute for Intellectual Property, Competition and 
Tax Law.  The aim of the study is to assess the current state of 
play of the Community trade mark system and the potential for 
improvement and future development. 
 
¶41.  Designs: The EU adopted the Community Designs Regulation, a 
Regulation introducing a single Community system for the protection 
of designs, in December 2001.  The Regulation provides for two types 
of design protection, directly applicable in each EU Member State: 
the Registered Community Design (RCD) and the unregistered Community 
design.  Under the Registered Community Design system, holders of 
eligible designs can use an inexpensive procedure to register them 
with OHIM, and will then be granted exclusive rights to use the 
designs anywhere in the EU for up to twenty-five years. 
Unregistered Community designs that meet the Regulation's 
requirements are automatically protected for three years from the 
date of disclosure of the design to the public.  Protection for any 
registered Community design was automatically extended to Romania 
and Bulgaria when those countries acceded to thethat belongs to the 08 OHIhelp 
acceleraQQnt paves the way for further discussion 
towars a future patent system, but, given institutional and 
procedural hurdles, such a system is likely still one or more years 
away. 
 
¶44.  At present, the most effective way to secure a patent across EU 
national markets is to use the services of the European Patent 
Office (EPO).  EPO offers a one-stop-shop enabling right holders to 
obtain various national patents using a single application. 
However, these national patents have to be validated, maintained and 
litigated separately in each Member State.  In September 2008 the 
EPO and the U.S. Patent and Trademark Office (USPTO) launched the 
Patent Prosecution Highway, a joint trial initiative leveraging 
fast-track patent examination procedures already available in both 
offices to allow applicants to obtain corresponding patents faster 
and more efficiently.  This will permit each office to exploit work 
already done by the other office and reduce duplication.  In 
addition, the two offices, along with the patent offices of Japan, 
Korea, and China, announced a joint agreement (IP5) in November 2008 
 
BRUSSELS 00000176  008.4 OF 018 
 
 
to undertake projects to harmonize the environment for work sharing 
and eliminate unnecessary work duplication. 
 
¶45.  Geographical Indications:  The United States continues to have 
concerns about the EU's system for the protection of Geographical 
Indications (GIs).  In a WTO dispute launched by the United States, 
a WTO panel found that the EU regulation on food-related GIs was 
inconsistent with EU obligations under the TRIPS Agreement and the 
General Agreement on Tariffs and Trade of 1994.  In its report, the 
panel determined that the EU regulation impermissibly discriminated 
against non-EU products and persons, and agreed with the United 
States that the EU could not create broad exceptions to trademark 
rights guaranteed by the TRIPS Agreement.  The panel's report was 
adopted by the WTO Dispute Settlement Body (DSB) in April 2005.  In 
response to the DSB's recommendations and rulings, the EU published 
an amended GI regulation, Council Regulation (EC) 510/06, in March 
2006 (amended by Council Regulation (EC) 179/2006 and Commission 
Regulation 417/2008).  The United States continues to have some 
concerns about this amended regulation, about the recently 
promulgated Council Regulation (EC) 479/08, which relates to wines, 
and about Commission Regulation (EC) 607/09, which relates inter 
alia, to GIs and traditional terms of wine sector products.  The 
United States is carefully monitoring the application of these 
regulations. 
 
¶46.  EU International Efforts to expand GI protection: The EU 
continues to campaign to have its geographical indications protected 
throughout the world without regard to consumer expectation in 
individual markets, and to expand the negotiations for a registry of 
geographical indications beyond wines and spirits to other 
foodstuffs.  This has developed into a major EU priority in the 
context of the Doha Development Agenda negotiations in the WTO, in 
which a discussion is ongoing concerning the extension of so-called 
"additional" GI protection to products in addition to wine and 
spirits.  The U.S. and other WTO members continue to oppose the EU's 
proposals to extend "additional" GI protection, noting that the 
objective of effective protection of such indications can be 
accomplished through existing GI obligations. 
 
¶47.  U.S.-EU coordination on IP counterfeiting and piracy: Since the 
U.S.-EU summit of June 2005, where leaders agreed to more closely 
cooperate on IPR enforcement, the U.S. and the EU have intensified 
customs cooperation and border enforcement, strengthened cooperation 
with and in third countries, and built public-private partnerships 
and awareness raising activities together.  The U.S.-EU action 
strategy for the enforcement of intellectual property was launched 
at the US-EU Summit in June 2006.  Since then, U.S. and EU officials 
have regularly met with stakeholders to identify new areas for 
cooperation including capacity building, joint messaging and 
coordinated border actions as well as continued U.S.-EU multilateral 
cooperation toward successful conclusion of the Anti-Counterfeiting 
Trade Agreement. 
 
¶48.  On February 22, 2008, the United States and European Union 
announced the results of Operation Infrastructure, the first joint 
IPR operation undertaken by the U.S. Customs and Border Protection 
and the EU.  The operation resulted in the seizure of over 360,000 
counterfeit integrated circuits and computer network components 
bearing more than 40 different trademarks.  At the September 2009 
session of the U.S.-EU IPR Working Group, U.S. and EU Customs 
officials rolled out a new brochure titled "Protecting Intellectual 
Property at Our Borders," and a webkit providing information to 
rights holders on how to work with Customs officials to obtain 
enforcement of intellectual property rights in both markets. 
 
TRANSPARENCY OF REGULATORY SYSTEM 
--------------------------------- 
 
¶49.  The EU is widely recognized as having a generally transparent 
regulatory regime.  The Commission, which has the sole authority to 
propose EU-level laws and regulations, generally announces an 
interest in legislating in a certain area, issuing a "green paper" 
for broad discussion, followed by a "White Paper" with more detail 
on the proposed measure, and eventually a formal legislative 
proposal.  The Member State Ministers and experts examine and amend 
these proposals in Council in tandem with European Parliament 
consideration of them; Council decisions and EP amendments are 
publically available.  Informal working documents are not published, 
but interested parties usually can get fairly detailed information 
as these processes unfold.  All adopted measures are published in 22 
languages in the EU's Official Journal, which is available on line. 
 
¶50.  Despite this overall transparency, the EU has worked to improve 
transparency and simplify its regulatory system.  In December 2007 
 
BRUSSELS 00000176  009.4 OF 018 
 
 
the EU released a comparative study of codes of conduct for 
public-office holders.  To improve lobbying transparency, the 
Commission set up a voluntary public register in 2007, followed by 
the establishment of a common code of conduct for all lobbyists in 
¶2008.  In 2008, the Commission also strengthened the role of the 
Impact Assessment Board (IAB), and now requires that all Commission 
proposals undergo IAB scrutiny before they can be adopted. 
 
¶51.  In 2005, the Commission adopted an action plan for simplifying 
existing EU legislation and reducing the administrative burden on 
stakeholders within the regulatory process.  The EU's Better 
Regulation policy aims at simplifying and improving existing 
regulation, to better design new regulation and to reinforce the 
respect and the effectiveness of the rules, while respecting the EU 
proportionality principle.  In 2007, the Commission announced its 
intention to cut administrative burd 
 
¶52.  Iprogram and hlights of our bilateral regulatory cooperQtion 
include: 
 
--The Forum met twice in 200Q, in July and October.  At the July 
meeting, 4he Forum reviewed progress in the areas of impact 
assessment, the use of standards in regultion, risk assessment, and 
import safety. 
 
Q-Energy efficiency standards were among the issQes discussed during 
the July and October meetings.  The two sides agreed to develop an 
inventory of regulations and initiatives in this aQea. 
 
--OIRA and DG Enterprise presented paperQ during the October meeting 
describing the U.S. and EU approaches to the use of voluntary 
standards in support of regulation.  Both sides also discussed the 
usefulness of continued dialogue regarding developments related to 
the risk analysis and regulation of nanomaterials. 
 
--Contacts between OIRA and the U.S. Office of Science and 
Technology Policy (OSTP) with the Commission's Directorate of Health 
and Consumer Affairs (DG SANCO) to facilitate an international 
dialogue on risk analysis, led to on-going risk analysis discussions 
starting in July 2008 that included representatives from the United 
States, EU, and Canada. 
 
--In January 2009 OMB, SANCO, and Canadian government risk managers 
reinstituted the practice of weekly conference calls to ensure 
progress in work groups that will develop white papers in three 
focus areas: 1) development of a framework for exposure assessment; 
2) uncertainty and terminology; and 3) new/rapid approaches to risk 
assessment.  The risk assessment papers are expected to be available 
for broad discussion in 2010. 
 
--CPSC and DG SANCO agreed to discuss the follow-up to the 2008 
trilateral meetings and outreach with China.  CPSC and DG SANCO will 
 
BRUSSELS 00000176  010.4 OF 018 
 
 
meet in early 2010 to discuss the way forward, including a possible 
trilateral to be hosted by Beijing in 2010. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶55.  The EU Treaty specifically prohibits restrictions on capital 
movements and payments between the Member States and between the 
Member States and third countries. 
 
¶56.  The single market project has spurred efforts to establish 
EU-wide capital markets.  The EU has acted to implement the 1999 
Financial Services Action Plan (FSAP) to establish legal frameworks 
for integrated financial services (banking, equity, bond and 
insurance) markets within the EU.  By the end of 2008, the EU had 
adopted and almost fully implemented 43 of the 45 measures to 
increase market and regulatory efficiency and increase coordination 
among Member State supervisory and regulatory authorities, and has 
acted to implement the remaining two measures. 
 
¶57.  FSAP measures include Directives on: Prospectuses (permitting 
one approved prospectus to be used throughout the EU), Transparency 
(detailing reporting requirements for listed firms, including 
adoption of International Accounting Standards), Markets in 
Financial Instruments (MiFID - providing framework rules for 
securities exchanges and investment firms), Takeover Bids (to 
facilitate cross-border takeovers), and Capital Requirements 
(implementing the Basel II Accord- see EU responses to financial 
crisis). 
 
¶58.  Accounting equivalence: On December 12, 2008, the European 
Commission granted equivalence to the Generally Accepted Accounting 
Principles (GAAPs) of certain third countries (including the U.S.) 
as from January 2009.  As a result, foreign companies listed on EU 
markets are able to file their financial statements prepared in 
accordance with those GAAPs. 
 
¶59.  Review of the Prospectus and Transparency Directives: In 
September 2009 the Commission proposed legislation reviewing the 
Prospectus Directive, in order to increase efficiency and legal 
clarity in the prospectus regime, to reduce administrative burdens 
for issuers and intermediaries, and to enhance investor protection. 
The Prospectus Directive lays down rules governing information that 
must be available to the public in case a public offer or admission 
to trading of transferable securities in a regulated market takes 
place in the EU.  The main changes proposed are as follows: 
 
-- certain securities issues will be subject to less comprehensive 
disclosure requirements (small companies, small lenders, rights 
issues and government guarantee schemes); 
 
-- the format and content of the prospectus summary have been 
improved; 
 
-- there are clearer exemptions from the obligation to publish a 
prospectus when companies sell through intermediaries ("retail 
cascades") and for employee share schemes; 
 
-- disclosure requirements that currently overlap with the 
Transparency Directive will be repealed; 
 
-- issuers of all non-equity securities will be able to determine 
their home Member State; 
 
-- the definition of 'qualified investors' in the Prospectus 
Directive will be aligned with the one of 'professional clients' as 
defined in the MiFID. 
 
Outlook: The Council and the European Parliament are currently 
working on this issue, but neither has reached an agreement.  The 
European Parliament plans to adopt the text in the first reading in 
April 2010. 
 
¶60.  Solvency II: Solvency II is the new risk-based solvency regime 
for the EU insurance sector, approved in 2009 and due to come into 
force in 2012.  It introduces the concepts of group solvency and 
group supervision.  Third-country insurers will be allowed to 
operate in the EU if their home country regulatory framework is 
found to be equivalent to the EU's.  Third-country insurers whose 
home jurisdictions have not been found equivalent will likely have 
to establish a holding company in the EU. 
 
Outlook: The Committee of European Insurance and Occupational 
Pensions Supervisors (CEIOPS) published draft criteria for assessing 
 
BRUSSELS 00000176  011.4 OF 018 
 
 
the equivalence of third country regimes on November 30.  Final 
criteria are expected in March 2010.  The Commission will make its 
equivalence decision by June 2012, on the basis of these criteria, 
and after having received advice from CEIOPS on the individual 
country assessments.  It is not clear whether the United States will 
be determined equivalent, as the EU has on numerous occasions 
expressed concern that the state-based insurance regulatory regime 
in the U.S. creates discriminatory features for foreign insurance 
companies. 
 
¶61.  Reform of mutual funds oversight:  In January 2009 the European 
Parliament adopted legislation to achieve a less fragmented and more 
efficient investment fund market in the EU.  UCITS -- Undertakings 
for Collective Investment in Transferable Securities -- are 
investment funds sold under a common set of EU rules for investor 
protection and cost transparency, and that meet basic requirements 
on organization, management and oversight of funds.  UCITS funds 
manage approximately 6.4 trillion and account for 11.5% of EU 
household financial assets.  The legislation includes a provision 
for a management "passport," which will make it easier and less 
expensive for investment funds to operate outside their state of 
origin.  Member States are required to implement the legislation by 
¶2011.  The Committee of European Securities Regulators (CESR) has 
been asked by the Commission to provide it with technical advice on 
the new UCITS Directive implementing measures.  CESR's advice is 
expected in Spring 2010. 
 
¶62.  Sovereign wealth funds: The Commission outlined its approach to 
Sovereign Wealth Funds (SWFs) in a February 2008 Communication.  The 
EU intends to keep markets open for foreign capital, support 
multilateral efforts (such as those which have been conducted by the 
IMF and the OECD), rely on existing laws, respect the EU Treaty, and 
ensure proportionality and transparency.  The EU supported the IMF 
work stream that produced the Santiago Principles for SWFs in 
October 2008, and the OECD parallel work stream that adopted, also 
in October 2008, a framework and guidelines for recipient countries 
of SWF investment. 
 
¶63.  Retail Services:  The EU has also focused on deepening 
integration of retail financial services markets, although this has 
become less immediate as a result of the financial crisis.  In May 
2007 the Commission issued a Green Paper laying out goals and 
launching a debate on future EU policy on retail financial services. 
 In November 2007 the Commission released a package of initiatives 
to modernize the EU single market, including steps to increase 
consumer choice of banking services, facilitate switching of banking 
accounts, complete the development of the Single Euro Payments Area 
(SEPA), and improve transparency of retail investment products. 
Work on the initiatives, which enjoy broad support from the 
industry, continues.  In November 2009 the SEPA Direct Debit scheme 
took effect, which allowed consumers to make cross-border direct 
debits in Euros at the same cost as national direct debits.  This 
had already been the case with credit transfers, ATM cash 
withdrawals and card payments. 
 
¶64.  The transposition into national law of the Payment Services 
Directive (PSD), SEPA's legal basis, was supposed to have been 
completed by November 1, 2009.  Eight Member States (Cyprus, Greece, 
Finland, Italy, Latvia, Malta, Poland and Sweden), however, still 
need to adopt relevant legislation.  Adoption and entry into force 
is expected in April 2010 at the latest.  In Belgium, Estonia and 
Norway entry into force has been delayed and will happen by March 
¶2010. 
 
¶65.  In December 2008 the banking industry took up the Commission's 
invitation and adopted a set of 'Common Principles for Bank Account 
Switching'.  According to the Principles, if a consumer wishes to 
change banks, within the same Member State, the new bank will act as 
the primary contact point and offer its assistance throughout the 
switching process.  The Principles were applied in each Member State 
as of November 1, 2009. 
 
Regulatory Responses to the Financial Crisis 
 
¶66.  In response to the growing impact of the global financial 
crisis in Europe during Fall 2008, the Commission put forward 
several legislative proposals to address what was increasingly 
perceived as an unacceptable degree of deregulation in the financial 
sector, particularly in the wake of massive injections of public 
money to rescue weak financial institutions. 
 
¶67.  Credit Rating Agencies (CRAs): In November 2009 the Regulation 
on Credit Rating Agencies entered into force.  The Regulation 
introduces a legally binding authorization and supervision regime, 
 
BRUSSELS 00000176  012.2 OF 018 
 
 
and stipulates that only ratings issued by EU-registered CRAs can be 
used by EU financial institutions for regulatory purposes.  It also 
addresses conflict of interest issues and introduces certain 
governance requirements. 
 
¶68.  For third-country CRAs, the Regulation introduces two 
mechanisms: 
 
a) Equivalence determination: For systemically relevant CRAs, the 
ratings of entities established, or financial instruments issued, 
outside of the EU can be eligible for use in the EU if the CRA's 
home jurisdiction is found equivalent to the EU.  The Committee of 
European Securities Regulators (CESR) has been tasked with 
recommending to the Commission which jurisdictions are equivalent. 
 
b) Endorsement: An EU-registered CRA may endorse ratings developed 
by an unregistered affiliate located outside of the EU on entities 
established, or financial instruments issued, outside of the EU so 
that they can be eligible for use in the EU.  The endorsing CRA must 
demonstrate to its regulator that the endorsed ratings have been 
developed following internal standards "at least as stringent as 
those" required in the EU, that the affiliate is registered and 
supervised and that there exist supervisory and cooperation 
agreements between the home and the EU supervisor. 
 
Outlook:  CESR is expected to render its advice to the Commission in 
April 2010, on whether the U.S., Japan and Canada are equivalent.  A 
Commission decision is expected by September 2010. 
 
¶69.  Deposit Insurance: In December 2008 the Council and Parliament 
approved a Commission proposal to raise the minimum threshold for 
deposit insurance to 100,000 in two steps, and to harmonize the 
time period for repayment of deposits.  As a result, minimum deposit 
guarantees were raised to 50,000 on June 30, 2009, and the payout 
period shortened from the current three months to 20 days.  Coverage 
applies to all depositors in all Member States, regardless of 
whether the member state is a member of the Eurozone.  The threshold 
was raised to 100,000 on January 1, 2010. 
 
¶70.  Alternative Investment Fund Managers Directive (AIFM): In 2008, 
the European Parliament asked the Commission to enhance regulation 
of hedge funds and private equity funds.  In April 2009 the 
Commission issued a draft AIFM Directive instituting a 
legally-binding authorization and supervision regime for all fund 
managers managing funds with portfolios in excess of 100 million, 
or 500 million if unleveraged and with no redemption for a 
five-year period.  The Commission proposed a passport approach that 
would permit all authorized EU AIFM and equivalent third-country 
AIFMs to market their funds to professional investors anywhere in 
the EU.  It would impose leverage caps and capital requirements on 
managers and would mandate that only EU-domiciled credit 
institutions would be eligible to serve as depositories. 
 
¶71.  The work by the EP and the Council has produced draft proposals 
that soften certain provisions of the original Commission proposals 
(e.g. on depositaries and leverage), but this has moved away from 
the Passport approach for equivalent third-country AIFMS. 
 
Outlook: The Spanish Presidency intends to resume discussions 
amongst Member States on the basis of a new compromise proposal no 
earlier than February 2010, and hopes to reach a first reading 
agreement by the end of its Presidency in June 2010. 
 
¶72.  Third Amendment to the Capital Requirements Directives: On 
November 10, 2009, the Economic and Financial Affairs (ECOFIN) 
Council agreed to support the July 2009 Commission proposal amending 
for the third time the Capital Requirements Directives (CRD III). 
The proposed CRD III would strengthen capital requirements for 
trading book and re-securitization instruments, prevent remuneration 
polices from encouraging excessive risk-taking in banking, and give 
supervisors a say in remuneration policies. 
 
Outlook:  The relevant EP committee is currently examining the 
proposal; a vote iex expected in March 2010.  The Spanish Presidency 
aims at a first reading agreement before the end of June Q0. 
 
¶73.  Derivatives: In October 2009 the Commission published a 
Communication outlining possible future steps to regulate the Over 
the Counter (OTC) derivatives market.  Specifically, the Commission 
aims to: 
 
a) Reduce counterparty risk by establishing common safety, 
regulatory and operational standards for central counterparties 
(CCPs), improving collateralization of bilaterally-cleared 
 
BRUSSELS 00000176  013.4 OF 018 
 
 
contracts, raising capital charges for bilaterally-cleared 
transactions, and mandate CCP-clearing for standardized contracts; 
 
b) Reduce operational risk by promoting standardization of the legal 
terms of contracts and of contract-processing; 
 
c) Increase transparency by mandating market participants to record 
positions and all uncleared transactions in trade repositories, 
regulating and supervising trade repositories, mandating trading of 
standardized derivatives on exchanges, and increasing transparency 
of trading for all derivatives markets including for commodity 
derivatives; and 
 
d) Enhance market integrity and oversight by clarifying and 
extending the scope of market manipulation and by giving regulators 
the possibility to set position limits. 
 
Outlook: The Commission plans to publish draft legislation by 
mid-2010.  The legislation will then need to receive the approval of 
the Member States and of the EP to become law.  It is unclear at 
this point if the legislative process will be completed before 
end-2010. 
 
¶74.  Bank capital: Leaders at the October 2009 Pittsburgh G-20 
Summit called on regulatory authorities to require improved quantity 
and quality capital by end 2012 as financial conditions improve. 
These proposals are in line with U.S. proposals on capital.  The 
Basel Committee of Banking Supervisors is making progress to fulfill 
the G-20 mandate.  In December 2009 the Basel Committee released 
proposals for higher capital requirements, improved quality capital 
reserves, a maximum leverage ratio, and minimum liquidity 
requirements.  By the end of 2010 a fully calibrated and finalized 
package of reforms is expected.  The Commission has indicated that 
it will put forward a proposal amending for the fourth time the 
Capital Requirements Directive (CRD IV) to implement these 
recommendations.  It is expected that the Commission proposal will 
follow an agreement by the Basel Committee.  The amendments are 
expected to introduce the Basel Committee's conclusions on capital, 
lending and liquidity requirements.  The Commission may also 
introduce dynamic provisioning principles. 
 
Outlook:  In early 2010 the Commission plans to open a public 
consultation on CRD IV amendments. 
 
Financial Supervision Proposals 
 
¶75.  The financial crisis has triggered a deep international debate 
over how to update current supervisory architecture in order to 
detect and prevent future crises.  The EU is involved directly and 
indirectly through Member State participation in international 
bodies (G20, FSB, G8).  The Commission has proposed a number of 
regulatory measures that directly affect the way in which financial 
supervision at EU level will be carried out in the future (Solvency 
II, CRD, CRA). 
 
¶76.  Bank supervision authority and enforcement remains a Member 
State competence.  However, three EU-wide communities of sectoral 
financial supervisors were created some years ago to facilitate 
efficient and comparable rule making throughout the EU.  These are 
the Committee of European Bank Supervisors (CEBS), composed of 
Member State supervisors; CESR, the Committee of European Securities 
Regulators; and CEIOPS, the Committee of European Insurance and 
Occupational Pensions Supervisors.  Financial market turmoil in the 
second half of 2007 increased discussion among EU institutions of 
ways to strengthen mechanisms to coordinate financial supervision 
across the EU. 
 
¶77.  In late 2008, the European Commission asked former IMF Director 
General Jacques de Larosihre to review the EU's financial 
supervisory architecture and make recommendations for improvement. 
The "de Larosihre" report, published February 25, 2009, recommended 
the creation of a European Systemic Risk Board (ESRB) and a European 
System of Financial Supervisors (ESFS) and has served as the basis 
for legislative proposals by the Commission seeking to reform the 
European system of financial supervision at macro and micro 
prudential levels. 
 
¶78.  European Systemic Risk Board: On October 20, 2009, the ECOFIN 
Council agreed to create the European Systemic Risk Board (ESRB). 
Its main function will be to monitor and collect information 
relevant to potential threats and risks to financial stability 
arising from macro-economic developments and the EU financial 
system.  Its tasks will be the following: 
 
 
BRUSSELS 00000176  014.4 OF 018 
 
 
a) Identify and prioritize systemic risks; 
 
b) Issue warnings where such systemic risks are deemed to be 
significant; 
 
c) Issue recommendations for remedial action in response to the 
risks identified including, where appropriate, for legislative 
initiatives; 
 
d) Monitor the follow-up to warnings and recommendations; and 
 
e) Coordinate with international institutions, as well as the 
relevant bodies in third countries on matters related to 
macro-prudential oversight; 
 
¶79.  Warnings or recommendations may be either of a general or 
specific nature and shall be addressed to the whole EU, to one or 
more Member States, to one or more of the European Supervisory 
Authorities (ESA), or to one or more national supervisory 
authorities.  At ESRB discretion, warnings and recommendations may 
or may not be public.  At the same time, warnings and 
recommendations will be transmitted to the Council and, if 
appropriate, to the ESAs.  Recommendations will not have legal 
force, but addressees will have to communicate the actions 
undertaken in response to them to the Council and the ESRB and 
provide   e Economic andFC); and 
-- One represeQompetent national supea rotating basis, depe 
discuill be 
composed of: 
 
-- The Chair and Vice-Chair oQ the ESRB; 
-- Five other members of the General Board (three from a Euro area 
Member StatQ and two from a non-Euro area Member State); 
Q- A Commission representative; 
-- The ChairpeQsons of each of the ESAs; and 
-- The President of the EFC. 
 
¶84.  The Secretariat shall provie analytical, statistical, 
administrative Qnd logistical support.  The ECB has been given Qhe 
task to staff the Secretariat, which will "e located at the ECB. 
 
¶85.  The Advisory Technical Committee will be responsible for 
providing advice and assistance on technical issues.  It will be 
composed of: 
 
-- A representative of each national central bank; 
-- A representative of the ECB; 
 
BRUSSELS 00000176  015.4 OF 018 
 
 
-- One representative of each of the competent national supervisory 
authorities; 
-- One representative of each of the ESAs; 
-- Two Commission representatives; and 
-- One representative of the EFC. 
 
¶86.  European System of Financial Supervisors:  On December 2, the 
ECOFIN Council agreed to create the European Banking Authority 
(EBA), the European Insurance and Occupational Pensions Authority 
(EIOPA), and the European Securities and Markets Authority (ESMA). 
These new ESAs will replace the existing EU committees for 
securities (CESR - Committee of European Securities Supervisors), 
banking (CEBS - Committee of European Banking Supervisors) and 
insurance (CEIOPS - Committee of European Insurance and Occupational 
Pensions Supervisors).  The ESAs and national supervisors will form 
the European System of Financial Supervisors (ESFS). 
 
¶87.  The ESAs will have four primary tasks: 
 
a) Develop technical standards to establish a single EU rule book; 
 
b) ensure the consistent application of Community rules; 
 
c) Act in emergency situations; and 
 
d) Settle disagreements between national supervisors. 
 
¶88.  Other ESA tasks will include promoting the efficient 
functioning of Colleges of Supervisors and assessing market 
developments.  The ESAs will also be responsible for collecting 
information from national authorities and for interfacing with the 
ESRB.  Member States will be able to challenge a decision by an ESA 
if they believe it impinges on its fiscal responsibility. 
 
¶89.  The main decision-making body of the ESAs will be their Board 
of Supervisors.  It will decide by simple majority of its members, 
and will be composed of: 
 
-- the Chairperson (non-voting); 
-- The Head of each national supervisor; 
-- One Commission representative (non-voting); 
-- One representative of the ESRB (non-voting); 
-- One representative of each of the other two ESAs (non-voting). 
 
Outlook: The EP has only begun examining the Commission's proposals, 
and no opinion has yet been made public.  Final approval is expected 
in June/July 2010, with the new Authorities starting work in 2011. 
 
POLITICAL VIOLENCE 
------------------ 
 
¶90.  Political violence is not unknown in the European Union, but is 
rare.  Such incidents are generally regional in nature, and 
individual Country Commercial Guides should be consulted for details 
on problems in specific areas. 
 
CORRUPTION 
---------- 
 
¶91.  Per EU Treaty Article 280 (5), the EU and the Member States are 
jointly responsible for the fight against fraud and corruption 
affecting the EU's financial interests.  A detailed overview of EU 
and Member State achievements in this regard (e.g., increasing EU 
capacity to conduct anti-fraud investigations, greater cooperation 
with international partners) is provided in the EU's Anti-Fraud 
Office (OLAF) most recent annual report (for 2008) on the fight 
against fraud. 
 
¶92.  This report is available online at the EU's Anti-Fraud Office 
website: 
 
http://ec.europa.eu/anti_fraud/reports/olaf/2 008/EN.pdf 
 
The report broadly outlines the steps that the EU has taken in terms 
of protecting its financial interests and addressing fraud and 
reviews  major developments in 2008. 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶93.  The EU as a whole does not yet have any traditional bilateral 
investment treaties (BITs), although virtually all the Member States 
have extensive networks of such treaties with third countries.  The 
EU "Europe," "Association" and other agreements with preferential 
 
BRUSSELS 00000176  016.6 OF 018 
 
 
trading partners have contained provisions directly addressing 
treatment of investment, generally providing at national treatment 
after establishment and repatriation of capital and profits.  In the 
context of EU enlargement negotiations, the U.S. Government has 
conveyed to the EU its concern that U.S. bilateral investment 
treaties with accession countries not be adversely affected. 
 
¶94.  The adoption in December 2009 of the Lisbon Treaty may change 
in major respects how the EU treats investment (see Openness to 
Foreign Investment, above), but full implications of Lisbon in this 
area are still unclear.  Since Lisbon makes Foreign Direct 
Investment an exclusive EU competence, a broad definition of FDI may 
extend EU authority over much of the subject matter hitherto 
addressed under member state BITs.  This would allow the EU to 
negotiate BITs, requiring the EU to develop an EU model agreement to 
be applied to future BITs or investment chapters of FTAs.  This 
would also require the EU to address the legality of existing 
bilateral FTAs, given the possibility of legal challenges to 
existing agreements.  Commission officials and several European 
leaders have stressed that Member State bilateral agreements will 
remain valid under Lisbon, and that existing BITs will be 
"grandfathered" until an EU-level agreement is concluded with a 
country in question.  EU leaders also have indicated the EU will 
move only gradually toward negotiation of BITs, given the time it 
will take to clarify and define the complex issues involved. 
 
¶95.  Other regional or multilateral agreements addressing the 
admission and treatment of investors to which the Community and/or 
its Member States have adhered include: 
 
a) The OECD codes of liberalization, which provide for 
non-discrimination and standstill for establishment and capital 
movements, including foreign direct investment; 
 
b) The Energy Charter Treaty (ECT), which contains a "best efforts" 
national treatment clause for the making of investments in the 
energy sector but full protections thereafter; and 
 
c) The GATS, which contains an MFN obligation on all measures 
affecting the supply of services, including in relation to the mode 
of commercial presence. 
 
¶96.  Since November 2007 the U.S. and the European Commission have 
held numerous meetings of a formal bilateral investment dialogue to 
reduce barriers to transatlantic investment and promote open 
investment regimes globally (see Openness to Foreign Investment 
above). 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶97.  OPIC programs are not available in the EU, as a whole, although 
individual Member States have benefited from such coverage. 
 
LABOR 
----- 
 
¶98.  Issues such as employment, worker training, and social benefits 
remain primarily the responsibility of EU Member States.  However, 
the Member States are coordinating ever more closely their efforts 
to increase employment through macroeconomic policy cooperation, 
guidelines for action, the exchange of best practices, and 
programmatic support from various EU programs.  The best information 
regarding conditions in individual countries is available through 
the labor and social ministries of the Member States. 
 
¶99.  Helpful information from the EU can be found on the websites 
for the European Commission's Directorate-General for Employment and 
Social Affairs, http://ec.europa.eu/social/home.jsp?langId=en , 
and on the Eurostat website 
http://epp.eurostat.ec.europa.eu/portal/page/ portal/ 
eurostat/home/ 
 
¶100.  In general, the labor force in EU countries is highly skilled 
and offers virtually any specialty required.  Member States regulate 
labor-management relations, and employees enjoy strong protection. 
EU Member States have among the highest rates of ratification and 
implementation of ILO conventions in the world. 
 
¶101.  There is a strong tradition of labor unions in most Member 
States.  In many cases, the tradition is stronger than the modern 
reality.  While Nordic Member States (Denmark, Finland, and Sweden) 
still have high levels of labor union membership, many other large 
Member States, notably Germany and the United Kingdom, have seen 
 
BRUSSELS 00000176  017.4 OF 018 
 
 
their levels of organization drop nearly to U.S. levels (around 
20-30 percent).  French labor union membership, at less than 10 
percent of the workforce, is lower than that of the U.S. 
 
FOREIGN-TRADE ZONES/FREE PORTS 
------------------------------ 
 
¶102.  EU law provides that Member States manvestment, with $443 billion, followed by the United Kingdom ($421 
billion), Luxembourg ($163 billion), and Germany ($111 billion). 
 
¶106.  For virtually all EU Member States, the largest "foreign" 
investors are in fact from other Member States.  More statistics on 
U.S. investment abroad are available at: 
http://www.bea.gov/international/di1usdbal.ht m. 
 
WEB RESOURCES 
------------- 
 
DG Internal Market and Services 
http://ec.europa.eu/dgs/internal_market/index _en.htm 
 
DG Economic and Financial Affairs 
http://ec.europa.eu/dgs/economy_finance/index _en.htm 
 
DG Employment and Social Affairs 
http://ec.europa.eu/social/home.jsp?langId=en 
 
Office for Harmonization in the Internal Market 
http://oami.europa.eu/ 
 
EU Anti-Fraud Office 
http://ec.europa.eu/anti_fraud/index_en.html 
 
Eurostat - EU Statistical Office 
http://epp.eurostat.ec.europa.eu/portal/page/ portal/ 
eurostat/home/ 
 
U.S. Bureau of Economic Analysis - Department of Commerce 
http://www.bea.gov 
 
 
BRUSSELS 00000176  018.4 OF 018 
 
 
European Patent Office 
http://www.epo.org/index.html 
 
KENNARD