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Dr. Dominik Enste
Economic Policy Researcher, Gerling Group, Cologne Gerling
The Shadow Economy and Institutional Change in EU Accession Countries - A Two Pillar Strategy for the Challenges Ahead
 

 

 

 

1. General points

a) range

The right of establishment is regulated in Articles 52-58 of the Treaty. In the Europe Agreement the right of establishment is regulated in Section II, Articles 45-55.

Closely connected with it is the right to provide services, stipulated in Articles 59-66 of the Treaty and in Section III, Articles 56-58 of EA.

The right to provide services will be considered in this part as far as the general principles are applied to the two rights and sometimes it is difficult to draw the exact differentiating line between them. The theory anyhow stresses more upon the similarities than upon the differences between those two rights, although under certain circumstances the differences may be much more important.

b) definitions

They are included in the Treaty and EA.

The right of establishment includes the right of citizens and companies of one member state to undertake and perform economic activity as self-employed persons, under the conditions foreseen for the own citizens and companies in the legislation of the member state, where the establishment takes place.

As for the right to provide services, the person providing service may temporarily perform his economic activity in the state where he offers the service under the same conditions valid for the citizens of the respective state. That right is granted also to companies and firms established after the legislation of a member state.

The differences between those rights is more in the degree than in their type. Both rights are applied to economic or professional activity, aiming at "profit" or "benefit". The right of establishment is the right of a natural person, citizen or collective partnership or company to be established in another state permanently or predominately with the aim of performing definite economic activity. The right to provide services is rather related to providing services in a given member state temporarily or periodically by a person established in another member state. In this case is not necessary the person to live even temporarily in the member state, where the services are offered.

The right of establishment is closely connected with company law and overlaps with it considerably.

2. Acts regulating the above rights

The basic regulation is stipulated in the Treaty.

Parallel to that there exists a big in volume secondary legislation which provides detailed regulation through regulations (comparatively rarely) or through directives which are to be implemented in the internal legislation of the member states. The matter is not systematic at all, it can be called random, as it concerns the right of establishment of different subjects on one hand, and on the other the conditions applied in different fields of economic activity the respective subjects are going to perform.

One finds an difference in the regulation of the right of establishment and protection of competition in EC legislation. As was shown above the protection of competition is done mostly through regulations which have a direct effect in the member states. Through those the EC Commission directly introduces into the internal legislation of the member states norms for protection of competition. The selected approach is due to the specific matter for protection of competition on one hand, as well as to the special authority, given to the Commission in the EC in the field of protection of the competition. The latter is perhaps also due to the fact that the protection of competition is a particularly delicate a field where the issues are often considered painful for the member states and if with respect to that field the regulation through directives approach had been selected, requiring the indivdual member states to implement them in their naional legislation, the process of establishment of unified rules for protection of competition in all its aspects (especially the state aids and state monopoly) would have been considerably delayed, which would delay the formation of the common market.

The Right of establishment, on the other hand, does not affect so directly vital interests of the states, and its regulation in the different states (Bulgaria included) is unified to a high degree. That is why from the very beginning the opposite approach was adopted for the right of establishment. The regulation is providedat European level through directives to be introduced in the national legislation of the separate member states.

Due to the abovementioned, with reference to the right of establishment we will not meet the paradox of the protection of competition - the associated states are obliged to harmonise their legislation with that of the EC, while that obligation does not refer to the member states.

3. Level of harmonisation achieved in the EC

In company law since 1970 till now the EC Commission has proposed 12 Directives to the Council, 9 of them being accepted. Most of them directly concern the right of establishment as they treat the questions under what conditions an enterprise of one member state may start perform economic activity in another. The First Company Law Directive was passed in 1968 and stipulates the basic requirements for private and public enterprises, including provisions regulating the register of enterprises, when the enterprise may be proclaimed invalid, access to certain information and validity of the engagements, undertaken by the enterprise. The Second Company Law Directive was adopted in 1976 with the aim of approximation the formation and maintenance of capital of the shareholding companies, as well as what should the establishment document include. The Third Company Law Directive was passed in 1978 with the aim of facilitating mergers and at the same time ensuring the interest of the creditors, the workers and administration, of the shareholders and bondholders. The Fourth Company Law Directive, passed in 1978, regulates the methods for preparation of the annual financial reports of undertakings or partnerships. The Sixth Company Law Directive was passed in 1982 to complement the Third Directive and regulates the division of shareholding companies when they cease their activity without liquidation. The Seventh Company Law Directive (1983) is focused on increasing the transparency of the financial situation of the companies. The Eighth Company Law Directive (1984) regulates the approval of the auditors. The Eleventh Company Law Directive (1989) regulates the requirements for supply of information, in case a member state company opens a branch in another. The Twelfth Company Law Directive (1989) regulates the establishment and activity of limited liability companies, private and public, when they have a single owner.

Parallel to those basic directives a number of other documents also discuss the right of establishment, as for example in Council Directive No611/85 on undertakings for collective investment in transferable securities, in Council Directive No22/93 on investment in the services field, etc.

In the field exist also several regulations, directly stipulating certain relations. Such is the Council Regulation on the European economic interest grouping of 1985 stipulating for the first time the unification of merchants of different member states at European level, Council Regulation No2186/93 for co-ordination at the level of the European Community for compiling trade registers, etc.

4. What are the limitations, still applicable, as per the EC Right?

The right of establishment and the right to provide services are proclaimed as "fundamental rights of the Community" by the Court of Justice. The exceptions allowed for restriction of those two fundamental rights are for reasons of public order, public security and public health, as well as for infringement of the right of the official authority in the receiving state. At the same time those two rules are not absolute. Parallel to the abovementioned exceptions, they are liable to one very important restriction, namely that the right of equal opportunities, as per Article 52(2) and 60(3) of the Treaty, might be exercised only under the conditions, stipulated by the national legislation in the receiving state.

5. Valid regulations and directives in the field of Right of establishment and the respective Bulgarian legislation.

In this article are taken into consideration also the advises of the EU White Paper on the Company Law.

The Right of establishment in the Bulgarian legislation are stipulated mainly in the Law for Economic Activity of Foreign Persons and Protection of Foreign Investments (LEAFPPFI). As a principle the Bulgarian legislation provides for the foreign persons, performing economic activities in Bulgaria a regime of national treatment. The limitations in the Right of establishment are mainly in two aspects: as far as the form of the enterprise, performing economic activity is concerned, and as for the fields of economic activity. There is a third aspect, directly concerning the above two - that is acquiring prop[erty right and limited right over real estate.

a) Concerning the form of the enterprise

aa) the LEAFPPFI stipulates that foreign persons may perform economic activity in Bulgaria, as well as to acquire shares and be share holders in commercial companies, as per the order concerning Bulgarian citizens and juridical persons.

The restrictions, as per Article 3, Paragraph 4 of the same law introduce the preliminary requirement for the foreign citizen, who intends to perform economic activity as single owner, member of co-operation, shareholder in collective partnership, partner with unlimited liability in a limited joint stock company or in limited liability joint stock company with shares, to have a permission for permanent residence in Bulgaria.

With Article 8, Para 4 of the Law for Residence of Foreigners in the Republic of Bulgaria the foreigners, who have legal registration for performance of economic activity are issued permission for residence in Bulgaria for a period of 1 year, liable to prolongation. The permanent residence permission of a foreigner in Bulgaria is stipulated in Article 8a of the same law, but there are marked criteria, which does not include the restrictions, introduced by the LEAFPPFI.

That is why a conclusion can be made that up till now in fact and legislatively the foreign persons cannot commence performing economic activity under the forms, stipulated in Article 3, para 4 of the LEAFPPFI. The latter is considerable restriction of the Right of establishment and in this aspect the Bulgarian legislation is considerably lagging behind the offering of national regime. Underneath - with view to the changes which have to be introduced in our legislation, aiming mainly to its approximation to that of the EC, those documents will be considered, through which the EC on one hand guarantees for all types of economic activity and enterprises equal treatment in the member states, and on the other - ensure the necessary protection of third persons.

Here it should be noted that by the publication (though in a strange and contradictory way) in the "State Gazette" of the already in force EA, as far as Article 5, Para 4 of the Constitution is concerned - its norms are "prevailing over the internal legislation provisions". As far as the exceptions to the right of establishment, listed in the Appendices XV a-d do not include the sole proprietor, the general partnership, etc., each national of the EU may already claim in Bulgaria, on the basis of EA, to be registered as sole proprietor, unlimited liability partner, etc. He may claim that right before a Bulgarian court. After entering into force of the Act of accession of Bulgaria to the respective treaties (of Rome and the others) that right will be claimed to the Court of Justice, as well, if the Bulgarian courts have not settled it till then.

In that sense exceptions from the national treatment, foreseen in the LEAFPPFI and not included in Appendix XV a-d of EA - namely the prohibition of foreign person to perform economic activity as sole proprietor, member of a co-operative, partner in a general partnership, unlimited liability partner in a limited partnership or a partnership limited by shares - without permission for permanent residence in Bulgaria should already be considered invalid for EU nationals and is a matter of correct application of the legislation in court. In that aspect no corrections in the LEAFPPFI are necessary for approximation of our legislation with that of the EC.

As far as the sense of the exception is in the difficulty to be defended eventual creditors of a person without permanent residence in Bulgaria, who undertakes unlimited liability responsibility and as far as for the EC citizens this restriction (at least formally) is not applied as per the strength of the advantage of the international contract norm, our state has to assure the persuasion of unlimited responsible debtors within the borders of the EC through a system of bilateral and multilateral contracts for legislative aid.

For the LEAFPPFI to be compatible with EA and the EC legislation, it needs certain other changes, which are going to be shown at the respective place.

bb) The introduction to the First Company Law Directive already proclaims that it aims at the creation of unified regime, with view to abolishment the restrictions in the Right of establishment. The more important in it:

- First of all it sets the requirement all the member states to have a central commercial register of the enterprises;

- All the documents, concerning the creation, activity, representation, the changes in capital, the financial situation, including the annual balance, etc. of a given company have to be submitted in this register by the enterprise and kept there;

- Reality of the obligations, undertaken by the enterprise - non-application for third persons of the restrictions in the representative authority of the executive organs or of restrictions in the subject of activity;

- The motives for invalidity of the companies to be strictly restricted to cases of formal infringement of the law, which cannot be corrected, accepted by the court.

As for the real legislative requirements for validity of the registered company and for validity of the undertaken engagements, those questions are satisfactory regulated in the Trade Act. It is advisable in the nearest future, through amendments and changes in the Trade Act, within short period of time the following questions to be settled:

- creation of a central trade register. At present we have separate registers to the regional courts, but there is no general register of the enterprises. Once such a register existed to the Bulgarian Chamber of Commerce and Industry. Now such a register might be created through a computer network, covering the registers of all regional courts. It will be obviously necessary to seek for the aid of the EC in that respect;

- introduction of additional requirements for the documents, submitted for the company files in the regional courts, as well as active control for the fulfilment of those requirements. This means annual submission of documents for the financial status, including the annual balance, to that register and their keeping there. The abovementioned requires substantial financial means for the development of the material base, which have to be voted in one of the following budgets, together with seeking financial aid from the EC. The change for the limited liability companies, compared to the existing regulation, will be principle, as it will make their financial status public;

- change in Article 5 of the Trade Act, as regardless the clear formulation of the existing text, some courts (the Sofia City Court and the Sofia Regional Court for example) through its unusual interpretation refuse access to company files and the providing of copies. The change should refer to establishment of explicit and undeniable obligation in that aspect;

- intensification of the control to the fulfilment of the Trade Act norms about registration and drastic increase of the fines for infringement. Introduction of serious punishments for administrators, who refuse to obey to legislative norms.

cc) the Second Company Law Directive 91/77 of 13. 12. 1976 stipulates the formation and maintenance of capital of shareholding companies for the insurance and co-ordination of the protection of the shareholders and third persons.

The reason for issue of that directive is the dominating role of the shareholding companies in the economy of the member states and the often extension of their activity beyond the borders of a given state.

The directive certifies at first place the companies, for which it will be applied in the different member states. It enumerates the minimal requirements, to be contained in the statute and the establishment contract, namely: the type and name of the shareholding company; subject of activity; volume of capital; number and mode of determination of the managing organs, as well as the relations between them; term of validity of the company, if determined. Obligatory is the requirement for entering into the public register of the statute, as well as of the additional information as: headquarters and address of management; nominal value and number of registered shares (at least once annually); the restrictions, if any, for shifting of shares; the share classes and what rights each class possesses; whether the shares are at sight or by name; the volume of the registered and authorised capital (the second term does not exist in our legislation), etc. That is data is required, giving information about the company, not only at the time of its establishment, but also about its current condition. It is required the member states to introduce minimum capital for establishment of a joint venture to the amount of 25000 ECU, 25% being reimbursed at the moment of registration. The directive regulates in detail the conditions for increase and decrease of the shareholding company capital.

The directive concerns especially the question for purchase by the shareholding company itself of its own shares, or by other person, acting on its behalf, but to the account of the company. Article 18 (1) of the Directive particularly prohibits the company to register shares to its name. The following texts regulate in particular detail when, under what conditions and with what required formal acts the shareholding company may purchase back its own shares, as well as what the annual financial report of such a company should contain.

The shareholding company is stipulated in the Trade Act, Chapter XIV. The directions, this matter should be developed in are the following:

- introduction of requirements for regular submission of data (especially about the financial situation) of the company file for shareholding company in the commercial register;

- much more detail and precise regulation of the condition for increase and decrease of capital of the company;

- regulation of the purchase or prohibition of the purchase by the shareholding company of its own shares. Obviously in a lot of the member states such a purchase is prohibited by law, but where it is allowed the directive requires to be introduced the stipulated in it conditions and requirements.

As far as the First and Second Directives do not require any changes, which are complex from legal standpoint, but at the same time increase the legislative security and discipline and thus being able to have direct contribution for increase of the foreign investments, it is advisable those changes to be developed with priority, of course after provision of the necessary aid from EC and/or budget financing.

dd) Eleventh Company Law Directive No666/89. This directive is closely connected with the Right of establishment, as it regulates the requirements for opening a branch in a member state by a company, established and regulated after the law of another member state. Its purpose is to escape the differences in the legislation of the different member states, which may infringe the Right of establishment, protection of third persons, working with the companies through their branches, as well as approximation of the requirements for opening of branches in different member states. With view to avoiding the discrimination on the bases of nationality of certain enterprise, this directive stipulates also the opening of branches of the company in the non member states of the EC.

It specifies mainly the documents, which have to be submitted for opening of branch, with application of the general rule, that they have to be those, required by the legislation of the member state, where the branch will be open. Parallel to that, anyhow, with view to harmonising the legislation of the member states is also listed the data, which the company, opening the branch, should obligatorily submit with the registration application. In short they are: the headquarters and address of management of the branch; the activity; the registration number of the company; data about the owner of the company from the register, he is listed in; the name and the legislative form of the company, opening the branch; the persons, who are going to represent the branch, as well as the way of their firing and employment, the volume of their rights, etc. In addition the member states might require, after their own appraisal: sample of the signature of the person, representing the branch, certificate from the register of the company, opening the branch - certifying whether it exists or not, etc.

An important difference with the regulations after our Trade Act is the opportunity the branch not to prepare separate balance, if it submits consolidated balance of the whole company. Such a change should be foreseen in our Trade Act, as well, at the same time guaranteeing the tax income from the profit of the branch activity.

For companies, originating from non member states, the requirements for opening of branch follow the law of the member state, where it will be open, but the minimum obligatory requirements, as per Eleventh Directive refer also to them, together with some additional, as for example the law of the state. which follows the company, opening the branch.

ee) The Twelfth Company Law Directive No667/89 concerns single-member private limited liability companies, applicable also for public limited companies, where the legislation of the member state allows the owner to be one man. Companies with single owners are also regulated by Council Directives 151/68 and 660/78 on the right of establishment.

It is true that the EC right grants special importance and aims at detailed regulation of the one man companies. The reason lies in the fact that a good legislative defence is necessary for the interests of third persons and abolishment of the risks, which such enterprises may cause, due to their one man owner.

- Definition - company with limited liability with one man owner (natural person or other company) is that, which has been one man owned at its establishment or has turned into one man owned later.

- Requirements - parallel to the documents, certified in Council Directives 151/68 for company registration, it should be entered in a public register, that the company is with one man owner, as well as his personality. The member states may, depending on their national legislation, referring to holdings, to introduce regulation or sanctions in case that:

- certain natural person is one man owner of several companies;

- one man company or another legal person is one man owner of other company.

- Management and validity of the contracts - the one man owner exercises the rights of the General Assembly, and all the decisions, taken by him should be in protocol or in writing. The contracts, signed between the one man owner and his company, represented by him, should also be in protocol or in writing and they are liable to special requirements for publicity.

Parallel to the cases of Article 61 of the Trade Act (TA), permitting the creation of state-owned one man shareholding company, the Bulgarian legislation foresees only two forms of companies, where the owner may be one man - the one man company, as per Article 56 of the TA and one man limited liability company - Article 147 of the TA.

The single owner limited company as a whole is compatible with the European legislation, but here also more serious European criteria should be introduced for control of the financial situation and relations between the one man owner and the company, with view to protection of third persons. This should be done through change in the Trade Act. As it is not considerable deviation from the existing legislation, but rather its further development and perfection and it does not create serious difficulties, we consider it advisable the amendment to be made even at the first stage, together with the changes and amendments as per the First and Second directives.

ff) Mergers of companies, divisions of companies. As here the right of establishment is directly concerned, it should be mentioned that the EC has considerable legislation about such deals. That is comprised mainly of the Third Council Directive No855/78, concerning the merger of public limited liability companies and the Sixth Council Directive No891/82 - concerning the division of public limited liability companies, as well as a lot of other, concerning taxation, submission of consolidated annual balances, etc. Both the directives are issued within the limits of the General Programme of the EC for abolishment of the restrictions upon the right of establishment and contain detailed regulations of those legal acts. Both the directives contain definitions, as well as a very detailed procedure, which can be generally characterised as defending the interests of third persons, as well as of the shareholders themselves. Important element of the procedure is the obligation for submission of information at a very early stage about the intentions for merger or fusion, separation or division. That information should provide the shareholders with information on the forthcoming operation, on one hand, regardless of the fact whether they have a decisive voice or are a minority, the creditors and bond owners, so that their interests are defended, and on the other - to be accessible for third persons.

This matter, anyhow, may be left for the second stage of the transition period. It is particularly complicated - on one hand and certain practice is necessary for the Bulgarian legislative and legal organs to go into the details of the content of the new regulations. On the other hand the mergers, fusion and unification will be regulated through the second stage (most probably) also from the standpoint of the protection of the competition, so the regulations of the two laws - the Trade Act and the Act of Protection of Competition to be approximated.

gg) ZCouncil Regulation No 2137/85 on the European economic interest grouping (thereunder called Consortium) - this is a document, directly connected with the legislation at the level of the European Community and is the only one, regulating the integration of traders from the member states for development of economic activity under unified corporate form at European level, at the same time preserving their national legal form and economic independence. It stipulates:

- the statute and the applicable law of the European Consortium - concerning the statute - each member state is given the opportunity to determine whether the consortiums, listed in its registers, will be legal persons or not. The applicable law from the standpoint of the contract for the establishment of the consortium, as well as for its internal organisation, will be the internal legislation in the state, which is listed as headquarters of the consortium in the establishment contract.

- requirements for registration:

- the consortium should be formed at least by two legal persons, with headquarters in different member states; or by at least one legal and natural person, with respective headquarters and place for economic activity in different member states;

- establishment contract, which has to contain at least the company of the consortium, its headquarters, the targets it is created for, data for each of the members and the period, it is created for, if any;

- the subjects, who may be members of such a consortium - as per Article 58, para 2 of the Treaty they are specified as: legal persons, private or public, established in correspondence with the legislation of the member state and with headquarters in some of the member states and natural persons, performing economic activity or offering professional or other services in the Community;

- in detail are settled the questions of change of the headquarters, decision making and the right of vote (including when the decisions have to be unanimously accepted), the management and the representation of the consortium, the responsibility of the partners to third persons (unlimited and in solidarity), the including of new partners, the leaving and expelling of partners, discontinuation and liquidation (applied is the law of the state, where the headquarters is).

The consortium as a form of company, stipulated in Article 275 and 276 of the Trade Act, the text foreseeing that the rules of civil partnership, as per Article 357 and the following from the Law of Obligations and Contracts, will be applied for the consortium or those of the company, in the form of which the consortium is organised. As an advise might be given the wish the civil partnership (company), after the Law of Obligations and Contracts, to receive serious regulations, as it faces a number of technical obstacles (for example if has no registration, due to which it cannot open its own bank account) - on one hand, and - on the other - the lack of contemporary regulations might limit the right of establishment of foreign persons, willing to establish joint projects with other Bulgarian or foreign persons, without registering companies, as per the Treaty.

Otherwise we are of the opinion that there is no legal obligation to regulate this type of international consortium. With our annexing to the EC that regulation will start directly to function here, and until then - if the regulations concerning the civil partnership are updated, this will to a great extend fulfil our obligations of approximation.

As is obvious from the Acts, considered up till now, the EC aims on one hand through approximation of legislation of the member states to warrantee the right of establishment of all the subjects of the economic activity and on the other-to provide maximum protection of third persons. The accepted approach, anyhow, is creation of centralised public registers by the member states of the subjects, performing economic activity, unlimited access to the information, kept in them, introduction of clear and correct criteria for economic activity.

b) As far as the fields for performance of economic activity are concerned

Under license regime for foreign persons, performing economic activity independently or through other company, as per Article 5, para 3 of the LEAFPPFI are:

aa) the production and trade with weapons, ammunitions and military equipment

- production - as per Article 18, para 4 of the Constitution of the Republic of Bulgaria a state monopoly might be established over the production of weapons and explosives, which is also stipulated by the Law for Control over the Explosives, Weapons and Ammunitions (published in the State Gazette No128 of 1950, with respective changes and additions in the St. Gaz., No26 of 1968) and the Regulation for its application. So in that field the Bulgarian state should estimate its concerns about social order and security, as well as the public economic interest in the process of restructuring of economy towards market economy, before abolishing the monopoly and introducing freedom of establishment in that sphere.

- trade - in the field of home and foreign trade with weapons, ammunitions and military equipment exists no state monopoly. That field is regulated by the Law for Control over the Explosives, Weapons and Ammunitions (ST. GAZ. No128 of 1950, with final changes and amendments of ST. GAZ. No26 of 1968) and the Regulation for its application and the Regulation for Control of the Foreign Trade Activity with Special Production, adopted by Decree No51 of the Council of Ministers of 1994, published in the ST. GAZ. No29/94.

By all means in the field of the trade with weapons, ammunitions and military equipment an overall review of the legislation should be performed, taking consideration of the real conditions, the public interest, order and security.

bb) Performance of bank and insurance activity and participation in bank and insurance companies

- the bank and credit activity - it is stipulated in the Law for Bank and Credit Activities and Regulation No2 of 11. 02. 1993 for the licenses, issued by the Bulgarian National Bank, changed in the St Gaz. No20 and No91 of 1994.

As per those two acts liable to licensing are Bulgarian, as well as foreign persons, wishing to perform banking and credit activities. The additional requirements for foreign persons (as per Article 5, para 3 of the LEAFPPFI) concern mainly the documents, certifying their headquarters, as well as such referring to their reliability and good name.

Here should be mentioned the Second Directive of the Council of 15. 12. 1989, which is considered important instrument for management of the internal market from the standpoint of establishment and the right to provide services in the field of credit institutions. This directive is applied not only for the institutions, assigned specially by the state with specific functions of regulation policy in the banking.

As per that directive each member state will insure for the activities (listed in detail in the annex to the directive), performed on its territory by credit institutions, authorised and controlled by competent organs of another member state, to be applied the conditions of that directive. The same regime will apply for the financial institutions - whether a branch of the credit institution or own branch of two or more credit institutions, with some additional conditions, introduced for them. The activity of the credit institutions and of the respective financial institutions might be performed through a branch or through offering services.

One of the basic targets of that directive is the attaining of considerable approximation, necessary and enough to insure the mutual acceptation of authorisation of the abovementioned institutions and control systems, making possible the given license in one member state to be recognised in the whole community. In this sense the directive is directed towards approximation of the authorisation conditions, the authorisation cancelling conditions, as well as towards protection of third persons. The directive regulates in detail those acts through the introduction of severe criteria for the activity of those institutions, detailed requirements for submission of information about their activities and creation of systems for close and regular co-operation between the competent authorities of the member states.

It is obvious from the abovementioned that the integration in the field of credit activities in the EC is very serious and directed towards abolition of the borders between the different member states. From this standpoint in the Bulgarian legislation should be paid attention for the gradual introduction of European criteria for submitting licenses to the bank and credit institutions, for control of their activity, as well as for usage of protection mechanisms, created in the EC for protection of the investors.

As far as paragraphs aa) and bb) are concerned it is important to note, that the limitations refer to the very establishment only, but not to the functioning of certain investment after receiving the necessary license. Of course already established here company of the EC should also receive a license about the abovementioned activities, but once having it - it may perform the licensed activity under the national regime conditions.

The restrictions, as per paragraphs aa) and bb) above are stipulated in the Annexes XVb and XVc to EA, but only as temporary, as given in Article 45, paragraph 6 of EA, so it is logical within a reasonable term - with an opportunity this to be in the second stage, those to be abolished through a change in LEAFPPFI. Otherwise after coming into force and publication of the ACT for our annexing to the Treaty and the rest of Treaties, they automatically will cease functioning for citizens and companies from the EC.

With view to the abovementioned the LEAFPPFI can be changed, the listed activities being subdued to national regime. On the other hand is possible after contract - even before annexing Bulgaria to the EC to introduce the change for citizens and companies of the EC only, for example through amendment of the Europe Agreement.

This could happen under the above mentioned circumstances in a moment when a customs union between Bulgaria and EC start functioning, in order to avoid the most favoured nation treatment , which is fixed in all our contracts , concerning protection of investments (treatment, given to investors from countries, which the receiving state is in customs union with , is not considered when defining the treatment , that will be given according to the MFN clause.

If it is necessary to apply restraints to foreign citizens, it could be done through changes of other laws, f. e. the Law for the residence of foreigners in Bulgaria, which could assume additional requirements for achieving residences rights in Bulgaria.

Obviously the above does not exclude the application of the general rule for public order and national security, but it is used just in cases , when the freedom of settlement is regulated as a rule.

cc) Our legislation wasn't regulating till recently the statute of stocks and the security exchange , including the investment companies. We hope this gap will be filled by regulations corresponding to the European standards with the recently voted at the National Assembly Law of stock exchange and securities ( not issued yet ), which includes the investment funds too.

dd) Acquiring estates in definite geographic regions determined by the Council of Ministers - a list of the geographic regions with licence regime for acquisition of estates by foreign citizens has not been published since the Law for protection of foreign investments came in force.

ee) Concessions

Article 18 , paragraph 1 - 4 of the Constitution of the Republic of Bulgaria states the projects and activities , which are of exclusive state property or over which the state exercises its sovereign rights. Par. 5 of the same Article provides the possibility the state to grant concessions for them and the terms and order for it will be regulated with a law . The draft law concerning the concessions is to be introduced to the National Assembly.

The law of EC does not regulate the way and terms of committing concessions , for they usually concern projects , which the countries prefer to keep sovereign. This matter is not regulated by EC law and it's a subject of the national legislation.

c) Acquisition of property rights upon land and restricted real rights upon estates.

A general restraint of the foreigners' rights to acquire property of land , including through a branch or as one man company is established by Art. 5, par. 2 of LEAFPPFI. They can acquire property rights upon buildings and limited real rights upon lands (despite of this text, that is newer and special to Art. 29 of the Law of property , in Bulgaria was imposed through the interpretation the more conservative approach to the matter, saying that acquiring property rights upon industrial buildings and restricted real rights upon lands is legal without the permission of the Ministry of finances only for legal persons), while for acquiring a house of dwelling the foreign citizen must use his rights for construction.

Again according to this Article a company with foreign ownership over 50 % can not acquire real rights upon agricultural lands. And in accordance with the last changes of the Law of property and exploitation of agricultural lands (published SN No 45/95) companies with foreign ownership ( no matter of its percentage ) can not acquire real rights upon agricultural lands at all.

Considering the restraints, put with LEAFPPFI must be promptly noticed, that Appendix XVъ to EA hints exactly these very restraints. In accordance with Art. 45, par. 6 of EA , the restraints for acquisition of lands, houses of dwelling , except the cases of using the construction right or in order , regulated with a law and acquiring real property in separate geographic regions , as it is provided with Art. 5 , par. 3 , i. 3 of LEAFPPFI are concerned differently compared to the restraints , provided in Apendix XVн and XVb. It is not foreseen for the first " studying the possibility for accelerating the granting national treatment " , but just the possibility for including separate "sectors or questions" to national treatment, i.e. the first kind restraints are accepted as lasting during the transition period, while the second are accepted as temporary. Proceeding from the fact, that the above restraints are laid down in the Constitution it will not be justifiably or even possible to make Constitutional changes, concerning them. When the act of our joining to the Rome and the other contracts comes in force, their regime will automatically start operating in Bulgaria . Based on the pointed out advantage of the EC law compared even to the Constitution law of the countries members , the veto on the real property will be removed regarding to persons and companies from EC.

We must notice that the change in the law of property and the exploitation of agricultural lands contradicts the taken by Bulgaria obligation according to Art. 45, par.4 from Europe Association Agreement , stating that Bulgaria will not issue new normative acts or take up other measures leading to discrimination in regards to settlement during the transitional period. This example that it is necessary to create a more reliale mechanism of co-ordination between the executive and the legislative branches with respect to the compatibility of draft laws with the law of EC.

6. Conclusion

As it was above mentioned the rights for settlement and placing services are among the basic rights , protected by the Rome contract . These rights touch all the spheres of economic activity, which is the reason for a larger in volume legislation on European level. It is obvious the aspiration of the member states to standardise gradually and permanently their legislation with a view to provide a common treatment to the economic agents on one part, but on the other to create gradually conditions for the successful functioning of a common home market within the boundaries of EC by mutually recognition of authorisations ( at the credit institutions f. e.) , imposing clarity when the subjects from the member states do economic activity and creation of common control mechanisms.

Here must be emphasised the fact, that in 60s the EC Commission had started to discuss the possibility for creation of an European law for the commercial companies and in 1970 it proposed to be adopted a Statute of European commercial companies. Because of various reasons, some of them political , it was not possible till 1985, when the Rome contract was complemented and changed by the Act of united Europe, which confirms the willingness of the member states to create a common market. The same year the Commission is working out a White Book, marking an ambitious , legislative programmeme to create a common home market, where as a main aim is included the European law of commercial companies. So the Commission presents a new project for an European commercial compay statute in 1989. Such a statute has not been accepted yet, but after all the aim will be achieved.

The Council votes the Regulation of an European incorporation (consortium) for achieving economic aims in 1985. The Consortium is not a substitute for the European commercial company, but comes a step ahead to it.

One of the basic tasks in the field of the legislation approximation is to be explained at all levels of the administration and society the enormous scale of work, the significance and urgency of the task and its long term character . The scale of this activity requires public and political support , which solely can provide the needed human and other resources and to put the task as a priority.

The specific character of the approximation activity, on the other hand could lead to lack of co-ordination between the separate departments or sectors . To avoid this risk the approximation activity must always be connected and subordinated to the general aim for integration the EC. Explaining the scale and the essence of the process of approximation requires knowledge of what the common market is and what the law of EC represents, on what principles it is based, which rules, norms and standards keep their national nature and why, what independence the national legislator has got in order not to break the harmonisation of the EC law, what is the common policy of EC in the separate fields and branches, including the question of law development etc.

Solving this common problem is a necessary minimum for setting up the basis for fulfilment of the approximation process , which could pass several stages. We must promptly notice , that the given terms for the stages are absolutely conventional. The terms will depend on plenty of factors , which include readiness of the economy, political stability , psychological willingness , ability of EC to provide the necessary support etc.

The first stage most generally could be expected to long for the next 3 - 5 years . During this stage the law and the attendant secondary legislation changes should be done, which changes could be accepted more easily compared to the present transition period . For instance in the field of the company law could be issued changes in the commercial law, concerning the commercial register, the publicity, the discipline , the financial clarity etc . In the field of the protection of the competition is to be worked out within 6 - 12 months a programmeme for legislative changes. This programmeme should include a new draft law of protection of the competition and secondary legislation acts in harmony with the basic EC acts in the field of cartels and partially i the field monopolies, as well as acts for setting a new Commission ( Agency ) for protection of competition . A reasonable policy is to be worked out towards the state aids and the state monopolies , which could be under the protection of Association Council. These measures could be discussed at the Council of association the next year and to start prompt execution immediately or respectively when the 1997 budget is being accepted.

In the years , following the first stage should be voted the laws , concerning the coming and the abuse of a monopoly state , the state aids and the state monopolies, and in the end of the second stage must be achieved a practically full approximation to the EC law, including as regards to the control functions of the Commission (Agency) for protection of the competition. In the sphere of the protection of the intellectual property could be given a priority to the new law of trade marks and the patent law in respect with an additional protection of the medical products, a law forbidding the import, export and re-export of imitations and products of piracy.

It is of great significance to be created in the sphere of intellectual property rights reliable mechanisms for applying these rights and the main efforts should be directed to this matter.

In the other fields should be worked out similar programmemes in order to recognise both the short term tasks and the necessity of immediate starting of their accomplishment , and the long term, which could be postponed till the beginning of the second stage , but which require bigger profundity of the changes.

One of the main tasks till the end of this year is to provide the necessary texts of the normative acts of EC, through supplying the needed money and equipment for electronic entry to the Community acts and conditions for translation too . This process should develop in parallel to the enlargement of the general knowledge of the EC laws' essence , of the EC policy in the various branches, of the character of the approximation process etc.

During a third, last stage, if necessary, the work on checking the present secondary legislation in the various branches and its modernisation should be completed as well as the passing of new secondary legislation in pursuance of the new legislation in the fields , where it has not been done till the relevant moment.

As some of the passed laws and normative acts are bound to be of a transitional character , i. e. they will aim to secure partial approximation at the first stage till the complete integration is practically possible, these normative acts could be accepted with similar understanding by recognising their transitional character.

The adopting of norms, harmonised with the law of EC is insufficiently as a sole act. The main challenge, that stands in front , as it is pointed out in the EC White Book is not the harmonisation of the legal texts, but the adaptation of the administrative mechanisms and the society to the conditions , necessary for effective application of the law norms . It is a complex process, requiring the formation of institutions and structures ( or adapting the present existing ones ), which involves essential changes in the administrative and the legal systems.

The mechanism of harmonisation of our law with the law of EC should consist of the following basic elements :

1. To be created specialised sectors to all the concerned Ministries and other departments , which will have the assignment to evaluate to what extend the law in the field corresponds to the law of EC . The valuation is supposed to be done in accordance with the following three criteria :

- to what extend the present laws and secondary legislation of the given sector/ branch correspond to the law of EC;

- what are our priorities to the future legislative creativity at the sector , in the context of the approximation of our law to the law of EC;

- what technical and financial aid is needed from the European Commission in letter and in spirit.

2. The whole control over the fulfilment of the approximation process to be given to a centralised sector, which to co-ordinate and direct the process. This sector could be either the Legislative Council at the Ministry of Justice, or an agency created specifically for this purpose sector, consisting of qualified lawyers at the basic law branches . The centralised sector will co-ordinate , direct and control the proceeding of the process of approximation of Bulgarian law to the EC law in the different sectors through summary and analysis of the results and setting of priorities and directions for the future activity.

3. The centralised agency, on the recommendation of the respective units at the various ministries and other departments, should put forward proposals for providing technical assistance primarily for:

a) specialised education and training of specialists in concrete law and economic matters, closely connected with the process of law approximation;

b) granting all kind of information about the EC law, the relevant databases , current information , scientific works, textbooks, dictionaries , terminological reference books etc.

This mechanism is supposed to function , carrying out the government programmeme for approximation of the legislation , in which have to be included the following elements :

1. Inspection of the operative laws and secondary legislation in the light of their compatibility with the law of the EC.

2. Work - schedule for changes and supplements to the present normative organisation and its harmonisation with the law of EC.

3. Work - schedule for adopting new normative acts in accordance with the priorities, that must be presented in the government programmeme.

The mechanism of harmonisation of our law with the EC law should establish new requirements to the procedure of laws' adopting and voting.

1. All the Ministries and other departments that introduce to the Council of ministers drafts of normative acts to inform in a written form how far the introduced draft corresponds to the law of EC and to the obligations , taken by Bulgaria in virtue of the Europe Association Agreement ( EA ).

2. The centralised group (respectively the Council of legislation at the Ministry of justice ) to exercise control over the passed to the Council of Ministers drafts for normative acts from the viewpoint of their accordance with the EC law and our obligations under the EA.

3. With a change in the Regulation of the work of the National Assembly all deputies introducing draft laws will be obliged to state their arguments to what extend the draft corresponds to the law of EC and to our obligations under EA . The control over the accordance of the draft laws with the EC law and EA could be exercised by the centralised sector ( respectively the Council of legislation at the Ministry of justice ) in a good interaction between the legislative and the executive power , and an introducing of a requirement in the Regulation of the National Assembly's activity for a statement of the executive power about the question , of the compatibility of those draft laws , that have not originated in the sectors of the executive power. A control functions could be represented to the Council of legislation , formed at the National Assembly or to the European integration Commission at the National Assembly ( as it is in Poland), but considering that the Bulgarian lawyers are not well grounded in the EC law ( yet ), as well as its specific character we would advise to concentrate the control at a single sector of the executive power.


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