The background to our initiative to sponsor this Chair is the strong sense we have had for many years that the European economy has outgrown the legal and fiscal environment in which businesses have to operate. One marketplace and fifteen jurisdictions mean inefficiencies which are not only tiresome for companies but actually impede growth and the creation of jobs and prosperity. The creation of a European Company Statute can provide an answer. But we are realists at Unilever: we know these inefficiencies will not be removed overnight or even in the medium term, but there are steps we can take.
From the businessman’s point of view, it is essential to test, think through and flesh out ideas which may be only half-formed or embryonic, and to render them in a form which will give them credibility with policymakers and the law profession. We see this Chair as a practical and hard-edged initiative which will make a substantial contribution to public policy, building on the rigorous standards which mark out an academic institution of the premier division. Professor Gammie concentrated on the tax aspects of cross-border business integration in the European Union, and more specifically on those of a European Company statute. This is a highly important dimension of the issue. Professor Gammie's successors on this Chair will be exploring other aspects of the Statute, such as the social one.
In spite of the need to act urgently on the European Company Statute there are, unfortunately, few signs that the European Union is now prepared to do so. Maybe our political leaders need help and they may need ideas. That is why we are here today.
Before entering into a discussion of the issues for which we are here today, I would like to say a little about why we take such a keen interest in matters European. Whilst we are very much a multinational company operating on a global scale, our roots, as you well know, are here in Europe - in the Netherlands and the United Kingdom, to be precise. Just over half our turnover is in Europe. Our business is directly and significantly affected by the rules and regimes determined by legislators. Our strategy decisions as a company are traced on a map which Europe's democracies have charted for us.
It is difficult to overestimate the extent of that integration, which is transforming, the business environment. Its cornerstone is a Single Market of 370 million of the world's richest and most demanding consumers. The Single Market is boosting competition, speeding up restructuring, cutting the cost and time of travel and transport, and providing a wider range of goods and services at lower prices.
By any standards, the commercial integration of Europe has been a remarkable achievement. No one, to my knowledge, suggests that we should put it into reverse. At the same time, the competitiveness of Europe's industry in the global marketplace has suffered. All possible efforts will need to be made to restore its competitive position. Creating a European Company Statute is one of these.
My questions now are: how best to ensure that our continent reaps the full benefits of economic integration? And how do we translate economic success into greater public support for the European project?
I see several obstacles, in ascending order of difficulty. First, we do not yet have a fully functioning Single Market. (I emphasise the word 'fully'.) Progress in some areas for example energy supply and many financial services remains slow, to the detriment both of industrial users and consumers. And whilst the implementation of agreed Single Market measures is generally very good across the Union, the enforcement of those measures is less than perfect.
The second challenge comes at the macro level, rather than the micro. The single currency is poised to deliver yet another boost to the process of economic integration. It is already stimulating a steady procession of cross-border alliances and mergers. This, in itself, is increasing the need to eliminate tax obstacles to business integration within the European Union, the very issue we are discussing today. I will not discuss in depth the consequences of EMU for business and overall economic policies. But I should stress that by introducing real price transparency, it will, amongst other things, boost competition and put downward pressure on prices. But it will also prove a tough discipline. Without the option of currency depreciation or devaluation; without the option of bail-outs or emergency transfers at Union level; and with only limited labour mobility and wage elasticity in the Member States, the single currency will be a powerful force for efficiency and rationalisation across the euro zone. It will force the pace not only of labour market reform, but of product market reform as well, based on deregulation and a vigorous competition policy. I broadly welcome that prospect. But I am under no illusion that aggregate gains in efficiency and prosperity risk being partly offset by problems of transition and, in the worst cases, the dislocation of individual communities. Managing these problems of transition will be a priority task for our politicians.
Which brings me to the third challenge. The rnanagement of that process will be complicated by the other process now unfolding across our continent: the process of enlargement. The individual country negotiations will be tricky enough, but it is also for the EU's existing members that enlargement is likely to be the very problematic indeed. Not only does it raise difficult questions about the Union's decision-making procedures and the structure and membership of its institutions - it is also the catalyst for fundamental (and long overdue) reform of its spending policies, notably in agriculture and regional aid. The Commission has shown that it is prepared to grasp the nettle. Ultimately, though, it is the Member States who will decide. More precisely, it is their democratically elected politicians who will decide. The decisions they take will, I believe, be the test of their statesmanship and, above all, of their political leadership. It will mean facing down some powerful sectional interests. Last week's European Summit in Cardiff sensibly set a deadline of next March for resolving, these issues.
It is not being, too melodramatic to predict that this could be a dangerous period for the European Union. The gap between the citizen and the decision-makers in today's EU is wide. If anything it is widening. This is not a favourable backdrop to discussions which will be difficult and complicated. It is not clear how solutions are to be found if the legitimacy of the whole European project is being called into question. It will be a measure of our leaders' commitment to the European ideal whether they are prepared to put time and energy into the democratic renewal of Europe. I am only pointing out the obvious when I say that a sour, indifferent or suspicious public mood is more likely to tie the hands of the negotiators and make it more difficult to reach agreement.
We need to hear publicly and convincingly the simple argument for closer co-operation between nation states in a way the general public understands and can relate to. The fact is that most of the problems we face at the end of the 20th century are no respecters of borders. The point is easy to grasp. It cannot be repeated often enough.
Whether closer co-operation is pursued between governments or within the institutions of the Community is of secondary importance. But the structures and procedures for decision making must be transparent. The European citizen should have a clear understanding both of how difficult issues will be decided, and why they need to be addressed.
Spelling these out is a job for all of us. Politicians have been negligent. To the extent that if they seek to engage public opinion at all on these matters, they have mostly, been content to assert the value of Europe, rather than demonstrate the tangible benefits of European co-operation. The lack of transparency of the European institutions and of decision-making makes it harder to legitimise Europe to the man in the street. Instead of trying to convince voters after decisions have been taken, politicians need to encourage the idea of participation in the European project, and that includes the European marketplace.
But again, these remarks are not just aimed at politicians: we in business must do our bit too. We need to explain why deregulation and flexible labour and product markets are not threats to families, communities and individual livelihoods, but conditions of Europe's continuing competitiveness in a globalising world economy. It is almost axiomatic that the policy prescriptions most likely to work are the ones which take account of the way the world is moving. So much by way of background to the current European discussion. Let us hope that the special meeting, scheduled for October under the Austrian Presidency will start to bridge the gap between the political elites and the citizen. Let me now turn to what is keeping us busy here today.
In Europe we are moving to one marketplace. For more and more companies, production, sales, marketing and distribution now have to be thought through on a European scale. The trouble is that the local and tax structures within which companies operate have not yet caught up with this reality. Cross-border operations require cross-border rules. Logically, this forms part and parcel of European economic integration. EU-wide rules have had real success in eliminating non-tariff barriers. That process is by no means complete. But viewed in one light, it is actually the easy bit. The most problematic area is the legal and tax structure affecting a company’s operations. For companies to be really competitive, they need to be able to align not only their management structure with the realities of the market, but also their tax and legal structure. A pilot study conducted for one of Unilever's European business groups has shown that, currently, such an alignment through the use of a so-called branch structure would be prohibitively expensive. We do need a fully fledged legal and tax framework which enables businesses fully to exploit the opportunities of a single European marketplace.
There is work in hand at EU level - some of it dating back to 1970 no less, in the form of a European Company Statute. This is currently on the table of the Council of Ministers of the EU in the form of a draft regulation on company law and a draft directive on worker involvement. The British Presidency has invested much effort in making further progress on both issues and, in particular, on securing agreement on the contentious subject of worker involvement. While the Internal Market Council seems to have made some progress on company law last May, the issue of worker involvement has by no means been solved by the Ministers of Social Affairs earlier this month. The forthcoming Austrian Presidency will attempt to take this dossier further.
At Unilever we are disappointed about the lack of progress, in particular on the issue of worker involvement, which has been an obstacle for more than 25 years. Of course I realise that there remain difficult balances to strike between the freedom of management to manage and the scope of workers' participation. At an even more fundamental level, there are .important questions to address about general rules on the one hand and the principle of subsidiarity on the other. In other words, how do we devise a new, up-to-date framework whilst leaving, the corporate environment as flexible as possible?
The European Company Statute is planned to be an integrated set of rules on company law and worker involvement. It should be supported by appropriate tax provisions on which I will comment later. We now lack the hope of an early realisation of the project, although I am convinced we should continue to press for progress.
The Company Statute may help, but if agreement proves impossible, we should pursue other routes to enable cross-border business integration. The full harmonisation of legal systems is unattainable. Our ambition is more modest: to remove specific obstacles to competitiveness and efficiency which exist in the legal and tax areas, The merger directive may provide such an alternative route to the Company Statute, but again provided that the appropriate tax measures are taken. I do not propose to go into the technical aspects of different legal and tax systems. I wish simply to flag up some of the key issues which we would do well to bear in mind as our leaders grapple with the Company Statute, the Code of Unfair Tax Competition, the taxation of savings, and other plans in the area of company taxation.
First, we need to approach reform in a deregulating spirit. All too often, harmonisation has meant a new layer of government and bureaucracy. Of course there needs to be efficient mechanisms for ensuring a level playing field. But the main point of agreeing, rules across national jurisdiction is to encourage markets, not to impede them. This guiding principle seems to be understood by the European Commission. Simply relocating decision-making from "Brussels" back to national capitals, as apparently proposed by the French and German governments, does not necessarily result in the better operation of markets across the Union.
Second, we need to think comparatively and learn from
the experience of others who have
had to think through the framework for a single marketplace.
The US is a case in point.
Likewise for company taxation. The fragmentation we have at present means that there is always a risk of double taxation on international transactions - it also inhibits companies from aligning their tax structure with their management structure because of the sizeable tax consequences. Compared with companies coming from outside the European Union, European ones long established in many member states find themselves at a substantial disadvantage due to the fragmentation of their European home market. I don't wish to sound too downbeat: the EU is making a start. On 4 March, the Commission proposed a Directive to tackle double taxation for companies operating across frontiers within the EU. It would eliminate taxes at source on payments of interest and royalties between associated companies in different Member States. This is a small but sensible step in the right direction, which we welcome.
Third, we need to disentangle issues so that we can make real progress on them individually. This is true, for example, for the worker participation proposals which have been tacked on to the European Company Statute and which are partly responsible for holding up progress on that initiative. I realise that different ideological views are at stake. But these should not hold up agreement almost indefinitely. There should be an effort to find common ground and to do what is required.
Fourth, we need to keep in our sights the longer-term goal of a European corporation tax, at least as an option available to those companies that operate on a pan-European scale and consequently suffer most from the current fragmentation. This might include a harmonised taxable base, a single corporate tax rate, and a single body for levying and collecting the tax. It would imply a truly level playing field but I realise that this is a longer-term project.
So much by way of backdrop - and an incomplete one at that. I hope I have at least conveyed to you my keen sense of the urgent work there is to do in this area. Of course, our preferred option is a sensible Company Statute. But we are making too little progress and have not yet succeeded in fully convincing our political leaders that urgent and decisive action is needed. Business cannot wait another 28 years or even much less than this. We see in this Chair in International Business Law an opportunity to make further progress. We would hope that you, as practitioners in the field, are able to push things along. Your contributions to the debate this afternoon will be greatly appreciated.
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