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Jens Hillebrand Pohl
Thomas Papadopoulos
Janosch Wiesenthal
Joanna Warchol Editors
Weaponising Investments Volume II
SpringerStudiesinLaw&Geoeconomics Volume2
SeriesEditors
JensHillebrandPohl,FinnishInstituteofInternationalAffairs,Helsinki,Finland
SarahBauerleDanzman,IndianaUniversity,Bloomington,IN,USA
HenriqueChoerMoraes,BrazilianMinistryofForeignAffairs,Brasília,Brazil
VictorFerguson,UniversityofTokyo,Tokyo,Japan
MikaelWigell,FinnishInstituteofInternationalAffairs,Helsinki,Finland
Theseries ‘SpringerStudiesinLaw&Geoeconomics’ isdevotedtoanalyzingthe roleoflawinconditioningtheuseofgeoeconomicpowerandtheroleofgeoeconomicpowerinconditioningtheformation,enforcement,andsystematicvariationof lawsand(publicandprivate)norms.Theseriesspecializesintheapplicationtothese problemsofinsightsdevelopedacrossscientificdisciplines,notonlylawandIR,but alsogeography(economicandpolitical),economicsociology,economicanthropology,comparativepolitics,epistemology,history,economicsandgametheory, probabilitytheory,negotiationtheory,cognitivescience,andsocialpsychology. Therangeofdisciplinaryapproachesdealtwithbytheseriesisvirtuallyunlimited, inlinewithitscommitmenttotranscendingdisciplinaryboundaries.
Theserieswelcomescontributionsfromdistinguishedlegalscholarsworkingin international,comparative,ordomesticlaw,empiricallegalstudies,ordifferent “law and...” areas,aswellasIRscholars,politicaleconomists,andpoliticalscientists withaninterdisciplinaryfocus.Theseriesalsostrivestoofferaforumforcontributionstolegaltheorybyscholarsworkingindisciplinesoutsideoflaw.Forthematic issues,particularissuesarecommissionedandacallforpapersisdistributed.The seriesalsopublishesopenissuesthatprovidepublicationpossibilitiesfor uncommissionedmanuscriptsintendedtostimulatesubmissionsbytalentedmaster studentsandPh.D.candidates.
Theseriespublishescontributionsfollowingasubstantivereviewbytheeditors andrigorousdouble-blindpeer-reviewbyexternalexpertsasappropriate.Theseries editorshavepublishedextensivelyinthe fieldoflawandgeoeconomics.Theyare supportedbyaninternationalboardofadvisoryeditorsconsistingofestablished scholarsofthehighestreputation.
JensHillebrandPohl • ThomasPapadopoulos • JanoschWiesenthal • JoannaWarchol
Editors
WeaponisingInvestments VolumeII Editors
JensHillebrandPohl
FinnishInstituteofInternationalAffairs
Helsinki,Finland
JanoschWiesenthal UniversityofLüneburg Lüneburg,Germany
ThomasPapadopoulos DepartmentofLaw UniversityofCyprus Nicosia,Cyprus
JoannaWarchol EuropeanParliament Brussels,Belgium
ISSN2948-1899ISSN2948-1902(electronic) SpringerStudiesinLaw&Geoeconomics ISBN978-3-031-46770-7ISBN978-3-031-46771-4(eBook) https://doi.org/10.1007/978-3-031-46771-4
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Preface WeaponisingInvestmentscollectsintwovolumesaselectionofpioneeringresearch papersforthepurposeoffacilitatingthedevelopmentofacommonanalytical foundationandframeworkfortheemerginginterdisciplinaryresearch fieldof investmentcontrol.Thepaperspublishedhereinpresentdifferentperspectiveson howdecision-makersgoaboutthetasksofassessingrisksandthreatstonational securitythatmaybeposedbyFDIandthenbalancingthoserisksandthreatsagainst theeconomicinterestsofthepartiesconcernedandsocietyatlarge.Preliminary draftsofthepaperswerepresentedatUppsalaUniversity,FacultyofLaw,on1–6 June2022attheCELISForumonInvestmentScreeningorganizedbyProf.Dr. SteffenHindelangandJensHillebrandPohl.
ThepresentbookisthesecondofthetwovolumesthatmakeupWeaponising Investments.Whilethe firstvolumeaddressesquestionsthatemphasizethepolitical contextandtheemergenceofsovereign-driveninvestmentsasageoeconomic problem,thesecondvolumeexplorespossiblesolutions.Withthisaim,theauthors examineanumberoflegalandregulatoryinstrumentsproposedorimplementedby policymakerstoaddressthewiderangeofissuesassociatedwithsovereign-driven investments.The firstfourchaptersshedlightoninvestmentcontrolinstruments beyondtraditionalinvestmentscreeningmechanisms.Theyarefollowedbychapters addressingcross-cuttingissues,includingthelimitationsoninvestmentcontrol resultingfromstates’ internationalresponsibilityandcommitments,governance issuesrelatedtothegovernmentalauthoritiesresponsibleforinvestmentscreening, andjudicialapproachestonationalsecurityasalegalconcept.
The firstchapterby LenaHornkohl analysesthenewEUregulationonforeign subsidiesthataimstoprovideatooltoaddressasymmetriesinthemannerinwhich non-EUsubsidiesaretreatedcomparedtointra-EUstateaid.TheEUwantstocreate a “level-playing field” inregardtocompetitiononitsinternalmarketwhileproviding afair-marketcontexttoEurope’snewindustrialpolicy.Whiletheregulationestablishesaformofinvestmentcontrol,itisnotinvestmentscreeningintheconventional senseofnationalsecurityreview.Rather,theregulationisanexampleofa nonsecurity-relatedinvestmentscreeningmechanism.Oratleastamechanism
unrelatedtonationalsecurityinthenarrowsense.TheEUfearsfar-reaching involvementofnon-EUstate-ownedenterprisesinitsinternalmarkettothedetrimentofEUcompetitors,includingsubsidiesforforeigninvestments,mergers,and acquisitions.Inthatsense,onecouldtalkofan economicsecurity instrument.The chapterexploresthealignmentandinterdependenciesofthenewforeign-subsidy instrumentwithexistingEUmergerandinvestmentcontroltools.
Economicsanctionsserveasanotherinstrumentofinvestmentcontrolwithout investmentscreening.EvenifStatestraditionallyhaveusedeconomicsanctionsfor otherpurposes,sanctionscanalsohavearoleincontrollinginvestments,asdemonstratedby TamásSzabados.Investmentsanctionsdirectlylimitthe flowof investmentstowardsand/orfromthetargetstateorpersonsinavarietyofforms, includinggeneralbansofinvestments,sector-specificinvestmentbans,orbanson purchasingandsellingsecurities.Statesalsoincludeconsiderationsrelatedtothe applicationofandcompliancewitheconomicsanctionsintheformalinvestment screeningprocedure.Theuseofeconomicsanctionsininvestmentcontrolissubject tocertaineconomic,political,andlegallimits.Evenso,itseemsthattheyarenot onlycomparabletotraditionalinvestmentscreeningmechanismsbutalsoconstitute aneffectiveelementoftheregulatoryframeworkofcontrollinginvestments.
Athirdtypeofinvestmentcontrolbeyondnationalsecurity-relatedinvestment screeningisbalance-of-payments-relatedinvestmentrestrictions. ClausZimmermann exploresthepotentialconflictbetweenthefreedomofinvestmentandthe relativelywidemarginofmanoeuvreofstatestorestricttransfersoffundsandto imposebalance-of-paymentsrestrictionsintheeventofexternal financialdifficulties.ThechapterexaminestheevolvingIMFandWTOperspectivesinthis field situatedattheintersectionofinternationaltradelaw,internationalmonetarylaw,and internationalinvestmentlaw.Thechapteralsoanalysestherelevantlegalframework forrestrictionsonforeigninvestmentresultingfromexchangecontrolsandexchange reservemanagement.Aspartofitsanalysis,thechapteralsotakesacloserlookatthe evolvinglegalframeworkoncapitalcontrolspost-WashingtonConsensusinlightof destabilizingphenomenasuchashot-money flows.Thechapterconcludesthat,asan exceptional,temporarypolicytool,balance-of-paymentsrestrictionsremainvitally important.Fromtheperspectiveofforeigninvestors,thisdoesnotnecessarilyentail negativeconsequencesaslongasreliableinvestmentconditions,includingwith respecttobothinwardsandoutwards flowsoffunds,canstillbeensured.
JonasFechter turnstheattentiontooutboundinvestmentscreening.Examining USandEUinitiativestocontroldomestic firms’ investmentsabroad,thischapter providesanoverviewofoutboundinvestmentscreeningmechanismsenactedor proposedonbothsidesoftheAtlantic.AnalysingthenewUSlegislation,it examinesthefeasibilityofoutboundinvestmentscreeningunderexistingEUand GermanlawandmakesaninitialproposalforsuchalawintheEuropeansetting.
Next, KilianWagner investigatesthetensionbetweeninvestmentscreeningand theinternationalinvestmentlawregimethatseekstopromotethefree flowofforeign capital.Investmentscreeningdecisionsmaysigni ficantlyaffectinvestmenttransactionsandthusmaybecontrarytostates’ obligationscontainedininternational investmenttreaties.Mostsuchtreatiesprovideforinvestor-state-dispute-settlement
(ISDS),allowingforeigninvestorstoclaimcompensationforthebreachofinvestmentprotectionstandards.Whilethecompatibilityofinvestmentscreeningwith internationalinvestmentlawremainslargelyobscure,hoststatesshouldbeawareof andcomplywiththeirtreatycommitmentswhendesigningandoperatingscreening mechanisms.
Anotherwaythathoststateshavetraditionallycontrolledforeigninvestmentshas beenthroughshareholdings.Nevertheless,today,hoststatespreservetheirstakein domesticcompaniesdeemedstrategicbymechanismsenhancinghoststatecorporate control. BartoszSoloch exploreswhethertheimplementationofsuchmechanisms couldresultininternationalresponsibilityonthebasisoftheattributionofcompanies’ actionstothehoststate.UsingthePolishstateshareholdingregimeasacase study,theanalysisconcludesonascepticalnoteastotheimputabilityofcorporate actionstothehoststateinthecontextofhoststatestrategicshareholdings.
ShiftingfromaninternationaltoanEUcomparativelawperspective,thenext chapterby JacquesBourgeois and AlessandraMoroni investigateshowscreening authoritiesacrosstheEUaredesignedandoperateandhowtheirsetupmayimpact theadministrationandimplementationofscreeningregimes.IntheEU,investment screeningregimesremainatthemember-statelevel,hencecreatingapatchworkof rulesandprocedures,eachadministeredandappliedbynationalscreeningauthorities.Theauthorsidentifythekeygovernancemodelstowhichmemberstateshave resortedindesigningcompetentscreeningauthoritiesandthenexaminehowthe adoptedgovernancemodelmayinfluencethesubstantiveandproceduralpowers conferreduponscreeningauthorities,theircompetenceandefficiencyincarryingout theirtasks,thetransparencyofrelevantprocesses,andtheauthorities’ accountability.Theauthorsconcludebysuggestingthatacompromisetoensureefficientand accountableinvestmentscreeningreviewsmaybetodelegatecertainfunctionsand taskstoadministrative(expert)bodieswhilemaintaininggovernmentinvolvement andoversight,especiallyatthedecision-makingstage.
The finaltwochaptersaddressnationalsecurityfromalegalperspective. Maria RosariaMauro writesabouttheevolutionofnationalsecurityasalegalconceptasit hasbeenappliedinthecontextoftheItalianinvestmentscreeningmechanism.Asa dynamicandevolvingconcept,nationalsecurityhasovertheyearshaditsscope extendedbeyondtheideaofmilitaryprotectiontoincludethesafeguardingofother publicgoalsthatarecrucialforstatesafetyordomesticwelfare.Currently,economic considerationsareincreasinglytakenintoaccountbygovernmentswhenassessing theirnationalsecuritythroughtheconceptof “economicsecurity”.Thisessay examinestheevolvingconceptofnationalsecurityanditsimpactontheFDI approachfollowedbystates,focusingparticularlyontherecentamendmentsof theItalianlegalframeworkonforeigninvestments.Theauthorpostulatestheidea that,inextraordinarytimes,extraordinarymeasuresdevotedtoprotectingthe nationaleconomyarejustified.However,adoptinganoverlyexpansiveinterpretationofnationalsecuritycouldcreatenewinstabilityintheforeigninvestmentlegal frameworkwithnegativerepercussionsoninvestment flows.
Inthe finalchapterofthisvolume, MarekJaśkowski comparestheconceptsof “nationalsecurity” and “essentialsecurityinterests” fromanEUcaselaw
perspective.Thechapteranalysesthecontentandsignificanceofnational-security andessential-securityinterestclausesinEUlaw,speci ficallytheextentofdiscretion ofthememberstateswhenapplyingthoseclausesandtherequirementsconcerning aneffectivereviewofmeasurespurportedlyundertakentosafeguardnationalsecurityoressentialsecurityinterests.Theanalysisleadstotheconclusionthatrecent caselawcouldbeseenasthebeginningofdifferentiationorstratificationbetween clausesofpublicandnationalsecurity.Thiscaselawis,however,contradictedto someextentbytheinterpretationoftheostensiblyparallelconceptof “public security” .
Helsinki,FinlandJensHillebrandPohl Nicosia,CyprusThomasPapadopoulos Lüneburg,GermanyJanoschWiesenthal Brussels,BelgiumJoannaWarchol
Contents TheEUForeignSubsidyRegulation:Why,WhatandHow? ........1
LenaHornkohl
EconomicSanctionsasanInstrumentofForeignInvestment Control .................................................41
TamásSzabados
BalanceofPayments-RelatedRestrictionsontheFreedom ofInvestment ............................................59
ClausZimmermann
Next-levelScreening?TheCaseofOutboundInvestmentScreening ....79 JonasFechter
DeterminingtheRoleofFDIScreeninginInternationalInvestment Law ...................................................115
KilianWagner
States’ ShareholdingasaToolofInvestmentControlinStrategically ImportantCompanies:AnyConsequencesforInternational Responsibility? ...........................................155
BartoszSoloch
ScreeningAuthoritiesintheEU:ConsiderationsonGovernance, Powers,andAccountability .................................173
JacquesBourgeoisandAlessandraMoroni
TheEvolvingConceptof NationalSecurity andForeignInvestment ScreeningProcedureswithParticularReferencetotheItalian Regime .................................................197
MariaRosariaMauro
NationalSecurityandEssentialSecurityInterestsinCJEU Jurisprudence ............................................227
MarekJaśkowski
AbouttheContributors JacquesBourgeois isarecognizedauthorityonEuropeanUnionlaw,withover fourdecadesofexperienceinprivatepracticeandpublicservice.ASeniorAdvisor atSidleyAustinLLP,Brussels,headvisesSidleylawyersandclientsaroundthe globeonallaspectsofEUlaw,withaspeci ficfocusontradeandcompetition matters.JacqueshasrepresentedclientsbeforetheEuropeanCommission,the CounciloftheEuropeanUnionandotherEUinstitutions,aswellasbeforethe EuropeanCourtsinLuxembourgandBelgiancourts.Heassistsclientswithcomplex EUtradeandmarketaccessissues,includinganti-dumpinginvestigations,antisubsidies.Healsohasextensiveexperienceadvisingonmattersrelatedtothe WorldTradeOrganization,hehaschairedaWTOdisputesettlementpaneland hasrepresentedclientsinhigh-stakesWTOdisputesettlementproceedings.Jacques advisesonEUcompetitionmattersrelatedtorestrictivebusinessagreementsand dominantpositions,aswellasonthereviewandclearanceofmergersandacquisitions.Since2006,hehasservedasChairmanoftheCompetitionCommission advisingtheBelgiangovernment.JacquesisaProfessorattheCollegeofEurope inBruges,Belgium.
JonasFechter isaPhD-candidateandresearchassistantattheUniversityof Münster.Inhisresearch,hefocusesoncurrentdevelopmentsinEuropeanand Germaninvestmentscreeninglaw.Additionally,heteachesconstitutionaland administrativelawatthefacultyoflawinMünster.JonasholdsanLL.B.from King’sCollegeLondonandisqualifiedtopracticelawinGermany.Hepursuedhis studiesatKing’sandatHumboldt-UniversityBerlinandreceivedbothStateExams inBerlin.DuringhisReferendariat,JonasworkedattheGermanFederalMinistryof theInteriorandattheGermanChancellery,wherehegainedexperienceinCyber DefenceandFamilylaw.
LenaHornkohl isaTenureTrackProfessorforEuropeanLawattheUniversityof Viennaandapostdoctoralresearcher(Habilitandin)attheUniversityofHeidelberg. ShestudiedlawinHeidelbergandUppsala,completedherlegalclerkshipwith stages,interalia,attheEuropeanCommission,earnedanLL.M.fromtheCollegeof Europe,andreceivedaPhDfromtheUniversityofHeidelberg.Sheworkedasa researchfellowattheUniversityofHeidelberg,alawyerinaninternationallawfirm inBrusselsandasaSeniorResearchFellowattheMPILuxembourg.Herresearch interestsfocusonEuropean,Economic,Private,ProceduralandComparativeLaw.
MarekJaśkowski isaspecialistinEUlaw.Hiscurrentresearchactivitiesfocus primarilyonthelawoftheinternalmarket,EUhighereducationlaw,andtheCourt ofJusticeoftheEU.HeisanassistantprofessorattheDepartmentofInternational andEuropeanLawattheUniversityofCardinalStefanWyszyńskiinWarsaw, Poland.HealsoworksasaseniorlegislationspecialistatthePolishlowerhouseof Parliament(theSejm).
MariaRosariaMauro isFullProfessorofInternationalLawattheMercatorum University(InternationalRelationsforEconomicDevelopment).Previously(2005–2023),sheworkedattheMoliseUniversity(LawDepartment).Atthemoment,she isalsoProfessorofInternationalEconomicLawattheLuissGuidoCarliUniversity (LawDepartment),whereshetaughtalsoInternationalEconomicandEnvironmentalLawandInternationalOrganizationandHumanRights(PoliticalScienceDepartment).ShetaughtEuropeanUnionLawattheLinkCampusUniversity(Law Department).SinceFebruary2023,shehasalsobeenworkingasexpertinbilateral andmultilateralinternationalagreementsonthepromotionandprotectionofinvestmentswithintheItalianPermanentTechnicalSecretariatoftheInterministerial CommitteefortheAttractionofForeignInvestments(CAIE).Between2000and 2005,sheworkedasexpertinInternationalTradeLawandInternationalContractsat theItalianForeignTradeMinistry.Herresearchinterestfocusesoninternational economiclaw,internationalcriminallaw,andimmigrationlaw.Shehaswritten severalbooksandarticles.
AlessandraMoroni advisesandrepresentscompanies,governments,andtrade associationsonawiderangeofEUandinternationaltradeandinvestmentlaw matters,withparticularfocusoninvestmentscreening,exportcontrols,economic sanctions,andtraderemedies.Alessandraregularlyassistsclientsidentifyingand mitigatinginvestmentscreeningandtradecontrolrisksincomplexinternational transactions,managingmulti-jurisdictionalinvestmentscreeningreviewsand filings intheEUandglobally,conductingtradeduediligence,andprovidingrelevant transactionalsupport.Alessandraalsoassistsclientswithstrategiccomplianceissues underEUexportcontrolsandeconomicsanctions,includingbyrequestinglicenses beforeEUMemberStateauthorities,conductinginternalinvestigations,developing compliancepolicies,andadvisingoncomplianceenhancements.Mostrecently, AlessandrahasbeenadvisingonRussia-relatedsanctionshere.Inaddition,
Alessandraassistsclientsintraderemediesinvestigationsandcustomsproceduresin theEUandadvisesonmarketaccessopportunitiesandcomplianceoftrademeasureswithEUandWTOrules.AlessandraisaleadingmemberofSidley’staskforce onthenewEUForeignSubsidiesRegulation.PriortojoiningSidley,Alessandra workedatinternationallaw firmsinMilan,HongKong,andBeijing,advisingclients oninternationalbusinesstransactionsandregulatorycompliance.Shealsogained academicexperienceasateachingassistantatUniversitàCommercialeL.Bocconi (Milan)andasaneditorofvariouslawjournals,includingtheCambridgeLaw ReviewandBocconiLegalPapers.AlessandraholdsanLL.M.fromtheUniversity ofCambridgeandhaspreviouslystudiedinItalyandSpain.
ThomasPapadopoulos isanAssistantProfessorofBusinessLawattheDepartmentofLawoftheUniversityofCyprus.HereceivedhisDPhilinLawfromthe FacultyofLaw,UniversityofOxford,UK(2010).HereceivedadegreeofMagister Juris-MJur(2006)andadegreeofMPhilinLaw(2007)fromtheFacultyofLaw, UniversityofOxford,UK.HealsoreceivedhisLL.B.withDistinction(ranked1st) fromtheDepartmentofLaw,AristotleUniversityofThessaloniki,Greece(2005). Previously,hewasavisitingresearcheratHarvardLawSchool,USA(2009–10).He isalsoaVisitingProfessorattheUniversityofTrentoandatInternationalHellenic University,aTeachingFellowatOpenUniversityofCyprusandanAttorneyatlaw (Greece).Additionally,hewasaVisitingResearcheratKing’sCollegeLondonand atMaxPlanckInstituteLuxembourg.Moreover,heisamemberoftheeditorial boardofEuropeanCompanyLaw(ECL)JournalpublishedbyKluweranda memberoftheeditorialboardoftheEuropeanCompanyCaseLaw(ECCL)Review publishedbyNomos.Heisacountryreporter-legalexpertforCyprusatthe EuropeanModelCompanyAct(EMCA)Group,theCommonEuropeanLawon InvestmentScreening(CELIS)Institute,theCovid-19LitigationProjectofthe UniversityofTrento,ItalyandresearchprojectsoftheEuropeanTradeUnion Institute(ETUI).HeisalsoamemberoftheacademicboardofEuropeanBanking Institute(EBI).Hewasawardedthe “CyprusResearchAward-YoungResearcher (2014)” oftheResearchPromotionFoundationoftheRepublicofCyprus(category of “SocialSciences&Humanities”).Hisarticleswerepublishedinmanytop internationallawjournals.Heisalsotheauthorofthefollowingmonograph publishedbyKluwer:EULawandtheHarmonizationofTakeoversintheInternal Market,2010,Kluwer.Moreover,heistheeditorofthefollowingbookpublishedby Springer:Cross-BorderMergers EUPerspectivesandNationalExperiences,2019, Springer.InFebruary2023,his1280-pagebookonCyprusCompanyLawwas publishedinGreekbyNomikiVivliothikipublications.
JensHillebrandPohl isalegalscholar,geographer,andpoliticalscientistwriting andlecturingattheintersectionoflawandgeoeconomics.Anexperiencedattorney havingpracticedbeforeU.S.federalandstatecourtsinNewYorkandforEU institutions,Jensresearchesthe(geo)politicizationofthelegalorder.HisPhDin lawatMaastrichtUniversityconcernsjudicialdeferencetoexecutivepowerin nationalsecuritycasesandhissecondPhDinpoliticalscienceatTampereUniversity
analyzes “lawfare ” andthe(mis)useofthelegalsystemasaninstrumentofgeostrategicpower.Jensisanadjunctprofessor(docent)atMaastrichtUniversityandthe UnitedNationsUniversity,adoctoralfellowoftheInstituteforGlobalizationand InternationalRegulation(IGIR),adoctoralresearchscientistatTampereUniversity, andanAssociateFellowattheRoyalGeographicalSociety.Heisthefounding serieseditorofSpringerStudiesinLaw&Geoeconomics,anadvisoryeditorofthe YearbookofSocio-EconomicConstitutions,andaformerarticleeditorofthe HarvardInternationalLawJournal.HehasheldvisitingappointmentsattheMax PlanckInstituteforProceduralLaw,T.M.C.AsserInstitute,andtheWorldTrade Institute.HeholdsanLL.M.fromHarvardLawSchoolandanMScinEconomics andBusinessfromtheStockholmSchoolofEconomics.
BartoszSoloch isDeputyDirectorintheMinistryofForeignAffairsRepublicof PolandLegalandComplianceBureau;previouslyDeputyDirectorintheTreaty LawDepartment.Professionalexperienceincludesamongothers,beingCounselin theGeneralCounseltotheRepublicofPolandInternationalandEuropeanLaw Departmenttaskedi.a.withprovidinglegalrepresentationintheinvestmentarbitrationsandpreparingpositionsfortheCJEUproceedings.PhDobtainedatthe Universityof Łódź forthedissertation AutonomyofEULawasalimittoPrivate PartiesAccesstoInternationalDisputeSettlementMechanisms.Researchstaysin BonnandLauterpachtCentreforInternationalLawinCambridge.LL.M.atthe UniversityofBonn.Researchfocusoninteractionsbetweenvariouslegal(sub-) systems,inparticularEUlawandpublicinternationallaw,andinternationaldispute settlementmechanisms,inparticulartheinvestmentarbitrations.
TamásSzabados isanassociateprofessoratELTEEötvösLorándUniversity, Budapest.HeobtainedanLL.M.degreeattheUniversityCollegeLondon.He completedresearchstaysatrenowneduniversitiesandresearchinstitutions,such astheUniversityofCambridge,OxfordandHeidelberg,theHarvardUniversityand theMaxPlanckInstituteforComparativeandInternationalPrivateLaw.Hismain areasofinterestincludeinternationalandEUeconomiclawandprivateinternational law.Hehaspublishedwidelyontheapplicationofeconomicsanctionsandblocking statutes.Heistheauthorofthebook “EconomicSanctionsinEUPrivateInternationalLaw” thatwaspublishedin2019byHart.
KilianWagner worksasaResearcherandLecturer(PhDCandidate)attheUniversityofVienna,SectionforInternationalLawandInternationalRelations.His researchfocusisonInternationalEconomicLawandComparativePublicLaw.In thecourseofhisPhDstudies,hewasaVisitingResearchFellowattheBritish InstituteofInternationalandComparativeLaw(BIICL).Priortothecurrentposition,heworkedasastudentassistantattheSectionforConstitutionalandAdministrativeLawattheUniversityofVienna.Furthermore,hecompletedthejudicial clerkshipandworkedininternationallaw firmsinVienna.HegraduatedinLawat theUniversityofViennaandholdsanundergraduatedegreeinPoliticalScience fromtheUniversityofVienna.
JoannaWarchol islegalandpoliticaladviserattheCommitteeonInternational Trade(INTA)attheEuropeanParliamentsince2010.Shehasbeenresponsiblefor legislativeactsoninvestmentprotections,theEU–WTOorOECDrelations,better lawmakingaswellasproceedingsontheconclusionofinternationalfreetrade agreementsaligningtothepost-Lisbondecision-makingprocedures.In2018,she wasamemberoftheEPsInter-InstitutionalnegotiationintheteamofEPRapporteur,FrancProustduringtrialoguenegotiationsonthe Proposalforaregulation establishingaframeworkforscreeningofforeigndirectinvestmentintotheEU (ScreeningoftheFDIintotheEU).PriortoworkinginINTA,shewasworkingasa coordinatingadviserbetweentheGermanandPolishDelegationwithintheEPP GroupstartingfromtheGermanPresidencyoftheEUin2007withProf.H-G. PoetteringuntilthePolishPresidencyworkingtogetherwithProf.JerzyBuzek,the firstPolishPresidentoftheEP.BeforejoiningtheParliament,shehasobtainedPhD inEuropeanCommercialLawattheUniversityofHeidelberginGermany.Shewas guestspeakeramongothers:attheGermanUniversityofHeidelberg,Hamburgand Bonn,inItalyattheBocconiUniversityinMilan,inFerraraandinBologna,in AustriaatViennaUniversityofEconomicsandBusiness,aswellasatUniversity Louvain-la-NeuveinBelgium,UniversityofLuxembourgandinPolandat JagiellonianUniversityinKrakow.Shewasaswellseniorfellowinframeofthe DFG,DeutscheForschungsgemeinschaftattheRupertoCarolaHeidelbergUniversityandinMaxPlanckInstituteforComparativePublicLawandInternationalLaw inHeidelberg.
JanoschWiesenthal isaPhDcandidateandresearchassistantattheUniversityof Lüneburg(ChairforPublicLaw,PublicInternationalLawandComparativeLaw) currentlyworkingonathesiswhichfocusesonForeignInvestmentScreening.He holdsaPhD-scholarshipfromtheGermanAcademicScholarshipFoundation (StudienstiftungdesdeutschenVolkes).JanoschisalsoDeputyAssistantDirector oftheCELISInstitute,anindependentnonprofit,nonpartisanresearchenterprise dedicatedtopromotingbetterregulationofforeigninvestmentinlightofsecurity andpublicorderconcerns.Heco-foundedtheCELISEarly-CareerScholars’ and Practitioners’ NetworkontheLawandPracticeofEconomicWarfare(CELIS NOW)andtheCELISBlog.Formerly,Janoschworkedasaresearchassistantto Prof.Dr.SteffenHindelangatUppsalaUniversityinSweden.Hecompletedhislaw studiesatHumboldt-UniversitätzuBerlinbypassingthe firststateexamination (ErstesStaatsexamen).HealsostudiedattheUniversitéParisIIPanthéon-Assas, wherehespecializedininternationallawandobtainedboththe Licenceendroit and the Maîtriseendroit
ClausZimmermann isanassociatedpartnerinNOERR’sBrusselsofficewherehe istheleadlawyerforinternationaltradelaw,EUregulatoryaffairsaswellas contentiousproceedings.Clausadvisesenterprisesaswellasgovernmentsonall aspectsofWTOlawandtradepolicy,tradecompliance(customs,exportcontrols andsanctions),marketaccess,tradedefense,foreigndirectinvestmentcontrolas
wellastheEuropeanGreenDeal.Hisresearchoninternationaleconomiclawhas beenpublishedinleadingjournalssuchastheAmericanJournalofInternational LawandtheEuropeanJournalofInternationalLaw.Heisafrequentspeakerat internationalconferencesandalsoservesasalectureroninternationalandEuropean economiclawattheUniversityofPassau.ClausholdsaDPhilinpublicinternational lawfromtheUniversityofOxford,aPhDineconomicsfromtheUniversityParis1 “Panthéon-Sorbonne” aswellasanLL.M.fromYaleLawSchool.Heisamember oftheBrusselsandParisbars.
TheEUForeignSubsidyRegulation:Why, WhatandHow? LenaHornkohl
2.1Scope,DefinitionofForeignSubsidiesandSubsidyRecipient..
Abstract WiththenewRegulationonForeignSubsidiesdistortingtheInternal Market(FSR),theEUwantstocloseseveralgapsinitscurrenttoolbox,fosterits newindustrialstrategyandcreatealevel-playing fieldonitsinternalmarket,thereby increasingcompetitiononthemerits.ContrarytoFDIcontrol,atleastattheoutset, securityconcernsplayaminorroleinthediscussionsaroundregulatingforeign subsidiesontheEUinternalmarket.Thefocusliesoneconomicconcerns:thelevel playing fieldintheEUinternalmarket.Specifically,theEUfearsfar-reaching involvementofnon-EUState-ownedenterprisesinitsinternalmarkettothedetrimentofEUcompetitors.
Thisarticlewill firstgiveanoverviewofthenewFSRand,second,explorethe alignmentandinterdependenciesofthenewinstrumentwithexistingEUscreening instruments,withafocusonmergerandFDIcontroltools.Thearticlesupports foreignsubsidycontrolingeneralbuttakesascepticalviewtowardsthenew regulationinregardtocoordinationandalignmentwithexistingpolicies.It
L.Hornkohl(✉) ViennaUniversity,Vienna,Austria HeidelbergUniversity,Heidelberg,Germany e-mail: lena.hornkohl@univie.ac.at
© TheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerlandAG2023 J.HillebrandPohletal.(eds.), WeaponisingInvestments, SpringerStudiesinLaw&Geoeconomics(2024)2:1–40, https://doi.org/10.1007/17280_2023_15 ,Publishedonline:17June2023
concludesbyplacingtheproposalinthecontextofotherrecentdevelopmentsanda generalincreasedgovernmentalinvolvementandcontrolofeconomicactivitiesin theEU.
1Introduction:Why ‘TheEUshouldnotbeanaïveopeneconomy’1 thisstatementby EddyDeSmitjer, HeadoftheInternationalRelationsUnitintheEuropeanCommission’sDirectorateGeneralforCompetition,representstheEuropeanUnion’snewstrategyoneconomicactivityonitsinternalmarketinvolvingforeignsubsidies.Withthenew RegulationonForeignSubsidiesdistortingtheInternalMarket2 (FSR),theEU wantstocloseseveralgapsinitscurrenttoolbox,fosteritsnewindustrialstrategy3 andcreatealevel-playing fieldonitsinternalmarket,therebyincreasingcompetition onthemerits.4
Contrarytoforeigndirectinvestment(FDI)control,5 atleastattheoutset,security concernsplayaminorroleinthediscussionsaroundregulatingforeignsubsidiesin theEUinternalmarket.Thefocusliesoneconomicconcerns:thelevelplaying field intheEUinternalmarket.6 Specifically,theEUfearsthefar-reachinginvolvement ofnon-EUState-ownedenterprises(SOEs)initsinternalmarkettothedetrimentof EUcompetitors.Whileundertakingsthatreceive financialaidfromanEUMember StatearesubjecttothescrutinyoftheEUStateaidrules,companiesthatobtain financialcontributionsfromanon-MemberStatefalloffthegrid.7 TheEUStateaid rulesdonotapplytoasubsidygivenbyanon-EUMemberState.8 Similarly,inEU procurementlaw,contractingauthoritiescanrejectabnormallylowtendersinthe caseofStateaidincompatiblewiththeinternalmarket.9 Therearenocorresponding
1 See,hereto,Hornkohl(2020).
2 Regulation(EU)2022/2560oftheEuropeanParliamentandoftheCouncilof14December2022 onforeignsubsidiesdistortingtheinternalmarket,OJL330/1(FSR).
3 EuropeanCommission(2020)MakingEurope’sbusinessesfuture-ready:AnewIndustrialStrategyforagloballycompetitive,greenanddigitalEurope(IP/20/416). https://ec.europa.eu/ commission/presscorner/detail/en/ip_20_416
4 SeeonpurposeArticle1(1)FSR;see,onthelegalbasisSmelaWolski(2022),pp.153etseq.
5 SeeRegulation(EU)2019/452oftheEuropeanParliamentandoftheCouncilof19March2019 establishingaframeworkforthescreeningofforeigndirectinvestmentsintotheUnion,OJL1791/ 1(FDI-ScreeningRegulation);seeontheinterplayalsoDacköetal.(2022),pp.505etseq.
6 Seeonthenotionoflevelplaying fieldErdmannandReinhold(2022),pp.145etseq.
7 Recitals2,5FSR.
8 Neumann(2019),p.77;Guilliard(2020),p.306;Kühlingetal.(2022),p.7;criticallyBrauneck (2021),p.2322.
9 Article69(4)Directive2014/24/EUoftheEuropeanParliamentandoftheCouncilof26February 2014onpublicprocurementandrepealingDirective2004/18/EC,OJL94/65,andArt.84(4)Directive2014/25/EUoftheEuropeanParliamentandoftheCouncilof26February2014on
rejectionpossibilitiesforthird-Statesubsidies.10 TheEUtradedefenceinstruments,11 mainlytheAnti-SubsidyRegulation,12 onlyapplytoimportsofgoods andneitherservicesnorothereconomicactivitiesof(foreign)companiesreceiving foreignsubsidiesalreadyontheEUinternalmarket.13 EUcompetitionandmerger controlrulesalsodonotseemtosufficientlymitigatetheimpactofforeignsubsidies oncompetitionintheinternalmarket.Competitionlawisneutralanddoesnotapply speci ficallytocompaniesreceivingforeignsubsidies.14 However,foreignsubsidies couldatleastplayaroleinmarketdominanceanalysisandpredatorypricing practices,eventhoughtheyarenotadominatingfactor.Furthermore,whilethe involvementofforeignsubsidiesandSOEswasdiscussedduringthefamousfailed Siemens/Alstom merger 15 andtakenintoaccountinthe2020German Bundeskartellamt CRRC/Vossloh mergerdecision,16 theyalonegenerallydonot leadtoasignificantimpedimentofeffectivecompetitionundertheEUmerger regime.17
Intheabsenceofamultilateralsolutionregardingsubsidies 18 andtoclosethis regulatorygapintheEUlegallandscape,theEUinstitutionsworkedtogetherin quickunity.TherecordtimeinwhichtheFSRwasadoptedshowstheimportanceof theultimategoaltoleveltheplaying fieldontheinternalmarket.InMarch2019,the EuropeanCouncilaskedtheEuropeanCommissiontoidentifynewtoolstoaddress thedistortiveeffectsofforeignsubsidiesontheSingleMarket,19 whichwas followedbyasimilarrequestbytheEuropeanParliamentinFebruary2020.20
procurementbyentitiesoperatinginthewater,energy,transportandpostalservicessectorsand repealingDirective2004/17/EC,OJL94/243.
10 ItistruethatunderEUprocurementlawatendercanotherwiseberejectedifitisabnormallylow. However,thisisonlypartofanoverallconsiderationandrequiresproofthatonlythethirdState subsidymadesuchalowbidpossible,see,Article69Directive2014/24/EUoftheEuropean ParliamentandoftheCouncilof26February2014onpublicprocurementandrepealingDirective 2004/18/ECandArt.84Directive2014/25/EUoftheEuropeanParliamentandoftheCouncilof 26February2014onprocurementbyentitiesoperatinginthewater,energy,transportandpostal servicessectorsandrepealingDirective2004/17/EC.
11 ThefollowingstatementsonEUtradedefenceinstrumentsapplymutatismutandisalsotoWTO subsidylawseeTrapp(2020),pp.969and970.
12 Regulation(EU)2016/1037oftheEuropeanParliamentandoftheCouncilof8June2016on protectionagainstsubsidisedimportsfromcountriesnotmembersoftheEuropeanUnion,OJL 176/55(Anti-SubsidyRegulation).
13 Müller-Ibold(2020),pp.246–251.
14 Ibid257–263.
15 EuropeanCommission,DecisionofJune2,2019,CaseM.8677 SiemensvAlstom
16 Bundeskartellamt,DecisionofApril27,2020,CaseB4-115/19 CRRCvVossloh
17 Trapp(2020)pp.339–341,seeheretobelowatSect. 3
18 CrochetandGustafsson(2021),pp.343etseq.
19 EuropeanCouncil(2019)ConclusionsEuropeanCouncilmeeting,21and22Mar2019. https:// data.consilium.europa.eu/doc/document/ST-1-2019-INIT/en/pdf.
20 EuropeanParliament(2020)Reportoncompetitionpolicy annualreport2019. https://www. europarl.europa.eu/doceo/document/A-9-2020-0022_EN.pdf .
AfterproposingaWhitePaperonlevellingtheplaying fieldregardingforeign subsidiesinJune2020(WhitePaper),21 theCommissionfollowedupwithaDraft RegulationinMay2021.22 On30June2022,theEUlegislatorsreachedapolitical agreement.23 TheEuropeanParliamentapprovedtheRegulationon10November 202224 andtheCouncilon28November2022.25 TheFSRenteredintoforce20days afterpublicationintheOfficialJournalon12January2023.26 Themajorityofthe FSRstartstoapply6monthslateron12July2023.27 However,theFSRforeseesa staggeredimplementationtimelineforitstwonoti fication-basedtools,whichapply from12October2023.28 Generally,Article53(1)FSRentailscertainretroactivity: theFSRappliestoforeignsubsidiesgrantedinthe5yearspriortothedateof applicationoftheFSR,wheresuchforeignsubsidiesdistorttheinternalmarketafter thestartofapplicationoftheFSR.
ThenewFSRgivesmuchfoodforthought,whichcannotallbecoveredinthis article.Thisarticlewill firstgiveanoverviewofthenewFSR29 and,second,explore thealignmentandinterdependenciesofthenewinstrumentwithexistingEUscreeninginstruments,withafocusonmergerandFDIcontroltools.Thearticlesupports foreignsubsidycontrolingeneralbuttakesascepticalviewtowardsthenew regulationinregardtocoordinationandalignmentwithexistingpolicies.Itconcludesbyplacingtheproposalinthecontextofotherrecentdevelopmentsanda generalincreasedgovernmentalinvolvementandcontrolofeconomicactivitiesin theEU.
21 EuropeanCommission(2020)WhitePaperonlevellingtheplaying fieldasregardsforeign subsidies(COM(2020)253 final). https://ec.europa.eu/competition/international/overview/for eign_subsidies_white_paper.pdf (WhitePaper).
22 EuropeanCommission(2021)ProposalforaRegulationoftheEuropeanParliamentandofthe Councilonforeignsubsidiesdistortingtheinternalmarket(COM(2021)223 final). https://ec. europa.eu/competition/international/overview/proposal_for_regulation.pdf (DraftRegulation).
23 EuropeanCouncil(2022)Foreignsubsidiesdistortingtheinternalmarket:provisionalpolitical agreementbetweentheCouncilandtheEuropeanParliament. https://www.consilium.europa.eu/en/ press/press-releases/2022/06/30/foreign-subsidies-regulation-political-agreement/
24 SeeEuropeanParliament(2022)PositionoftheEuropeanParliamentadoptedat firstreadingon 10November2022withaviewtotheadoptionofRegulation(EU)2022/ oftheEuropean ParliamentandoftheCouncilonforeignsubsidiesdistortingtheinternalmarket,P9_TC1-COD (2021)0114, https://www.europarl.europa.eu/doceo/document/TA-9-2022-0379_EN.html
25 SeeEuropeanCouncil(2022)Councilgives finalapprovaltotacklingdistortiveforeignsubsidies ontheinternalmarket. https://www.consilium.europa.eu/en/press/press-releases/2022/11/28/ council-gives-final-approval-to-tackling-distortive-foreign-subsidies-on-the-internal-market/ .
26 Article54(1)FSR,theFSRwaspublishedintheOfficialJournalon22December2022.
27 Article54(2)FSR.
28 Article54(4)FSR,seealsobelowatSects. 2.4.2 and 2.4.3.
29 SeeheretoalsoRitzek-Seidl(2022a),pp.29etseq.;Ritzek-Seidl(2022b),pp.423etseq.
2TheEUForeignSubsidyRegulation inanOverview:What TheFSRcontainsfar-reachinginstrumentstoregulateforeignsubsidiesontheEU levelandconstitutesanewreviewtoolinEUeconomiclaw.TheFSRisdirected againstthird-countrysubsidiesthatdistorttheinternalmarket.Insevenchapters,the FSRencompassesgeneralprovisions,provisionsthatprovidesubsidyreviewtools, proceduralprovisions,remediesandprovisionsontherelationshipwithother instrumentsandpolicies.ThissectionwilldemonstratethattheFSRusesaregulatorytechniqueofcherrypicking.EventhoughtheCommissionreferstoEUStateaid asamaintoolofinterpretation,30 theFSR,infact,containsahybrisofEUStateaid, tradeandcompetitionlaw.31 ThefactthattheindividualpartsoftheFSRdiscussed inthefollowingoftenusedifferentregulatorymodelsposesachallengefortheir interpretation.
2.1Scope,DefinitionofForeignSubsidiesandSubsidy Recipient Article1FSRestablishesthatforeignsubsidiesgrantedtoanundertakingengaging ineconomicactivityintheinternalmarketthatdistortstheinternalmarketfallwithin thescopeofthisregulation.ThescopeoftheRegulationunderthisconceptisvery broad.32 AccordingtoArticle3(1)FSR, ‘aforeignsubsidyshallbedeemedtoexist whereathirdcountryprovides,directlyorindirectly,a financialcontributionwhich confersabenefitonanundertakingengaginginaneconomicactivityintheinternal marketandwhichislimited,inlaworinfact,tooneormoreundertakingsor industries.’ Theaspectsoftheconceptofforeignsubsidiesdistortingtheinternal marketdrawonEU-Stateaidandtradelaw,particularlytheAnti-SubsidyRegulation andsector-specificanti-subsidylaw,33 asdemonstratedbyTable 1.
30 See,forexample,Recital6FSR;EuropeanCommission(2021)CommissionStaffWorking Document ImpactAssessmentAccompanyingtheProposalforaRegulationoftheEuropean ParliamentandoftheCouncilonforeignsubsidiesdistortingtheinternalmarket(SWD(2021) 99 final). https://ec.europa.eu/competition-policy/system/ files/2021-06/foreign_subsidies_impact_ assessment_report.pdf,pp.7,37,46,47,63;forfurtheranalysisofthecomparisonbetweenforeign subsidyandStateaidlawsee,Hornkohl(2023);alsoZöttlandWerner(2022),pp.475etseq.;Weiß (2022),pp.467etseq.;BlazekandHegener(2022),pp.453etseq.
31 Furthermore,accordingtoRecital9FSR,theFSRshouldbe ‘appliedandinterpretedinlightof therelevantUnionlegislation,includingthoserelatingtoStateaid,mergersandpublicprocurement’;seealsoSoltész(2022),p.425;LaprévoteandLin(2022),pp.443etseq.
32 ZöttlandWerner(2022),p.475.
33 Forexample,Regulation(EU)2019/712oftheEuropeanParliamentandoftheCouncilof 17April2019onsafeguardingcompetitioninairtransport,andrepealingRegulation(EC)No 868/2004,OJL123/4.
Table1 ThenotionofdistortiveforeignsubsidiesincomparisonwithEUStateaidandtradelaw
Foreignsubsidyregulation
Stateaid law
Antisubsidy regulation Sectorspecificanti-subsidy law
UndertakingUndertakingProducte.g.,Aircarrier
FinancialcontributionAid
measure
ProvidedbyathirdcountryStateorigin andState resources
Financial contribution
Providedby athird country
Financialcontribution
Providedbyathirdcountry
BenefitAdvantageBenefitBenefit Limited,inlaworinfact,toan individualundertakingorindustryortoseveralundertakingsor industries
SelectivitySpecificLimited,inlaworinfact,toan entityorindustryorgroupof entitiesorindustrieswithinthe jurisdictionofthegranting authority
Thesubsidyrecipientmustbeanundertaking.Forpublicprocurementprocedures,theterm ‘undertaking’ istobeunderstoodasan ‘economicoperator ’ inthe meaningoftheEUPublicProcurementDirectives.34 Otherwise,theFSRrelieson thewell-knownconceptofundertakingEUcompetitionandStateaidlaw.Inthe senseoftheuniformapplicationofEUlaw,thefactthattheFSRwantstosupplement interalia EUcompetitionandStateaidinstrumentsanddrawsonmany mechanismsknownincompetitionlawandStateaidrulesandpractice,the establisheddefinitionofundertakingintheEUjurisprudencewillalsobeapplicable fortheFSR.AccordingtothestandardCourtofJusticeoftheEuropeanUnion (CJEU)caselaw,theconceptofundertakingcovers ‘anyentityengagedinan economicactivity,regardlessofitslegalstatusandthewayinwhichitis financed.’35
Inforeignsubsidieslaw,relyingonthisdefinitionhasthreeimportantimplications.First,accordingtotheunderstandingofEUjurisprudence,theentity’slegal statusandthewayitis financedareirrelevant.Accordingly,SOEsarecoveredbythe EUlawconceptofundertaking.36 Article1(2)FSRfurthersupportsthis,asit explicitlyunderlinesthatpublicundertakingsdirectlyorindirectlycontrolledbya Statearealsocoveredinthedefinitionofundertaking.37 Thisisofparticular importanceasChineseStatecapitalism,andtheincreasingpresenceorfearofan increasedpresenceofChineseSOEsontheEUinternalmarketwasatriggerforthe
34 Article2(1)FSR.
35 SeethefundamentalcaseofCJEU,C-41/90,ECLI:EU:C:1991:161 KlausHöfnerandFritz ElservMacrotronGmbH,para21.
36 See,forexample,CJEU,C-155/73,ECLI:EU:C:1974:40 GiuseppeSacchi.
37 SeealsoRecital2FSR;heretoScholkeetal.(2022),p.624.
discussionontheregulationofforeignsubsidiesintheEU.38 However,thenationalityandapplicablelawoftheundertakingisirrelevant.WhileforeignSOEs benefitingfromspecialtreatmentbytheirhomegovernmentsarecertainlythe focusoftheFSR,theregulationwillalsoapplytoEU-basedcompaniesreceiving subsidiesfromthirdStates.Second,thefocusoneconomicactivitiesexcludes non-economicactivitiesfromthescopeofapplication,suchasthemereexercise ofpublicpower.Thisisfurtherunderlinedbyrecital16FSR,explainingthata financialcontributiongrantedsolelyfornon-economicactivitiesofapublicundertakingdoesnotconstituteaforeignsubsidyunlessitisusedtocross-subsidise economicactivities.Third,thefocusonthe ‘economicactivities ’ ofencompasses aquitefar-reachingconceptgoingbeyondconcentrationsandpublicprocurement procedures,thespecialisedtools,ontheonehand,andsubsidiesfortradeingoods undertheEUAnti-SubsidyRegulation,ontheotherhand.39 Rather,theFSRandthe exofficio toolwillbeapplicableforservicesandinvestments,includinggreenfield investmentsandconcentrationsandprocurementsbelowthethresholdsofthe speci ficnotificationtoolsdiscussedindetailbelow.
Aforeignsubsidyitselfcomprisesfourcumulativeconditions:40 (1)athird country,(2)providinga financialcontribution,(3)whichconfersabenefittothe undertaking,and(4)islimited,inlaworinfact,toanindividualundertakingor industryortoseveralundertakingsorindustries.AsTable 1 demonstrates,even thoughsomeaspectsseemtooverlapwithStateaidlawtosomedegree,theelements oftheforeignsubsidydefinitionseemtostemtoalargepartfromEUtradelaw,the Anti-SubsidyRegulationandsector-specificanti-subsidylawandarefurtherlaid downinrecitals11–16FSR.Additionally,Article3(2)subparagraph1(a)–(c)FSR clarifiesthenotionof financialcontributionbynaming,non-exclusively,themeans of financialcontributions,andArticle3(2)subparagraph2(a)–(c)FSRclari fiesthe imputabilityonthethirdcountry,which, interalia,includesactivitiesofprivate entitiesattributabletothethirdcountry.Bothwordingsstemalmostverbatimfrom EUanti-subsidylaw41 anddemonstratethefar-reachingunderstandingofforeign subsidiesandtheintenttoavoidanykindofcircumvention42 oftheRegulation.The notionof ‘financialcontribution’ isparticularlywide43 andcrucialsincethenotificationthresholdsforthespecialconcentrationandpublicprocurementprocedures refertothenotionof ‘financialcontribution’ andnot ‘foreignsubsidy’,which includestheimportantlimitingnotionsofbenefitandselectivity.Thiswillmakea
38 See,forexample,EuropeanCourtofAuditors(2020)TheEU’sresponsetoChina’sState-driven investmentstrategy,Review3/2020. https://www.eca.europa.eu/Lists/ECADocuments/RW20_03/ RW_EU_response_to_China_EN.pdf ;BardtandMatthes(2021),pp.300etseq.
39 Müller-Ibold(2020),pp.246–251.
40 Recital11FSR.
41 SeeArticle3(1)(a)Anti-SubsidyRegulation;Article9(10)Regulation(EU)2019/712ofthe EuropeanParliamentandoftheCouncilof17April2019onsafeguardingcompetitioninair transport,andrepealingRegulation(EC)No868/2004,OJL123/4.
42 SeealsoArticle39FSR.
43 SeeSoltész(2022),p.426,listingexamplesofpossible financialcontributions.
Table2 Distortionsontheinternalmarket
Distortionsonthe internalmarketIndicators Categoriesof mostlikely distortive subsidies Categoriesofunlikely distortivesubsidies
Aforeignsubsidymust beliabletoimprovethe competitivepositionof anundertakinginthe internalmarketand,in doingso,actuallyor potentiallynegatively affectcompetitiononthe internalmarket
• Amountofsubsidy
• Natureofsubsidy
• Situationofundertakingandmarkets concerned
• Levelandevolutionof economicactivityofthe undertakingconcerned ontheinternalmarket
• Purpose,conditions, anduseofforeign subsidy
• Ailingundertaking(unless restructuring plan)
• Unlimited guarantee
• Export
financing credits
• Directlyfacilitatingaconcentration
• Unduly enablingto submitan undulyadvantageoustender
• Totalamountofforeignsubsidydoesnot exceed € 4millionover anyconsecutiveperiod of3years
• Totalamountofforeignsubsidydoesnot exceeddeminimis Stateaidoveranyconsecutiveperiodof 3years
• Foreignsubsidy makinggooddamages fromnaturaldisasters orexceptional occurrences
hugedifferencesinceprerequisitesof ‘financialcontribution’ areeasilymetdueto thebroad,evasiveconceptof ‘financialcontribution’ contraryto ‘foreignsubsidy’ , whichcallsintoquestiontheusefulnessofthethresholdsandlimitationofthe notificationtoolstolikelyveryimpactfulcases.44
2.2LegalTest Onceaforeignsubsidyisestablished,theFSR’slegaltest45 comprisestwosteps because,unlikeStateaidlaw,foreignsubsidiesarenotgenerallyprohibited.46 First, theCommissionmustestablishthattheforeignsubsidydistortstheinternalmarket perArticles4and5FSR.Second,theCommissionmustbalancethepositiveand negativeeffectsofthedistortiveforeignsubsidyperArticle6FSR.
2.2.1DistortionsontheInternalMarket The firststep,thelegaltestfordistortionsontheinternalmarket,containsitselfof differentstepslaiddowninTable 2.AccordingtoArticle4(1)FSR,thereisa
44 SeealsoZöttlandWerner(2022),pp.476and477;Bauermeister(2022),p.483.
45 SeeonthelegaltestindetailSchonberg(2022),pp.143etseq.
46 Recital17FSR.
distortionontheinternalmarketiftheforeignsubsidyis ‘liabletoimprovethe competitivepositionofanundertakingintheinternalmarketandwhereindoingso, itactuallyorpotentiallynegativelyaffectscompetitionontheinternalmarket.’ This definitionofdistortionsontheinternalmarketisatleastsimilartothenotionof ‘distortionofcompetition’ knownfromStateaidlaw.47 However,contrarytoState aidlaw,thedistortionontheinternalmarkethavetobeassessedincontextofa speci ficeconomicactivityandnotconcerningaspecificforeignsubsidyitself.48 One economicactivity,suchasaconcentration,canincludetheassessmentofmultiple financialcontributionsandforeignsubsidies.49 TheFSRitselfprovidesadditional indicationsfortheassessmentofdistortions,buttheCommissionwillalsohaveto publishguidelinestoshedlightonthefar-reachingconceptofdistortionsunderthe FSR.50
Thedistortiontestinitselfiseconomic,asitconcernstheeconomicimpactofa foreignsubsidyinaspecificeconomicactivity’scontextintermsofcompetitive positionoftheundertakingandcompetitionitselfintheinternalmarket.Ultimately, thetestwillneedtoincludecomparisonbetweensubsidisedcompaniesand non-subsidisedcompaniesandthecorrespondingeffectsoncompetitionby subsidisedcompanies.ItisstillunclearwhetherArticle4(1)FSRwillrequirean in-deptheconomicassessmentoftheimpactoftheforeignsubsidybytheCommissionintheveinofamoreeconomicapproach,suchasdeterminingtowhatextenta relevantmarketisaffectedbytheforeignsubsidyandprovidingeconomicstudies fordistortiveeffects.51 Thefactthataforeignsubsidymustonlybe ‘liable’ toleadto distortiveeffectsshowsthatpotentialdistortionsarealsosufficienttofulfilthe notion.52 Thiscanbequestioned,atleastinpart,whenconsideringtheArticle4 (1)FSRnon-exhaustivelistofindicatorsasdemonstratedbyTable 2 forthe assessmentofthedistortion,suchasthesituationoftheundertakingandthemarkets concerned.Ifpotentialdistortionsaresufficient,themarketshareofthesubsidyreceivingundertakingsandtheircompetitorsshouldbeirrelevant.However,the indicatorsarenotamandatorypartoftheassessmentandsimplyserveasguidance fortheCommissiontocrediblyjustifypossible findingsofadistortion.Further guidanceontheseindicatorsprovidesrecital19FSR.Forexample,withregardto the ‘situationoftheundertaking’ inthesenseofArticle4(1)(c)FSR,recital19FSR explainsthatifaforeignsubsidyisgrantedforoperatingcosts,itseemsmorelikely tocausedistortionsthanifitisgrantedforinvestmentcosts.
47 SeeCJEU,C-730/79,ECLI:EU:C:1980:209 PhilipMorris para11.
48 ZöttlandWerner(2022),p.481.
49 See,forexample,Article19FSR,limitingtheassessmenttotheconcentrationconcernedandall foreignsubsidiesprovidedinthe3yearspriortotheconclusion.
50 Article46(1)(a)FSR.
51 SeeonthequestionoftherelevanttheoryofharmandwhethertheanalysisrequiresadeterminationoftherelevantmarketalsoZöttlandWerner(2022),pp.481etseq.and483.
52 SeealsoArticle7andRecital7FSR.
TheFSRthenalsoprovidescertainbenchmarksforwhenaforeignsubsidyis likelyandunlikelytodistorttheinternalmarket.Thesetwooppositebenchmarks willprovideacertaindegreeoflegalcertaintyregardingtheenforcementprioritiesof theEuropeanCommission.Article4(2)FSRgivessomesafeharbourfor deminimis foreignsubsidiesbystatingthataforeignsubsidy ‘doesnotexceedEUR4million overanyconsecutiveperiodofthreeyears,thatforeignsubsidyshallbeconsidered unlikelytodistorttheinternalmarket’.Evenif ‘unlikely’ onlymeansthatin exceptionalcases,adistortioncanstillbejustified,the deminimis subsidyceiling mitigatestheburdenforcompaniesandtheCommission;theCommissionshould limititselftothegenuinelyproblematicforeignsubsidies.
Duringthetriloguediscussions,twofurtherpossibilitiestoconsideraforeign subsidytobenon-distortivewereadded.First,inanaimtofurtheralignforeign subsidycontrolwithEUStateaidlaw,Article4(3)FSRStatesthatthetotalamount offoreignsubsidiesshouldalsonotbeconsideredtodistorttheinternalmarketif theywouldconstitute deminimis StateaidunderEUStateaidlaw.53 Thismeansthat thetotalamountoftheforeignsubsidytoasingleundertakingshallnotexceed € 200,000overanyconsecutiveperiodof3 financialyearstoavoidbeingconsidered distortive.54 OnlysubtledifferencesexistbetweenArticle4(3)FSRandStateaid law,withArticle4(3)FSRreferringtoa ‘consecutive’ periodof3yearsinsteadof ‘fiscal’ years.Moreover,inadditiontothemuchhigherthresholdof € 4millionin Article4(2)FSR,a € 200,000thresholdinArticle4(3)FSRmayseemsuperfluous. Nevertheless,adifferenceinwordingbetweenbothsectionsprovidesthesolution. Whilethe deminimis subsidyinthesenseofArticle4(2)FSRof € 4millionis ‘unlikely’ toleadtodistortions,the € 200,000thresholdinArticle4(3)FSR ‘shall notbeconsideredtodistorttheinternalmarket’ . 55 Thisentailsthat deminimis subsidieswithinthemeaningofArticle4(3)FSR,similartoStateaidlaw,donot qualifyasadistortionatall(hardminimumthreshold).56 Thereisnoroomfor manoeuvring,asisthecasefor deminimis subsidiesperArticle4(2)FSR(soft minimumthreshold).
Second,accordingtoArticle4(4)FSR,foreignsubsidiesmakinggooddamages from ‘naturaldisastersorexceptionaloccurrences’ maybeconsidered non-distortive.ThisdecisionwasmostlikelybasedontheexperiencewithgovernmentalassistancemeasuresduringtheCOVID-19pandemicorfollowingRussia’s attackofUkraine.57 Again,theco-legislatorswereinspiredbythewordingofEU
53 SeealreadyWhitePaper,15.
54 Article3(2)FSRreferringtoArticle3(2), firstsubparagraphCommissionRegulation(EU)No 1407/2013of18December2013ontheapplicationofArticles107and108oftheTreatyonthe FunctioningoftheEuropeanUnion,OJL352/1.
55 SimilardistinctionDacköetal.(2022),p.513.
56 SimilarwordingRitzek-Seidl(2022b),p.425.
57 SeealsoModrall(2022);EuropeanCommission,TemporaryFrameworkforStateaidmeasures tosupporttheeconomyinthecurrentCOVID-19outbreak,OJC91Iasamendedbyeresubsequent versionspublishedinOJC112I(2020),OJC164(2020),OJC218(2020),OJC3401(2020),OJ C34(2021)andOJC473(2021),informalconsolidatedversionoftheTemporaryFrameworkof
TheEUForeignSubsidyRegulation:Why,WhatandHow?11
Stateaidlaw’sArticle107(2)(b)TFEUandlikelywantedtoensuresomedegreeof legalcertaintywithregardtoforeignsubsidiesneededtomitigatetheimpactofthe stillongoingCOVID-19pandemicandpossiblefuturepandemicsaswellasother crises.However,unlikeArticle107(2)(b)TFEU,whichdoesnotgivetheCommissiondiscretion(‘shall’),Article4(4)FSRgivestheCommissionamarginof appreciation(‘may’)similartotheexemptionsinArticle107(3)TFEUofEU Stateaidlaw.
Incontrast,Article5FSRcoverscategoriesofsubsidiesmostlikelydistortingthe internalmarket.IncaseaforeignsubsidyfallsinonecategoryofArticle5FSR,the Commissiondoesnothavetoperformadetailedassessmentbasedontheindicators ofArticle4FSR,buttheundertakingcandemonstratethattheforeignsubsidyisnot distortive,58 whichissimilartotheproceduralmeansofpresumptionandrebuttal. The fivecategories59 includeaidtoanailingundertaking,unlimitedguarantees, subsidiestofacilitateaconcentrationorundulyadvantageoustenderandexport financingmeasures.Whilethe firsttwoaresomewhatknowninStateaidlaw,60 the followingtwostemfromthecoreofthisnewRegulation.TheCommissionis particularlyworriedaboutforeignsubsidiesforacquisitionsandpublictenders,as demonstratedbythespecificnotificationproceduresforboth.61 Thelattercategory wasalreadyincludedintheWhitePaper62 andwasre-includedintheFSRduring triloguediscussions.
2.2.2BalancingTest Aforeignsubsidydistortingtheinternalmarketinitselfisnotsufficient.Article6FSRwarrantsabalancingtest.Redressivemeasurescanonlybetakenor commitmentscanonlybeaccepted,when ‘thenegativeeffectsofaforeignsubsidy intermsofdistortionintheinternalmarket, accordingtoArticles4and5’ outweigh the ‘positiveeffectsonthedevelopmentoftherelevantsubsidisedeconomicactivity ontheinternalmarket’ 63 Theassessmentmustbeevidencebased64 inthesensethat theCommissionmustmakeadecisionbasedonthe ‘informationreceived’,which hastobeseeninconjunctionwithArticle5(2)FSR,accordingtowhichan undertakingunderinvestigationcansubmitrelevantinformation ‘astowhethera 18November2021. https://ec.europa.eu/competition-policy/system/ fi les/2021-11/TF_consoli dated_version_amended_18_nov_2021_en_2.pdf
58 Article5(2)FSR.
59 SeealsoRecital20FSRfordetails.
60 See,forunlimitedguarantees,forexampleCJEU,C-438/16P,ECLI:EU:C:2018:737 European CommissionvFrance.
61 SeeChapters3and4FSR.
62 WhitePaper,15.
63 Article6(2)FSR.
64 Recital21FSR.
foreignsubsidylistedabovedoesnotdistorttheinternalmarketinthespeci fic circumstancesofthecase’.Naturally,theundertakingcanalsosubmitinformation onpositiveeffectsthatmayoutbalanceanydistortions.
Thetriloguediscussionsprovidedsomeclarificationsforthe neverthelessstill veryopaqueandverybroad65 balancingtest,particularly withanoutlookon delimitationandalignmenttoFDIcontrol whetherthebalancingtestprimarily concernspositiveeconomiceffectsontheinternalmarket,suchasefficiencies,or whetherpublicpolicyconcernscouldbetakenintoaccount.The finalwordingof Article6(1)FSRindicatesagraduatedapproach.Themainfocusshouldlieonthe balancingofnegativeandpositiveeconomiceffectsintermsofdistortionsonthe internalmarketandpositiveeffectsonthedevelopmentoftherelevantsubsidised economicactivityontheinternalmarket.Asmentionedintheintroduction,contrary toFDIcontrol,regulatingforeignsubsidiesontheEUlevelshouldmitigateeconomicconcerns(re-)createalevelplaying fieldontheEUinternalmarket.66 Therefore,positiveeffectsshouldequallyfocusontheeconomicrealm,as emphasisedbythe firstpartofArticle6(1)FSR.ThetextofArticle6(1)FSRin thevariouslanguageformatsexplicitlyreferstothe ‘economicactivityonthe internalmarket’,whichcanatleastbetakenasasubtlehinttowardprimarily economicreasoning.Also,fromapracticalstandpoint,itmakessensetobalance distortionsintheinternalmarketagainstpositiveeconomiceffects.Non-economic effectsarehardtoquantifyandthenbalanceagainstspeci fic(economic)distortions intheinternalmarket.
Nevertheless,duringthetriloguediscussions,thesecondhalfofArticle6(1)FSR wasadded,warrantingthattheCommissionshouldalsoconsider ‘otherpositive effectsoftheforeignsubsidysuchasbroaderpositiveeffectsinrelationtothe relevantpolicyobjectives,inparticularthoseoftheUnion’.Althoughthetestof Article6(1)FSRreferstoabalancingoftheeconomiceffectsmentioned,thepolicy concernsmustnowatleastbeconsidered.
ThisbalancingapproachofArticle6(1)FSRshiesawayfromtheWhitePaper, whichexplicitlyreferredtoaso-calledEU-interesttest,67 aconceptstemmingfrom EUtradelaw.68 WhiletheEUtradelaw’smainobjectiveistoprotectEuropean industriesagainstthedistortivepracticesofthird-countrycompetitors,theimpositionofrestrictivetrademeasuresmightbeadvantageoustotheaffectedEUindustriesbutdisadvantageoustootherEUactors.TheEUinteresttestinthevariousEU tradeinstrumentsensuresthatthenegativeeffectsoncertaininterestedactorsarenot clearlydisproportionatetothepositiveimpactsofthetradeinstrumentsforthe protectedEUindustries.69 ItisstilldebatedwhethertheEUinteresttestintrade
65 Soltész(2022),p.426;GauandGutmann(2022),p.42.
66 SeealsoDacköetal.(2022),p.507.
67 WhitePaper,17;seeheretoindetailGauandGutmann(2022),pp.42etseq.
68 See,forexample,Article31Anti-SubsidyRegulation.
69 See,ontheEUinteresttestingeneralWellhausen(2001),pp.1027etseq.;Horváthy(2014), pp.261etseq.
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The Project Gutenberg eBook of Colour vision
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Title: Colour vision
Being the Tyndall Lectures delivered in 1894 at the Royal Institution
Author: Sir William de Wiveleslie Abney
Release date: April 17, 2024 [eBook #73410]
Language: English
Original publication: New York: William Wood and Company, 1894
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COLOUR VISION TYPES OF COLOUR VISION. W. DE W. A., DEL.
W. GRIGGS, LITH.
COLOUR VISION BEING THE TYNDALL LECTURES DELIVERED IN 1894 AT THE
ROYAL INSTITUTION BY
CAPT. W. W. ABNEY, C.B., D.C.L., F.R.S., LATE ROYAL ENGINEERS WITH COLOURED PLATE AND NUMEROUS DIAGRAMS NEW YORK WILLIAM WOOD AND COMPANY
PREFACE. THE writer had for some years past, in conjunction with General Festing, and recently as Secretary and Member of the Colour Vision Committee of the Royal Society, carried out a series of investigations on colour vision, and selected that subject when he was invited, in 1894, to deliver the Tyndall Lectures at the Royal Institution.
The brief time allotted for these lectures—an hour on three successive Saturday afternoons—restricted the discussion of some aspects of the question, and confined its treatment in the main to those features most readily explicable by the physicist, and to bringing into notice the latest results which had been obtained from physical experiments. How far the writer has succeeded in the task which he then outlined it is for the reader to determine.
There was no intention in the first instance to publish these lectures. After their delivery, many persons expressed a desire that the information they contained should be rendered accessible to such as were interested in the theory of colour vision, and in deference to that desire the lecture-notes have been re-cast in book form. For the reader’s convenience the matter is now divided into chapters instead of into lectures, and a few additions have been made in the text to explain some of the experimental work to those who have not facilities for its repetition.
The writer has to acknowledge several debts of gratitude. First, to Mr. E. Nettleship, for his kindness in looking over the proofs, and making valuable suggestions whilst the work was passing through the press; and also, as will be seen throughout its pages, for many of the interesting cases of defective colour perception which have been examined by the somewhat novel methods described. Next, the writer’s gratitude is due to Professor M. Foster for the permission he has given to use his admirable description of the Hering theory; and,
lastly, to the Royal Society for the permission it accorded to use various diagrams which have served as illustrations to papers which have appeared in its “Philosophical Transactions” and “Proceedings.”
C O L O U R V I S I O N . CHAPTER I. I MUST commence this course by saying that I feel the honour that has been done me in asking me to undertake it, connected as it is with the name of Tyndall, whose recent removal from our midst has been deplored by all lovers of science, and by none more than by those who have had the privilege of listening to him at this Institution. It is my duty to speak on some subject of physics, and the subject I have chosen is Colour Vision. I hope it will not be considered inappropriate, since it was Thomas Young, the physicist, whose connection with this Institution is well known, who first propounded a really philosophical theory of the subject. Interesting as it may be to trace how old theories have failed and new ones have started, I feel that for those who, like myself, have but little time at command in which to address you, the historical side of this question must of necessity be treated incompletely.
Colour vision is a subject which enters into the domains both of physics and physiology, and it is thus difficult for any one individual to treat of it exhaustively unless he be a Helmholtz, who was as distinguished in the one branch of science as he was in the other. I am not a physiologist, and at the most, can only pretend to an elementary knowledge of the physiology of the eye, but I trust it is sufficient to prevent myself from falling into any grievous error. I shall try and show you, however, that the subject is capable of being made subordinate to physical methods of examination. I must necessarily commence by a very brief description of those parts of the eye in which it is supposed the seat of vision lies, but in terms which are not too technical. As to the mere optical properties of the eye I shall say but little, for they are not necessary for my purpose, although more particularly adapted to mathematical treatment than the other properties I have to describe.
The eye may be diagrammatically represented as in the figure which is supposed to be a horizontal section of it, the figure being reproduced from Professor Michael Foster’s Physiology.
F . 1.
Scl is the sclerotic coat. Ch the choroid coat, with CP the ciliary process. I is the body of the Iris. R is the retina or inner wall. PE the pigment epithelium or outer wall. L the lens held by the suspensory ligament sp.l. VH is the vitreous humour ON the optic nerve, ox is the optic axis, in this case made to pass through the fovea centralis, f.c.
As far as the perception of colour is concerned, the principal part of the eye which is not distinctly optical—i.e. for the production of images—is the retina, and this it will be seen is in reality an outcrop of the brain, the connection between the two being the optic nerve. Owing to this connection, it is not easy to determine where the seat of colour perception is located; but for the purpose of physical investigation this is not of first-rate importance, nor does it affect the discussion of rival theories except in a minor degree. There are other subsidiary adjuncts in the eye to which, however, I must call
attention, as they have a distinct bearing on the apparent intensity of some colours and of the hue that mixtures of others are perceived. The first is what is called the “macula lutea,” or yellow spot, a spot which it may be assumed exists in every eye. It is horizontally oval in form, and is situated in the very centre of the retina, embracing some 6° to 8° in angular measure. It has a brownish or yellowish tint, and the retina at this part is slightly depressed, being bounded by a slightly raised rim. In the centre of this area the retina becomes very thin, having a depression about 1/100 of an inch or ·3 millimetres in diameter, which is named the “fovea centralis,” where it is said that vision is the most acute. This statement can be well credited when we come to consider where the seat of the stimulation of sensation lies. The colour which tints the yellow spot is strongest at the craterlike rim, and fades away centrally and peripherally, and is said to be wholly absent in the fovea centralis.
As the colour of this spot is yellow or brown in the living eye (and that it is probably brown the absorption indicates), it follows that white light passing through it must be deprived of some of its components, though in differing degrees. If the seat of sensation is at the outer layer of the retina, as we shall shortly see must be the case, it will further be seen that when light of any colour which the brown pigment will absorb more or less completely falls on different parts of the oval area, the absorption must vary at each part, and the intensity of the perceived light will be least at the rim and increase centrally and peripherally. As the centre of the yellow spot or fovea is coincident approximately with the point where the axis of the eye cuts the retina, the image of an evenly illuminated object, when looked at directly, must fall on the yellow spot. If, therefore, a patch of such light, the image of which more than covers the spot, be observed, it ought to exhibit a varying brightness of colour corresponding to the strength of the colouring matter which exists at the different parts. This it but rarely does, for habit and constant interpretation of what should be seen prevents the mind from distinguishing these variations; but if the colour brightness, as perceived by the different parts, be submitted to measurement by proper means, the variations in brightness of the image can be readily recognised. A very common method of exhibiting the
presence of the pigment is to look at a bright white cloud through a layer of chrome alum. Chrome alum transmits red and blue-green rays. Now as the spectrum-blue rays are those which the pigment will absorb, it follows that the colour of the solution should appear ruddy to the central part of the eye, but on the rest of the retina it should appear of its ordinary purplish colour. At a first glance, and before the eye has become fatigued, this is the case, but the phenomenon soon disappears. Another way of forming an idea as to what the yellow spot absorbs is to throw a feeble spectrum on a white surface and cause the eye to travel along it. If the spectrum be viewed so that it does not occupy more than about 40° of the retina, the movement of the eye will show a dark band travelling along the green, blue, and violet regions as the image of these parts of the spectrum fall on the yellow spot, and their apparent brightness will increase as they fall outside the absorbing area. This proves that an absorption takes place in this area.
F . 2.
The retina consists essentially of an inner and outer wall, enclosing matter which is similar to the grey matter of the brain. On the inner wall are the vessels which are connected with the optic nerve. The outer wall is epithelium coloured with a pigment, and it is here that the visual impulses begin, although the rays of light giving rise to them have to pass through the thickness of the retina before so doing. It has already been stated that the light has to pass through the thickness of the yellow spot before a visual sensation is
felt in the centre of the field, and the experiments just given offer a fair proof of the truth of the assertion, but there is still another which is perhaps more conclusive. Suppose we have a hollow reflecting ball, as shown in Fig. 2, and through an orifice A we project a beam of light to B, which meets an obstruction, S, in its path, then A B would be reflected from B to C on a screen C F, and the obstruction S would be marked at C. If another beam from D was directed so as to meet the same obstruction, its presence would be marked at F. Knowing the distance of the centre O of the hollow sphere from F C and its diameter, and measuring the distance between F and C and their respective distances from the axis of the sphere, the distances S B and S E can be calculated. This method is applied in the formation of what are known as Purkinje’s figures. The simplest case is where a beam of light is directed through the sclerotic and transmitted through the lens. Images of the retinal vessels are distinguished as at S, and it is found that they cast shadows, which are seen as dark lines in the glare of the field of vision. The sensation of light must therefore come from behind these vessels, and calculation shows that the seat of the sensation is close to the pigmented inner wall of the retina.
Lying here is a layer of what are known as rods and cones, which have a connection, either actual or functional, with the optic fibres which largely compose the inner wall of the retina, and are connected with the optic nerve. In the yellow spot the cones are much more numerous than the rods, but in the peripheral part the reverse is the case. In the fovea the rods appear to be altogether absent. The total number of cones in the eye has been calculated to be about 3,000,000, of which about 7,000 are in the small fovea. The number of cones will give an idea of their dimensions. This detail has been entered into as it has been supposed that these rods and cones are all-important in translating light-waves into visual impulses. The inner wall of the retina of most human eyes, as has been mentioned, is stained with a black pigment, fuscin, though in albinos it is absent. What its particular use may be is still unknown, for its change by light is so slow that it can scarcely be the cause of vision. In the outer parts of the rods is, however, diffused a substance highly sensitive to light, called the “visual purple,” from its
colour, and a theory founded on chemical action, produced by a change in this substance, has been promulgated. Fascinating, however, as such a theory must be, it lacks confirmation. The fact that the cones do not contain it, and that in the fovea are cones alone, renders it difficult to reconcile the theory with the fact that this part of the retina possesses, we are told, the greatest acuteness of sensation as regards light and colour.
The eyes of most vertebrate animals, it may be remarked, have this visual purple, but in those of the bat, owl, hen, and some others the colouring matter seems to be absent. Visual purple is an interesting substance, however, and as it is found in the eye it probably exercises some useful function, though what that function may be is at present unknown. That images of objects can be formed on the retina, owing to the bleaching of this substance, has been proved by experiment. The purple is first changed to a yellow colour, and then passes into white. These “optograms,” as they are called, can be fixed in an excised eye if the retina be detached, and then be treated with a weak solution of alum.
F . 3.
Many persons are not aware of the extent of the field of view which the eye embraces. Vertically it takes in about 100°, whilst
