Unique Fashion BV Case Study - Law Assignment Help

Assignment Task

Question 1: Unique Fashion BV Case Study
Introduction
The European Union (EU) is one of the world’s most open economies and the biggest single market area with no trade barriers among its member states. Based on the four pillars of free movement, the trading bloc allows people, capital, goods, and services to move freely between EU countries. This makes it easier for more than 450 million EU consumers to access goods and services, and facilitates trade between firms, including over 22 million SMEs. The block also helps to create jobs, inspire innovation, and fuel economic growth. Free trade among the members is one of the bloc's founding principles. The EU also negotiates international trade agreements on behalf of all its member states. Negotiating trade deals as a single entity helps the bloc to carry more weight in trade negotiations compared to a single member.
Preserving and promoting fair competition practice

The EU has a range of rules on competition that are intended to promote fair and equal conditions for companies while promoting unified standards, innovation, and the growth of small enterprises. Fair competition practices are safeguarded by the EU competition policy, which ensures that all businesses can compete on equal terms on the markets of all EU countries. The policy includes a wide array of rules, including state aid, antitrust and cartels, the liberalisation of markets, and merger assessment. These rules are enforced by European Commission, which tracks and scrutinizes anti-competition practices and state aid to guarantee a level playing field for all enterprises, while promoting fair pricing for consumers. Competition cases investigated by the commission are taken to the General Court with appeals heard by the Court of Justice.

One of the rules covered by the EU competition policy that may apply to the case of Unique Fashion BV is state aid, which refers to a subsidy or any other aid conferred by national public authorities to entities that distorts competition by favouring certain enterprises. Subsidies granted to individuals or general measures open to all businesses such as employment legislation or general taxation measures do not constitute state aid and are not covered by this prohibition. The EU competition law sets out four cumulative criteria that need to present for a state aid to be considered unlawful. The four include:
The use of state resources, which can take a variety of forms, including government holdings of all or part of an entity, guarantees, grants, as well as interest and tax benefits.

The advantage conferred gives the beneficiary an edge on a selective basis.
As a result of favouring the beneficiary, the measure distorts competition. The measure is likely to impact trade between the EU Member States. As highlighted by the criteria, state aid granted to an entity may give the beneficiary a selective financial edge, which might distort or threaten to distort competition and the functioning of the internal market. As such, state aid is outlawed under the Treaty on the Functioning of the European Union (TFEU), Article 107(1). However, exceptions exist if state aid is meant to promote general economic development, fits within the De Minimis regulation, or adheres to one of the areas within the General Block Exemption Regulation (GBER). These exceptions must illustrate that the aid is not contrary to the public interest and do not distort competition in any way.
Unique Fashion BV can lodge a complaint with the European Commission, highlighting that French public authorities are giving a selective advantage to France companies by requiring manufactures from other EU countries to pay charges for recycling the masks. If these charges do not apply to France companies, then this may be considered as unlawful state aid in the form of tax benefits that give France manufacturers an edge on a selective basis, thus distorting competition. Also, France authorities have limited the number of masks that may be imported to 10,000 a month. Again, this intervention gives France companies a selective advantage because no such limitation applies to them. As a result, competition may be distorted. In addition, Unique Fashion BV will be taxed at a higher rate because its masks have a loose strap, which France authorities argue is not as safe as a string strap because it makes masks fall off people’s faces thus endangering others close to them. The firm’s investigation, however, shows that a number of France’s manufacturers of masks do not use a stringy strap and are not subjected to higher tax rates.
Unique Fashion BV can also base its complaint on various case laws in which a number of countries were found to have given their companies an unfair advantage over competitors thus breaching EU State aid rules. For instance, in the case of the European Commission vs. Belgium, the Court of Justice of the European Union (CJEU) ruled that the Belgian tax rules regarding cross-border transactions of multinational companies constituted a state aid scheme. The case which had been ongoing for many years related to a provision under Belgian tax legislation that exempted Belgium companies that are part of a multinational group from taxation on certain income that was regarded as excess profits not considered to relate to the Belgian activities. The move was intended to help the companies avoid double taxation.
Following its objective to curb unlawful fiscal state aid, the Commission initiated investigations in 2015 into the alleged state aid scheme provided through this provision. In 2016, the Commission ruled that the tax system constituted illegal state aid as the provision on excess profit conferred selective advantages not available to all comparable firms. Consequently, it ordered Belgian tax authorities to recover the tax benefits granted from the beneficiaries of the tax system. The Commission’s decision was, however, annulled by the General Court, which ruled that the Commission made methodological errors by regarding the tax system as a state aid scheme. The ruling by the general Court was overturned by CJEU on 16 September 2021, which upheld the commission’s decision concerning the qualification of the tax system as a state aid scheme.

In another case law, European Commission vs. the UK, the Commission initiated an in-depth investigation into a British scheme that exempted some transactions by multinational firms from the application of British anti-tax avoidance rules known as Controlled Foreign Company (CFC). The rules prohibit British firms from using their subsidiaries, located in a low or no-tax jurisdiction, to avoid taxation in Britain. However, between 2013 and 2018, the statute encompassed an exception known as the Group Financing Exemption that offered a derogation from the general CFC rules for interest payments received from loans of multinational firms active in Britain. The exemption absolved from taxation in Britain financing income received by foreign group firms via an offshore subsidiary, even if the capital employed was UK connected or the income was obtained from UK activities. The exemption meant that multinational groups active in Britain could channel financing income to a foreign group company through an offshore subsidiary paying little or no tax on the profits from these transactions.
The commission ruled in 2019 that the exemption constituted a breach of EU State aid rules because it offered a selective advantage to certain multinational companies that benefited from tax exemptions of payments of interest on intragroup loans. It found that the exemption was unlawful and constituted state aid under EU rules when it was applied to channel financing income derived from UK activities to a foreign group company via an offshore subsidiary. AS a result, the commission ordered the UK tax authorities to recover all aid granted under the exemption rule from the beneficiaries of that aid.
Unique Fashion BV can apply these case laws to file a complaint with the European Commission, illustrating that France’s new tax rule that requires it to pay a higher tax rate on masks with a loose strap constitutes illegal state aid. This is because it confers a selective advantage that is not available to all comparable firms given that there are a number of French companies manufacturing masks that do not use a stringy strap but are not subjected to the same tax rates. Using these case laws and the relevant EU law highlighted, Unique Fashion BV may get the intervention of the Commission, which tracks and scrutinizes anti-competition practices and state aid to guarantee a level playing field for all EU businesses.

Question 2: The effect of Brexit on the free movement of workers
Freedom of movement in the EU
The free movement of EU workers is a key principle of European law laid out in article 45 of the Treaty on the Functioning of the European Union (2007). Under this treaty, EU citizens are entitled to look for a job or take up work in another EU country, work there without the need for a working visa or work permit, and reside there for that purpose. The treaty also promotes equal treatment of EU citizens with respect to work-related rights, including access to employment, working conditions and all other tax and social advantages. These rights also apply to non-EU countries in the European Economic Area - Norway, Liechtenstein, and Iceland.
The EU was formally created in 1992 when the Maastricht Treaty came into force. The treaty also established EU citizenship and entrenched freedom of residence and movement for EU nationals across the European Economic Area (EEA). In 2004, the EU adopted the free movement Directive also known as the citizens’ rights Directive 2004/38/EC that gave EU citizens and their family members the right to move and reside freely within the EEA. Then, in 2007, the Treaty on the Functioning of the EU (TFEU) was adopted that upheld the right to freedom of movement. Free movement of EU citizens led to a rapid rise in the movement of people across the EEA. Eurostat data indicates that by the end of 2017, about 17 million EU citizens worked or resided in an EU country other than that of which they are citizens.
Brexit
Britain joined the European Economic Community (EEC) in 1973 and the EU in the 1990s. However, unlike the other Member States, Britain did not join the Schengen Area, which abolishes all types of border controls between the participating nations in order to speed up the movement of people. Due to its island geography, Britain had much less interest in abolishing its border checks. Also, the UK did not adopt the euro as its official currency because it did not want to put its monetary policy under European control.
In 2016, Britain voted to leave the EU - its biggest trading partner - and left officially at the end of 31 January 2020. However, there was a transition period in place until the end of 2020. On 1 January 2021, new rules governing the relationship between the UK and the EU came into force. One of the major factors that led to Brexit was the inability of the British government to control levels of immigration from other EU countries. The majority of those who voted to withdraw from the trading bloc did not want Britain to be under the rules on free movement of persons guaranteed by the EU, due to the high number of EU citizens immigrating to Britain under these rules. As such, they saw Brexit as the only way to stop EU nationals from moving to the United Kingdom.

End of the free movement
After Britain decided to leave the EU, the UK stopped being a member state of the European Union. Thus, British citizens ceased being EU citizens and became third-country nationals. This means that people from the UK are now exempted from the fundamental right to work, migrate, and reside in any EU country. As such, they will be required to move to European nations with strict compliance and adherence to the available laws. Similarly, the decision gave the UK government absolute control over the movement of labour. As such, EU citizens applying to work in Britain will no longer have preferential treatment and will be required to comply with Britain's existing immigration legislation applicable to all third-country nationals. Starting on 1 January 2021, the UK introduced a new immigration policy that requires EU citizens to have a visa in order to travel and work in the UK.

One of the inevitable effects of the British exit from the EU is the reduction of the EU workforce in the United Kingdom. In 2019, approximately 3.7 million EU immigrants were living in Britain. The majority of these migrants do not satisfy the current visa criteria for third-country nationals wanting to work and live in the UK. As such, most of them will re-assess their options. According to Ridgway (2019), a large proportion of the migrants may opt to return to their home countries. Also, a large number of EU citizens will inevitably reconsider plans to travel to Britain, fearing that they might encounter challenges adhering to post-Brexit immigration restrictions. This would lead to a reduction of workers from Europe who intend to come to the UK, which in turn, may lead to staffing shortages in a number of industries, which will adversely affect the country’s economy.

In a 2021 survey conducted by the Bank of England and reported by Reuters, the findings revealed that UK employers were experiencing the most severe shortage of job candidates on record. Data obtained from the Office for National Statistics (ONS) showed that job vacancies in the country surged to a record high of about 1.2m in September 2021. Although experts assert that there is not sufficient data to establish whether this shortage of employees is as a result of Brexit or the pandemic, some analysts opine that fewer EU workers and skill shortages caused by Brexit may have contributed immensely to the staffing squeeze. A 2021 report released by the British Chambers of Commerce indicated that staff shortages were likely to slow the country's economic growth in the coming years.

Another survey carried out by UK accountancy and business advisory firm, BDO, and issued on 4 October 2021 showed that staff shortages in Britain’s hospitality, farming, and haulage sectors have expanded to almost all parts of the UK economy. The survey which involved 500 medium-sized enterprises revealed that the lack of adequate staff had put pressure on the ability of businesses to operate at normal levels, due to stock shortages and disruption in the supply chain caused by shortages of drivers. More than 25% of the firms that took part in the survey said that they were considering cutting down on the types of products and services on offer, while others indicated that they were planning to increase prices in order to make up for the disruption. This raises concerns over high inflation as the Christmas trading period approaches. In the long run, rising inflation is likely to lower levels of investment that would adversely affect the UK’s economy.

The BDO survey exposes the challenges facing Britain’s businesses due to a reduction of workers from the EU. In September 2021, the country faced fuel shortages that led to panic-buying of fuel as a shortage of HGV drivers led to disruption of supplies across the country. Although Boris Johnson's administration blamed the crisis on problems facing the global economy due to the Covid 19 pandemic, critics posit that the situation reflects UK's tough post-Brexit immigration rules. Large corporations such as Tesco has already warned that the lack of workers, especially in the supply chain could result in a shortage of goods in supermarkets, which in turn, could lead to higher prices and high inflation rates.

Another survey conducted by technology services firm Fourth and consultancy firm CGA showed that the hospitality industry was also heavily affected by the shortage of workers, with one in six jobs lying vacant. Out of the 200 firms in the bar, pub, and restaurant industries that took part in the survey, only 18% said that they felt secure that they would be able to hire and maintain the workers required to conduct their operations. The majority of the participants also indicated that they expected to hire workers at higher rates than usual, which would have a huge impact on the overall costs of the hospitality sector that is already facing rising utility, supply, drink, and food costs.
The shortage has extended to other parts of the country’s economy, where thousands of firms are severely short of workers, while the majority of those who have adequate staff face a fight to retain them. This, in turn, has led to wage inflation that is threatening to derail the country’s economic recovery due to the increased cost of production as a result of rising wages and high prices of goods and services that are likely to increase inflation. Portes (2021) notes that even where labour shortages are not of great concern from the perspective of the economy as a whole, they are likely to cause severe implications for the affected firms.

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