Court of Justice 10-04-2003 ECLI:EU:C:2003:232

European law

Article 56(1) EC provides as follows: ‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.’

Article 57(1) EC provides: ‘The provisions of Article 56 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment — including in real estate — establishment, the provision of financial services or the admission of securities to capital markets.’

Article 40 of the EEA Agreement provides as follows: ‘Within the framework of the provisions of this agreement, there shall be no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States and no discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested. Annex XII contains the provisions necessary to implement this article.’

The abovementioned Annex XII declares applicable Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty.^(*) It is evident from the nomenclature of capital movements in Annex I to this directive that capital movements cover transactions by which persons not resident invest in real property in the territory of a Member State.

Finally, I cite Article 6 of the EEA Agreement: ‘Without prejudice to future developments of case-law, the provisions of this agreement, in so far as they are identical in substance to corresponding rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community and to acts adopted in application of these two Treaties, shall, in their implementation and application, be interpreted in conformity with the relevant rulings of the Court of Justice of the European Communities given prior to the date of signature of this agreement.’

National law

Under Paragraph VII of the Austrian Bundes-Verfassungsgesetznovelle 1974,^(*) the laws of the Länder are subject to rules whereby transactions in agricultural and forestry plots are subject to restrictions imposed by the administrative authorities in the public interest of preserving, strengthening or creating a viable agricultural community. The Grundverkehrsgesetz (Land Transfer Law) of the Land of Vorarlberg of 23 September 1993^(*) (hereinafter ‘the VGVG’) applies in respect of the present case.

Paragraph 1(1) of the VGVG provides:

‘This law shall apply to transactions relating to:

1. agricultural and forestry plots,

2. building plots,

3. plots to which foreigners acquire title.’

Under Paragraph 1(3), the purpose of the VGVG is to:

1. preserve agricultural and forestry plots of family farming establishments in the interest of improving their structural circumstances in accordance with the natural factors prevailing in the Land,

...

1. preserve the broadest possible, socially sustainable distribution of land ownership in accordance with the size of the Land, and

2. place restrictions on the acquisition of land by foreigners who do not have the same status as Austrians under Community law.’

Paragraph 3 of the VGVG provides, in so far as it is relevant: ‘Subject to paragraph 2 and in so far as follows from the law of the European Union, the rules on the acquisition of land by foreigners shall not apply to... (e) persons and companies for the purpose of direct investments, real property investments and other capital transactions.’

Paragraph 4(1) of the VGVG provides:

‘The transfer of agricultural or forestry plots shall be subject to authorisation by the authority responsible for land transactions where it relates to one of the following rights:

1. ownership,

2. ... the right to build on the land of third parties,

3. the right of use or right of usufruct,

4. leasehold rights over agricultural holdings,

...’

Paragraph 5 of the VGVG provides as follows:

1. Acquisition of title shall be authorised only:

   1. in the case of agricultural plots, where it is consistent with the preservation of an effective agricultural community and the acquirer himself cultivates the plot as part of an agricultural establishment and also has his place of residence there or, where that is not the case, it is not contrary to the preservation and creation of an economically healthy, medium and small-scale agricultural estate,

   2. in the case of forestry plots, where it is not contrary to the interest of forestry in particular and to the general economic interest,

   ...

1. The conditions laid down in subparagraph (1) are not satisfied in particular where:

   1. the plot would be withdrawn from agricultural or forestry use without sufficient reason;

   2. the consideration exceeds considerably the price of the plot customary in the location concerned;

   3. it must be concluded that the plot is being acquired solely to form or extend a large estate or hunting areas;

   4. it must be concluded that cultivation by the acquirer himself is not certain in the long term or the acquirer does not have the specialist knowledge necessary to cultivate the plot himself;

   5. the favourable land ownership arrangement as a result of the restructuring of rural land holdings would be affected without compelling reason....’

Paragraph 11 of the VGVG contains exceptions to the authorisation requirement in respect of a number of types of land acquisition, in particular between family members and in the event of succession or testamentary gift.

Under Paragraph 25 of the VGVG, a deed of transfer is to become invalid with retrospective effect if authorisation is refused.

General observations

By the first question the national court essentially asks the Court to clarify the extent to which the free movement of capital, which is guaranteed between the Member States by Article 56 EC et seq., is applicable to movements of capital between a Member State of the European Union and a country which is party to the EEA Agreement but is not a Member State of the European Union. In particular, the following questions must be dealt with in succession:

• Article 56 EC and the movement of capital to and from third countries. In that respect I will also consider the meaning of Article 56 EC in connection with the completion of economic and monetary union. This raises the question whether residents of third countries derive rights from Article 56 EC.

• In the event that this question is answered in the affirmative, I will consider the interpretation of the standstill clause contained in Article 57(1) EC. Whether or not this case concerns a restriction on the movement of capital which already existed on 31 December 1993 is also relevant in this regard. It is also necessary to consider whether the fact that the Principality of Liechtenstein is a party to the EEA Agreement has any bearing on its classification as a third country within the meaning of Article 57 EC.

• The third question concerns the rights which stem from Article 40 of the EEA Agreement, in particular in respect of nationals of EEA countries which are not Member States. Do such persons derive rights from Article 40 of the EEA Agreement which they may invoke before a court of law? Does the existence of such rights have consequences for a Member State which maintains a provision on the basis of the standstill clause contained in Article 57(1) EC? In other words, must Article 57(1) be disapplied in such circumstances?

This brings me to a preliminary observation. The Court examines the acquisition of real property primarily in the light of the free movement of capital, as is clear from Konle and Reisch and Others.^(*) In Konle the Court refers also to the possible relevance of freedom of establishment but does not examine this matter further. In my opinion in Reisch and Others^(*) I argued that national legislation which seeks to prevent secondary residences should be examined in the light of freedom to provide services. In my view, the capital transaction constituted primarily the consideration for a service that had been supplied.

In this case, however, the circumstances of the main proceedings give no grounds for also including in the assessment other fundamental freedoms under the EC Treaty. Whatever the purpose of the VGVG, the transaction in question relates primarily to investment in real property and not to cross-border establishment or provision of services. Therefore, an examination in the light of the other freedoms would be hypothetical in respect of the main proceedings. It is obvious that the other provisions of Community law referred to above cannot apply, either directly or indirectly, to the circumstances of the case.^(*) Therefore, I will not consider the possible infringement of other fundamental freedoms under the EC Treaty. This applies also to the observations which the first appellant submitted to the Court in this regard.

Article 56 EC

Article 56(1) EC, which contains the principal rule on the free movement of capital, has two essential characteristics. Firstly, the provision has direct effect. Secondly, it has ‘erga omnes’ effect. It draws no distinction between the internal movement of capital within the European Union and the movement of capital to and from third countries.

In Sanz de Lera and Others^(*) the Court placed the following interpretation on first essential characteristic of Article 56 EC: ‘Article 73b(1) of the Treaty (now Article 56 EC) lays down a clear and unconditional prohibition for which no implementing measure is needed. The expression “within the framework of the provisions set out in this Chapter” in Article 73 b relates to the whole chapter in which it appears. The provision must therefore be interpreted in that context.’

As regards the second essential characteristic, Article 56 EC has ‘erga omnes’ effect in that unlike the other fundament freedoms of movement under the EC Treaty it also relates to movement to and from third countries. The applicability of Article 56 EC to movement to and from third countries is unique. The free movement of capital essentially establishes a necessary condition for the other three freedoms under the Treaty relating to persons, goods and services. These other freedoms lose in importance if the movement of capital — and also the movement of payments — is not free.

The free movement of capital not only constitutes a condition for the establishment of the internal market but also gives expression to the principle of an open market economy with free competition which is referred to in Articles 4 EC and 105 EC. This open market economy is not restricted by the physical borders of the territory of the European Union.

However, this still does not mean that the free movement of capital, which has direct effect, has the same effect within the European Union and externally. There is a difference in the extent of this freedom. Within the European Union this freedom is virtually complete. Externally there are exceptions. Articles 57 EC, 59 EC and 60 EC provide for possible restrictions on the free movement of capital which may be applied only to the movement of capital to and from third countries. In addition to the standstill clause contained in Article 57(1) EC, which is at issue in this case, the questions also concern the powers of the Council and the Member States to restrict the freedom granted in the Treaty under certain well-defined circumstances.

These differences are linked to the context in which the free movement of capital must be placed. In that respect I should note that the Maastricht Treaty established the free movement of capital having direct effect which is set out in Article 56 EC. The entry into force of Article 56 EC (and the following articles) was set at 1 January 1994 — and thus after the entry into force of the Maastricht Treaty itself — that is to say, the date on which the second stage of economic and monetary union began. The date referred to in Article 57(1) EC must also be viewed in this context. The free movement of capital must be regarded as a constituent element of economic and monetary union.

Now that economic and monetary union has been completed, restrictions under public law on capital transactions within the eurozone are no longer conceivable. Monetary policy is set by the European Central Bank and this presupposes complete unity in terms of the movement of money and capital. Where monetary policy is centralised, there can no longer be any distinction between cross-border transactions and transactions effected within the national sphere of a Member State. In terms of powers, this means that within a completed monetary union the Member States have renounced their monetary sovereignty. Therefore, they are also no longer able to invoice the power to apply protective measures where balance of payment difficulties arise. Article 119(4) EC and Article 120(4) EC stipulate this expressly.

As regards the relationship between monetary union and the Member States which have not — yet — become part thereof, those Member States do still have the power to invoke Articles 119 EC and 120 EC where balance of payment difficulties arise. Under these articles, either they can be authorised to take protective measures or take protective measures independently where a sudden crisis in the balance of payments occurs. However, these Member States arc required to coordinate their exchange-rate policy. This requirement is laid clown in Article 124 EC and developed in the so-called EMS II.^(*) This coordination requirement is necessary because the monetary union and the abovementioned Member Stales share a common capital market.

None of these requirements applies to the movement of capital to and from the EFTA countries. I should point out that as regards monetary policy the EEA Agreement provides for only a very limited form of cooperation relating to the exchange of information (Article 46 of the EEA Agreement).

I take the view that these differences in the level of monetary integration have a bearing on the interpretation of Article 56 EC and Article 40 EC of the EEA Agreement. In brief, although Article 56 EC draws no distinction between the movement of capital within the European Union and the movement of capital to and from third countries outside, that docs not mean that the prohibition on restrictions has the same effect on both situations. Exceptions to the prohibition based on monetary considerations may be applied only to the external movement of capital. The exceptions laid down in Article 40 et seq. of the EEA Agreement are covered by this. These exceptions — see in particular Article 43 of the EEA Agreement — are broader than the exceptions under the EC Treaty.

This brings me to the external movement of capital itself. The movement of capital has also been liberalised worldwide, albeit not completely. To bring about this worldwide liberalisation a number of instruments of international law have been adopted within the framework of inter alia the Organisation for Economic Cooperation and Development (OECD), the World Trade Organisation (WTO), and the International Monetary Fund (IMF).

With regard to the relationship between Article 56 EC and these instruments of international law it should be noted that Article 56 EC contains an unqualified freedom having direct effect and thus also an unconditional prohibition on the Member States restricting that freedom,^(*) subject to certain exceptions set out explicitly in the EC Treaty. The instruments which have been adopted within the framework of the OECD, the WTO and the IMF do not have such far-reaching effect. In the context of the OECD a code has been adopted which seeks to liberalise capital movements.^(*) The code contains binding, nondiscriminatory rules. Article 10 of the code allows the Member States — inter alia in connection with the European Union — to liberalise further the movement of capital amongst themselves. As regards the WTO, I refer to the Annex on Financial Services attached to the GATS which allows the States to take restrictive measures to ensure the integrity and stability of the financial system.^(*) In that context the IMF Agreement seeks primarily to remove obstacles to international payments. However, the agreement does allow countries to take measures necessary to survey international movements of capital.^(*)

The agreements concluded in connection with the various international organisations with a view to liberalising the movement of capital are indeed relevant to the interpretation of the exceptions to the free movement of capital to and from third countries laid down in Article 57 EC et seq. These exceptions cannot be applied so broadly that they give rise to inconsistency with the obligations under international law of the European Community and its Member States.

It is also in this light that I consider the relevance of the EEA Agreement to the present case. Reliance by a Member State on the exception provided for in Article 57(1) EC may not result in nationals of a State party to the EEA Agreement being unable to exercise, or unable to exercise in full, their rights stemming from that agreement. It is therefore necessary to establish which rights may be derived from the relevant provisions of the EEA Agreement. I will examine this matter in Section D below.

I will now consider the extent to which nationals of third countries may rely on Article 56 EC. Article 56 EC grants them that right. Under this provision, the movement of capital itself may not be subject to restrictions. The Treaty creates no subjective right which is limited to nationals of the Member States. In this sense Article 56 EC differs from, for example, Article 18 EC, which grants the citizens of the European Union the right to move and reside freely within the territory of the Member States, or Article 39 EC, which relates to the workers of the Member States.^(*) The same type of restriction applies ratione personae to the freedom to provide services and freedom of establishment.

Consequently, the free movement of capital applies to all capital transactions within the European Union and to the European Union from third countries and vice versa. Nor does the territoriality principle, as laid down in Article 299 EC, restrict the applicability of EC law. Where a legal transaction is effected in the territory of the European Union, Community law can apply irrespective of the place of residence or nationality of the person entitled.

To sum up, nationals of third countries and legal persons established in third countries may invoke the free movement of capital by virtue of the EC Treaty. If, in a specific case, Community law provides for an exception in relation to them, it is necessary to consider the extent to which that exception restricts a right which they enjoy in accordance with an obligation on the European Community under international law.

Article 57(1) EC

In Sauz de Lera and Others^(*) the Court holds as follows in respect of Article 57(1) EC: The exception provided for in Article 73c(1) of the Treaty [now Article 57(1) EC] concerning the application to nonmember countries of the restrictions existing on 31 December 1993 under national law or Community law regarding the capital movements listed in it to or from nonmember countries is precisely worded, with the result that no latitude is granted to the Member States or the Community legislature regarding either the date of applicability of the restrictions or the categories of capital movements which may be subject to restrictions.... It follows that that exception cannot preclude Article 73b(1) of the Treaty from conferring on individuals rights which they can rely on before the courts.' In my view, Sanz de Lera and Others forms the starting point for consideration of certain particular elements of Article 57 EC.

Article 57(1) EC is a standstill clause in nature. Where national legislation restricting the free movement of capital existed in a Member State on 31 December 1993, that Member State is under no obligation to adapt that national legislation in order to thus to promote liberalisation of the movement of capital. Such an obligation can arise only from measures which the Council adopts pursuant to Article 57(2) EC. On the other hand, a Member State is not permitted to adopt new legislation restricting the free movement of capital to and from third countries after the abovementioned date.

This brings me to the relevance of the EEA Agreement in this context. In these proceedings the EFTA Surveillance Authority has contended that as a consequence of the entry into force of the EEA Agreement the States party to that agreement cannot be regarded as third countries within the meaning of Article 57(1) EC. I consider that this view is incorrect. As Sanz de Lera and Others confirmed, it is a precisely worded exception which grants no latitude. Moreover, according to the Court's established case-law, exceptions to the fundamental freedoms enshrined in the EC Treaty must be interpreted strictly.

Any State which is not a Member State of the European Union is a third country. The EEA Agreement does not alter this fact in any way. Even though nationals of States party to the EEA Agreement derive rights from that agreement which are similar or even identical to the rights which citizens of the European Union derive from the EC Treaty, the fact remains that those countries are not Member States of the European Union. In that respect the EEA Agreement is no different from other association agreements which the European Community has concluded with nonmember States, such as the countries of central and eastern Europe. Nationals of these countries can also derive from these agreements rights which they may exercise in the Member States of the European Union.

As I emphasised at point 49 above, the Member States are under no obligation at all to adapt restrictions on the movement of capital where the national legislation already existed on 31 December 1993. Furthermore, in Konle the Court stated that national legislation adopted after 31 December 1993 can also be covered by the standstill clause. This is not automatically excluded from the standstill clause by the fact that it entered into force at a later date. Where national legislation is adopted after 31 December 1993 and such legislation is similar, in substantive terms, to the legislation prior to 31 December 1993, it also constitutes ‘existing legislation’. The measure must be, in substance, identical to the previous legislation. It can also reduce or eliminate an obstacle to the exercise of Community rights and freedoms in the earlier legislation. On the other hand, new legislation based on an approach which differs from that of the previous law and establishes new procedures cannot be treated as legislation existing at the time of accession.^(*)

In more general terms, Member States are empowered to adapt existing legislation by virtue of the standstill clause without altering the existing legal situation. In that respect account must also be taken of existing administrative practice and it must also be possible to deduce from the established facts that the new national legislation does not alter the existing legal situation.^(*)

Moreover, the Member States have the option of abolishing the exception. They are entitled to decide to abolish it in part or progressively. I also regard as a partial abolition any amendment to the law by which the national legislature eliminates obstacles to the exercise of Community rights and freedoms in the earlier legislation.^(*) The greater power will usually include the lesser. The situation is different, however, if a Member State applies afresh in a wider manner an exclusion whose use was limited at a given moment by a legal provision.^(*)

The VGVG was not yet in force on 31 December 1993. In principle the standstill clause could not be applied in such a case. However, if the new national legislation brings about no change to the existing legal situation, the standstill clause remains applicable. The observations of the Austrian Government, which are not disputed, state that the forerunner to the VGVG, the Grundverkehrsgesetz,^(*) was, in substance, almost identical to the VGVG and pursued the same objective. Only the obstacles to the exercise of Community rights and freedoms in the earlier legislation are eliminated. As stated in Konle, in such a case the derogation laid down in Article 57(1) EC can be applied.^(*)

I therefore conclude that the relevant provisions of the VGVG may be maintained by virtue of the standstill clause in Article 57(1) EC. The amendment of national legislation in Austria after 31 December 1993 falls within the discretion which Member States have in accordance with Article 57(1) EC. The Principality of Liechtenstein must be regarded as a third country to which Article 57(1) EC applies.

The EEA Agreement

General observations

This question need be answered only if the Court shares my view that the obstacle to the free movement of capital in this case is not justified by Article 57(1) EC.

The second question essentially concerns a classic problem of Community law. Under Article 295 EC, the rules governing property ownership are reserved for the Member States. However, this does not mean that national rules which reserve ownership of real property for persons displaying certain qualities are exempt from the fundamental rules of the EC Treaty,^(*) such as the prohibition on discrimination and the protection of the four freedoms. The same applies mutatis mutandis to Article 125 of the EEA Agreement to which the Norwegian Government refers. More specifically as regards this case, it is for the Land of Vorarlberg to lay down the conditions governing the acquisition of real property. However, these conditions must be examined in the light of the free movement of capital.

Since there is no doubt that the VGVG constitutes an obstacle to the free movement of capital guaranteed by the EC Treaty — in that investment in real property is subject to conditions — it is necessary to determine whether or not this obstacle is permissible.

I will assess the permissibility of the VGVG on the basis of the established case-law of the Court as expressed inter alia in Gebhard,^(*) according to which ‘national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a nondiscriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it’. Furthermore, in the more recent judgment in Reisch and Others the Court used the two latter criteria to examine the principle of proportionality.^(*)

In Konle and Reisch and Others the Court set out the criteria concerning the permissibility of national laws which subject to restrictions the acquisition of real property in a Member State. In particular, it provided an interpretation of the principle of proportionality which can form the basis for the assessment in the present case. This applies to a lesser extent to the objective in the public interest which must provide grounds for the obstacle to the free movement of capital. The principal objective of the VGVG is to protect the interests of - small-scale - agriculture whilst regional planning was the principal issue in the other two cases.

I will continue my opinion with the observations that have been submitted and then go on the context surrounding the national measure, that is to say agricultural policy. In Section D I will then come to my actual appraisal of the VGVG.

Observations submitted

The Austrian Government provides extensive justification for the legislation at issue. In view of the importance thereof to the answer to the second question I will first set out the main points of this justification. I will then briefly examine the most important arguments which arc put forward by other parties in the proceedings and which in part support the Austrian position.

The objectives of the VGVG — expressed inter alia in Paragraph 1(3)(a) and Paragraph 5(1)(a) — stem from the agricultural and geographic structure of Austria. They seek to bring about small-scale farming. The Land of Vorarlberg is mountainous. Cultivation of these areas cannot be increased endlessly. Population growth is rising sharply in comparison with the Austrian average. This is resulting in a considerable increase in the price of land. The problems associated with the shortage of land cannot be resolved by leaving matters to market forces because land ownership and long-term investment arc in great demand. Competition and free trade will not bring about the desired result.

Paragraph 5 of the VGVG precludes major land ownership. A judgment of the Austrian Verfassungsgerichtshof of 22 March 1993 held that the objective pursued by the Vorarlberg legislature, that is to say to prevent the concentration and monopolisation of agricultural and forestry land, is a legitimate policy goal which does not give rise to any problems of constitutional law. The creation of a healthy agricultural community is possible only if the agricultural and forestry land is owned by those who can cultivate it effectively. Moreover — and inter alia in order to avoid high transport costs — it is important that the land to be cultivated be near the agricultural establishment concerned. Furthermore, milk production requires particularly high levels of investment.

In brief, the restrictions placed on the acquisition of agricultural plots ensure that these plots do not end up in the wrong hands. It is necessary to prevent the public interest being undermined where:

• the shortage of land is misused for speculative purposes and farmers can, for economic reasons, have at their disposal only the value of their revenue;

• non-farmers are able to expand their holdings because they have substantial financial resources and do not have to take account of further economic management;

• the land is not cultivated properly or not cultivated at all. This poses a danger to neighbouring land (weeds, pests and disease);

• the maintenance of the different plots in a favourable agricultural structure is jeopardised because the formation of enclaves and fragmentation of plots is prevented. An unfavourable agricultural structure hinders the effective cultivation of the land;

• the objectives of regional planning are undermined if plots are not cultivated.

If a foundation wishes to acquire such agricultural and forestry land, the Austrian Government considers that it is necessary to examine the objective pursued by that foundation. In the case of a legal person it is the subordinates or employees who have to cultivate the land.

In the view of the Austrian Government, the residence requirement laid down in Paragraph 5(1)(a) of the VGVG does not have discriminatory effect, as is clear from Fearon.^(*) Furthermore, the public interest safeguarded by the VGVG is consistent with the objectives of the common agricultural policy.

The Austrian Government describes the prior authorisation procedure as a preservation procedure. The criteria relating to persons resident in Austria and EC nationals and EEA nationals are the same. This authorisation procedure relating to the acquisition of agricultural and forestry land is proportionate. It is not possible to control the acquisition of agricultural and forestry land through the submission of a notification because the authorities are unable to check whether or not a notification is plausible. The agricultural structure and the countryside cannot endure long-term damage. It is only possible to establish that the land is not being cultivated effectively after several years. Such an undesirable situation can last for several years and nothing can be done about it.

Under Paragraph 5 VGVG the authorities have no latitude and the criteria for obtaining authorisation are not contrary to the free movement of capital. In brief, the prior authorisation procedure is objective, nondiscriminatory and in the public interest.

I now come to the other most important observations.

The first appellant considers that Paragraph 4 of the VGVG is discriminatory because potential acquirers from other Member States can acquire agricultural land in Vorarlberg only if they cultivate the land themselves and have their permanent place of residence in Vorarlberg. The Norwegian Government, the Liechtenstein Government, the Commission and the EFTA Surveillance Authority, on the other hand, take the view that the provisions of the VGVG are not discriminatory. Austrian residents and nonresidents arc treated in the same way.

The first appellant also considers that the provision is not justified by imperative requirements in the general interest because agricultural policy falls within the exclusive competence of the Community. The Member States have only implementing powers. Article 32 EC et seq. already take account of small and medium-sized family businesses. Consequently, there are no imperative requirements in the general interest because provision for the protection of the agricultural community is already made at Community level.

The Commission, on the other hand, sees no reason to conclude that preserving, strengthening or creating a viable agricultural community are less important objectives than regional planning or protection of the environment. The provisions are also consistent with Article 33(2) EC. Furthermore, the provision are necessary to safeguard town and country planning objectives such as maintaining, in the general interest, a permanent population and an economic activity independent of the tourist sector in certain regions.

The first appellant considers that the VGVG is not suitable for securing the attainment of the objective which it pursues. The legislation on land transfers in no way alters the fact that the agricultural community is declining. As a result, more land is becoming available on the market and there are fewer farmers who are able to acquire this available land with the result that the number of major landowners is increasing.

The first appellant considers that the measure is also not proportionate. Less restrictive measures are conceivable. The rule that farming land must remain in farming hands stems from a time when farmers were exploited. However, this is no longer the case. It iś not the acquisition of ownership but access to the land which must be ensured. The following are examples of measures which pose less of an obstacle to the free movement of capital: adapting rent legislation, regional planning, countryside protection, and making it more difficult to terminate lease agreements.

Within the European Community and the various EEA countries, it is generally accepted, in the view of the Norwegian Government, that farmers should own their own land in order to prevent a feudal system. The Norwegian Government considers that the requirement that the acquirer himself cultivate the plot as part of an agricultural establishment does not go beyond what is necessary in order to attain the objective, that is to say to preserve a healthy agricultural community. Consequently, the objective pursued by the law cannot be attained by less restrictive measures.

The Liechtenstein Government considers that on account of its particular importance as a supply source in a country agriculture is fundamentally important to the existence of the country and the survival of its people. For the abovementioned reasons, Article 40 of the EEA Agreement does not preclude a prior authorisation procedure in respect of the acquisition of agricultural plots.

In the view of the Liechtenstein Government, Article 40 of the EEA Agreement does, however, preclude the condition that the acquirer must himself cultivate the plot. This excludes legal persons from the possibility of acquiring agricultural land. The abovementioned condition is not necessary to ensure the objective pursued and goes beyond what is necessary in order to attain it. Farmers who are financially unable to acquire agricultural land will also be unable to lease it as a result of this measure. Permitting legal persons to acquire agricultural land is less restrictive. In that case farmers with fewer financial resources arc enabled to lease the land. The question whether or not the authorisation procedure is lawful is answered in the negative inter alia in Konle and Reisch and Others. However, in the view of the Commission, this procedure is indeed justified in the present case because the VGVG has complex objectives, retrospective checks are likely to be too late and as a consequence thereof harm may be caused which is difficult or impossible to repair. The prior authorisation procedure is a preservation procedure which involves a restriction on the free movement of capital.

The EFTA Surveillance Authority also considers that the procedure is suitable and proportionate to safeguard the public interest. The Norwegian Government expresses a similar view. A procedure whereby authorisation is granted retrospectively cannot prevent acquirers from failing to fulfil their obligations. Acquirers could also incur unnecessary losses if authorisation were not obtained retrospectively. The Liechtenstein Government does not share this view and points out that an authorisation system of necessity presupposes the exercise of a certain discretion. Such a system is a source of legal uncertainty for traders. It makes the free movement of capital subject to the approval of the administration and could therefore render this freedom illusory.

The context: the common agricultural policy and the VG VG

Agriculture has, for a long time, constituted one of the main areas of Community intervention. The particular nature of agriculture means that the production and structure of the sector is not left completely to market forces. Article 32 EC et seq. form the basis for this intervention. In the context of this case, which does not concern the organisation of agricultural markets but the structure of the agricultural sector, I refer to the objective of the common agricultural policy set outin Article 33(1)(b) EC, that is to say to ensure a fair standard of living for the agricultural community. It is also relevant that under Article 33(2) EC account mustbe taken, as regards the common agricultural policy, of ‘the particular nature of agricultural activity, which results from the social structure of agriculture and from structural and natural disparities between the various agricultural regions.’

As part of the reform of the common agricultural policy, much of which has been implemented in Agenda 2000,^(*) the emphasis is being placed less and less on the actual organisation of agricultural markets and more and more on measures to improve agricultural structures, such as income support for farmers and rural development. In Agenda 2000 rural development policy is regarded as the second pillar of the common agricultural policy. Within the framework of this second pillar certain areas are designated less-favoured areas because there agriculture is more difficult on account of natural handicaps. The mountainous areas, of which there are many in the Land of Vorarlberg, are referred to specifically in that regard.

An important element of rural development policy, as laid down in Regulation No 1257/1999,^(*) is that it does not consist solely of Community measures but that the Member States may take complementary measures. For example, the Member States may increase the aid from Community resources by using their own resources.^(*)

It should be emphasised that the intensity of the intervention of the European Community does not mean that agricultural policy falls within the exclusive competence of the European Community. On the contrary, there is indeed scope for additional national measures in the field of agricultural structural policy which takes account of the particular circumstances in which agriculture has to be engaged in in various regions of the European Union. This applies not only to the grant of subsidies but also to all kinds of other legislative measures which support the objectives of the common agricultural policy. Consequently, the first appellant's view that the Member States have only implementing powers is incorrect.

Therefore, in my view, national legislation which restricts the acquisition of land by non-farmers in the interest of the agricultural community in a particular region can also constitute support for the objectives of the common agricultural policy.

In so far as such legislation hinders the freedom of establishment guaranteed by the EC Treaty, it should be noted that when the EC Treaty was adopted provision was made for the possible concurrence of the acquisition and use of land and buildings situated in the territory of another Member State, on the one hand, and the particular nature of agricultural activity as referred to in Article 33(2) EC, on the other. Article 44(1) EC, read in conjunction with Article 44(2)(e) thereof, provides that where directives which seek to attain freedom of establishment and which relate to the acquisition and use of land and buildings are adopted, they must not conflict with the principles laid down in Article 33(2) EC. However, no such directive has been adopted.

I set out this context to show that agriculture is not regarded as a normal economic sector where the viability of undertakings is determined strictly by the laws of the market and where the EC Treaty seeks precisely to prevent national legislative measures which hinder the operation of the market within the Community. On the contrary, the intensity of public intervention is high. This applies to public measures both at Community and national level. Secondly, I should point out the different objectives of the common agricultural policy where the stress is being placed less and less on increasing agricultural productivity. Instead, rural development and the protection of agriculture in sensitive areas are assuming ever greater importance.

This leads me to conclude that the objectives pursued by the VGVG are not contrary to the objectives of the common agricultural policy, in particular in view of the way in which it is now being implemented. In that connection, I refer to the first objective of the VGVG, as set out in Paragraph 1(3) thereof, namely the preservation of agricultural and forestry plots by family farming establishments in the interest of improving their structural circumstances in accordance with natural circumstances. Furthermore, the VGVG does not interfere with the allocation of powers between the Community and the Member States as regards the implementation of the common agricultural policy.

I should add that Community law does not preclude legislation in which a particular form of agricultural activity is given preference over another. According to Denkavit,^(*) such different treatment cannot be regarded as constituting discrimination prohibited by the EC Treaty, provided that it is not arbitrary and is based on objective criteria. In that judgment the Court recognised as an objective criterion the difference to which an activity is subject to the risks inherent in working agricultural land. A similar criterion is relevant in the present case. The VGVG protects — and thereby gives preference to — agricultural traders in areas with a natural handicap.

Appraisal of the VGVG