2006/30 LEM Working Paper Series

Regulatory Competition Puzzle: the European Design

Vahagn Movsesyan
Freedom of establishment, Regulatory arbitrage, Regulatory competition, Company law, (Re)incorporations, EU, EEA

  JEL Classifications
G34, G38, K22, L22, L51, M14

In this paper, we examine the inconclusive debate on regulatory competition in the Europe. We demonstrate that the recent expansion in the EU company law has created archetypal underpinning for formation of regulatory competition: the ground-breaking “triptych” of the ECJ on Centros, Überseering, and Inspire Art, on the top of previously infamous cases, has paved a way to a regulatory arbitrage throughout the EU, and a petite migration of companies abroad is already an evidence. We elucidate that few European states are putting into practice some facilitation in company registration procedure, including a significant cut in the minimum capital requirements, aiming to keep up with foreign options. This is the very process called regulatory competition, though it is not for charters and not for re-incorporations, but for capital requirements and for start-ups. Our idea is that these actions are only some, but promising, first steps en route to expansion towards regulatory competition in Europe also for large companies and for their reincorporation options. Hitherto, we reject the existence of an “EU Delaware”, though we demonstrate that few EU and EEA Member States have potential to take the lead in forthcoming chartermongering activities and are preparing for that: we claim for the appearance of more then one “European Delawares” in Europe at least for the time being. The then competition result will largely depend on the further advancements in the EC programs on this field, and/or on another “spectacular crusade” of the ECJ in particular, be it a reality. Thus, it is still soon to conclude the competition and prize the winner, but considerable network externality effects that drive a path dependent evolution suggests that it is likely to see a state that will become the “basin of attraction” for most of the companies later on. As a focal point, in the EU it is implausible to see a regulatory competition without Brussels meddling down from the top, which affects such developments negatively, unfortunately.

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