Internal Market

Lecture 2.1: Custom union, internal market and free movement of goods

Community and International Commercial Law

Lecturer: M.E. de Leeuw

The Internal market Article 26(2) TFEU (ex art. 14):

Par. 1.: “The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties.”

Par. 2.: “The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.”

Protocol 27: “(…) the internal market includes a system ensuring that competition is not distorted”

The Four Freedoms(Part III, Title II and IV)

Free movement of: Goods; Persons: i.e. workers, self-employed and

establishment; Services; Capital.

Free movement: key aspects

What is a freedom?Prohibition of direct and indirect discrimination

on the basis of nationality (art.18 (TFEU)) Prohibition of placing obstacles: “any

obstacle to the free movement of a citizen or product of another MS is prohibited under the provisions, independently whether there is discrimination or not”

Free movement: key aspects

Can discrimination or obstacles be justified? Treaty exceptions (e.g. art. 36, public policy,

public security, protect health or ipr) Rule of reason (case law)

The internal situation is not covered Direct effect

Free movement of goods

Three aspects of free movement of goods: Tariff barriers:

Import as well as export duties/charges (art. 28-30 TFEU). The creation of a custom union.

Domestic taxes imposed upon imported as well as domestic goods (art. 110-113 TFEU).

Non-tariff barriers: imposing quotas or measures which have an

equivalent effect on imports, thereby reducing the quantum of imported products (art. 34-36)

EU Custom Union

Its objectives: combat protectionism; essential to create internal market

Foundational provisions:Duties and charges (art. 28-30 TFEU)

a) duties and charges b) charges having an equivalent effect

Recover unlawful charges- repay back charges

EU Custom Union Article 28 TFEU (ex art. 23 TEC)

Par 1. ”The Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.”

[Par. 2. “The provisions of Article 30 and of Chapter 2 of this Title shall apply to products originating in Member States and to products coming from third countries which are in free circulation in Member States.”]

Tariffs prohibition (1): EU Custom Union

Art. 30 TFEU (ex art. 25):“Customs duties on imports and exports and

charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature.”

EU Custom Union: duties/charges

C- 7/68 Italian Art case: Duties and charges; relevant is effect of

the duty not purpose. ECJ defined “good” as “products which

can be valued in money and so be subject of commercial transactions” (incl. “Art”).

EU Custom Union: “CEE”

“CEE”: is “any pecuniary measure however small and whatever its designation and mode of application which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a border, and which is not a custom duty in the strict sense” (ECJ, C-24/68).

Approach ECJ: any pecuniary charge imposed as a result of goods crossing a border is caught by the Treaty, either as a custom duty or “CEE”.

“CEE”: charges for inspections. Not “CEE”: charges for mandatory EU inspections and

charges to cover costs for a service to importer (specific benefit required).

Tariffs prohibition (2): Discriminatory tax

(art. 110-113 TFEU)

Article 110 TFEU (ex art. 90 TEC) “No Member State shall impose, directly or indirectly,

on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.”

Indirect discrimination

Indirect discrimination: Although the tax measure as such does not differentiate between the liability of goods based on country of origin, it places a greater burden on imported products.

Difference art. 110(1) and (2)

Par. 1: prohibits national taxes imposed on imported products in excess of those imposed on similar domestic products

Par. 2: prohibits national tax provisions that apply unequal tax ratings to goods that may not be strictly similar, but which may nonetheless be in competition with each other. And in this way afford indirect protection to domestic goods

Article 110(1) or (2) applicable?

Are products “similar”: Yes, apply 110(1); No, apply 110 (2); whether tax is protective.

“Similarity” test (art. 110(1)): similar products are those that have similar characteristics and meet the same needs from the point of view of consumers.

Article 110(2) Test of competition (110(2)): cross-

elasticity test central (wine/beer case)1. Determine if beer is substitute of wine; only

light and cheapest wine

2. Is the discriminatory tax protective of beer?

Relationship between art. 28-30 and 110-113 TFEU

They are mutually exclusive; Art. 28 is about charges levied as a result of

goods crossing a border; whereas art. 110, aims at preventing discrimination against goods once they have entered a particular member state!

Violation art. 28 makes tax unlawful; violation art. 110 requires tax to be adjusted.

Free movement of goods: non-tariffs barriers

Article 34 (ex Article 28 TEC)“Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.”

Article 35 (ex Article 29 TEC)“Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.”

Art. 36 (ex 30): exceptions on basis of public interests

Scope art. 34 and 35 TFEU

“Good”: def. see before. “Quantative restrictions”: limits on the

amount of import. “Measures having equivalent effect to

quantitative restrictions (MEQR)”: measures having import reducing effect (quantity).

Measure having equivalent effect (MEQR)

Dassonville case (1974):

“all trading rules enacted by MS which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade are to be considered as measures having an effect equivalent to quantitative restrictions” (r.o. 5).

Three types of measures (MEQR)

Product standards: measures concerning the way in which products are produced or packaged (Cassis de Dijon);

Selling techniques: measures concerning the way goods are marketed or sold (Keck);

All other measures: those which effect import or trade in some way, but do not fall within two other groups

Product standards (Cassis de Dijon)

What are products standards? E.g. those relating to designation, form, size, weight,

composition presentation, labelling, packaging.

ECJ develops “mutual recognition rule”: i.e. if products are lawfully produced and marketed in one state, then there is no reason why they cannot be sold in another MS (par. 14).

Product standards (Cassis de Dijon)

ECJ developed the “Rule of reason” (mandatory public interest exception/imperative requirements): interests that can justify trade restrictions, like consumer protection or public health.

Conditions:- The measure must be applied in a non-discriminatory manner; - No harmonising measure; - The interest invoked in not of an economic nature;- The measure must be justified by imperative requirements in the

general interest; - The measure must be suitable for securing the attainment of the

objective which they pursue; - and the measure must not go beyond what is necessary in order

to attain it (proportional).

Public interest justifications: Article 36 TFEU

Discrimination/hindrance measure can be justified on basis of Article 36 TFEU (exceptions)

Conditions:- No harmonising measure;- Exception is explicitly mentioned (limited);- The interest protected is not of an economic nature;- The measure must be suitable for securing the attainment of the

objective which they pursue;- The measure must not go beyond what is necessary in order to

attain it (proportional);- No arbitrary discrimination or disguished restriction on trade

between MS

Rule of reason v. art. 36 TFEU

Differences:

Rule of reason applies only to non-discriminatory measures!

Rule of reasons wider range of interests than 36 (not limited)

Selling arrangements(Keck)

What are “selling arrangements”? E.g. advertising, shop opening hours, sales

techniques and prices.

ECJ ruled: “selling arrangements” are not MEQR and are outside the Treaty;

- If national measure is not discriminatory (equally applicable measure); and,

- If its impact is also equal on domestic as well as imported goods (equal impact);

If conditions are not fulfilled the national measure comes within the scope of the Treaty.

Products standards/selling arrangements

Product rule is a measure which requires some physical aspect of the product or its packaging or labelling to be changed, while a selling arrangement is concerned only with the way in which goods are sold or marketed