European Union: Free Movement of Goods
The Öresund Bridge
Rules abolishing quantitative restrictions have been essential to the development of the single market in Europe. The free movement of goods is a hugely successful program which has integrated the economies of Europe. It enables any trader or manufacturer in any part of the E.U. to export their goods unhindered to any other Member State in the E.U. For example, German sausage-makers in Bavaria can export their products to any other Member State without trade being impeded by national tariffs.
The prohibition of discriminatory taxation, abolition of customs duties and removal of other administrative rules and barriers which hinder the free movement of goods have been tackled by Articles 34 and 35 of the Treaty on the Functioning of the European Union (TFEU). Articles 34 and 35 can be used to strike down national legislation which impedes the free movement of goods. This is a process known as 'negative harmonisation.'
3 Minute Explanation of the Single Market
Articles 34 and 35
Articles 34 and 35 of the TFEU are provisions which prohibit quantitative restrictions (QR's) and measures equivalent to quantitative restrictions (MEQR's).
Article 34 prohibits quantitative restrictions, and all measures having equivalent effect, on imports from Member States.
Article 35 prohibits quantitative restrictions, and all measures having equivalent effect, on exports to Member States.
Who Do Articles 34 and 35 Apply to?
- The State institutions themselves.
- Bodies which derive their power from public law, including central, regional and local government, or any semi-public body like a quango (See the case of Apple and Pear Development Council v. KJ Lewis Ltd. (case 222/82)).
Also, measures adopted by professional bodies, like the Royal Pharmaceutical Society, on which national legislation has conferred regulatory or disciplinary powers counted as 'measures taken by a Member State' subject to what is now Article 34. (See the case of R. v. Royal Pharmaceutical Society of Britain (Cases 266 and 267/87))
- Note: Articles 34 and 35 have NO horizontal direct effect, however broadly they are interpreted. (See case of Sapod-Audic (case C-159/00))
The actions of individuals CAN be challenged indirectly by imposing positive obligations upon Member States. (See the case of Commission v. France (Angry Farmers) (case C-265/95))
What Do Articles 34 and 35 Apply to?
Articles 34 and 35 apply to "goods", which are defined in the "Art Treasures" case (Commission v. Italy C-7/68) as "Products which can be valued in money and are capable of forming the subject of commercial transactions."
What are quantitative restrictions defined as?
Quantitative restrictions were defined in Riseria Luigi Geddo v Ente Nazionale Risi (case 2/73) as, "any measures which amounted to a total or partial restraint on imports, exports or goods in transit."
What types of actions count as quantitative restrictions?
Quantitative restrictions are not just legislation, they can be administrative acts as shown by the Franking Machine case (case 21/84).
Bans on imports can count as quantitative restrictions. (See cases of Commission v. Italy (Re Ban on Pork Imports) (case 7/61)) and (R. v. Henn (Ban on import of pornographic materials) (case 34/79))
It also includes quota systems. (See case Salgoil SpA v. Italian Ministry for Foreign Trade (case 13/68))
Even a quota system applying to a small part of the country counts as a quantitative restriction. (See the Ditlev Bluhme case (Danish Brown bees) (case C-67/97)).
Forcing importers to have licences is also an example of a quantitative restriction. Although the courts have sometimes decided that it is a measure equivalent to a quantitative restriction (MEQR). (As they did in the case of International Fruit Co NV v Produktschap voor Groenten en Fruit (cases 51-4/71).
Directive 70/50 highlighted how QR's and MEQR's did not have to be legally binding. For example, the Buy Irish case (Commission v. Ireland (249/81), where it was held that Irish policies were influencing traders and frustrating the aims of the Union.
Measures Equivalent to Quantitative Restrictions (MEQR's)
What are MEQR's defined as?
The case of Dassonville defined MEQR's as,
"All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Union trade..."
What types of actions count as MEQR's?
The concept of MEQR is wider in scope than quantitative restrictions.
MEQR's can be divided into two different scopes.
A. Distinctly Applicable Measures: Measures which apply exclusively to imports or exports.
B. Indistinctly Applicable Measures: Measures which apply to both imports or exports, AND domestic goods.
The difference between distinctly and indistinctly applicable measures is that indistinctly applicable measures can be justified if they are necessary to satisfy mandatory requirements. For example, environmental protection, promotion of national culture, etc.
The three key cases of MEQR's.
- Dassonville (case 8/74)
- Cassis de Dijon (case 120/78) (Officially called, "Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein." But 'the Cassis de Dijon case' is much easier to remember and pronounce!)
- Keck (cases C-267--8/91)
Case 1: Dassonville
Dassonville concerned Belgian rules which required imported goods to have a certificate of authenticity from the authorities of certain countries of origin. A group of whiskey traders bought Scotch Whisky in France and tried to import it into Belgium without a certificate. The Court of Justice determined that such a measure would fall within Article 34 TFEU saying,
"All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Union trade are to be considered as MEQR's."
This has become known as the 'Dassonville formula' and has been applied consistently by the Court of Justice in subsequent cases. Although it is a broad test, there are some limitations.
- A measure which is not capable of hindering trade between Member States, but only affects the flow of trade within a Member State will not breach Article 34 TFEU. (See Quietlynn Ltd. v. Southend Borough Council (case C-23/89) where a a licensing requirement for the sale of sex appliances was held not to breach Article 34 TFEU.)
- A measure which imposes a maximum price which goods can be sold for can be considered in breach of Article 34, if the sale of the imported products becomes if not impossible, more difficult. (see Tasca case (65/75) where the price of sugar in Italy had a maximum price so low that it made selling imported sugar difficult.)
- A measure which imposes a minimum price which goods can be sold for does NOT breach Article 34 though. The court said that a prohibition on selling below cost price, would be acceptable since it would have no adverse effect on trade between Member States. (See van Tiggele case (case 82/77)
Cassis de Dijon
Case 2: Cassis de Dijon
The Cassis de Dijon case paved the way for a distinction between distinctly and indistinctly applicable measures. The question before the court was that German liquor required 25% minimum alcohol volume, whereas French liquor required 15-20%. Thus the drink, Cassis de Dijon was legal for sale in France, but not in Germany. The indistinctly applicable policy of the German government had effectively banned Cassis de Dijon from the German market.
The court decided that Article 34 TFEU could apply to measures which appeared to apply to both domestic products and imports.
Case 3: Keck
In the case of Keck the legality of a French law prohibiting the reselling of goods in an unaltered state at lower than original price was analysed. Keck complained to the Court of Justice that the French law was incompatible EU law.
The court clarified and restricted the decision previously reached in Cassis de Dijon, which had been the target of much academic criticism.
The court distinguished between 'market access rules' which would infringe Article 28 if they discriminated against imports either directly, or indirectly; and 'selling arrangements' which would not. These two new terms now serve as the test for determining whether actions restricting the Free Movement of Goods are legal or not.
A 'market access rule' is constituted as a measure which restricts or prevents the availability of a particular imported product in a particular market. For example, a rule which targeted the size, shape, labeling or packaging of a particular product would be a 'product requirement' and prohibited by the ruling in Keck. However, a rule which had the effect of a general reduction in the sales of all products would no longer contravene Article 28.
Extrinsic measures such as preventing goods being sold before 12 noon on Sundays, or limitations on advertising are known as 'selling arrangements' and are not prohibited as long as they are not discriminatory in law and in fact.
Article 36 Derogations
Article 36 allows for prohibitions on exports and imports which are justified on a number of specified grounds, such as public health.
These apply to distinctly and indistinctly applicable measures, whereas the Cassis rule of reason only applies to indistinct measures.
Courts construe derogations under Article 36 very narrowly, and watch for certain conditions that must be met. For example:
- There must be no arbitrary discrimination (the reason for the derogation must be genuine). See the Christmas Turkey case, where the British Government restricted Turkey imports on Public Health ground... just before Christmas. (Commission v UK “poultry Imports case” (C-40/82))
- National measures must be proportionate, as stated by the court in Commission v. Italy, C-128/89).
"National rules adopted in order to achieve one of the objectives referred to in Article 36 [TFEU] are compatible with the Treaty only in so far as they do not exceed the limits of what is appropriate and necessary in order to achieve the desired objective.
Regarding State Monopolies and Article 37
State monopolies are defined as further obstacles to the free movement of goods in the TFEU. A State monopoly is one where a Member State has restricted the right to sell particular goods to one body. Article 37 of the TFEU deals with State monopolies when it states:
"Member States shall adjust any State monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States."
Article 37 does NOT prevent new monopolies from being created, however if they are they must be compatible with the provisions of the FMOG.
Court of Justice of the European Union
Free Movement of Goods Case List
Apple and Pear Development Council v. KJ Lewis Ltd. (case 222/82)
Commercial horticulturalists of apples and pears had to register with the Apple & Pear Development Council and pay a compulsory annual charge to it. The European Court held that, “for a supply of services to be for consideration, there must be a direct link between the service provided and the consideration received.”
The evidence in this case showed that there was no relationship between the level of benefits that individual growers got from the Council’s services and the amount of the mandatory charges that they had to pay. The compulsory annual charges did not constitute ‘consideration’ and the Council was not making supplies of services for consideration. (Source: http://www.hmrc.gov.uk/manuals/vbnbmanual/VBNB72200.htm)
Campus Oil “Irish Oil case” (C-72/83)
The Irish Government requested that companies use 35% Irish oil on grounds of ‘Public security.’ The Court of Justice found this to be an acceptable Article 36 derogation. However, in recent years the ECJ has clarified that the Campus Oil case should be considered an exception to a rule, instead of a leading authority. The reason given for this is that other forms of energy are not as central to running a country as oil is. (From Commission v. Greece )
Commission v. Ireland (Buy Irish case) (249/81)
The “Buy Irish” case involved the Irish government promoting companies to use Irish products for construction. The ECJ held that the policy counted as an MEQR as it was influencing traders and frustrating the aims of the Union.
Commission v. France (Angry Farmers) (case C-265/95)
This case dealt with a group of private individuals (the angry farmers) blocking the cross-border flow of goods into France. According to the Commission, the French Government should have taken action to stop the blockade of imported agricultural produce by the angry farmers. The Court of Justice backed this up by highlighting Article 4(3) of the Treaty of the European Union (TEU) which put Member States under an obligation to 'take all necessary and appropriate measures to ensure the EU's fundamental freedoms (of which Free Movement of Goods is one) are respected in their territory.
Commission v. Italy “Art Treasures case” (C-7/68)
The ECJ defined ‘goods’ in this case as, “Products which can be valued in money and are capable of forming the subject of commercial transactions."
Commission v. Italy “Ban on Pork Imports case” (C-7/61)
This case led the ECJ to decide that bans on imports counted as Quantitative Restrictions.
Commission v. Italy, (C-128/89)
This case enabled the ECJ to declare the proportionality requirement for use of Article 36.
"National rules adopted in order to achieve one of the objectives referred to in Article 36 [TFEU] are compatible with the Treaty only in so far as they do not exceed the limits of what is appropriate and necessary in order to achieve the desired objective.”
Commission v UK “Poultry Imports” (C-40/82)
This case dealt with the UK restricting poultry imports. The UK claimed that there was a ‘public health grounds’, and that it was necessary to protect the health of its citizens. However, the genuineness of this use of Article 36 was called into question when the judge realised the imports had been blocked just prior to Christmas…
Commission v UK “UHT Milk lisence case” (C-124/81)
Coregate “Lovedoll Imports” (C-121/85)
In this case the UK government banned the importation of “love-dolls” (artificial sex aids) on grounds of ‘public morality.’ The Court of Justice ruled this was not an acceptable Article 36 derogation, as the UK manufactured its own variations of love-dolls, which it was not making an effort to restrict.
Ditlev Bluhme case (Danish Brown bees) (case C-67/97)
This case led the ECJ to decide that even a quota system applying to just a part of the country counts as a quantitative restriction.
Franking Machine case (case 21/84)
In this case a discriminatory law had been repealed but the administrative practice had not changed. The authorities were showing a 'systematically unfavorable attitude to approving imported products.
International Fruit Co NV v Produktschap voor Groenten en Fruit (cases 51-4/71)
The ECJ decided in this case that forcing importers to have licences is also an example of a quantitative restriction. However, sometimes the courts have also decided that it is a measure equivalent to a quantitative restriction (MEQR). This is an unclear area of law.
R. v. Henn (Ban on import of pornographic materials) (case 34/79)
In this case the UK government banned the importation of pornographic materials on grounds of ‘public morality.’ The Court of Justice ruled this was not an acceptable Article 36 derogation, as the UK manufactured pornographic materials itself, which it was not making an effort to restrict.
R. v. Royal Pharmaceutical Society of Britain (Cases 266 and 267/87)
The ECJ held in this case that measures adopted by professional bodies, like the Royal Pharmaceutical Society, on which national legislation has conferred regulatory or disciplinary powers counted as 'measures taken by a Member State' subject to what is now Article 34.
R v. Thompson “Gold Coins” (C-7/78)
The UK government banned the importation of gold coins by a collector in order to protect the Royal Mint. This was viewed by the Court of Justice as an acceptable use of the Article 36 derogation on grounds of public policy.
Riseria Luigi Geddo v Ente Nazionale Risi (case 2/73)
This was the case that defined Quantitative Restrictions as, “any measures which amounted to a total or partial restraint on imports, exports or goods in transit."
Salgoil SpA v. Italian Ministry for Foreign Trade (case 13/68)
This case led the ECJ to decide that quota systems on imports counted as Quantitative Restrictions.
Sandoz “Vitamin Cereal Bars case” (C039/82)
FINISH THIS ONE.
Sapod-Audic (case C-159/00)
The ECJ made clear that articles 34 and 35 have NO horizontal direct effect, however broadly they are interpreted.
Quietlynn Ltd. v. Southend Borough Council (case C-23/89)
A council required licenses to be obtained prior to the selling of sex toys. The ECJ held that this did not breach Article 34 as it was a measure not capable of hindering trade between Member States, but only affecting the flow of trade within a Member State itself.
In Italy the price of sugar had been set at a fixed maximum price so low that imported sugars could not compete with domestic sugars. The ECJ held that this was an MEQR.
van Tiggele case (case 82/77)
This case dealt with the issue of minimum pricing. The ECJ held that minimum prices do not constitute a breach of Article 34, as there would be no adverse effects on trade between Member States of the EU.