Concept of internal market and free movement of goods

Introduction

With the purpose of financially and economically securing and empowering member states in Europe, the concept of Internal Market was born. Internal Market can be described as a highly coordinated system with extensive level of transfer of opportunities between the member states. With the goal to achieve and sustain well being and prosperity of the member states, the European Union (EU) created four key components of Internal Market, namely, free movement of goods, free movement capital, free movement services, and free movement people. This has enabled easy sale and purchase of products within the Union.

Free movement of goods is considered to be the vital key component out of the four freedoms of internal market that has mostly benefited European businesses and citizens. The advantage and objective of this freedom is that consumers are provided with a wide range of choices and the best options of offer.

This essay will detail the historical evolution of free movement of goods in context of Internal Market. It will also analyse the treaties, especially Treaty on the Functioning of EU (TFEU), and laws that govern the economic relationship between the member states. Judicial principles laid down in various cases will be listed respective to TFEU articles, reiterating the goal and objective of the Internal Market.

CONCEPT OF INTERNAL MARKET AND FREE MOVEMENT OF GOODS

Historically, the concept of a single market was initiated way back in the 1980s. European Economic Community (EEC) lagged economically behind the other developed world. Appeals to the Delors Commission and a White Paper, published in 1985, identified 300 measures needed to create a single market.[2] Subsequently, the Single European Act was launched on 1 January 1993.[3]

Moving forward, the Amsterdam Treaty was signed in 1997 abolishing physical barriers across the internal market. Through the Schengen Agreement, EU abolished border controls and implemented common rules on visas as well as police and judicial cooperation between member states.[4] Then, there came the Single Market Act that produced tremendous business and employment opportunities for member states.[5]

Article 26(2) of Treaty on the Functioning of EU (TFEU) defines internal market as comprising “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured.” [6] Internal Market is also termed as the European Single Market or Common Market. It thrives for four freedoms, namely, free movement of goods, capital, services, and people within EU.[7] Internal Market also spans across digital market as well. It also provides an IMI system, a free service, which allows efficient communication between authorities about EU internal market law related to single market including free movement of goods.

Free movement of goods ensures free trade in goods between member states, becoming the main pillar that binds the European Community. EU has regularized customs duties and charges, and quantitative restrictions and measures in trade between Member States.[9] In order to secure free movement of goods, treaty provisions and national legislation are harmonized encouraging member states cannot adopt national that are not mandatory.[10] However, free movement of goods is infected with obstacles, such as non-uniform tax systems of member states deterring market integration, e-commerce practices varies, consolidated financial source, and weak capital relocation.[11] To tackle these issues, the courts generally interpret principle of free movement of goods in the broadest possible sense,[12] so as to pluck out all barriers and create an internal market where goods move independently as on a national market. Mention may be made here of the creation of the New Legislative Framework (NLF) in 2008. It consolidated the free movement of goods amongst other events, such as mutual recognition principle and market surveillance system.

The EU Single Market accounts for 500 million consumers and 21 million small and medium-sized enterprises (SMEs). The European Commission’s main goal is to ensure the free movement of goods within the market, lower unit costs and price, more innovation and faster technological development, and to set high safety standards for consumers and the protection of the environment.

ANALYSIS OF THE TREATY PROVISIONS WITH CASE LAWS IN THE CONTEXT OF FREE MOVEMENT OF GOODS

Treaties empower EU to create legislation that member states can implement.[15] With these powers, EU adopted NLF in 2008 to improve the Internal Market for goods and strengthen the conditions for placing a wide range of products on the EU Market. The framework attempts to improve market surveillance rules related to unsafe products, accreditation of conformity assessment bodies, equal conformity assessment and its notification of products and enhances credibility of CE marking. Various regulations such as Regulation (EC) 765/2008, Decision 768/2008, Regulation (EC) 764/2008, and Decision 768/2008/EC were laid down to this effect.

The Treaty on the Functioning of the European Union (TFEU) is the main treaty governing free movement of goods. It continues to be the fundamental safety net for issues concerning the internal market. [17] TFEU empowers the Commission to pass exhaustive legislation as well as minimum harmonization legislation. Under minimum harmonization legislation, member state can set standards more exacting than the Commission, and can maintain more stringent but compatible regulatory standards. This was reinforced in Pubblica Ministero v Ratti[18] where ECJ decided that member state can maintain more precise obligations than the EU. The purpose of EU directive was only to prevent the state from laying down stricter rules on its own.

A look at articles under TFEU evidently will prove that TFEU has tackled all issues that can deter trade and distort competitions between member states of EU. Main provisions that have prohibited unjustified restrictions are listed under Article 26 and Articles 28 to 37. These articles form the legal basis for free movement of goods.[19] The following part of the essay analytically discusses provisions of the Articles of TFEU

Article 28 to 30 provide for protection of free movement of goods by giving existing customs duties or charges equivalent effect, with the object of rendering foreign goods more expensive than their domestic counterparts. Bring in uniformity in application by member states, the Court of Justice of the European Union laid down principles surrounding “customs duties or charges have equivalent effect” to mean any charge that has the same effect upon the free movement of products as a customs duty.

In Eunomia di Porro & Co v Italian Ministry of Education[21] the European Court of Justice (ECJ) ruled that Article 28 when read with other articles in the area of freedom of movement of goods provides direct effect. In Rene Lamcry SA v Direction Generale des Douanes[22] ECJ further interpreted Article 28 to prohibit custom duties and charges from applying to a member state, but imposed on goods that enter or leave a particular region of that state.

Moving on to protect member states from competition outside EU, TFEU provides Article 29, Article 30, Article 34 to 37, and Article 110. Article 29 deals with goods imported from outside EU. Such goods will be considered in free circulation once import formalities are complied with and customs duties are already levied. Article 30 has an expansive coverage to protect freedom of movement of goods. It does not create any distinction between customs duties on imports and duties on exports.[23] In order to ensure that this fundamental aim is fulfilled, in the case of Commission v Italy,[24] ECJ laid down an expansive definition but strict interpretation to focus on the effect of a duty and not its purpose. It further gave a broad reading to charges having equivalent effect to a customs duty.

As a safeguard for member states against foreign competition and invasion of foreign goods, Articles 34 to 37 of TFEU provide provisions for discouraging member states to imports products that is detrimental to businesses of domestic goods. A way to preserve advantage for its own goods, Member states may impose quotas or measures, which have equivalent effect on imports. This will ensure reduction of the quantum of imported products. While doing this, certain care must to taken not to impose additional requirement and being harsh on import of foreign goods. In Commission v Italy,[25] ECJ held that Article 34 prohibited additional requirement to make registration of imported cars longer, more complicated and costly than the domestic cars.

Article 34 deals with intra EU imports and Article 35 concerns exports between the EU Member States. Both the Articles aim to prohibit quantitative restrictions and all such measure that have equivalent effect between the member states. Article 36, however, lays down limitation on such restrictions so that member states cannot take advantage by laying down arbitrary or disguised restriction. Certain justified restrictions such as in the interest of public morality, policy or security among other things are also provided.[26] To exempt from the principle of mutual recognition, there should be a justifiable ground of public interest and that the restriction imposed on free movement must be in the least possible way and proportionate to the objective in terms of necessity.[27] In the case of Commission v France (Milk Substitutes case), the Commission held that French prohibition related to marketing and import into France of milk substitutes was very restrictive that it would destroy trade between member states.

Various judicial principles were set out around prohibit quantitative restrictions and reducing scope of national autonomy and abolish political intervention. In Procureur du Roi v Dassonville,[29] the Court held that all trading rules of the Members States obstructing intra EU trade must be regarded as measures at par with quantitative restrictions. This decision was further developed in the case of Rewe-Zentral Ag v Bundesmonopolverwaltung Fur Branntwein, known as the case of Cassis de Dijon. In Cassis de Dijon,[30] the court held that products which are manufactured and marketed in member states must be allowed to be sold in other member states. Subsequent to the judgment in the case of Cassis, the EU commission made a declaration stating that when member states make rules that are likely to have impact on free movement of goods ought not to take up a completely national view and shall consider requirements limited to domestic products. If in Cassis the courts would have not applied Article 34 in diverse but non discriminatory technical standards, there would have been a significant harmonization to control such regulatory diversity.

However, courts in their role to balance interest of market regulation and to invalidate national rules that hinder market regulation confined the application of Article 34 in Keck[31] judgment and The Commission v Italy (Trailers) case[32]. ECJ held that some selling arrangements were out of scope of the Article and were held non-discriminatory. This test made provisions for scrutinizing market access breach under Article 34 along with goods characteristics. Failure in the Keck Test would lead to automatic breach of Article 34. Such judicial interventions are essential to defuse the social, economic and political issues.[33] The case, Rosella or International Transport Workers Federation v Viking Line ABP, is an example of how economic constitutionalism can jeopardize social constitutionalism.

In addition to the Articles, Regulation EC No. 764/2008 was passed to discourage and prevent member states from hindering trade of other member state. A member state that decides to prevent or hinder free movement of goods lawfully marketed in another member state on grounds listed in Article 36 TFEU or because of Cassis mandatory requirements, must give written notice to the importer, who has 20 days to comment. Member state final decision must be notified to the importer and the Commissioner.

In order that member states do not adopt regulations that give rise to any special conditions of trade, a member state is obliged to provide information via Directives 98/34 to the Commission before it adopts any such regulation except where it transpose a European or international standards. In CIA Security International SA v Signalson SA and Securital SPRL,[36] and in the case of Unilever v Central Food, the Directive was given force by ECJ decision that a national measure which had not been notified according to the Directive cannot be relied on.

EU, with objective of preventing member states to form groups or practice favoritism, provides for protecting trade between Member States by preventing a member state from granting favourable aid to another that can distort trade competition. This is covered under Articles 107 to 109, which further provides that Commission shall constantly review all systems of existing aids.

Similar to the purposes set out under Article 34-37, provisions of Article 110 impose disadvantage on member states that import products in competition with domestic goods. Under this Article, a member state can impose additional internal tax on products of other member states except where it intends to protect other products.[39] This is reiterated in Commission v Italy (Taxation of rum)[40] where ECJ laid down removal of all types of protection that result from discriminatory internal taxation against products from other member states to ensure free movement of goods, and absolute neutrality of internal taxation related to domestic and imported products.

In Maciej Brzezinski v Dyrektor Izby Celnej w Warszawie,[41] ECJ also reiterated the purpose of Article 110 by demanding complete neutrality of internal taxation as regards domestic and imported products. Also, The Commission v Ireland[42] laid down rules for direct discrimination where tax is applied to all goods irrespective of origin and domestic producers were treated leniently with respect to duration of payment.

Last but not the least, TFEU has listed Articles 111, 112, and 113, which deal with repayment or remission of internal taxes in case of imports between member states and Articles 258 and 260 that deal with infringement proceedings. To tackle issues arising out of processes related to remission of internal taxes, the Commission has to lay down measures after it proposes such measures and get approval from the European Council. To ensure harmonisation and implementation of legislation around taxes and excise duties by member states, the Council shall consult the European Parliament and the Economic and Social Committee to adopt relevant provisions.

Article 258 and 260 further ensure security of free movement of goods by initiating infringement proceedings against member states who fail to comply with its obligations in relation to EU law. The Commission can seek a declaration from the Court of Justice that a member state has infringed free movement of goods. Financial sanctions can also be sought to act as deterrent and simultaneously encourage Member States to comply with EU law.[43] The objective of Article 258 may not achieve its desired result while addressing a particular issue. Therefore, in certain cases, for instance, Commission v Greece,[44] courts reiterated that Commission in its role to ensure member states confirm to EU law has great extent of discretion to initiate infringement proceedings or not.

Besides the main Treaty Articles and steps taken up by EU, mention may be made of a few other measures taken up by EU to ensure smooth freedom of movement of goods. Firstly, in continuity to list of regulation and directives mentioned earlier, Commission adopted the Regulation (EC) No 2679/98, termed as the ‘strawberry’ regulation, which provides procedures and demand immediate action to tackle serious obstacles to the free movement of goods that can result to heavy loss to individuals. These obstacles can take the form of inaction on the part of national authorities in the event of violent action by individuals or non-violent action such as blockages of borders or boycott of imported products. Member states are obliged to take necessary measures to tackle such issues and the Commission is empowered to notify and enforce member to adopt these measures.

Internal Market also spans across digital market as well. In order to improve access to digital goods and services and to offer a technological platform to support infrastructural support, Internal Market provide an IMI system, a free service, which allows efficient communication between authorities about EU internal market law related to single market including free movement of goods.[45] In addition to this technology based support, in 2002 the Commission developed another network called ‘Solvit’ that solves problems caused by public authorities because of it misapplication of internal market law. A study of the flow of cases and actions by Solvit shows the trend of issues between member states and a few areas where EU is facing challenge to solve conflicts related to free movement of goods. The 2013 scorecard shows number if individual cases were higher than that coming from business. In the area of free movement of goods, there were 30 cases out of which 22 cases were solved. In terms of business covering free movement of services, finance, and goods, 2013 showed lower numbers of cases with only 132 closed cases.). Going through the 2013 statistics, it appears to be that most of the unresolved cases stemmed from the interpretation of national regulations contradictory to EU provisions or due to refusal to accept EU provisions by private bodies of member states.

Scholars proclaim that the courts protect the internal market by letting the law of free movement intervene in cases where legislation does not allow the same.[47] The case of Cassis de Dijon, Centros Ltd and Erhver v og Selskabsstyrelsen,[48] and Reyners v Belgium Reyners[49] are few of the earliest judgments to that effect. These cases give an insight into how the courts’ interpretation of the law concerning free movement of goods has the potential to affect the allocation of institutional and constitutional powers with the EU. It is the role of the Commission to improve mobility of trade and access to goods among member states, which will enable unlocking the optimal potential of the single market.

Conclusion

Internal Market has provided EU a robust platform, which is both diverse and competitive. It has created several jobs and provided resources and businesses opportunities that will enable member states to be successful in the world market. Free movement of goods plays a vital role in increasing competition and economic integration. It enables formation of a consolidated integrated economy where optimal values of goods are achieved through efficient resource allocation.National courts of member states also play a vital role in maintaining legal order in EU and to enforce the EU laws. It is for the Commission role to improve mobility of trade and access to goods among member states, which will enable unlocking the optimal potential of the single market.

The evident advantage of an Internal Market is that there is absence of technical, legal and bureaucratic barriers, reduction in prices, more options of consumers, and business units’ access to millions of customers.

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