fe1 eu sample chapter

6The InternalMarket Part One:The FreeMovement ofGoods

j IN THIS CHAPTER

The Internal Market: an Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�01]

The Free Movement of Goods: an Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�03]

Examples of FE 1 Questions Examining the Free Movement of Goods . . . . . . . . . . [6�05]

Question 5 of April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�05]

Question 5 of October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�06]

Question 5 of April 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�07]

Question 5 of October 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�08]

Question of 5 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�09]

Question of 5 October 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�10]

The List of Critical Issues Relating to the Free Movement of Goods. . . . . . . . . . . . [6�11]

The Common Issues Arising Under the Free Movement of Goods . . . . . . . . . . . . . [6�16]

The Definition of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�16]

Differentiating Between Art 28 EC and Arts 25 And 90 EC . . . . . . . . . . . . . . [6�18]

Differentiating Between Art 25 EC and Art 90 EC. . . . . . . . . . . . . . . . . . . . . [6�19]

Customs Duties and Charges Having Equivalent Effect to Customs Duties . . . . . . . [6�24]

An Introduction to Customs Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�24]

The Definition of a Customs Duty and Charge having Equivalent Effect to a

Customs Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�25]

The Scope of the Prohibition Against Customs Duties and Charges having

Equivalent Effect to Customs Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�28]

The Exceptions to the Prohibition Against Customs Duties and Charges

Having Equivalent Effect to Customs Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�30]

The Regulation of Internal Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�36]

An Introduction to Internal Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�36]

The Definition of an Internal Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�38]

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The Definition of Similar Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�39]

The Prohibition against Direct and Indirect Discrimination. . . . . . . . . . . . . . . [6�43]

The Prohibition Against Taxation Systems with Protective Effect. . . . . . . . . . . [6�48]

Quantitative Restrictions and Measures Having Equivalent Effect to

Quantitative Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�51]

An Introduction to Quantitative Restrictions and Measures having

Equivalent Effect to Quantitative Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�52]

The Definition of a Measure Having Equivalent Effect to Quantitative

Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�55]

The Regulation of Distinctly Applicable Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�60]

The Regulation of Indistinctly Applicable Rules . . . . . . . . . . . . . . . . . . . . . . . . . . [6�62]

The Regulation of Selling Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�65]

An Introduction to Justifications of Measures Having Equivalent Effect to

Quantitative Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [6�75]

Justifying Restrictions on the Basis of Art 30 Ec . . . . . . . . . . . . . . . . . . . . . . . . . . [6�78]

Justifying Restrictions on the Basis of the Mandatory Requirements . . . . . . . . . . . . [6�93]

Organisational Charts Relating to the Free Movement of Goods . . . . . . . . . . . . . [6�100]

Final Examination 1: EU LAW Free Movement Of Goods . . . . . . . . . . . . . . . . . . [�]

Organisational Chart 1: Arts 25, 28 and 90 EC . . . . . . . . . . . . . . . . . . . . . . . . . . [6�100]

j THE INTERNAL MARKET: AN INTRODUCTION

The internal market is the cornerstone of the European Union. The fundamental objective of

the internal market is to eliminate barriers to free movement of goods, services and persons

within the European Union. For the purposes of the FE 1 examination, students must

examine the following topics:

. The free movement of goods;

. the freedom to provide services;

. the freedom of establishment;

. the free movement of workers; and

. the free movement of capital and payments.

These topics are cumulatively known as the fundamental freedoms and form the basis of the

economic union between the Member States of the EU. The fundamental freedoms are one of

the general objectives of the EU contained in Art 3(1)(c) EC. The ultimate objective is the

creation of a single economic market whereby goods, services, capital and labour are treated

the same throughout the Community and are afforded the same competitive advantages

regardless of which Member State the product, service, capital or worker originates from. The

elimination of barriers within the internal market maximises competitiveness of undertakings

within the Community by eliminating national rules that protect home industry and favour

less efficient undertakings. The elimination of such protective measures permits undertakings

to compete in terms of price and quality of products or services. The political objective of the

internal market is to create interdependence and integration amongst the Member States.

This contributes towards stability within the Community as the interests of individual

Member States are interconnected with one another.1

1 Lowenfeld, Public Controls on International Trade, p 44.

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122 j Independent Colleges: European Union Law

In this manual, the free movement of goods will be examined in chap 6, whereas the

remaining fundamental freedoms are discussed in chap 7 There is a considerable overlap in

recent FE 1 examinations between the different fundamental freedoms and students are

advised to study the entirety of these chapters as at least one question on the upcoming

examination will relate to these chapters.

j THE FREE MOVEMENT OF GOODS: AN OVERVIEW

The free movement of goods is provided for in Pt III of Title I of the EC Treaty. The objective

of the Treaty provisions relating to the free movement of goods is to prohibit tariffs, duties

and charges having equivalent effect, quotas and other quantitative restrictions, or measures

having equivalent effect to quantitative restrictions on goods. In addition, the Community

institutions adopt legislation to harmonise Member States laws regulating trade in goods and

have established a Community customs code, which provides for a Common external customs

system throughout the Community, for goods originating from outside the Community. For

the purposes of the FE 1 examination students must have a good understanding of the

following topics:

. Customs duties and charges having equivalent effect to customs duties;

. Internal taxation; and

. quantitative restrictions and measures having equivalent effect to quantitative restrictions.

The FE 1 paper will ordinarily examine this area by way of a problem question. Such

problem questions generally involve more than one of these topics. In addition, the free

movement of goods can be examined in conjunction with the freedom to provide services,

discussed in chap 7 below. Therefore, students must ensure that they have a good

understanding of all topics in this chapter. Following a brief overview, the chapter will set

out previous exam questions from the FE 1 examination, as well as examiner’s reports in

respect thereof. Following this, the manual will set out the critical issues arising under this

chapter, before proceeding to a detailed analysis of each of these critical issues. Thereafter,

there will be a number of organisational charts, which are intended to facilitate students in

applying the law in this area.

j EXAMPLES OF FE 1 QUESTIONS EXAMINING THE FREE

MOVEMENT OF GOODS

Question 5 of April 2007

Your client seeks your advice on the compatibility of the following measures and proposed

measures with EC Law, in particular with Arts 28 and 49 EC:

(i) A Finnish law on alcohol pursuant to which ‘‘[ . . .] the use, production of spirits [is]

limited to those who have a licence for that purpose’’ and to obtain a licence, whether to

import or to retail spirituous purpose’’ and to obtain a licence, whether to import or to

retail spirituous beverages, the applicant ‘‘must demonstrate a justifiable need’’;

(ii) an Austrian legislative provision on public health which prohibits the marketing of all

non-packaged confectionary in shops and supermarkets but which excludes artisan

bakeries from the scope of the provision. The law is policed by a team of retail-premised

health inspectors whose salaries are paid from a fund administered by the federal

government and financed from a levy imposed on the retail sale of chewing gum

regardless of origin in Austria;

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The Internal Market Part One: The Free Movement of Goods j 123

(iii)an Italian legislative proposal on the environment which would, if enacted, impose a

prohibition on the marketing of babies’ nappies which are not manufactured from

biodegradable materials in accordance with a national standard; and

(iv)a German prohibition on the sale, rental or exploitation in games halls and in amusement

arcades and centres of any computer games that involve the participants mimicking

violence, in particular those that involve the mimicking of shooting with firearms.

Draft an opinion setting out your advice.

Examiner’s Report on Question 5 April 2007This question focused on the free movement of goods and was widely and generally answered

well overall. However, many candidates failed to identify all of the key issues, such as the

potential significance of the fact that the Italian measure concerned a proposed new industrial

standard and whether the German prohibition constituted a restriction on the freedom to

provide services. Hardly any candidates picked up on the significance of the levy imposed

under the Austrian law for the potential application of Arts 23 and 25 EC, on the one hand,

and Art 90 EC on the other. Future candidates should note that there will not always be a

specific question on Arts 28 to 30 EC on the paper, although a thorough knowledge of the

said provisions will often be useful for answering at least part of one of the questions on any

given paper.

Question 5 of October 2006

Your client seeks your advice on the compatibility of the following measures and proposed

measures with EC law, in particular Arts 28 EC and 49 EC:

(i) A Swedish prohibition of all television and radio advertising of toys or dolls that

replicate soldiers or armed mercenaries, or that are otherwise based on a theme of war

or armed conflict;

(ii) an Austrian legislative provision on public health which prohibits the marketing of al

non-packaged confectionary in shops and supermarkets and which is due to be

extended to the sale of chewing gum from vending machines;

(iii)a new Italian legislative proposal on the environment which would, if enacted, impose a

prohibition on the marketing of babies’ nappies which are not manufactured from

biodegradable materials in accordance with a national standard; and

(iv)a German prohibition on the sale, rental or exploitation in games halls and amusement

arcades and centres of any computer games that involve the participants mimicking

violence, in particular those that involve the mimicking of shooting with firearms.

Draft your opinion setting out your advice.

Examiner’s Report on Question 5 October 2006This question focused on the free movement of goods and was widely and generally well

answered. However, many candidates failed to identify all of the key issues, such as the

potential significance of the fact that the Italian measure concerned a proposed new industrial

standard and whether the German prohibition constituted a restriction on the freedom to

provide services. Future candidates should note that, although there will not always be a

specific question on Arts 28 to 30 EC, a thorough knowledge thereof will often be useful for

answering at least part of one of the questions on any given paper.

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Question 5 of April 2006

In Austria, a new law has been adopted that requires all manufacturers and/or importers of

chewing gum to register with the Environmental agency. Monthly declarations must be

returned to the Agency by the 28th day of the month in respect of which the report is made

regarding, in the case of domestic manufacturers, the amount of chewing gum sold by, or on

their behalf, into Austria. An environmental levy of 0.15 per cent of the ex factory value of the

gum manufactured in Austria and 0.12 per cent of the retail sale price of the gum imported is

payable within a further period of 28 days to the Agency by the manufacturer and/or importer

respectively. Furthermore, the marketing of all non-packaged confectionary, including chewing

gum, from vending machines is to be prohibited in Austria on human health grounds. The

Environmental Agency argues that consumers who purchase such confectionary from vending

machines necessarily touch the confectionary and the vending machine’s delivery tray, thereby

increasing the risk of contamination of the vending confectionary by pathogenic germs.

Chewy Delights Ltd. is an Irish company that manufacture and sells non-packaged chewing

gum for sale from vending machines across Europe. It is considered (sic) about the effect of

these national laws on its ability to maintain and develop its sales in Austria. It has asked your

law firm to advise it on whether it may challenge the laws in question before the Austrian courts

on the basis of EC Law.

Examiner’s Report on Question 5 April 2006This question focused on the free movement of goods and was widely and generally quite well

answered. However, many candidates failed to identify all of the key issues: was the monthly

declaration system compatible with Art 28 and if not could it be justified on the basis of Art

30 EC; was the environmental levy a charge having equivalent effect to a customs duty on

imports or a form of indirect taxation subject to Art 90 EC; could the intended prohibition on

the sale of unpackaged confectionary be regarded as a ‘‘selling arrangement’’ for the purposes

of the Keck line of case-law and, if not, could it, none the less, be justified on public health

grounds under Art 30 EC. Future candidates should note that, although there will not always

be a specific question on Arts 28 to 30 EC, a thorough knowledge thereof will often be useful

for answering at least part of one of the questions on any given paper.

Question 5 of October 2005

The Government of Eastland, an EU Member State, is considering introducing in the

Eastland Parliament a bill that, if enacted, would prohibit:

(i) All Sunday trading in retail level, save during non-church going hours (defined between

14hr00 to 18hr00 on Sundays);

(ii) the importation of any newspaper, magazine, book, video or DVD, with the exception

of medical books, videos and DVDs, containing pictures of ‘‘scantily-clad’’ persons;

and

(iii)the sale, rental or exploitation of any games which involve the participants mimicking

violence, in particular hand-held video games involving shooting;

All forms of advertising of tobacco products with the exception of discreet point of sale

advertising.

As an EC law specialist, you have been asked by the Attorney General of Eastland to draft a

legal opinion assessing the compatibility or otherwise of the above provisions with

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Community law and, in particular, with Arts 28 EC and 49 EC as interpreted by the Court of

Justice. What would your advice be?

Examiner’s Report on Question 5 October 2005This was the most popular problem question on the paper. In general, it was answered very

well. Some candidates had insufficient knowledge adequately to distinguish the scope of the

Keck line of case-law, while others conflated Art 30 EC with Keck. Very few candidates

identified the freedom to provide services dimension to the third provision of the contested

bill. However, there were few really poor answers to this question. Future candidates should

note that there will not always be a specific question on the Art 28 EC, although a thorough

knowledge thereof will always be useful for answering one or more of the questions on any

given paper.

Question of 5 April 2005

An umbrella body representing the main Christian churches in Eastland, an EU Member

State, is lobbying the main opposition party to introduce in the Eastland Parliament a bill

that, if enacted, would prohibit:

(i) All Sunday trading at retail level, save during non-church going hours (defined as

between 14h00 to 17h00 on Sundays);

(ii) the importation of any newspaper, magazine, book, video or DVD, save medical books,

videos and DVDs, containing pictures of ‘‘scantily-dressed’’ persons;

(iii)the sale of any games which involve the participants mimicking violence, in particular

handheld video games involving shooting; and

(iv)all advertising of whatever nature and in whatever from of alcoholic beverages on

Sundays.

In your capacity as that party’s legal adviser, you have been asked to draft a legal opinion

outlining the potential incompatibility of any or all of the above provisions with Community

law and, in particular, with Art 28 EC as interpreted by the Court of Justice. What would your

advice be?

Examiner’s Report on Question 5 April 2005This was the most popular question on the paper. In general, it was answered very well. Some

candidates had insufficient knowledge adequately to distinguish the scope of the Keck line of

case-law, while others conflated Art 30 EC with Keck However, there were very few really

poor answers to this question.

Question of 5 October 2004

Following the introduction of a smoking ban (on nicotine-containing products) in all Irish

public houses, the Irish Purveyors of Fine Wines Association (‘‘IPFWA’’), concerned at a

resulting decline in the overall turnover of its members’ wine bars, asks for your expert advice

on the compatibility with EU laws of the following regulatory provisions, the repeal of which,

it believes, would alleviate its members’ allegedly declining trade:

(a) In Ireland, while beer is subject to an excise duty charged at five per cent of its brewery

outlet price, wine is taxed at a standard excise-duty charge of _2 per bottle;

(b) Excise duty on imported alcoholic beverages is payable within a fortnight of their

delivery to a bonded warehouse in Ireland, whereas excise duty payable on domestically

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produced alcoholic beverages arises only a fortnight after their delivery for resale to

licensed premises or off-licences;

(c) Desirous of launching a herbal cigarette branded ‘‘fresh air’’, IPFWA is concerned about

Greek rules that impose an export levy (levied at t1,000 per tonne exported) on the

special mint leaves to be used in the manufacture of the cigarette. The proceeds generated

from the imposition of the levy are earmarked to provide health insurance to workers

employed in Greece by the undertakings engaged in the cultivation of the special leaves.

Occasional phytosanitary inspections are carried out at the farms supplying the leaves

for which a fee, calculated by reference to hectares under cultivation, is payable by the

farmers or undertaking concerned following any such inspection.

What would your advice be?

Examiner’s Report on Question 5 October 2004This was the most popular problem question on the paper. Overall, it was answered well. In

general, it was answered very well. Some candidates had insufficient knowledge adequately to

distinguish the scope of Arts 23 and 25 on customs duties and charges having equivalent effect

from that of Art 90 EC, while others failed to distinguish between the first and second

paragraphs of Art 90 EC when addressing the wine/beer problem in sub-part a) of the question.

j THE LIST OF CRITICAL ISSUES RELATING TO THE FREE

MOVEMENT OF GOODS

The free movement of goods is governed by three separate Treaty Articles:

(1) Article 25, which prohibits customs duties and charges having equivalent effect to

customs duties;

(2) Article 90 EC, which prohibits discriminatory taxation; and

(3) Article 28 EC, which prohibits quantitative restrictions and measures having equivalent

effect to quantitative restrictions.

In respect of the above three Treaty Arts generally, the following list of common critical issues

arise:

. The definition of goods;

. differentiating between Art 28 EC and Arts 25 and 90 EC; and

. differentiating between Art 25 EC and Art 90 EC.

In respect of customs duties and charges having equivalent effect to customs duties:

. An introduction to customs duties;

. the definition of a customs duty and charge having equivalent effect to a customs duty;

. the scope of the prohibition against customs duties and charges having equivalent effect

to customs duties; and

. the exceptions to the prohibition against customs duties and charges having equivalent

effect to customs duties.

In respect of internal taxation:

. An introduction to internal taxation;

. the definition of an internal tax;

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. the definition of similar goods;

. the prohibition against direct and indirect discrimination; and

. the prohibition against taxation systems with protective effect.

In respect of quantitative restrictions and measures having equivalent effect to quantitative

restriction:

. An introduction to quantitative restrictions and measures having equivalent effect to

quantitative restrictions;

. the definition of a measure having equivalent effect to quantitative restrictions;

. the regulation of distinctly applicable rules;

. the regulation of indistinctly applicable rules;

. the regulation of selling arrangements;

. an introduction to justifications of measures having equivalent effect to quantitative

restrictions;

. justifying restrictions on the basis of Art 30 EC; and

. justifying restrictions on the basis of the mandatory requirements.

j THE COMMON ISSUES ARISING UNDER THE FREE MOVEMENT OF

GOODS

The Definition of Goods

The first issue for students to consider is the definition of goods. The definition of goods is

the same under Arts 25, 28 and 90 EC. The definition was first enunciated by the Court of

Justice in the case of Commission v Italy.2 In this case, Italy imposed a duty on the exportation

of works of an artistic, historic and archaeological. The Commission instituted enforcement

proceedings against Italy alleging that the tax was contrary to Art 25 EC. The Court of

Justice, in finding that such works fell within the definition of goods, set out the following

test:

‘‘By goods, within the meaning of [the EC Treaty], there must be understood products

which can be valued in money and which are capable, as such, of forming the subject of

commercial transactions.’’

In general terms, goods are to be distinguished from services on the basis that goods relate to

tangibles, whereas services relate to intangibles.3 This is illustrated by the case of Sacchi.4 In

this case, a number of questions were referred to the Court of Justice including whether TV

broadcasts fell within the definition of goods or services. The Court of Justice found that a

television signal must, by reason of its nature, fall within the definition of services so that, for

example, TV advertisements were governed by the Treaty rules relating to services. By

contrast, trade in material sound recordings, films, apparatus and other products used for the

diffusion of television signals were governed by the Treaty rules relating to the free of

movement for goods.

2 [1968] ECR 423.3 The sole exception to this principle is electricity, which is treated as a good, notwithstanding that it

is intangible: See Case C-393/92 Almelo [1994] ECR I 1477.4 Case 155/73; [1974] ECR 409.

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Differentiating Between Art 28 EC and Arts 25 And 90 EC

Article 28 provides:

Quantitative restrictions on imports and all measures having equivalent effect shall be

prohibited between Member States.

Article 25 provides that:

Customs duties on imports and exports and charges of equivalent effect shall be prohibited

between Member States. This prohibition shall also apply to customs duties of a fiscal

nature.

Article 90 provides that:

1. No Member State shall impose, either 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.

2. 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 any other

products.

Once students establish that a national rule regulates goods as defined above, the next issue to

determine is whether the national rule is governed by Art 28 EC, or if the rule is governed by

either Art 25 EC or Art 90 EC. Whilst all three of these Treaty Articles apply to the free

movement of goods, they are mutually exclusive and students must determine which one of

the Arts applies to a national rule. The first distinction to be made is between Art 28 EC and

Arts 25 and 90 EC.

The general rule is that Art 28 EC will apply whenever the national rule does not involve

payment of a pecuniary charge. Therefore, whenever students are examining a rule that does

not require the payment of money, Art 28 EC is the applicable Treaty Art. Conversely,

whenever the national rules requires the payment of money either Art 25 EC or Art 90 EC

will govern the national rule.

Differentiating Between Art 25 EC and Art 90 EC

This is an important area for students to comprehend for the purpose of the FE 1 examination.

Both Art 25 EC and Art 90 EC apply where the national rule requires payment of money on

the product. Art 90 EC will apply whenever the payment relates to the internal tax system of a

Member State, whereas Art 25 EC will apply whenever the payment constitutes a customs duty

or charge having equivalent effect to a customs duty. In general terms, a customs duty is a

payment that must be made by a product because it crosses a frontier, whereas an internal tax is

a payment that must be made by imports, exports and goods produced domestically by the

Member State that imposes the obligation to make the payment5.

The practical significance of this distinction is that a customs duty is prohibited

automatically pursuant to Art 25 EC, with certain narrow exceptions, whilst an internal tax

5 Case 90/79 Commission v France [1981] ECR 283, para 13 and Case C-109/98 CRT France

International v Directeur Regional des Impots de Bourgogne [1999] ECR I-2237, para 11.

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is not prohibited by Art 90 EC unless it discriminates against imported goods or protects

domestic goods and, in such cases, only to the extent that it has this discriminatory of

protective effect.6

Whenever the levy is payable when the goods are imported or because the goods are

imported, it will generally fall within the definition of a customs duty. However, this is not

invariably the case and, in the case of Denkavit v Danish Ministry of Agriculture,7 the Court of

Justice established the following general test for distinguishing between an internal tax and a

customs. In this case, the legality of a Danish levy on imported animal feed was referred to the

Court of Justice. The levy had been imposed on animal feed that was imported into Denmark

from Holland. In order to import the product, an authorisation from the Danish authorities

was required. The importer had to pay the levy to receive the authorisation and the payment

was used to pay for sampling of the products by the Danish authorities. The Court of Justice

established a four part cumulative test that must be satisfied in order for a payment to fall

within the definition of an internal tax:8

(1) The payment must be part of a general system of internal dues applied systematically to

categories of goods;

(2) that general system of internal dues must impose levies on the basis of objective criteria

that is not based upon the origin or destination of the goods;

(3) the due must be payable by imports and exports at the same marketing stage and must

be payable at the same rate; and

(4) the chargeable event, giving rise to the duty to pay the due, must be the same for both

imports and exports.

In this case, the Court of Justice observed that both importers and domestic producers had to

pay for the sampling of the goods and the payment system applied systematically to all

domestic and imported products alike. The levy fell within the definition of an internal

taxation and, therefore, was governed by Art 90 EC.

In respect of goods that are not produced domestically, the Court of Justice has established, in

the case of Co-Frutta,9 that levies on such products will not necessarily fall within the

definition of a customs duty. In this case, the Court of Justice considered the legality of an

Italian consumption tax on bananas, which were not produced in Italy. The Court of Justice

concluded that the tax formed since it was one of nineteen taxes on consumption that were

governed by common tax rules that were charged on categories of products irrespective of

their origin in accordance with an objective criterion, namely the fact that the product falls

into a specific category of goods. The revenue from those taxes was not earmarked for a

specific purpose and formed part of the State’s general finance.

The case is more complex where there is an exemption from the levy, which has the effect of

excluding, in substantial part, domestic products. In the cases, the Court of Justice has

identified three possible classifications of the levy. Firstly, where the exemption in fact

6 Case 94/74 IGVA v ENCC [1975] ECR 699.7 Case 29/87; [1988] ECR 2965.8 See also Case 90/79 Commission v France [1981] ECR 283, para 14 and Case C-163/90 Legros [1992]

ECR I-4625, para 11.9 [1987] ECR 2085.

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excludes the greater part of domestic production, but the levy is based on objective criteria

and applies in the same manner to domestic and imported products, the levy will fall within

the definition of an internal tax. Secondly, there could be two distinct levies may exist, one

applicable to imports only, which constitutes a customs duty, and one which applies to both

imports and domestic goods, which falls within the definition of an internal tax. Finally, levy

may be a customs duty and the fact that a small number of domestic products must pay the

duty is merely intended to conceal its true nature.10

According to the general test, the levy must be subject to the same chargeable event for both

domestic and imported products. This issue was discussed in the case of Irish Creamery Milk

Suppliers Association.11 In this case, the Court of Justice had to consider the validity of a levy

imposed on the exportation of live animals for purposes other than their immediate slaughter

at the time of exportation. By contrast, animals that were not exported did not pay the levy

until they were delivered for slaughter. The Court of Justice concluded that the chargeable

event was the withdrawal of the animal from the national herd. Therefore, both levies formed

part of the internal tax system since the chargeable event was the same for cattle slaughtered

domestically and cattle withdrawn from the herd through exportation.

j CUSTOMS DUTIES AND CHARGES HAVING EQUIVALENT EFFECT TO

CUSTOMS DUTIES

An Introduction to Customs Duties

Article 25 EC

‘‘Customs duties on imports and exports and charges having equivalent effect shall be

prohibited between Member States. This prohibition should also apply to customs

duties of a fiscal nature.’’

Article 25 EC contains a general prohibition against customs duties and charges having

equivalent effect to customs duties. The Art was the first in the EC Treaty to be recognised as

having direct effect.12 As discussed further below, the prohibition is absolute, although there are

three exceptions to this prohibition. The reason for the absolute prohibition against customs

duties arises from the fact that such duties constitute a substantial restriction on the free

movement of goods within the Community. Where a Member State charges a customs duty, the

importer or exporter can seek recovery from that of any charge they may have paid that has been

found to be prohibited by Art 25 EC, subject to Member State national rules of procedure.13

The Definition of a Customs Duty and Charge having

Equivalent Effect to a Customs Duty

A customs duty is a payment to public revenue funds that is levied on goods because they

cross a frontier. The prohibition under Art 25 EC applies to levies imposed by Member States

on imports and exports.

10 Case 45/94 Municipality of Ceuta [1995] ECR I-4385.11 Joined Cases 36/80 and 71/80 Irish Creamery Milk Suppliers Association and Others [1981] ECR

735.12 See Case 26/62 Van Gend en Loos [1963] ECR 1, in respect of its predecessor, former Art 12 EC.13 See Case 199/82 San Giorgio [1983] ECR 3595. See, in respect of national procedural rules, chap 5

generally.

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The prohibition of customs duties was originally considered to apply to levies imposed on

goods because they cross a national frontier. However, in its recent case-law the Court of

Justice has held that Art 25 EC prohibits levies imposed because goods cross a regional

frontier. In Lancry and Others,14 the Court of Justice ruled that a charge on goods that was in

proportion to the customs value of the goods that was levied because the goods crossed the

internal frontier of a Member State fell within the prohibition under Art 25 EC. The

prohibition applied not only to circumstances where the goods entered from another Member

State, but also where the goods entered from another region of the same Member State. The

Court of Justice continued with this line of reasoning in the case of Simitzi,15 where the Court

of Justice expressly stated that a levy imposed on goods crossing a regional frontier from

another region of the same Member State fell within the definition of a customs duty. The

rationale for the approach of the Court of Justice is that the customs union within the

Community required the abolition of customs duties generally and not just duties on goods

crossing national frontiers.16

Article 25 EC prohibits customs duties in the classical sense, as well as ‘charges having an

equivalent effect to customs duties’. Therefore, the classification of the payment under

national is not determinative of whether it falls within the prohibition.17 The case of

Commission v Italy18 involved an enforcement action brought by the Commission against

Italy, where the Commission alleged that a payment on exports fell within the prohibition

under Art 25 EC. Italy argued that the payment was intended to fund the compilation of

statistics relating to trade patterns. The Court of Justice held that the extension of the

prohibition of customs duties to charges having an equivalent effect was intended to

supplement the prohibition against obstacles to trade created by such duties by increasing its

efficiency. The Court of Justice established the following definition of a charge having

equivalent effect to a customs duty:

‘‘Any pecuniary charge, 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 frontier, and which is not a customs duty in the strict sense,

constitutes a charge having equivalent effect . . . even if it is not imposed for the benefit

of the State, is not discriminatory or protective in effect and if the product in which the

charge is imposed is not in competition with any domestic product.’’

The Scope of the Prohibition Against Customs Duties and Charges having

Equivalent Effect to Customs Duties

Article 25 EC lays down an absolute prohibition against customs duties and charges having

equivalent effect. As a result, once a levy is categorised as a customs duty or charge having

equivalent effect, it will be prohibited by Art 25 EC, unless it falls within one of the permitted

exceptions. Unlike other Treaty Arts governing the fundamental freedoms, Member States

cannot derogate from Art 25 EC or seeking to justify the levy on public policy grounds.

Indeed, the levy does not have to discriminate against imports or protect domestic production

14 Joined Cases; C-407-411/93 [1994] ECR I-3957.15 Joined Cases; C-485-486/93 [1995] ECR I-2655.16 Case C-30/01 Commission v United Kingdom [2003] ECR I-9481.17 Cases 2 & 3/62 Commission v Belgium & Luxembourg [1963] ECR 425.18 Case 24/68; [1969] ECR 193.

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to be prohibited by Art 25 EC Member States may not derogate from the prohibition laid

down in Art 25 EC.19

In this regard, the purpose for which the charge is levied will not permit the levy to escape this

prohibition. This is illustrated by a number of cases where the Member State advanced laudable

public policy grounds to justify the imposition of the levy, which were rejected as a justification

for the charge by the Court of Justice. In Commission v Italy,20 a tax was imposed on exports of

artistic, historic and archaeological goods from Italy to prevent the removal of historical

articles out of Italy. The Court of Justice held that the levy fell within the prohibition under Art

25 EC and that provision makes no distinction based on the purpose of the duty. The levy was

prohibited by Art 25 EC since the payment hindered the export of such goods from Italy.

A further illustration of this principle can be seen in the Diamond Workers’ case21 where a levy

was imposed on importers of unfinished diamonds for the purpose of providing finance for a

social benefit fund. The Court of Justice refused the Belgium Government to justify the levy on

this basis since customs duties were prohibited independently of any consideration of the

purpose for which they are introduced and the destination of the revenue obtained from the levy.

The Exceptions to the Prohibition Against Customs Duties and Charges

Having Equivalent Effect to Customs Duties

Although a Member State cannot justify a customs duty as such, there are three exceptions to

the prohibition laid down in Art 25 EC. Firstly, Art 25 EC does not apply where the payment

forms part of the internal tax system, which has been discussed above.22 Secondly, the

prohibition does not apply where the payment is consideration for a service rendered to the

importer or exporter. Finally, the prohibition does not apply to payments for inspections

carried out pursuant to mandatory obligations under Community law.

In respect of payments for services provided to importers and exporters, the payment must

relate to services actually provided and must be in proportion to the cost of providing the

service. The first condition is that the service must provide a specific and individual advantage

to the exporter or exporter. In the case of SIOT,23 the Court of Justice examined whether a

series of Italian port charges fell within the prohibition under Art 25 EC. In this case, an

undertaking that had imported oil to Germany and Austria through an Italian port was

required to pay port charges, which were payable irrespective of the origin of the goods. The

Court of Justice held that those charges would not be prohibited by Art 25 EC where they

constituted consideration for general and specific services rendered to the trader, including,

for example, the loading and unloading of the goods or the use of port facilities and

installations of navigation. By contrast, the case of Lamaire24 concerned a compulsory

payment to a promotional board for agricultural goods. Exporters were required to make an

annual payment that was based upon the amount of goods they exported and was used to

fund the board’s promotional activity. The Court of Justice found that the payment fell within

the prohibition under Art 25 EC because, even if though there could be some indirect

19 Joined Cases 2-3/69 the Diamond Workers’ case [1969] ECR 211.20 [1968] ECR 423.21 See n 19 above.22 Under the heading ‘‘Differentiating between Art 25 EC and Art 90 EC’’ above at para [6-19] et seq.23 Case 266/81; [1983] ECR 731.24 Case C-130/93; [1994] ECR I-3215.

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advantage to exporters from the board’s activities, the payment did not constitute

consideration for a specific and individual advantage provided to the economic operator.

Finally, as noted above, the charge must be commensurate with the cost of providing the

service. In Ford Espana SA,25 a customs clearance charge was found to be prohibited by Art

25 EC where the charge was based on the value of the goods rather than the cost of clearing

the goods through customs.

By way of contrast to charges for specific services provided to the importer or exporter, which

can escape the prohibition under Art 25 EC, the Court of Justice has consistently held that

charges for services provided in the general interest will fall within the prohibition against

customs duties and charges having equivalent effect to customs duties. For example, charges

for administrative expenses arising from customs clearance will fall within Art 25 EC.26

In addition, charges for public health inspections carried out on imports or exports will fall

within the scope of Art 25 EC. In Rewe-Zentralfinanz,27 importers of vegetable goods were

required to make a payment for phytosanitary inspections carried out when the goods entered

Germany. The payment did not exceed the cost of carrying out the inspections. Nonetheless,

the Court of Justice held that the charge fell within the prohibition under Art 25 EC. In

Bresciani,28 the Court of Justice elaborated upon this principle. In this case Italy imposed a

duty for the purpose of paying for veterinary inspections of imports of raw cowhides. The

Court of Justice concluded that the levy fell within the prohibition under Art 25 EC even

though the charge was commensurate with the cost of carrying out the inspection.

Importantly, the Court of Justice held that a public health inspection system served the

general public interest and did not represent a specific advantage for importers. Therefore,

where public health inspections are justified, the costs of those inspections must be met by the

general public. This was the case even where domestic goods are subject to a similar levy

unless the levy falls within the definition of an internal tax.

In respect of payments for charges imposed to pay for inspections carried out pursuant to

mandatory obligations under Community law, the Court of Justice has held that such charges

can fall outside Art 25 EC. In Bauhuis,29 an exporter of live cattle from the Netherlands

instituted proceedings against the Dutch state seeking recovery of payments made for

veterinary and public health inspections conducted in the Netherlands before exportation.

The Court of Justice held that charges for uniform inspections carried out pursuant to

mandatory obligations under Community law could promote the free movement of goods

since they ensured mutual recognition by Member States of public health inspections and,

therefore, prevented the need for inspections to be carried out on the same product in more

than one Member State. Therefore, such charges fell outside the prohibition under Art 25 EC

provided they complied with a cumulative four part test:

(1) The charge cannot exceed the cost of carrying out the inspections;

(2) the inspection must be uniform and mandatory for all the relevant goods throughout

the Community;

25 Case 170/93, [1989] ECR 2305.26 Case 8/70 Commission v Italy [1970] ECR 961.27 Case 39/73; [1973] ECR 1039.28 [1976] ECR 129.29 Case 46/76; [1977] ECR 5.

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(3) the inspections must be adopted in pursuit of the general interests of the Community; and

(4) the inspections must promote the free movement of goods by eliminating obstacles

arising from unilateral inspections adopted by Member States.

In Commission v Germany,30 the Commssion claimed that a German levy imposed on

importers of live animals was contrary to Art 25 EC. The German state argued that the levy

was charged for mandatory inspections under Council Directive 81/389. The Court of Justice

found that the German system complied with the four part test since, inter alia, the levy did

not exceed the cost of the inspections and the system eliminated technical barriers that arose

from disparities of different inspections under the laws of the Member States.

j THE REGULATION OF INTERNAL TAXATION

An Introduction to Internal Taxation

Article 90 EC

‘‘1. 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 in similar domestic products.

2. 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.’’

The Member States are responsible and retain discretion to impose direct taxation on goods

and the Community does not have specific authority to legislate in this area.31 This is known

as the principle of fiscal sovereignty of the Member States. However, Member States cannot

permit their direct taxation to discriminate against imports or to protect their domestic

products. Such taxation is prohibited by Art 90 EC, which has direct effect.32 As can be seen

from the text of Art 90 EC, there are two separate prohibitions under the provision. Firstly,

s 1 prohibits direct and indirect discriminatory taxation against similar imported goods.

Secondly, s 2 prohibits taxation that affords indirect protection to domestic goods. Students

must first assess whether section 1 applies and, if so, the prohibition against direct and

indirect discrimination applies. If not, students must apply s 2 of Art 90 EC.

The Definition of an Internal Tax

The EC Treaty does not define taxation and the case-law of the Court of Justice has established

whether duties fall within the definition of a tax. In addition, to the distinction between customs

duties and internal tax, the Court of Justice has found that the definition of internal taxation

extends to:33 contract duties,34 stamp duties,35 countervailing charges,36 and excise duties.37

30 Case 18/87; [1988] ECR 5427.31 See, for example, Case 127/75 Bobie [1976] ECR 1079. The Community has authority to adopt and

has adopted legislation in respect of certain indirect taxes on goods, such as VAT and excise duties.32 Case 57/65 Alfons Lutticke GmbH [1966] ECR 205.33 Case 15/81 Gaston Schul [1982] ECR 1409.34 Case 2/73 Geddo [1973] ECR 865.35 Case 77/69 Commission v Belgium [1970] ECR 237.36 Case 148/77 Hansen [1978] ECR 1787.37 Case 170/78 Commission v United Kingdom [1980] ECR 417.

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The Definition of Similar Goods

As noted above, students must first assess whether Art 90(1) EC applies and, in the event that

it does not, apply Art 90(2) EC. In order for Art 90(1) EC to apply, the tax must apply to

domestic goods and similar imported goods. In this regard, the Court of Justice applies an

identical test to establish whether goods are similar under Art 90(1) EC as it applies in respect

of the relevant product market under Competition law. This involves a two part test that

examines whether the products have similar objective characteristics and whether the products

are capable of meeting the same needs from the point of view of consumers.

The case of John Walker & Sons38 provides an example of the approach of the Court of

Justice. In this case, the Court had to assess whether scotch whiskey and fruit wines were

similar for the purposes of Art 90(1) EC. The Court of Justice held that, in considering this

question it was necessary to consider whether the products had similar objective

characteristics, such as the origin, the method of manufacture, the organoleptic properties,

as well as the taste and alcohol content of the products. In addition, it was necessary to

consider whether or not both categories of beverages were capable of meeting the same needs

from the point of view of consumers. Applying this test, the Court of Justice concluded that

scotch whiskey and fruit wines were not similar on the basis that they had different methods

of manufacture, alcohol percentages and fundamentally differing intrinsic characteristics.

The Court of Justice has held, in Commission v Italy,39 that bananas had different objective

characteristics as compared with other fruit, since they had differing water content and

organoleptic characteristics. Moreover, other fruit was not capable of meeting the same needs

from the point of view of consumers because bananas met certain needs, such as high energy

content and softness, that other fruit was incapable of meeting from a consumer’s point of

view.

The second part of the test essentially asks whether the two products are substitutes from the

point of view of consumers. This is established, in economic terms, by applying the SSNIP

test. This test poses the hypothetical question whether a small but significant non-transitory

increase in price will result in a substantial number of consumers ceasing purchasing the

domestic product and switching to purchasing the imported product. If this occurs, then the

cross-price elasticity of the products is high and they are similar for the purposes of Art 90(1)

EC.40 By contrast, if an insignificant number of consumers would switch from the domestic

product to the imported product, the two products are not similar and Art 90(1) EC does not

apply, in which case students should proceed and apply Art 90(2) EC.

The Prohibition against Direct and Indirect Discrimination

In the event that the domestic and imported products are similar, in accordance with

the test outlined above, Art 90(1) EC prohibits direct and indirect discrimination by

Member States against imported goods in the manner in which they tax the domestic and

imported products. In this regard, a distinction must be drawn between direct and indirect

taxation.

38 Case 243/83; [1984] ECR 875.39 Case 184/85; [1987] ECR 2013.40 Competition Law (3rd ed, ), pp 250�251.

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Direct discrimination arises whenever there is differentiation on the basis of the origin of the

goods in terms of the manner in which the tax applies. For example, direct discrimination

arises where the tax expressly applies solely to imported goods and not to domestic ones or

the imported product is expressly taxed at a higher tax than the domestic goods. In addition,

direct discrimination can arise where there is an exemption for domestic goods or rebate in

favour of domestic goods that do not apply to imports. For example, in Commission v Italy41 a

tax advantage was granted to regenerated oil from Italy, but not to imported regenerated oil.

The Court of Justice found that the tax system directly discriminated against imports and was

prohibited by Art 90(1) EC.

Article 90(1) EC also prohibits indirect discrimination, which arises whenever a tax applies to

domestic and imports goods but is more likely to favour domestic goods over imports and

there is not objective justification for the tax system. In Humblot v Directur dis Servises

Fiscaux,42 there was a challenge to a tax system in France on motor vehicles. The system

provided for an increase in the tax on cars depending on the size of the engine. The rate

increased incrementally up to 1,100 Francs until the engine size reached 16 CVs. Thereafter,

the system applied a rate of 5,000 Francs to all cars over 16 CVs. The system was based on

objective factors unrelated to the origin of the goods, namely the size of the engine. However,

in fact, no French cars paid the higher tax rate since all French car engines were 16 CV or less.

Therefore, the tax system favoured domestic products over imports, that were more likely to

pay the higher 5,000 Franc rate. The Court of Justice concluded that although the system did

not directly discriminate against imports, it indirectly discriminated against imports since only

imported cars, in particular from other Member States, were subject to the special high tax

rate whereas all cars of domestic manufacture were liable to the distinctly more advantageous

incremental tax rate.

Where an internal tax system indirectly discriminates against imports, the Member State can

objectively justify the tax system on the basis that the system is intended to pursue a

legitimate objective unrelated to the origin of the product. In order to do so, the member state

must comply with a four part cumulative test. In particular, the internal tax must:

(1) Apply in an identically manner to both imports and domestic goods;

(2) pursue a legitimate policy objective;

(3) be based on objective criteria that can justify any indirect discrimination against

imports; and

(4) apply in a non-discriminatory manner.

In Chemial Farmaceutici v Daf SpA,43 a higher tax applied to synthetic ethyl alcohol as

compared with naturally obtained ethyl alcohol. The products were similar, within the meaning

of Art 90(1) EC, but appeared to favour the domestic goods over imports, since the latter were

more likely to be taxed at the higher rate. Italy argued that the tax system was based on

objective factors and pursued the legitimate objective of ensuring that synthetic ethyl alcohol

should be preserved for alternative economic purposes. The Court of Justice held that Member

States were entitled, under Community law, to lay down tax arrangements which differentiate

41 Case 21/79; [1980] ECR 1.42 Case 112/84; [1985] ECR 1367.43 Case 140/79; [1981] ECR 1.

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between certain products on the basis of objective criteria and, provided that criteria pursued

economic policy objectives and the detailed rules were not so framed so as to discriminate

against imports, the tax system would not fall within the prohibition under Art 90 EC. The

Court of Justice concluded that the Italian tax did not infringe Art 90 EC since importers of

naturally obtained ethyl alcohol were entitled to the same tax benefits as domestic goods.

The Prohibition Against Taxation Systems with Protective Effect

Where students apply Art 90(1) EC and conclude that the domestic and imported products

are not similar within the meaning of that Article, they must proceed to apply Art 90(2) EC,

which prohibits Member States from imposing taxation of such a nature as to afford indirect

protection to other products. According to Craig & de Burca, this involves a two part

analysis. Firstly, students must examine the extent of the competitive relationship, if any,

between the imported and domestic products. Secondly, students must examine whether the

tax system has the effect of protecting or sheltering domestic production.44

The extent of the competitive relationship can be assessed by using economic indicators, such

as the SSNIP test above. Although, in applying the SSNIP test, a substantial number of

consumers would not switch from the domestic product to the imported product, there may

be evidence that some consumers would make the switch. If there is evidence that some

consumers would switch from the domestic product to the imported one, then this suggests

that there is a competitive relationship between the products. In such a case, Art 90(2) EC

prohibits Member States from adopting tax systems that protect their domestic product. The

greater the extent of the competitive relationship between the goods the lesser the differential

tax treatment necessary to protect the domestic goods and vice versa.

For example, in Commission v France,45 the Court of Justice found that grain spirits,

including whiskey and vodka, were not similar to wine or fruit spirits, such as port or cognac,

for the purposes of Art 90(1) EC. Nevertheless, Art 90(2) EC applied since ‘‘in the case of all

spirits, common characteristics which are sufficiently pronounced to accept that in all cases

there is at least partial or potential competition’’ The Court of Justice concluded that the

French tax system infringed Art 90(2) EC because the primarily domestic fruit or wine spirits

were subject to a more favourable tax regime that the grain spirits with the effect of protecting

the domestic goods.

In Commission v United Kingdom,46 the Commission brought an enforcement action against

the United Kingdom, alleging that their tax system relating to wine and beer contravened Art

90 EC. The Court of Justice concluded that wine and beer were not similar for the purposes of

Art 90(1) EC. However, the Court of Justice found that there was a competitive relationship

between the products. The tax system imposed up to 50 per cent higher tax on the primarily

imported product, wine. The Court of Justice found that the competitive relationship between

the products was at its height at the bottom end of the wine market, where the differential tax

rate was also at its highest. On this basis, the Court of Justice concluded that the tax system

infringed Art 90(2) EC. It had the effect of protecting the domestic product since it

discriminated against the imported goods where the greatest extent of competition existed

between the domestic and imported products.

44 Craig & de Burca, EU Law, (3rd ed, ), pp 598-599.45 Case 268/78; [1980] ECR 347.46 Case 170/78; [1983] ECR 2265.

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j QUANTITATIVE RESTRICTIONS AND MEASURES HAVING EQUIVALENT

EFFECT TO QUANTITATIVE RESTRICTION

An Introduction to Quantitative Restrictions and Measures having

Equivalent Effect to Quantitative Restrictions

Article 28 EC

‘‘Quantitative restrictions on imports and all measures having equivalent effect shall be

prohibited between Member States.’’

Article 29 EC

‘‘Quantitative restrictions on exports and all measures having equivalent effect shall be

prohibited between Member States.’’

Articles 28 and 29 EC prohibit quantitative restrictions on imports and exports respectively.

The focus of the manual rests upon Art 28 EC, which prohibits quantitative restrictions on

imports. A quantitative restriction, or quota, is a limit on the quantity of imports that are

permitted to enter a State. In the case of Art 28 EC, we are concerned with goods being

imported into one Member State from another Member State of the Community. In addition

to quantitative restrictions, Art 28 also prohibits measures having equivalent effect to

quantitative restrictions, which are discussed further below. In contrast to Art 25 EC,

Member States are permitted to derogate from Art 28 EC, pursuant to Art 30 EC.

Furthermore, Member States may justify restrictions on imports that apply indistinctly to

imports and domestic goods on the basis of the mandatory requirements in the general

interests. Both Art 30 EC and the mandatory requirements are discussed in further

detail below.

Articles 28 and 29 EC bind the Member States and the Community institutions. However,

those Articles do not impose obligations on private individuals. Therefore, Articles 28 and 29

EC are vertically binding only and are not horizontally binding.

The Definition of a Measure Having Equivalent Effect to a Quantitative

Restriction

Article 28 EC applies not only to quotas on imports, but also applies to ‘measures having

equivalent effect to quantitative restrictions’. The Court of Justice has interpreted this

expression in a very broad manner and, arguably, has used Art 28 EC as a vehicle for the

integration of Member States’ laws relating to trade in goods.

In respect of the definition of a measure under Art 28 EC, the Court of Justice has found that

this term includes not only binding acts by the Member States, but also, in certain

circumstances, non-binding acts of the Member States. In the Buy Irish47 case, The

Commission brought an enforcement action against Ireland claiming that an Irish marketing

campaign aimed at promoting the purchase of domestic products was contrary to Art 28 EC.

Under the so-called ‘‘buy Irish’’ campaign, Ireland had set up a promotional board, known as

the Irish Goods Council, which was responsible for running an advertising campaign

designed to encourage consumers to stick with Irish goods. The campaign was not binding, as

47 Case 249/81; [1982] ECR 4005.

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consumers were not obliged to purchase domestic goods. Nevertheless, the Court of Justice

found that the campaign fell within the definition of a measure since it represented Ireland’s

considered intention to substitute domestic products for imported products on the Irish

market and check the flow of imports from other Member States.

The seminal judgment of the Court of Justice concerning the definition of a ‘measure having

equivalent effect to a quantitative restriction’ is the case of Procureur du Roi v Dassonville.48

In this case, an importer of scotch whiskey into Belgium was prosecuted for selling the

product without the necessary certificate of origin. The goods had been imported from

France, where they had originally been imported from the United Kingdom. In practice, it

was impossible to obtain a certificate of origin from the United Kingdom unless the trader

had imported the goods directly from that country. The Court of Justice, in holding that the

Belgian rule contravened Art 28 EC, formulated the following definition of a measure having

equivalent effect to a quantitative restriction:

‘‘All trading rules enacted by Member States, which are capable of hindering, directly or

indirectly, actually or potentially, intra-Community trade are to be considered as

measures having an equivalent effect to quantitative restrictions.’’

Therefore, according to this definition, it is the effect rather than the aim of the rule that is

important and the national rule can restrict Art 28 EC, where it potentially has the effect of

restricting trade. In Commission v France,49 the Commssion brought an enforcement action

against France for a national rule that prohibited the marketing of products on the French

market under the title ‘‘foie gras’’ unless the product contained specific ingredients laid down

in the legislation. France argued that the rule did not restrict trade in goods since no other

manufacturer in the Community produced foie gras using different ingredients and, moreover,

the alleged restriction of Art 28 EC was merely illusory since foie gras could not be produced

using other ingredients. The Court of Justice found that Art 28 EC applied not only to the

actual effects but also the potential effects of legislation and it could not be inapplicable on

the sole basis that at that present time there are no actual cases where the national rule

restricted access to the market for goods from other Member States.

The definition of a measure having equivalent effect is broad and covers all national rules that

impact upon trade in goods. However, at this point students must asses whether the national

rule applies distinctly to imported goods only or indistinctly to imports and domestic goods

alike. The treatment of these two rules under Art 28 EC differs substantially. In the case of

distinctly applicable rules, these can only be justified on the basis of Art 30 EC, whereas

indistinctly applicable rules can be justified on the basis of the mandatory requirements in the

general interests, as well as Art 30 EC. Moreover, indistinctly applicable rules will not infringe

Art 28 EC at all if they fall within the definition of a selling arrangement and comply with

certain conditions as established by the Court of Justice.

j THE REGULATION OF DISTINCTLY APPLICABLE RULES

According to the Commission, a distinctly applicable measure is one that applies to imported

products only and makes importation more costly or more difficult.50 Therefore, the national

48 Case 8/74; [1974] ECR 837.49 Case C-184/96; [1998] ECR I�6197.50 Commission Directive 70/50; [1970] OJ L13/29.

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rule will be distinctly applicable where there is some form of differential treatment based on

the origin of the goods. In Schloh,51 the claimant bought a Ford car in Germany and brought

it to Belgium. He had obtained a certificate of conformity from an official Belgian Ford

dealership, which attested to the fact that the car conformed to Belgian road conditions. The

claimant was obliged to undergo a roadworthiness test. This requirement did not apply to

cars purchased within Belgium that had a certificate of conformity. Thus, the national rule

applied to imports only. The Court of Justice concluded that this rule, which applied to

imports only, made importation more difficult and more onerous and consequently was in the

nature of a measure having an effect equivalent to a quantitative restriction.

In addition to national rules that apply to imports only, the Court of Justice has found that

national rules that impose a requirement for goods to specify the origin of the product are

also regarded as distinctly applicable. In Commission v United Kingdom,52 the Court of Justice

observed that the purpose of indications of origin or origin marking was to enable consumers

to assert any prejudices which they may have against foreign products. Therefore, such

national rules were liable to increase the production costs of imports and made it more

difficult to sell them on the UK market.

In the event that a national rule is found to be distinctly applicable, the rule can, in general,

only be justified on the basis of Art 30 EC, since such rules are prohibited by Art 28 EC and,

therefore, Member States must derogate from Art 28 EC pursuant to Art 30 EC in order to

justify the measure.

j THE REGULATION OF INDISTINCTLY APPLICABLE RULES

The Commission defines indistinctly applicable rules as those that apply to domestic and

imported goods equally and whose restrictive effect exceeds the effects intrinsic to trade

rules.53 The extension of the prohibition under Art 28 EC to measures that applied to both

imports and domestic goods is an example of the Court of Justice driving integration of

Member States’ laws in furtherance of the goal to create an internal market in goods. The

Court of Justice expressly extended the prohibition to such rules in Cassis de Dijon.54 In this

case, an importer of a French product, Cassis de Dijon, challenged German legislation that

prohibited the marketing of liqueurs, such as Cassis, that contained less than 25 per cent

alcohol. The French liqueur contained between 15 and 20 per cent alcohol and, therefore, was

excluded by virtue of this German rule, from the German liqueur market. The national rule

applied to all liqueurs, regardless of their origin. However, the Court of Justice found that

such a rule could fall within the prohibition under Art 28 EC. Indistinctly applicable rules

would not however infringe Art 28 EC if they could be justified on the basis of mandatory

requirements in the general interest. The Court of Justice found that, in the absence of

harmonising legislation from the Community institutions, it was for the Member States to

regulate trade in goods, and only where the national rules satisfy a mandatory requirement,

can a restriction of the free movement of goods be justified.

51 Case 50/85; [1986] ECR 1855.52 Case 207/83; [1985] ECR 1201.53 Commission Directive 70/50, [1970] OJ L13/29.54 Case 120/78; [1979] ECR 649.

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‘‘Obstacles to movement within the Community resulting from disparities between the

national laws relating to the marketing of the products in question must be accepted

insofar as those provisions may be recognised as being necessary in order to satisfy

mandatory requirements relating in particular to the effectiveness of fiscal supervision,

the protection of public health, the fairness of commercial transactions and the defence

of the consumer.’’

The Member States must ensure that restrictions of trade are proportionate to the mandatory

requirement pursued by the national rule, a matter discussed further below. The list of

mandatory requirements is not exhaustive and the Court of Justice has recognised a broad

range of public interests that the Member States are permitted to invoke to justify restrictions

of trade that apply in an indistinctly applicable manner.

The Court of Justice adopted a broad interpretation of measures having an equivalent effect

to quantitative restrictions under Art 28 EC. Thus, there is no need to demonstrate that the

rule protects domestic production55 or that the national rule actually effects trade in goods.

This is exemplified by the case of Cinetheque,56 which concerned a French rule that prohibited

the sale or hire of films in video form for one year following their release. The national rule

was intended to promote attendance at cinemas. The rule applied in an indistinctly applicable

manner and had neither the object of regulating trade in goods nor the purpose of protecting

domestic production. The Court of Justice nevertheless found that the rule could infringe

Art 28 EC and the Member State had to justify the measure on the basis of mandatory

requirements. Moreover, in Torfaen v B&Q,57 the Court of Justice found that national

rules that prohibited trading in goods on Sundays could also restrict the free movement of

goods, since they could reduce the overall volume of goods sold and thereby inhibit intra-

community trade.

j THE REGULATION OF SELLING ARRANGEMENTS

The very broad interpretation of measures having equivalent effect to quantitative restrictions

and, in particular, the extension of this definition to national rules that were not intended to

regulate trade generated enormous criticism of the Court of Justice. In an academic article of

huge significance, White58 suggested that the Court of Justice draw a distinction between

national laws that govern the characteristics of goods, such as the rule in Cassis discussed

above, and rules governing the circumstances in which goods are sold. Whereas the former

category of rules had to be justified on the basis of the mandatory requirements, the latter

should fall outside the scope of Art 28 EC altogether provided they did not impede imports

more than domestic goods.

Keck and Mithouard 59 involved a challenge to French legislation that made it a criminal

offence to resell goods as a loss. Two traders had been prosecuted under the French rule and

claimed that the legislation infringed the free movement of goods. The Court of Justice

endorsed the views of White and created two categories of indistinctly applicable rules.

55 Case 216/84 Commission v France [1988] ECR 793.56 C-60-61/84; [1985] ECR 2605.57 [1989] ECR 3851.58 In search of limits to Art 30 of the EEC Treaty - [1989] 26 CMLR 235.59 C-268/91; [1993] ECR I-6097.

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Firstly, there were national rules laying down the requirements that goods had to satisfy to be

lawfully manufactured or marketed in a Member State. These included rules governing the

designation, form, size, weight, composition, presentation, labelling and packaging of goods.

These rules had to be justified on the basis of the mandatory requirements in the general

interest.

Secondly, there were rules known as ‘‘selling arrangements’’ that governed the circumstances

in which goods could be sold. Selling arrangements did not fall within the prohibition laid

down in Art 28 EC, provided they complied with two conditions: The rules must apply to all

affected traders operating within the national territory and the rules must affect, in law and in

fact, the marketing of domestic products and those from other Member States. This test can

be reduced to a single question: Does the selling arrangement impede access to the market for

goods more for imports than it does for domestic goods, an issue discussed further below.

The case of Mars60 provides an example of the first of these two categories of national rules.

This case concerned the application of national rules goods relating to consumer protection

and unfair competition to the packaging used by Mars during a pan-European marketing

campaign. The Mars wrapper contained a sign that stated ‘‘plus 10 per cent’’ The lawfulness

of the wrapper under national law was challenged on the basis that the sign on the wrapper

was greater than the 10 per cent extra being provided in the Mars bar itself. This was claimed

to mislead consumers who might believe that the 10 per cent sign represented the amount of

the bar they were receiving free under the promotion campaign. The Court of Justice

concluded that although the national rules on unfair competition were indistinctly applicable,

the rule may compel the importer to adjust the presentation of their products for the German

market and, thereby, to incur additional packaging and advertising costs.

In respect of the second category of national rules, the Court of Justice has found that the

following types of rules fall within the definition of ‘‘selling arrangements’’:

. Restrictions on the times when goods can be sold61;

. restrictions on the persons or the places where goods can be sold;62

. restrictions on the advertising of goods63;

. restrictions on itinerant sales;64 and

. restrictions on the price of goods.65

Even though a national rule falls within the definition of a selling arrangement this does not

mean that it automatically falls outside the scope of Art 28 EC. As noted above, the rules

must satisfy the two conditions set out by the Court of Justice: They must apply to all relevant

traders in the national territory and affect in law and in fact the marketing of domestic and

imported goods in the same manner. In general term, the Court of Justice will assess whether

access to the Member State’s market for the goods in question is made more difficult for

imports than for domestic products. If so, the national rule will not affect in law and in fact

60 Case C-470/93; [1995] ECR I 1923. In addition, Case C-315/92 Estee Lauder [1994] ECR I-317, a

prohibition of marketing a product under a particular title also fell into the first category of rules.61 Case C-418-421/93 Semeraro [1996] ECR I 2975.62 Case C-319/92 Commission v Greece [1995] ECR I 1621.63 Case C-34/95 De Agostini [1997] ECR I-3843.64 Case C-20/03 Burmanjer [2005] ECR I-4133.65 Case C-63/94 Belgapom [1995] ECR I 2467.

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the marketing of imports and domestic goods in the same manner and will have to be justified

on the basis of the mandatory requirements in the general interest.

The Court of Justice has examined the application of these conditions in a number of cases

relating to advertising restrictions. In the case of De Agostini,66 a Swedish rule that

prohibited TV advertising aimed at children under 12 was challenged on the basis that it

infringed the free movement of goods and the freedom to provide services. The Court of

Justice found that a restriction on advertising goods constituted a selling arrangement.

However, the Court of Justice accepted, in principle, that such a restriction could affect

access to the Swedish market more for imports than domestic goods where, for example, the

importer had no other effective means of entering the market for goods in Sweden. The

issue was left to the national court to determine in light of the ruling by the Court of

Justice. In Gourmet International,67 the Swedish regime that governed the advertising of

alcohol was challenged on the basis that it infringed Arts 28 and 49 EC. The Swedish

system essentially prohibited all forms of alcohol advertising with certain exceptions, for

example, relating to the editorial content of publications. The Court of Justice concluded

that the consumption of products such as alcoholic beverages was linked to traditional

social practices and local habits and customs. In such cases an outright prohibition of

advertising was liable to impede access to the market for imports more than for domestic

products, with which the consumers are more familiar. Therefore, the advertising restriction,

although it fell within the definition of a selling arrangement, failed the test established by

the Court of Justice and, therefore, fell within the scope of Art 28 EC and had to be

justified on the basis of the mandatory requirements.

TK-Heimdienst,68 involved an Austrian rule that imposed a limit on sales by delivery rounds

of bakers, butchers, and grocers. The net effect of the rule was that such traders could only sell

goods by rounds in a district where they maintained a shop selling the same goods. The Court

of Justice found that the Austrian rule was a selling arrangement, but that the rule fell within

Art 28 EC because it was more readily satisfied by national traders than by traders of other

Member States.

In Leclerc-Siplec,69 which concerned a French rule that restricted television advertising of

certain goods, Advocate General Jacobs was critical of the approach adopted by the Court of

Justice. In his view, drawing arbitrary distinctions between rules was not justified since selling

arrangements could, depending on the circumstances, be highly restrictive of the free

movement of goods.

j AN INTRODUCTION TO JUSTIFICATIONS OF MEASURES HAVING

EQUIVALENT EFFECT TO QUANTITATIVE RESTRICTIONS

As noted above, national rules that fall within the scope of Art 28 EC can be justified by the

Member States. This can be done in two ways: Pursuant to the mandatory requirements in the

general interests and/or pursuant to the derogating provision under Art 30 EC. A distinctly

applicable national rule infringes Art 28 EC. Therefore, such a rule can only be justified on

the basis of Art 30 EC, which permits Member States to derogate from Art 28 EC. An

66 See n 65 above.67 Case C-405/98; [2001] ECR I 1795.68 Case C-254/98; [2000] ECR I 151.69 Case 412/93; [1995] ECR I-179.

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indistinctly applicable national rule can be justified on the basis of the mandatory

requirements in the general interest as well as Art 30 EC.

However, whether a Member State seeks to justify the national rule under Art 30 EC or

pursuant to the mandatory requirements, there are certain conditions that are common to

both categories of justification:

. The Member State bears the burden or proving that the measure is justified on public

policy grounds.70

. Member States cannot invoke solely economic grounds71 or general arguments based on

their right to criminalise conduct within their territory as a basis for justifying the rule.72

. However, Art 28 EC does not apply to trade in illegal products whose nature is such that

they are banned in all Member States.

. Member States retain discretion to decide what is necessary to protect the public policy

and the fact that one Member State imposes less strict rules than another Member State

does not mean that the latter’s rules are disproportionate and hence incompatible with

Community law;73 The existence of a protectionist motive on the part of the Member

State will render the national rule disproportionate.74

. Member States must ensure that the restriction of the free movement of goods is

proportionate to the public policy pursued by the measure. In this regard, the measure

must pursue a legitimate objective and that objective must be incapable of being achieved

by measures which are less restrictive of intra-Community trade.75

However, there are important distinctions between the mandatory requirements and Art 30

EC that students must ensure they set out in any question in this area:The list of policy

grounds under Art 30 EC is exhaustive,76 whereas the list of mandatory requirements is non-

exhaustive. Thus, indistinctly applicable rules can be justified on the basis of a broader range

of public policy objectives than distinctly applicable rules; andArticle 30 EC provides that in

order for national rules to be justified under that provision they cannot constitute a means of

arbitrary discrimination or a disguised restriction on trade.

j JUSTIFYING RESTRICTIONS ON THE BASIS OF ART 30 EC

Article 30 EC

‘‘The provisions of Art 28 and 29 shall not preclude prohibitions or restrictions on

imports, exports or goods in transit justified on grounds of public morality, public

policy or public security, the protection of health and life of humans, animals or plants;

the protection of national treasures possessing artistic, historic or archaeological value,

or the protection of industrial and commercial property. Such prohibitions or

restrictions shall not, however, constitute a means of arbitrary discrimination or a

disguised restriction on trade between Member States.’’

70 C-16/83 Karl Prantl [1984] ECR 1299.71 C-7/61 Commission v Italy [1961] ECR 317.72 C-16/83 Karl Prantl [1984] ECR 1299.73 Case 108/96 Macquen v Grandvision Belgium [2001] ECR I-837.74 Case 42/82 Commission v France [1983] ECR 1013.75 C-67/98 Zenatti [1999] ECR I-7289.76 Case C-113/80 Commission v Ireland [1981] ECR 1625.

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As noted above, the list of policy objectives under Art 30 EC is exhaustive. The Court of

Justice has stated that Art 30 EC is a derogating provision under the Treaty and must be

interpreted strictly.77 In Campus Oil v Minister for Industry and Energy,78 the Court of Justice

held that Art 30 EC did not reserve certain matters to the exclusive jurisdiction of the

Member States, but permitted Member States to derogate from the free movement of goods

to the extent to which it is justified in order to achieve the objectives set out in the Treaty. As

the final sentence of Art 30 EC makes clear, the national rule must not constitute a form of

arbitrary discrimination or a disguised restriction on trade between Member States.

In respect of the arbitrary discrimination, Oliver79 suggests that this can arise either by

applying a restriction to imported products only or by applying a greater restriction with

respect to imported products. The Court of Justice has found, in the case of Italy v

Commission80 that different treatment of non-comparable situations does not lead to

discrimination. Therefore, arbitrary discrimination in form is not prohibited under the Treaty

and there must be discrimination in substance. Discrimination in substance would arise where

Member States either treat similar situations differently or treat different situations identically.

The prohibition of national rules that constitute a disguised restriction of trade is designed to

prevent restrictions on trade based on the public policy grounds under Art 30 EC from being

diverted from their proper purpose and used to discriminate against imports or to protect

domestic goods.81 An example of a national rule that constituted a disguised restriction of trade

can be seen in the case of Commission v United Kingdom82 where the United Kingdom banned

the importation of poultry in their market where the goods originated from Member States that

did not have a policy of slaughtering poultry in the event of detection of Newcastle disease. The

ban resulted in French turkeys being denied entry to the UK market immediately prior to

Christmas. The ban was adopted pursuant to pressure from national poultry traders and had

been adopted without consulting the Commission or the other member states. In those

circumstances, the Court of Justice held that the United kingdom could not rely upon Art 30

EC to justify the measure since the national ban constituted a disguised restriction on trade.

According to the text of Art 30 EC, Member States may rely upon the following public policy

grounds to derogate from the free movement of goods under that Article:

. Public morality;

. public policy or public security;

. the protection of health and life of humans, animals or plants;

. the protection of national treasures possessing artistic, historic or archaeological value;

and

. the protection of industrial and commercial property.

77 Case 46/76 Bauhuis v Netherlands [1977] ECR 5.78 [1984] ECR 2727.79 Oliver, Free Movement of Goods in the EC (), pp 222�223.80 Case 13/63; [1963] ECR 165.81 Case 34/79 Henn & Darby [1979] ECR 3795.82 Case 40/82; [1982] ECR 2793.

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In respect of public morality, the approach of the Court of Justice can be seen in two cases. In

Henn and Darby,83 two traders were prosecuted pursuant to the Obscene Publications Act

1959 and the Customs and Excise Act 1952 for importing pornography into the United

Kingdom from Holland. The defendants submitted that the national legislation infringed the

free movement of goods by making the importation of goods lawfully manufactured in

another Member State illegal. The United Kingdom argued that the legislation was justified

on grounds of public morality under Art 30 EC. The Court of Justice found that such a ban

infringed Art 28 EC, but could be justified on the basis of Art 30 EC provided that the

legislation did not constitute a form of arbitrary discrimination or a disguised restriction on

trade. In this regard, the national rule would constitute a form of arbitrary discrimination if a

lawful market existed in the goods within the Member States, since this would involve treating

similar situations differently, i.e. domestic goods could be sold in the Member States but

imports were banned from the market. The application of the Court of Justice ruling to the

facts of the case was left to the UK House of Lords.

The Court of Justice revisited this issue in Conegate v Customs and Excise Commissioners84

where a consignment of life-size blow-up dolls was sequestered by UK customs officers. The

consignment had been imported to the UK from Germany. Conegate argued that the British

customs rules were contrary to the free movement of goods and the United Kingdom argued

that the restriction was justified under Art 30 EC on grounds of public morality. The Court of

Justice re-iterated its position in Henn & Darby that Member States were, in principle, entitled

to decide the measures necessary to protect public morality. The Court of Justice then

examined whether the UK legislation constituted a form of arbitrary discrimination or a

disguised restriction on trade. The Court of Justice re-affirmed that the national rules would

arbitrarily discriminate against imports if a lawful trade in the goods existed in the UK. The

Court of Justice observed that although there were restrictions on trade of such goods in the

UK, in that they could not be placed on public display and could not be sold to consumers

under the age of 18, there nevertheless was a market for the goods in the United Kingdom

and the outright prohibition on the importation of similar goods from other Member States

constituted a form of arbitrary discrimination. Therefore, the United Kingdom could not, in

such circumstances, justify the measure on the basis of Art 30 EC.

In respect of measures justified on the basis of public policy, the Court of Justice has held that

recourse to the concept of public policy presupposes the existence of a genuine and

sufficiently serious threat to the requirements of public policy affecting one of the

fundamental interests of society.85 This issue arises more frequently in the context of the

other fundamental freedoms and is discussed in further detail in Chapter 7.

In respect of public security, the Court of Justice examined this derogating ground in the case

of Campus Oil,86 where Ireland sought to justify national legislation that required importers

of petroleum goods to purchase a percentage of their goods from the Irish oil refinery on the

basis of public security, since without the legislation, Ireland would have no oil refinery and

could not be guaranteed a source of refined oil in time of crisis. The Court of Justice accepted

83 C-34/79; [1979] ECR 3795.84 C-121/85; [1986] ECR 1007.85 Case 34/77 R v Bouchereau [1977] ECR 1999.86 Case 72/83 [1984] ECR 2727.

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that this justification could be relied upon in principle, provided the oil refinery’s output

could not be otherwise sold on the open market and the legislation was limited to ensuring

the continued existence of the refinery, and did not result in the State making a profit.

Member States are entitled to derogate from the free movement of goods to protect industrial

and commercial property. In essence, this derogating ground relates to the protection of

Intellectual Property Rights, such as copyright, patents, trademarks, and design rights.

A substantial proportion of this area has now been the subject of harmonising legislation,

which precludes member States from adopting unilateral measures. In general, Member

States can rely upon this derogating ground to protect the ‘‘specific subject matter’’ of the

intellectual property right only. In addition, the Court of Justice has established the doctrine

of exhaustion of Community rights.

The specific subject-matter of copyright permits Member States to protect moral rights and

commercial rights of exploitation of a protected work by way of granting licenses or receiving

royalties.87 In respect of patents, the specific subject-matter permits member States to protect

the exclusive right to use and/or grant licenses for the use of a patented invention.88 In respect

of Trademarks, Member States are permitted to protect the trademark holder’s exclusive right

to use a protected mark in the course of the trade for which it is registered within their

national territory.89 Finally, Member States are entitled to protect the exclusive right for

design right holders to manufacture their design within the national territory.90

In addition to the principle that Member States may only protect the specific subject-matter

of an intellectual property right, the Court of Justice has also developed the doctrine of

exhaustion of Community rights whereby a right holder can only rely on their right in one

Member State and, once the product lawfully enters the market of one Member State, traders

are free to resell the goods in other Member States. In Deutsche Grammophon v Metro,91 the

plaintiff manufactures records in Germany and sold them in France through its subsidiary in

Paris. The Defendant purchased the goods in France and sought to resell the goods in

Germany. The plaintiff relied upon its intellectual property right in Germany to prevent the

defendant from reselling the goods in Germany. The Court of Justice held that Art 30 EC

permitted Member State laws to protect the specific subject-matter of the intellectual property

right. However, this did not permit right holders to rely upon their rights in a Member State

where the goods had already been distributed by the holder of the right or with his consent to

another Member State. Therefore, once the right holder distributes the goods once within the

Community, their right is exhausted and they cannot subsequently rely upon their intellectual

property rights in another Member State to prevent the sale of goods sold by them or with

their consent in another Member State.

However, the goods must be put on the market by or with the consent of the right holder. For

example, in EMI Electrola v Patricia92 the plaintiff relied upon their intellectual property

rights in Germany to prevent the re-sale of goods that had been put on the market in

Denmark where the intellectual property right had expired. The Court of Justice held that the

87 Cases 55 & 57/80 Music-Vertrieb [1981] ECR 147.88 Case 15/74 Centrafarm [1973] ECR 1147.89 Case 16/74 Centrafarm [1974] ECR 1183.90 Case 238/87 Volvo v Veng [1988] ECR 6211.91 Case 78/70; [1971] ECR 487.92 Case 341/87; [1989] ECR 79.

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goods had not been put on the market with the consent of the right holder, as the IP right had

expired and, therefore could not be resold in Germany. This doctrine only applies where the

goods are put on the market of a member State and does not apply where the goods are

placed on the market of a country outside the European Union93.

In respect of the right of Member States to derogate on the basis of public health, the

Court of Justice has recognised the significance of this derogating ground. However, when

relying upon this ground, Member State must comply with the doctrine of mutual

recognition. Member States are not entitled to prevent the marketing of a product from

another Member State, which Member States provides a level of protection of health and

life of humans which is equivalent to that which the national rules ensure cannot rely upon

public health to restrict the free movement of goods where the Member State of origin of

the goods protects already public health under its laws to an extent that is comparable to

the Member State of importation. Therefore, Member States disproportionately restrict the

free movement of goods where they unnecessarily subject imports to double regulation.94

Member States, when seeking to justify a restriction based on public health, do not have to

wait for harm to the public to occur before taking measures to protect public health and may

restrict the free movement of goods where the harm to public health is apprehended. This is

known as the precautionary principle. For example, in United Kingdom v Commission95 the

French had banned the sale of British beef during the BSE crisis. The link between BSE in

cattle and the human condition of CJVD had yet to be definitively established. Nevertheless,

the Court of Justice held that where there is uncertainty as to the existence or extent of risks

to human health, Member States and the Community institutions may take protective

measures without having to wait until the reality and seriousness of those risks become fully

apparent. This principle had first been recognised in the context of environmental protection

and similar principles apply in relation to the application of the doctrine in respect of the

protection of public health and the protection of the environment.

According to the Commission Communication on the precautionary principle, in order to

rely upon the principle, Member States must comply with a four part cumulative test:

(1) The scientific evidence relating to the existence of the threat must be incomplete,

inconclusive or uncertain;

(2) the rule must be based on an scientific risk analysis from an objective source, such as

from the World Health Organisation or the European Food Authority;

(3) that risk analysis must demonstrate reasonable grounds for the belief that there is a

potential risk for public health; and

(4) The national rules are provisional in nature, pending advances in scientific data.96

j JUSTIFYING RESTRICTIONS ON THE BASIS OF THE MANDATORY

REQUIREMENTS

As noted above, indistinctly applicable measures can be justified on the basis of Art 30 EC

and the mandatory requirements in the general interest. Distinctly applicable rules cannot, in

93 See Case C-355/96 Silhouette [1998] ECR I-4799.94 Case 104/75 De Peijper [1976] ECR 613.95 Case 180/96; [1998] ECR I-2265.96 COM [2000] 1. See also Council Regulation 178/2002; [2002] OJ L31.

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general, be justified on the basis of the mandatory requirements. The list of mandatory

requirements is not exhaustive and the Court of Justice has recognised the following public

policy objectives as constituting mandatory requirements:

. The protection of the consumer and rules that protect against unfair competition

practices;

. the protection of the environment;97

. the maintenance of press diversity; and98

. the pursuit of social-policy objectives.99

As noted above, Member States bear the burden of proving that the restriction of the free

movement of goods is necessary to protect the public policy objective pursued. In addition,

Member States must ensure that the restriction of the free movement of goods is proportionate

to the objective pursued.

In respect of the protection of consumers and rules that protect against unfair competition

practices, the Court of Justice has consistently held that consumers are ordinarily adequately

protected by the provision of information rather than the prohibition of a product. Thus, the

Court of Justice has found that Member States rules intended to protect consumers

disproportionately infringe the free movement of goods where they have the effect of banning

the product when a explanatory label would adequately protect the consumer.100

In GB-Inno,101 related to national legislation that banned the distribution of promotional

material relating to a temporary reduction in the price of goods. The Court of Justice held

that the ban disproportionately infringed the free movement of goods and could not be

justified on the basis of protecting the consumer where the effect of the ban resulted in

consumers being less informed about the goods.

In Mars,102 which has been discussed above, the Court of Justice held that the ban of Mars

bars on the basis that their promotional packaging misled consumers could not be justified by

the need to protect the consumer where there was only a mere possibility that consumers

would be misled. By contrast in Re Oosthoek103 national legislation that prohibited

promotions involving free gifts with products was justified on the basis of the protection of

the consumer since it was likely to mislead consumers in respect of the true price of the

product they purchased.

In respect of the mandatory requirement of protecting the environment, the Member State

can rely upon the precautionary principle in a similar manner to the protection of public

health and, in this regard, students are referred to the discussion of public health above.

As regards the application of the principle of proportionality in the context of environmental

protection, the case of Commission v Denmark104 is exemplary. The Commission brought an

97 C-302/86 Commission v Denmark [1988] ECR 4607.98 C-386/95 Familia Press [1997] ECR I-3689.99 C-67/98 Zenatti [1999] ECR I 7289.100 Case 120/78 Cassis de Dijon [1979] ECR 649.101 Case 362/88 [1990] ECR I-667.102 C-470/93; [1995] ECR I-1923.103 Case 286/81; [1982] ECR 4575.104 Case 302/86; [1988] ECR 4607.

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enforcement action against Denmark claiming that their used container system infringed the

free movement of goods. Under the Danish rules, soft drinks and beer could only be sold in

reusable bottles. Moreover, a Danish administrative body determined the types of reusable

bottles that could be used. The Court of Justice accepted that such a system could, in general,

be justified by the need to protect the environment. Nonetheless, the Court of Justice

concluded that system disproportionately interfered with the free movement of goods since it

unnecessarily excluded goods sold in reusable containers that did not conform to the

specifications of the Danish administrative authority.

The case of Commission v Belgium105 involved a ban on imports of waste into Walloon with

the exception of waste originating from within Belgium. The Court of Justice permitted

Belgium to rely upon the mandatory requirement of environmental protection notwithstand-

ing that the rule appeared to be distinctly applicable to imports only. The Court of Justice

held that the ban was justified as it conformed to the environmental principle that waste

should insofar as is possible be rectified at its source. However, as regards hazardous waste,

the Belgian rules infringed a Council Directive that had harmonised Member States laws in

respect of the trans-frontier shipment of hazardous waste.

In PreussenElektra v Schleswag,106 German legislation obliged operators in the electricity

supply market to purchase renewable electricity from within the territory where they supplied

electricity. The Court of Justice found that the support of renewable energy was a legitimate

objective pursued under environmental protection and that the nature of electricity was such

that, once it had been allowed into the transmission or distribution system, it was difficult to

determine its origin and in particular the source of energy from which it is produced.

Therefore, the national rule was justified on grounds of protection of the environment.

105 Case 2/90; [1992] ECR I-4431.106 Case 397/98; [2001] ECR I-2099.

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j ORGANISATIONAL CHARTS RELATING TO THE FREE MOVEMENT OF

GOODS

Final Examination 1: EU LAW Free Movement Of Goods

Organisational Chart 1: Arts 25, 28 and 90 EC[6�100]

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fe1 eu sample chapter

Documents

free movement of capital

free movement of workers

definition of goods

protective effect

definition of similar

chapterthe internal

basis of art

ec678justifying restrictions