Why does the freedom of movement of goods exist in the EU?
A country’s economy works at its best when goods can be sold and bought where they are most in demand. The same applies in the EU. The EU in this context should be thought of as one unit consisting of many countries without any internal borders.
The free movement of goods allows for the Union’s economy as a whole to prosper as far as possible. If certain goods are in demand in any Member State, a company in another Member State should be able to meet that demand without restriction.
What rights do goods benefit from in EU law?
Under EU law goods have the right:
- not to be subject to a fee/taxation due to passing from one Member State to another Member State;
- not to be subject to discriminatory internal taxation; and
- not to be subject to restrictions on the amount of imports/exports allowed between Member States.
Some rights are absolute. Some are however subject to exceptions.
What are ‘goods’ in this context?
Goods have been defined as ítems that have monetary value and can form the subject matter of a commercial transaction (Case 7/68 Commission v Italy (Art treasures) ).
The definition of goods is wide in scope. It therefore covers things like gas and electricity because of their physical properties. Be careful though, as pure services are not goods and do not benefit from these rights*.
*EU law does have separate rights to provide services, etc. but this will not be discussed further here, as this is a completely separate topic. Completely different rules apply to services.
What about non-EU goods?
Once non-EU goods have been legally imported into the EU, those goods gain the same rights of freedom of movement as goods manufactured, produced, etc. in the EU.
Right 1: Custom duties on imports/exports are forbidden
Under EU law a Member State may not charge a fee (or impose taxation, etc.) by virtue of goods passing an internal border. In this context, an internal border means from one member state to another member state.
The provision is wide in scope. Charging any fee because of passing an internal border is prohibited. It is no defence that the Member State charges the fee on domestic and imported goods in the same way (Case 24/68 Commission v Italy (Statistical Levy case)  ECR 193).
One of the reasons why it does not matter whether the fee is non-discriminatory is:
- Only some national goods will be exported (and presumably none will be imported)
- All non-national goods will have to be imported to have access to the market of that Member State
Even fees which appear neutral are therefore discriminatory against imports, albeit indirectly.
Member States in the past have tried to be creative and get around the rule that there be no fee for passing a border. Member States have tried imposing fees for inspections. They argued that they were providing a genuine service to the importer. However, it has been held that the importer should never be liable to pay for any inspection fees. There is however one very narrow exception where:
- The charge does not exceed cost of inspection (i.e. no profit from inspections);
- The inspections are required & uniform to all relevant products in EU;
- Inspections are mandated in the interest of the European Union as a whole; and
- Inspections work to promote free movement of goods by having common uniform inspections
The last requirement, in particular, means that Member States cannot usually charge for inspections.
Right 2: No discriminatory internal taxation
Put simply, EU law does not allow internal taxation (e.g. national VAT) to favour domestic products over imports or non-domestic goods which are in competition.
EU law usually prohibits the following situations:
- 1. A Member State imposes taxation on a product that is always foreign or more likely to be foreign, but no taxation or lower taxation on the same or similar domestic products.
- 2. A Member State imposes taxation on a product that is always foreign or more likely to be foreign, but no taxation or lower taxation on domestic products that are in competition.
When deciding whether goods are similar, questions such as the following are considered:
- Are the different goods similar in nature?
- If one became more expensive, would consumers likely use the other good instead?
- Do the goods meet the same (or similar) needs from the consumer’s perspective?
As well as ‘similar’ goods, the European Court can also look (separately) at goods that are in competition and compare the taxation treatment.
If the European Court determines that the two goods are similar or in competition and the domestic goods are subject to a lower rate than the non-domestic goods, it is likely to rule that it is discriminatory internal taxation.
Can the different tax treatment be justified?
Direct discrimination is always prohibited and cannot be justified. Direct discrimination is usually obvious (e.g. ‘British made cars subject to 10% VAT rate whereas all foreign cars subject to 25% VAT rate’). This can never be justified.
A Member State may however be able to justify other (indirect) discrimination by showing:
- There is objective criteria for the different taxation (i.e. There is a genuine non-discrimatory reason for the taxation difference); and
- The different taxation is proportionate (i.e. The measure goes no further than necessary to achieve the objective and the objective could not be achieved in a less intrusive way).
Right 3: No restrictions on imports/exports (or measures having equivalent effect)
EU law prohibits restrictions on imports/exports. Essentially:
- Restricting the number of imports/exports by quota is prohibited
- Member States (or emanations of the state) must not promote domestic products (= discriminatory against non-domestic products)
In addition to the above, national measures which have the effect of restricting imports/exports are known as ‘measures having equivalent effect’ [to a quantitive restriction]. Most commonly these relate to:
- Packaging; and
- The Product specification
Although these are not restrictions on imports/exports, additional requirements do have a negative effect on trade.
Imagine you sell a product in the UK and want to sell the same product in France. Imagine that the French authorities tell you that your product’s packaging or contents need to change before you can sell it in France. The French measure would be called a ‘measure equivalent to a quantitive restriction‘ (i.e. here an indirect restriction on export), because you cannot sell a good in another Member State because of an internal product requirement.
There is a presumption that if you can legally sell goods in one Member State, you should be allowed to sell them without restriction in all other Member States. The reason for this is EU law wants right of freedom of movement of goods to be meaningful.
However, EU law recognises that sometimes there may be a legitimate reason for the ‘measure equivalent to a quantitive restriction’. A Member State can only justify the requirement if:
- It is necessary for one or more of the following purposes (called ‘mandatory requirements‘):
- effectiveness of fiscal supervision
- protection of public health
- fairness of commercial transactions
- consumer protection
- environmental protection
- diversity of the press
- maintenance of the social security system
- protection of fundamental rights
- protection of culture
- It must also be PROPORTIONATE (i.e. the requirement must be no more than necessary to achieve that aim AND the aim could not be achieved in a less intrusive way)
Key points on the ‘mandatory requirements’
This area is complex, but some common points are:
- To rely on ‘public health’ there should be a real danger to public health. Scientific evidence is necessary to back up the claims. However, if current scientific knowledge is unclear on the risks or scientists have no real consensus on the level of risk, the court may not wish to interfere.
- Member States have in the past argued packaging requirements are necessary to avoid misleading consumers. Usually the European Court rejects this argument, as a requirement for clear labelling is often more proportionate.
- If other Member States have (or do not have) similar requirements, the court may take this into account.
There is argument that regarding quantitive restrictions which affect exports an intention to favour exported goods at the expense of other Member States must be proven. This however this will not be discussed further here.
Even if a Member State fails in their argument above, a Member State can alternatively rely on a derogation (= essentially a permitted exception from the rules) if they apply equally to domestic as well as imported goods. The derogations are:
- Public morality/Public Policy/Public Security
- Health of humans, animals or plants
- Protection of national treasures with artistic, historic or archaelogical value
- Protection of industrial & commerical property
- BUT no derogation may be a means of arbitrary discrimination or disguised restriction on trade between Member States.
Public morality, Public Policy & Public Security
Regarding the derogation of ‘public morality’, ‘public policy’ and ‘public security’ the European court is usually reluctant to interfere, except where the same or similar goods are already legally available in the Member State.
Health of humans, animals or plants
Regarding the health grounds, there should be a real danger/risk of some kind. Scientific evidence should usually support this argument. If however current scientific knowledge indicates there may be a risk, but there is dispute on the level of risk, the court may be reluctant to interfere. This would likely be the case, in particular, if other Member States have similar rules.
Protection of national treasures with artistic, historic or archaelogical value
The protection of national treasures, etc. allows Member States to stop the export of certain treasure, etc.
Protection of industrial & commerical property
The protection of industrial and commercial property typically gives Member States a limited right to restrict the import/export of goods that infringe copyright, trademarks, etc.
All derogations must not be ‘a means of arbitrary discrimination or disguised restriction on trade between Member States.’ As a result, Member States should therefore not use the derogations to discriminate unfairly between domestic and non-domestic goods. (If this were not the case, Member States could ignore the freedom of movement of goods rules much more easily).
Note on quantitative restrictions that only apply to exports
It appears that regardless of all the above, where a quantative restriction only applies to exports it will not normally be in breach of EU law. It appears that quantatitive restrictions which only apply to exports would normally need to be proven to give domestic production or domestic goods an advantage over the goods or production of another Member State.
Member States normally have an interest and want to increase their exports. Therefore it is unlikely that quantative measures (and measures having equivalent effect) on exports only will be common. Unless a specific advantage is given to the Member State products or production line, etc. the provision will likely be lawful.
Alternatively if an intention to give domestic goods or production is proven, the court would likely declare the provision unlawful.
I hope that the above has given you an insight into the scope of the EU law rules on freedom of movement of goods. It is intended just for general information. Consequently I have outlined some of the main points, rather than all relevant details, caselaw, etc.
The above post on the freedom of movement of goods is subject to copyright, so please do not copy or adapt the above.