The free movement of goods

The term ‘common market’ was eliminated by the Treaty of Lisbon and, furthermore, it was nowhere described, as such, in any of the other Treaties, but it followed from their provisions, that it encompassed the ‘internal market’ and, possibly, various common policies such as the customs union, commercial policy and competition.

The internal market, on the other hand, is defined in the TEFU as, ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’. The first of those freedoms – the free movement of goods – means that goods can circulate unimpeded across the whole Union. This freedom practically constitutes the point of departure of all the other freedoms and of most, if not all, of the common policies and activities of the Union. The central idea is that the whole Union constitutes one single economic area, similar to a national market, wherein trade can develop without obstacles, making, however, allowance for differences in development of certain economies.

This absence of obstacles is extremely significant since it is generally admitted that free trade contributes to the creation of wealth, i.e. employment and rising standards of living that are objectives of the Union.

The establishment of this single market required not only the elimination, between Member States, of all existing obstacles of free trade, i.e. tariff, as well as non-tariff barriers and indirect obstacles such as state monopolies, agreements between undertakings, abuses of dominant position, mergers and acquisitions, state aids and fiscal discriminations, it also called for the adoption of measures to prevent the creation of new barriers.

Under the heading ‘free movement of goods’ the Treaty provides that ‘the Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries’. It also provides that, ‘quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between the Member States’.

THE CUSTOMS UNION

The free movement of goods requires in the first place, as indicated, the creation of a customs union involving:

• the prohibition, among the member States, of all customs duties and of all charges having equivalent effect; and

• the adoption of a common customs tariff (CCT) in relation with third countries. Without this CCT, products from third countries would all enter the Union through the country with the lowest external tariff, since once inside, those products can circulate freely throughout the whole Union. This would ‘deflect’ trade from the other Member States.

By ‘goods’ must be understood products which can be valued in money and which are capable, as such, of forming the subject of commercial transactions. They are both industrial and agricultural goods, whether originating in the Member States or imported from third countries. Where imported goods are concerned, as soon as the import formalities have been complied with and all customs duties and charges have been paid, and not reimbursed, those imports are in free circulation just like Union goods.

‘Charges having equivalent effect’ have been defined by the Court as all charges demanded on the occasion or by reason of importation which, imposed specifically on imported products and not on similar domestic products alter their cost price, and thus produce the same restrictive effect on the free movement of goods as a customs duty.

Unless such a charge is a consideration for a benefit provided for the importer or exporter it is prohibited. The concept ‘charge having equivalent effect’ gave rise to an abundant case law and, in one of its first judgments, the Court stated that the Treaty provisions on this point create, for the citizens of the Union, individual rights which the national courts must uphold.

The CCT constitutes, in the first place, a measure of commercial policy towards third countries. It is interesting to note that actions undertaken by the Union for its internal functioning have repercussions worldwide. The CCT was adopted by a Council regulation, and gradually introduced in parallel with the elimination of the customs duties. Since that time, Member States no longer have jurisdiction over the duties they levy on the goods entering their territory from third countries. They may not modify them, nor interpret them, nor keep the proceeds, which now belong to the Union as own resources. Modification or suspension of CCT duties is an exclusive Union matter and is decided by the Council.

Mention should also be made of the possible exception to the CCT where tariff quotas at reduced rate or zero-rate and generalised preferences are provided for. It should be noted however that, from a commercial point of view, a reduction of customs tariffs is less important than the elimination of tariff trade within the Union itself.

In terms of trade, the creation of the Customs Union has resulted in shifts in the trade patterns, since industrial goods are sometimes less expensive for Union users and consumers when imported from other Member States than from third countries. Also trade among the Member States has grown much faster than trade between the Union and third countries. In relation to the latter, the Union also uses the CCT as an instrument to guarantee the effectiveness of its commercial and external policy.

Prohibition of quantitative restrictions

The elimination of customs duties and charges having equivalent effect is not sufficient to guarantee the free circulation of goods within the Union. There are indeed many other ways of hindering imports and exports; quotas are one such way, but they have since long been abolished among the Member States. The worst offenders are the so-called measures having equivalent effect to quantitative restrictions. These are all the measures which have an effect equivalent to quantitative restrictions on imports and exports, and are not covered by other provisions adopted in pursuance of the Treaties. They are often referred to as ‘invisible trade barriers’, since they are, generally speaking, difficult to detect and only discovered by their effects on trade. The latter is disrupted to the prejudice of traders and consumers alike and they must therefore be hunted down by all parties concerned.

The court has defined those measures as ‘all trading rules’ enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra Union trade. This means that the prohibition applies not only when trade is actually prevented, but already when it is simply made unnecessarily difficult. Secondly, it means that the hindrance does not have to be actual. It suffices that it can be shown that the possibility exists that interstate trade may be hampered. In other words, one does not have to wait till the measure has produced its ill effects. It is not necessary, either, that those trading rules have an appreciable effect on intra-Union trade. Thirdly, the word ‘indirect’ means that there is an infringement of the principle of the free movement of goods even when the hindrance is only indirectly attributable to the contested measure. This is the case when a measure applies to both national and imported products but, in practice, produces protective effects by favouring typical national products and, by the same token, operates to the detriment of certain types of products from other Member States.

It is interesting to ascertain that the above-mentioned Court formula defining ‘measures with equivalent effect’ has also been used in various judgments applying the union competition rules. This similarity should not surprise, since the competition rules and the provisions concerning the Customs Union have an identical objective: the free movement of goods.

Prohibition of discriminating or protective taxation

No Member State may impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products, nor any external taxation of such a nature as to afford indirect protection to other products. The above-mentioned prohibition supplements, within the system of the Treaty, the provisions on the abolition of customs duties and charges having equivalent effect. Their aim is to ensure free movement of goods between the Member States under normal conditions of competition by the elimination of all forms of protection which results from the application of internal taxation which discriminates against products from other Member States. What distinguishes a protective internal taxation from a charge having an effect equivalent to a customs duty is that the first is imposed on both imported and domestic products, whilst the second is imposed exclusively on the imported product.

The Court has defined as ‘similar’ products, those which have similar characteristics and meet the same needs from the point of view of the consumer. As for protective taxation, it affects products which, without being similar, are nevertheless in competition, even partial, indirect or potential, with national products. Although the Treaty refers explicitly only to imports, the prohibition extends, according to the Court, also to exports.