The European Single Market, Butter Packaging and Edam Cheese: a Simple Idea with Many Complications
About the Author
Samantha Love read Law at Merton College, Oxford, and is currently following the BCL course.
When the UK and other EU Member States opened their borders to Romanians and Bulgarians on January 1 2014, the British press was full of speculation as to how many people would move to the UK from these countries and what problems they might cause.
Whilst we’re used to hearing complaints about the EU open borders and legislation created by the ‘Brussels bureaucrats’ – for an excellent story about how the EU seems to have a conspiracy against clean homes look here – it’s rarer to hear about the Single Market imperative and the benefits it brings. This is a shame, partly because of the benefits it brings to European consumers and businesses and partly due to the oddities of the case law surrounding it. This article aims to remedy this shortfall, by exploring the aims and workings of the Single Market and arguing that it does bring benefits to EU citizens. The EU principle of free movement of goods and services will be the focus, mostly because of the peculiarities of the case law, but the Single Market works as a package and we should treat it as one.
The Single Market’s economic aims
The Single Market is one of the EU’s largest projects, and a deceptively complicated one at that. The idea is that there is free movement of goods, services, capital and people between the Member States so that the EU functions as one large economy. If you want to move to Spain to work then you can do so without a visa; if your company wishes to import into Norway then it can do so without having a licence to import. The EU Member States are meant to function economically like one market, whilst actually remaining different countries for purposes of their social and welfare systems, criminal law and other areas central to national identity. The economic idea underpinning the Single Market ideal is that economies of scale and increased competition will improve prices of goods for consumers, by all four ‘factors of production’ (that’s the 4 free movement areas) moving to the most efficient parts of the market.
Here’s a totally fictional example. Let’s say I own a business in the UK, making and selling kettles. I currently only sell in the UK because the cost of getting a licence and all the necessary product tests for being allowed to import into France is so high that I would have to put up prices to make a profit, and the French kettles already on the market which don’t have these costs would be cheaper and therefore more popular. But the prices on the French market are actually higher than my kettles are priced in the UK, because there is one large French company which controls the market and can put prices at any levels it wants because people still need kettles. So without the costs of importing and the extra French product check on top of the English one that I already pay for (and the checks are basically identical) I could sell my kettles in France at a cost which would cause the French company to have to drop its prices. I’d therefore be bringing effective competition into the French kettle market and consumers would benefit.
I might also wish to move headquarters to France once my sales are up. For this I’d need to be able to transfer much of my funds to French banks, and I’d want to move some of my key staff to the French office. This would be costly if there were high fees for moving my money or getting visas for my management staff, so again removing these barriers would allow me to have a more efficient business.
So, in order for the EU to function as a single market like a country does, there are lots of historical barriers which need to go, some of which aren’t obvious. Customs duties and visa restrictions are clear enough, but product safety checks which just duplicate those already done by another country’s administration and limits on money transfer are another matter. And this is what the case law on free movement of services is all about – barriers to trade which cannot be justified and have a disparate impact on imported products.
Free movement of goods and services – a bit of context and Treaty law
Now that it’s clear that a barrier to free movement might be more than the obvious import ban, we can look at the case law on the free movement of goods and services to understand how the European Court of Justice (ECJ) decides what does constitute a trade barrier.
It’s worth putting this case law into context before we start. The idea of allowing businesses to challenge national rules limiting free movement is that they are more likely to notice any limitations than the EU is, since they’re the ones being affected. Member States may not even notice that a piece of product regulation would cause problems for importers (or may not want to admit it). Certain obvious limits are already banned by legislation – such as absolute import bans – but the subtler rules are harder to pick out. Allowing companies to bring these cases is therefore an efficient way of finding any continuing problems, especially because if the barrier is obviously unjustified then the Member State should drop it rather than challenging the company in the courts. If a barrier is found but the ECJ says it is justifiable, then the only way to get rid of it is through EU legislation (or obviously legislation in the Member State, which is unlikely if they just defended the restriction in court). This has to go through a whole voting procedure which is in many ways more complex than that of our Parliament. So there are plenty of elements to removing free movement barriers, but we’re just focusing on the case law.
So now to the law on the matter, which is set out in the Treaty on the Functioning of the European Union:
Article 34: Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.
Article 35: Quantitative restrictions on exports and all measures having equivalent effect shall be prohibited between Member States.
Article 36: The provisions of Articles 34 and 35 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 and 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.
In a nutshell, no Member State can do anything which has the effect of restricting imports or exports except where it comes within the Article 36 justifications and doesn’t amount to discrimination (mostly this means it applies to products in that country too). There’s also what’s known as the mandatory restriction justification set down in the Cassis de Dijon case:
“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 in so far 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.”
So that leaves us with a two-stage analysis – is there a barrier, and can it be justified?
Trade barriers- a developing case-law
As the more clear-cut barriers to the free movement of goods and services have been eliminated, the ECJ has become more nuanced in what is a barrier. There are (broadly) three types of potential barrier which the cases generally group around:
1. Physical barriers and discriminatory practices
These are the easy examples – importation licences, requirements that foreign products be marked out as foreign, subsidies for national companies but not foreign ones and so on. These are pretty rare nowadays because the cases are usually unarguable. If we are aiming for a Single Market then discrimination between products based on nationality, or prevention of imports (or making it costly through licence costs) is simply intolerable. More interesting however are:
2. Differences between national laws which have ‘equivalent effect’ to a trade barrier
Every Member State of the EU once had only one economic market to worry about when setting regulation – its own. Rules as to what has to be in a product, or cannot be in one, ways it must be packaged and so on are just a product of that country’s history of regulation. As a Member of the EU however, countries will find these requirements challenged as having equivalent effect to a limit on imports, because they add costs to the importers. Say France insists that all kettles have a certain system of electric wiring which my kettles do not have. It will cost me extra to make the kettles with this wiring, again driving up the cost of making the kettles and therefore the sale price, making importing the kettles to France less attractive for me. Of course, if France can say that the wiring is safer for the public then it might come under the exceptions if it is proportionate. If not however, the rule will have to go.
The case law on these national laws highlights just how much different countries’ history and culture will affect its regulation, and just how much this can prevent true globalisation. The fact that we have such important differences of legislation on basic products between countries which supposedly share much of the same outlook and culture shows just how difficult it is to trade worldwide. A whistle-stop tour through some of the more interesting cases will show the range of rules the ECJ has been asked to review, and the delicacy which it has to bring to the cases to ensure it does not unnecessarily impose on national culture or character. Sometimes however, the ECJ has to see through a particularly daft ‘defence’.
In Cassis de Dijon, a French company complained that Germany refused to allow the sale of crème de cassis (blackcurrant liqueur) in Germany which had an alcohol content below 25%. The reason for this? The German government argued that drinks with a low alcohol content tended to make people more tolerant to alcohol and that a standardised alcohol content creates transparency for consumers – if all the liqueur has the same alcohol content then customers only need compare the price. Neither argument was accepted. Demanding the alcohol level be prominently displayed was enough to inform consumers, and Germany sold plenty of other low-alcohol drinks so it obviously wasn’t so concerned. Further, you dilute blackcurrant liqueur anyway!
In Walter Rau a Belgian rule that margarine must be sold in cone-shaped packaging was contested. Here the economic reasoning of the Single Market works perfectly – the Court noted that despite Belgian margarine being appreciably more expensive than in other Member States, no company had moved into the Belgian market where they would be able to win over consumers with lower prices because of the extra costs of setting up a new packaging system.
In Deserbais, France set a minimum fat content for cheese(!). This was preventing the importation and sale of Dutch Edam. Somewhat unsurprisingly, this rule was found to be without any justification- it’s hardly a public health measure.
In Commission v Germany  ECR 1227, the German rule that in order to be sold as ‘Bier’ beer must only contain malted barley, hops, yeast and water. Despite this strong cultural view that only these ingredients can be found in pure ‘Bier’, the ECJ said that listing the ingredients on the bottle should be enough- as the Single Market continues Germans may change their mind on what ‘real’ beer is and they should be able to access beer from other countries to help this process.
All these cases imposed extra costs on importers. However, where these extra costs are just the result of national regulation and don’t privilege national companies in law or fact we are arguably in a different category.
3. National rules which happen to have some impact on importers, but no more than national companies
This last category of cases show how inventive litigants can be, but also that the ECJ (sometimes) knows where to draw the line in this area. If a rule about sales in a country that affects companies in and out of the Member State equally is challenged, the rule is upheld. For instance:
In Keck and Mithouard, a rule that forbade reselling products at a loss was upheld. It doesn’t affect foreign companies any more than national ones- it’s just a rule limiting the way products are sold rather than one which affects the way you make the product.
This case by implication overturned an older case about Sunday trading laws in the UK. After all, if nobody can sell products for longer than 6 hours on a Sunday there is no greater impact on foreign companies. Contrast Konsumentombudsmannen v Gourmet Intenational Products, where Swedish restrictions on alcohol advertising would make it harder for foreign companies to break into the Swedish market because citizens would only know the national brands.
So the question is whether the rule affects national and foreign companies in fact and law. One case which doesn’t seem to fit this pattern correctly is Aklagaren v Mickelsson, where restrictions on the use of jetskis in Sweden made the market less attractive for foreign companies. But surely this is because it is unattractive to consumers, who cannot regularly use their jetskis. This shouldn’t affect whether they choose to buy from a foreign or local jetski though.
The court is making an effort here to open up the European market without removing national regulations which don’t actually affect free movement. Equally, justifications are permitted for non-discriminatory regulations (meaning type 2, not 1). A few of these cases show how national decision-making about what is best for the country can still be important:
In Omega Spielhallen the German ban on laser questing (which obviously prevented companies selling the products or setting up business in Germany) was upheld. It is Germany’s view that the activity breaches the human right to dignity, and the court agreed that this was a legitimate view and allowed each government to make its own decision.
In Dynamic Medien a monitoring and labelling system for explicit material on DVDs was held justifiable as an attempt to protect children. Each Member State can decide the appropriate level of protection based on its own moral and cultural views, within limits, and the extra costs of importation caused by the system were found to be justifiable.
Contrast FA Premier League et al v QC Leisure et al, Karen Murphy v Media Protection Services Ltd. Greek decoders for satellite football were being used in English pubs because they were cheaper than the UK ones. The FA had sold different decoders for different countries in the EU because it could make more money from countries where football is more popular. In using the Greek decoder the pubs were acting in breach of copyright since those decoders were explicitly not permitted to be used in the UK. However, this was found to be discrimination between Member States through splitting up the EU market. The FA put forward a justification that because youth sport is taken so seriously in the UK, there was an agreement in place to show no football on Saturday afternoons so that young boys would go out and play instead of staying in. The UK therefore had to have separate football coverage which didn’t include Saturday afternoons, and it just happened that those decoders sold for more because there is higher demand for football coverage in the UK! The ECJ said that it would be less restrictive not to show Saturday afternoon football in Greece either, so they could run from the same decoder. The court knew that the real aim was to keep the football rights at a high cost in the UK.
Similarly, in Commission v UK (Case 40/82) the argument that the ban on importing French turkeys into the UK right before Christmas was due to concerns about the turkeys being unsafe was seen right through. The measure was in fact to ensure British poultry farmers could sell their turkeys at the higher price they wanted to, rather than being undercut by French sellers.
The ECJ isn’t always sure what makes a trade barrier, or what counts as a good justification for one. Nor will it have a truly settled case law for a long time, and by then perhaps we’ll have legislation setting everything the same. As we all (or at least all Brits!) know, there are no problems about ‘bendy bananas’ because there is already legislation on the standard size of bananas. However, it’s good to see that the EU does take the Single Market agenda seriously and really is trying to get to grips with the subtler trade restrictions. The economic benefits to consumers and businesses really can be significant, and it’s no wonder there are similar single market arrangements across the world, with more being proposed. It will be interesting to see if we ever manage a true single global market, or if the differing national histories, culture and regulatory styles which have already caused so much trouble in the EU just cannot be overcome.