The European Community and ECJ
The European Community was formed in 1957 with the Treaty of Rome, establishing through the years that a closer union between member states could bring stability to Europe. The Law of the EC is based on one hand, on Treaty Articles and on the other hand on secondary legislation: directives, regulations and decisions. The Treaty Articles have been there to bind national governments of the member states with obligations and rights they owed to the other member states. The member states kept a different approach to the new European system.
Some of the countries, like France and the Netherlands kept a monist approach towards the EC. The latter has accepted the International Treaties as part of their legal system. Moreover, a citizen of such a system can require to be treated in accordance with the treaty standard. A dualist approach prefers the International Treaties to be separate from the domestic legal system of a member state, and come to force only after the national courts have acted. Italy and Great Britain are supporters of the dualist approach believing in the state’s sovereignty.
The original Treaty of Rome guaranteed to the member states ‘four freedoms’; the free movement of workers, the freedom of establishment and the provision of services, the free movement of capital and last but not at all of least importance the free movement of goods. These four freedoms are at the centre of the common market and have been the subject of considerable legal reinforcement. Articles 23-31, or Title I of the Community Treaty, describe the free movement of goods, which will be the focus of our analysis next.
One of the European Union’s main issues has been to create a trade liberalisation within the Community, which involves the removal of a variety of obstacles or barriers to inter-Member state trade. The most obvious form of protectionism that the EU had to fight has been customs duties on imports, the charges of equivalent effect to tariffs, the discriminatory internal taxation and the quantitative restrictions on imports and finally the measures with equivalent effect to quantitative restrictions. All these obstacles to free trade have been recognised by the Commission, which in its turn covered these issues with Art. 3-29 and Art 90(ex Art. 9). Art. 23(1) (ex Art. 9(1)) is the fundamental provision of the Treaty establishing the Community’s customs union as an integral part of the Common Market. “The Community shall be based upon 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 an equivalent effect and the adoption of a common customs tariff in their relation with third countries”.
Although the free movement provisions of the Treaty are addressed to the MS, the more important Articles have direct effect and can be invoked by individuals in their national courts. The most common case is the Van Gend en Loos. In that case the applicant was charged an import duty by Customs and Excise that had been increased to 8% in contravention of Article 12 of the EC Treaty, which specified just a 3%. The first preliminary reference of the Dutch court was sent to the ECJ asking whether Art. 12 (now Art. 25), had direct effect.
As the ECJ had noted in the past, only some parts of the EEC Treaty and some Regulations that complied with the specified term, had direct effect. Furthermore, if a legal provision has direct effect, it means that can confer rights upon individuals and these rights are enforceable on national courts. There are only two requirements so as the legal provision to be directly effective: first it has to be valid in the national courts and secondly the terms of the provision must be appropriate to confer the rights. The earlier concerning the authorship while the latter concerned with the content.
Both the Dutch and the Belgian governments intervened in the case holding that the ECJ had no right to decide whether EU law prevailed over national law once there was just a matter of Dutch constitutional law. The ECJ returned a judgement rejecting the argument and stated that can give direct effect to provisions as long as they were obeying the context of Community Law. This decision increased the impact and effectiveness of EC law in the MS and furthermore, established the customs union as a key element of negative integration within the Community.
There have been a number of cases since Van Gend that had the same result; Inter member state trade is said to be free at least of customs duties. In Case 2 ; 3/69 Social Fund for Diamond Workers, the ECJ decided that the levy imposed upon Belgian law on imported diamonds was inconsistent with Art 9 (now 23) and 12 (now 25), although the Belgian government claimed that the levy was not for protectionist purpose (since Belgium did not produce diamonds), but for the purpose of providing social security benefits for Belgian diamond workers.
The Court went on to clarify its position by stating that customs duties are prohibited irrespectively of any consideration of the purpose for which they were introduced. It was sufficient therefore that the charge was imposed on goods by reason of the fact that they had crossed a border. The same applied to C 24/68 Commission v Italy (Re Statistical Levy). This case dealt with a levy imposed on exported goods so as to fund the compilation of statistical data on trade patterns. Although this levy was part of the commercial transaction and did not have equivalent effect to a customs duty, the Court went on to find such charge in breach of Art. 6 (now 25) relating to exports merely because the advantages that the traders gained from the statistics were so general and so difficult to assess. Article 25 prohibits not only customs duties, but also charges having an equivalent effect. It is designed to catch protectionist measures that create a similar barrier to trade as customs duties. Similarly in C 7/68 Commission v Italy, the court reaffirmed its position in favour of effect rather than of purpose of duties and charges.
Article 16 (now 25) does not make any distinction based on purpose and the Court with its judgement proved that it did not have to judge which types of social policy could have a legitimate enough purpose to take them outside the scope of the Treaty. It is necessary to focus now on the provisions on discriminatory taxation covered by Art 90(ex 95), which reinforces in section 1; “the prohibitions of internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products” and in section 2, a similar prohibition against taxation intended to afford protection to ‘dissimilar’ products.
First, we will examine Art 90(1). The purpose of this Article is to afford protection to Art 23-25 on the grounds of discriminatory internal taxation. In Case 112/84 Humblot v Directeur des Services Fiscaux the issue was one of indirect discrimination under Art 90(ex 95)EC. The French government imposed taxation on cars based on their power rating. Below a 16 CV the tax was up to a maximum of 11oo francs. Above 16 CV there was a flat 5000 francs.
The ECJ ruled against the French Government on the sphere that there were no French- produced cars rated above 16 CV therefore, the special tax had reduced the amount of competition the domestic manufacture was subject to and hence was contrary to the principle of neutrality with which domestic taxation must comply. The dividing line between Art 90(1) and Art 90(2) is a very thin one and can be proved problematic when the court is called to decide whether goods are similar or not.
In C168/78 Commission v France, the ECJ dealt with the French legislation that had imposed a higher tax on grain based spirits (such as whiskey, gin), than on wine or fruit based spirits (calvados, armagnac). The court took the view that there was competitive relationship between the two categories and found the French legislation discriminatory and protectionist and so contrary to Art 95(2), (now 90(2)). In the Commission v UK C 170/78(Re Excise Duties on Wine), the UK had levied an excise tax on certain wines approximately five times more of the levy imposed on beer.
The Court regarding the question of competition between wine and beer argued that there is a ground that these two beverages can meet identical needs. Moreover, the Court found that there is a competitive relationship between the two products and that was enough to render Art 95(2) applicable. On the discriminatory taxation the Court found that there was an evidence of protectionism on the ground that there was a large difference in tax burdens between the beer and the wine, and so it had a protectionist tendency.
Similarly in Commission v Italy C 184/85 the ECJ found that although bananas are not similar to any other fruit, they were though in partial competition and the imposition of a tax equal to half the import price of the bananas was another clear evidence of protectionism. In order the Community to have more chances on succeeding in creating an integrated Single Market, the drafters of the Treaty had to impose a similar restriction as Art 23-25, on other non tariff barriers to inter member state trade.
Those restrictions are of two kinds; outright prohibitions or quota limitations on imports/exports (Quantitative Restrictions QRs) and measures that are not QRs that are not QRs per se but have equivalent effect (MEEQRs). The Articles governing this field of European law are Art 28- 30(ex Art 30 and 36). Article 28 (ex 30) states that: “Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States”, while Art 29 makes similar reference for exports.
The MEEQRs were defined in the case 8/74 Procureur du Roi v Dassonville as ‘all trading rules enacted by the Member States that are capable of obstructing the trade within the EC (directly or indirectly), are considered as measures having an equivalent effect to quantitative restrictions’. This case has been of crucial importance because the ECJ signalled its intention not to look at the intent of the discriminatory restriction, but to focus on the effect that it has on the free flow of goods within the Community.
In Commission v Ireland C 249/81 the ECJ based on Art 28(ex 30) found that measures adopted by the government of a Member State that do not have binding effect, may be capable of influencing the conduct of traders and consumers in that State and hence frustrating the aims of the Community. In case 265/95 Commission v France (Re Private Protests) the ECJ stated that Art 28(ex 30) does not only take effect when a State create restrictions on inter-Member trade, but also when it refrains from taking the measures required in order to preserve the free movement of goods in the State.
France government in fact, had taken insufficient measures to prevent French farmers from disrupting imports of agricultural produce from other MS. In Commission v Ireland Case 45/87, the use of Irish standards was held to be in breach of Community law since there could be materials made in other Member States that complied with different recognised standards and therefore should not be discriminated upon.
Article 30 (ex Art 36) states: the provisions of Articles 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 shall not however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.
Under Art 30 (ex 36) a Member State when defending its prohibition, has to prove its claim that a restriction is falling under the Articles scope. Furthermore, the MS has to show that there is no other less restrictive approach to trade that it could follow and that its discrimination is capable of justification on objectives grounds. In Rewe v Zentralfinanz (San Jose Scale) C 4/75 the Court decided that the discrimination on the imported apples was justified on health grounds, since there was a necessity of inspecting the apples in the face of the risk of the insect disease spreading.
For the purpose of our analysis we will look now in turn each one of the six derogations and how the Courts have reacted to Article 30(ex 36). First is the protection of public morality. Both cases that will be discussed come from the UK. In R v Henn ; Darby C 34/79 the defendants were caught and prosecuted under UK law for fraudulently importing indecent and obscene articles. In their defence, they claimed that the UK law was contrary to Art 28(ex 30). The ECJ held that the prohibition had fell within the grounds of Art 30 (ex 36) and it was upon the MS to determine the standards of morality within its territory.
The Court went on to conclude that since there was no lawful trade of such goods in the UK so the import ban could not be a disguised restriction on trade or any other mean of arbitrary discrimination. On a very similar case Conegate Ltd v Commissioners of Customs and Excise C 121/85, the ECJ decided that the restrictions imposed by the UK could not stand under Art 30 (ex 36) because the UK law was not sufficient to restrain the manufacture and the marketing of pornography.
Thus, the ECJ took a different view and decided that the restriction was in breach of Art 30. Furthermore, the list in Art. 30 (ex 36) deal with the issues of public policy and public security. In the case Cullet v Centre Leclerc C 231/85 French legislation had imposed minimum retail prices for fuel, which were fixed based on French refinery prices and costs. The French government based its defence on the grounds of public policy arguing that in the absence of any prices standards there would be civil disturbances and violence.
The ECJ and especially the Advocate General took the view that if justification was recognised on the grounds of potential violence from pressure groups, then the future of the Commission could be jeopardised. In Campus Oil v Minister of Industry and Energy C 72/83 the ECJ dealt with very similar facts. Irish government had imposed a law requiring from importers of petrol into Ireland, to buy 35% of their requirements from a state owned oil refinery at a fixed price by the government.
Ireland, when its rule was held to constitute a MEQRs under Art 28 (ex 30), based its defence on Art 30 (ex 36) on grounds of public policy and security since it was vital for Ireland to maintain its own oil refining capacity. The ECJ looked at the measure not from its economic objective but regarded it as a matter of public security, and held that it could continue to apply if there can be no other less restrictive measure achieving the same objective.
The most common aspect of Art 30 (ex 36) has been the derogations for the protection of health and life of humans, animals and plants. The first case we will deal with is Commission v UK C 40/82 (Re Import of Poultry Meat). The Court had to determine, whether the UK ban on imports of French turkeys had the purpose to protect public health and not any other purpose. The ECJ found that the ban was excessive since its basis was the Newcastle disease, which though had not ‘hit’ France for five years and therefore constituted a disguised restriction on trade.
In Officier van Justitie v Sandoz BV C 174/82 the ECJ held that when there is uncertainty about the medical implications of some substance, it is upon the Member State to decide the appropriate degree of protection afforded to its citizens, in the absence of any harmonisation measures. Moreover it is necessary for the MS to act on the principles of proportionality, which means that Art 30 (ex 36) requires the MS’s power to prohibit imports of products from other MS to be restricted to what is necessary to attain the legitimate purpose of protecting public health.
In concluding, the ECJ dealt over the years with some cases which extended the scope of Art 30 (ex 36) to cover national measures to be justified on environmental grounds. Specifically in Commission v Belgium C 2/90, the Court held that environmental protection should be taken into account when considering the legality of a regional decree, which is, in no case, discriminatory. Where the Community has taken measures to harmonise an area of policy covered by Art 30(ex 36) the Member States will not be able to use Art 30(ex 36) to legitimate national rules.
This was seen in C 190/87 Oberkreisdirector v Moorman where the Court held that the poultry health inspection was covered by the harmonisation measures in this field by the EC, so the national rules based on Art 30 (ex 36) could not be in use anymore. The Court gave a similar reasoning in Commission v Germany C 102/96, by stating that the Commission with its directives had harmonised the measures required and therefore, any measures taken by the German government could not be afforded under Art 30 ( ex 36).
We will take the analysis now, to Art 3 of the Directive 70/50. This covers measures governing the marketing of the products, in areas dealing with shape, size weight, identification or composition. Such measures could be in breach of Art 28 (ex 30), where the same objective can be achieved with less interference to the trade. This is seen in Walter Rau v de Smelt Pvba C 261/81, where a Belgian rule required all margarine imported to Belgium to be packed in cubes so as to enable consumers to distinguish between butter and margarine.
The ECJ found that there were other ways less restrictive to enable costumers to distinguish between the two products; mainly by clear labelling on the product. The real intention of the Court behind this judgement has been the protection of domestic producers. The most significant example of this intention has been the following case. In the Rewe-Zentrale AG v Bundesmonopolverwaltung fur Branntwein C 120/78 (Cassis de Dijon), the German authorities had refused to permit the importation of the liqueur ‘Cassis de Dijon’ on the grounds that its alcoholic strength was insufficient.
The Court introduced in paragraph 8 of its judgement a list of mandatory requirements, such as the protection of public health, the defence of the consumer, the effectiveness of fiscal supervision and the fairness of commercial transactions, which was set out to prevent a national trade rule from being caught under Art 28(ex 30). Furthermore the Court found that once goods have been lawfully made in one Member State then it follows that they can be lawfully sold without restrictions to the other MS, with the exception of being caught as a mandatory requirement under Art 28(ex 30).
So in cases like Ministere Public v Deserbais C 286/ 86 and Italy v Nespoli C 196/89, the national rules failed to prove consumer protection and public health arguments and thus fell under Art 28 (ex 30). Cassis has been seen as a case that signalled the ECJ’s intention to extend Art 28 (ex Art 30) to catch indistinctly applicable measures. The effect of the Cassis case that the burden of proof lies with the member states to justify the presence of indistinctly applicable measures that have equivalent effect was further recognised in Cinetheque SA v Federation Nationale des Cinemas Francais C 60 ; 61/84.
The Court found that a ban on the sale of videos during the film’s first year of release, equally affected the domestic producer and the importer and so could not fall under Art 28 (ex Art30) even if it had lead to a reduction in imports. The turning point in the case law has been the judgement of the Court in Criminal Proceedings against Keck and Milthouard C 267 and C 268/91. It was suggested that a provision in French law prohibiting traders from selling stock at a loss was in breach of Art 28 (ex Art 30).
The Court through paragraph 15 and 17 distinguished the case from the Cassis type of case and stated that such a selling arrangement although it might restrict trade, never intended to fall under Art28. So in paragraph 18 of the judgement the Court gave its guidance to the national courts by allowing prohibition on resale at a loss, to fall outside the scope of Art 28 (ex 30). Moreover, the Court shifted the burden of proof from the member states (Cassis and Cinetheque) to the complainant to prove that measures do have equivalent effect in practise.
After Keck the ECJ when it was met with selling arrangement cases demonstrated its position towards excluding those arrangements from Art 28 (ex 30). In Tankstation C 401 & 402/91 the Court repeated its Keck ruling and went on to conclude that rules relating to selling agreements should apply equally to all traders without prejudice towards the origin of goods. It is of great importance that the ECJ’s decisions on taxation and duties charges have affirmed the Single Market’s competence on intra Member State trade.
The ECJ interpreted, through the cases, in the best possible manner, Art 23-25 (ex 9-12) to enable them protect the Treaty objectives. What is needed in future, especially after the enlargement from fifteen to twenty MS, should be a plan to tackle down major economic crime cases such as fraud and trade of illegal goods. Taxation on the other end could be fully resolved when national sovereignty will not matter any more. Only then could be a harmonisation on tax, when MS will operate under one common system of tax.
The ECJ confirmed in Cassis its choice to interpret Art 28 (ex Art 30) on a wide area covering indistinctly applicable measures. The greatest consequence of this case has been that the MS do not have competence over trade rules. National rules can fall if they do not comply with EC/EU rules, with some exception as we saw earlier. This has not been the case anymore with the completion of the Single Market. The attention has turned since then, to ensuring that there is an efficient management of the Internal Market and the MS do not intervene with the legal framework.