European Law Essay: The EC Treaty's free movement of goods and competition provisions perform complementary roles in creating a single European market in goods and in producing benefits for the consumer. Critically analyse this statement with reference to the case law of the European Court of Justice and the Court of First Instance and secondary legislation where relevant.

European Law Essay: The EC Treaty's free movement of goods and competition provisions perform complementary roles in creating a single European market in goods and in producing benefits for the consumer. Critically analyse this statement with reference to the case law of the European Court of Justice and the Court of First Instance and secondary legislation where relevant.

Introduction

One of the most important roles of the Treaty of Rome is the provision of primary laws for the maintenance of the European Union’s cherished Single Market. The Single Market is central to the rationale and ambitions of the EU, which after all grew out of the exclusively economic consolidation of European states instituted by the European Economic Community, which was established in 1957. As such it is submitted that the Court of Justice strives wherever possible to interpret the laws regulating economic behaviour on the Single Market so as to lend those rules the maximum practical utility and efficacy. In most respects this interpretative policy designed to ensure market efficiency can be predicated on the consequential goal of consumer protection. The interests and demands of the consumers that drive the Single Market are therefore uppermost in the mind of the Court in most of its decisions in this field.

In this paper the law relating to competition and the rules on the free movement of goods will be discussed from the perspective of the EU consumer and evaluated on the basis of the direct and indirect benefits that they may confer on that constituent. The interpretative policy of the European Court of Justice will also be considered, and conclusions will be drawn as to the effectiveness of the combined regime in operation in the European Union today.

Free Movement of Goods and Competition Law at The European Court of Justice: Contextual and Purposive Statutory Interpretation

The tone of the case law of the European Court of Justice is illuminating as to the real priorities of the EC. Both the law relating to competition and the rules on free movement of goods are treated to the same generous style of interpretation and expansive application by the Court. The Court’s interpretative style is sometimes referred to by academic commentators contextual and purposive, or schematic and teleological. This means that the Court’s approach to statutory interpretation is that the words of the Treaty will be interpreted in the context of the Treaty itself, its own case law, and the acquis communautaire (which is the entire body of law of the European Communities and Union).

The fact that the words of the Treaty are interpreted by reference to their context is highly significant in terms of EC competition policy and free movement of goods law. The context in which a word or phrase sits can be very important, and there are many key concepts and terms in both the free movement and competition provisions. Take the word star for example. Its meaning depends on its context. Imagine you are sitting on a hill at night with a telescope staring up into space at the twinkling galaxy above. In that context star has a clear meaning. However, if you are sitting watching the Oscar ceremony on television from America, with Leonardo Di Caprio, Cameron Diaz and the like, star has a very different meaning.

It is the just same in the context of the economic regulations that serve to underpin the European Union’s maintenance and development strategy for the Single Market. Of particular influence in the specific interpretation and application of the general rules set out in the Treaty on free movement and competition, which is a deductive and systematic thought process, (according to the philosophical analysis proffered in Zen and the Art of Motorcycle Maintenance), are the foundation Treaty Articles and the Preamble to the Treaty to which the Courts often refer for guidance on general principle. It should also be noted that when commentators refer to the Court’s interpretative stance as purposive, teleological or schematic, they mean that the policy of the Court is to read and apply a law with some ultimate intention or object in mind, following a plan, code or arrangement. In essence the Court interprets both free movement and competition law in terms of the overarching purposes of the Treaty and the EU, one of which is the maintenance and development of the Single Market.

When seeking to divine the meaning of a competition or free trade rule - in particular when it is necessary to apply the provision to a specific scenario or set of facts - it is therefore wise to consider the wider context in which the words sit and the fundamental purposes addressed by the law, no matter how minor or distant they may be. It is important to do this where it is necessary to second guess the attitude of the EU enforcing institutions, such as the Commission and the Court of Justice, and the Court of First Instance in regards to competition law, because just as Hartley concludes, that is exactly the way in which those institutions will derive their own opinion as to a specific interpretation.

Rules on the Free movement of Goods

The free movement of goods laws contained in the Treaty of Rome are an important component in the European Union’s strategy to promote the economic well-being and safeguard the interests of its citizens. The laws are designed to promote the circulation of goods around the Single Market and to facilitate the penetration of national markets by EU products and services. Predominantly the law are addressed to the governments of the Member States, who have the legislative ability and resources to protect their domestic markets if they are minded to do so. The point of the free movement of goods laws is to ensure that national governments do not interfere with the free flow of trade around the Single Market, and one of the underlying justifications for this position is that in theory EU consumers will benefit from lower prices higher quality more innovation and increased choice if the circulation of goods around the Community is optimised. In point of fact, it is argued that the free circulation of goods underpinned by high levels of market penetration and competition is the economic holy grail of the Single Market and the greater European Union.

The most obvious strategies that a Member State can employ to impede the flow of goods from other EU states include those involving customs duties and tariffs, excessive customs procedures, quotas and discriminatory taxation. As will be discussed, these have the potential to impact directly on the integrity of the Single Market and they also operate to the detriment of consumers within the Member State which harbours protectionist ambitions, because they limit choice, raise prices and nurture domestic products which may be inferior to those available in other Member States.

Article 23 EC provides that the Community is based on a customs union which covers all trade in goods and which entails the prohibition of all customs duties on imports and exports between Member States, and the prohibition of all charges having equivalent effect. Article 25 of the Treaty establishes the specific ban on such customs duties and equivalent charges. The Court is committed to the effective enforcement of these provisions and it has approached their application with the brand of contextual and purposive interpretation described above. An example of this interpretative method can be found in the case Rene Lancry SA v Direction Generale des Douanes where even regional duties applied within a Member State were deemed offensive to EC law.

The legal construct charges having equivalent effect is an interesting one and one which lends Article 23 and 25 EC great scope and flexibility to deal with all kinds of measures which may not at first sight appear to be fully constituted customs duties. It is a construct used in several instances in the Treaty and elsewhere in the free movement of goods rules in particular. For a case in point, which is also authority for that fact that Articles 23 and 25 are directly effective (and therefore able to confer a direct right of enforcement on EU citizens) see: Eunomia di Porro & Co v Italian Ministry of Education.

In Commission v Italy (Statistical Levy) the Italian Government imposed a charge for the compilation of statistical data on patterns of trade. The European Court held that the compulsory service was of dubious benefit and thus found that the charge was in fact a measure having equivalent effect to a customs duty. The EU consumer interest in this regard is that such charges are inevitably passed on down the line, increasing prices. The Court stated:
Any pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic and 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 ... even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product.
This definition is obviously an open and expansive one. It leaves very little room for the imposition of lawful charges of this nature as the Court confirmed in Rewe-Zentralfinanz eGmbh v Landwirtschaftskammer Westfalen-Lippe. Presumably this serves the interests of consumers within the EU by removing an impediment to the free circulation of goods around the Single Market.

By Article 28 EC:

Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.
This provision complements the customs duty ban set out above by prohibiting trade quotas and (again) measures having equivalent effect. The imposition of a quota on the trade in goods is obviously another simple and effective way for Member States to restrict the penetration of foreign goods into their domestic marketplace. This is contrary to the interests of consumers that live in the state in question and it frustrates the purposes of the Single Market. The European Commission and the Court of Justice are thus predisposed to take a tough line on such transgressions where they are discovered.
The concept of quantitative restriction was addressed by the Court of Justice in Riseria Luigi Geddo v Ente Nazionale Risi.

The Court defined the concept as including any measures which amount to a total or partial restraint on imports, exports or goods in transit. This includes a total ban as in R v Henn and quota systems as in Salgoil SpA v Italian Minister of Foreign Trade. Inter alia, licensing systems may amount to either covert quantitative restrictions or measures having equivalent effect. In the case International Fruit Co NV v Produktschap voor Groenten en Fruit No.2 the Court found that even if the grant of a licence was merely an administrative formality it would be considered a measure of equivalent effect to a quantitative restriction.

In 1974 the Court of Justice handed down a definition of measures having an effect equivalent to a quantitative restriction in the case Procureur du Roi v. Dassonville. The following statement became known as the Dassonville Formula and it has been applied in many cases:
All trading rules enacted by Member State which are capable of hindering directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.
In the case Rewe-Zentral AG v Bundesmonopolverwaltung fur Branntwein, which is better known as the Cassis de Dijon case, the European Court built on its Dassonville jurisprudence.

In Cassis a German regulation banned the importation of alcoholic beverages that did not meet minimum alcohol content requirements. Cassis de Dijon is a French liqueur made from blackcurrants which contains 15-20 per cent alcohol. The German regulation prescribed a minimum alcohol content of 25 per cent and thus prohibited the trade in Cassis.
Rewe-Zentral AG, the German importer, claimed that the regulation in question constituted an illegal non-tariff barrier. Somewhat tenuously, the German government sought to assert that its regulation was justified on public health grounds. It seems strange that a law demanding a minimum alcohol content could be defended on health grounds. It was claimed that the law had been created to control the proliferation of alcoholic drink products in the German market. The German government argued that drinks with a low alcoholic content encouraged a tolerance towards alcohol in a way that highly alcoholic beverages did not.

Germany also raised a consumer protection justification claiming that there was a need to safeguard consumers from unfair producer and distributor practices. Finally, the German state contended that the prohibition of its import ban would essentially mean that one EEC member state could set product standards for all member states, and that this would have the effect of lowering standards to the lowest denominator throughout the Economic Community.

The European Court held that because Cassis met applicable French standards and was lawfully marketed in that national territory, it could not lawfully be kept out of the German market given the existence of the Single Market. The German health argument was regarded as unconvincing and its consumer protection justification was dismissed.
The Court stated:

"There is no valid reason why, provided that they have been lawfully produced and marketed in one of the Member States, alcoholic beverages should not be introduced into any other Member State."
This rule became known as the mutual recognition principle and it is argued that it serves the EU consumer in that it gives them access to a wider range of products. The Cassis de Dijon court further held that barriers to trade in this context would be permitted only to satisfy a state’s mandatory requirements relating to:
the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer.

Again, this decision can be seen to have had the effect of opening up the Community market to the general benefit of the consumer. Flexibility in the application of the test was demonstrated by cases such as Torfaen Borough Council v B & Q plc where the Court indicated that it was prepared to accept national measures which had been designed to protect national or regional socio-cultural characteristics. This has the effect of ensuring that the local practices of EU consumers are treated with respect by the European Court, and that minor limitations on the free movement of goods within the Single Market will be tolerated for that reason.

Consumer interests are sometimes used by Member States in an effort to justify measures which have the effect of restricting the trade in goods from other countries within the EU. In the Gilli case an Italian regulation stipulated that vinegar should be derived from wine and this had the effect of prevention the sale of cider based vinegar that was lawfully produced and marketed in Germany. The Italian government’s argument was that Italian consumers had the expectation that vinegar would be derived from wine, as was traditional in that country. However, the Court held that to impose a ban on a different form of vinegar in lawful circulation elsewhere in the Community market was a disproportionate and draconian response and that the interests of the consumer could be adequately served by labelling requirements which clearly stressed the ingredients from which the product was made.

Article 90 EC controls each Member State’s freedom of taxation. It provides that it is forbidden to impose discriminatory taxes on imported goods and this safeguards the interests of consumers because it means that foreign goods can be purchased on the same tax basis as domestic goods, allowing fair price competition in the Single Market. As with the other free movement provisions this rule is strictly applied by the Court in defence of the market, and the natural corollary of this is that consumer choice is unrestricted. In Bobie Getranke-vertrieb v Hauptzollampt Aachen-Nord the German tax regime on beer, known as the Biersteuergesetz, was challenged on the footing of Article 90 and it was found to be discriminatory because of minor differences in the tax imposed on some imported beers in comparison with some domestic beers. Although on balance the tax probably favoured the majority of imported beer it was still deemed contrary to Article 90 and the Court underlined its commitment to intrude into the national competence to levy taxation.

The Competition Law Matrix

The EU system of competition law can be seen as the other side of the coin in regards to the regulation of market activity in the trade in goods. Free movement rules generally limit the scope of Member States to fix their domestic markets in favour of domestic products and the competition provisions control the activities of private undertakings within the market. This broad rule is true with the important exception that the state aid laws are also contained under the competition section.
In brief, Article 87 EC stipulates that aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods will be considered incompatible with the Single Market in so far as such affects trade between Member States. It could be argued that this rule benefits consumer interests, because consumers are also tax payers and due to the ban on state aid they can be assured that their tax money will not be wasted propping up inefficient national enterprises or domestic undertakings.
It also means that consumers will be able to benefit from the purchase of more competitive products from elsewhere in the EU.

Competition law is based on the theory that the most efficient markets are those which are highly competitive. Competitive conditions should ensure that the best products produced by the most efficient undertakings prevail over weaker products in an environment of high price sensitivity. From the perspective of the consumer the key advantages that have been identified from the diligent pursuit of a competitive free market include an increase in levels of employment and a decrease in inflationary pressures. Much research has been carried out within the EU to evaluate and confirm this traditional economic theory which dates back to at least 1602 and the English case Darcy v Allein which concerned a monopoly in playing cards. Competition law is also vigorously enforced in the United States of America, where the consumer is King, under the Interstate Commerce Act (1887), the Sherman Act (1890), the Federal Trade Commission Act (1914) and the Clayton Act (1914).

The EU has, since its inception in the form of the European Economic Community in the 1950s, taken its competition policy very seriously indeed. EU Competition law is largely based on the post-war German model (with some contribution from the French system) where concentrations of industrial power were blamed for facilitating the rise of Adolf Hitler. This theory has been accepted as received wisdom throughout the European Union and indeed further afield. The World Trade Organisation accepts the EU competition model as the best basis for a world competition law and over the past decade most of the Member States have implemented the EU competition regime into their national legal orders chapter and verse. While only specifically mentioning consumer interests on one or two occasions it is nonetheless argued that a case can be made to suggest that almost all aspects of the EU competition regime are designed, interpreted and applied either directly or indirectly to benefit the EU consumer. This is not surprising given that the individual consumers with the EU are the building blocks of the Single Market.

Article 81 of the EC Treaty sets in place a comprehensive ban on collusion, agreements and concerted practices between undertakings in the Single Market. The fear is that the Single Market and as a result, consumer interests, will be damaged if companies are allowed to collaborate to fix prices, restrict supply, share markets between themselves, apply discriminatory conditions on customers and suppliers or impose other anti-competitive conditions on trade.
Article 81(1) therefore provides:

The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market
These terms and concepts are left for the European Court to define and in regard to the interpretation of competition the contextual and purposive policy discussed above comes very much to the fore. All the terms of Article 81 are read by the Court in their widest possible sense, to make sure that the prohibition is as sharp and inclusive as possible. The Commission takes a similarly teleological approach to its enforcement function.

The term agreement has been purposively interpreted to include so-called ‘gentleman’s agreements’, as in the Quinine Cartel decision and a voluntary undertaking was considered sufficient to constitute a breach in Franco-Japanese Ball Bearings Agreement. The EU institutions are typically loathe to add criteria or conditions to the bare text of the Treaty for fear that such action will inevitably limit the future application of the rule. It is a precept of the civilian legal tradition, on which the EU is based and under which the Court of Justice operates, that the text of primary law should be left to speak for itself in its application in any particular case.
This policy is undeniably to the clear advantage of EU consumers, because it means that the law retains the maximum flexibility to deal with new instances of anti-competitive behaviour which may damage their interests.

The inclusion of decisions and concerted practices extend the possible scope of the prohibition still further, again to the inevitable benefit of the EU consumer. Both terms are subject to the same purposive interpretative strategy as the accorded to the notion of agreement. Vereniging van Cementhandelaren v Commission saw the Court of Justice confirm that decisions by trade associations would be covered and in NV IAZ International Belgium v EC Commission it was held that even non-binding recommendations would fall foul of prohibition. By the same token the concept of the concerted practice has been held to include almost any form of aligned action between undertakings where there is evidence that the parallel behaviour in question has been achieved by means of direct or indirect contact between the firms involved. A coordinated pricing strategy was found to constitute a concerted practice in the case Buchmann v Commission.

This proactive and hardnosed attitude to enforcement is clearly to the advantage of European Union consumers because it means that price fixing and other harmful deals struck on the market which are detrimental to their interests can be quickly and effectively dealt with. From the point of view of the consumer it is important to ensure that such price fixing schemes cannot be maintained merely by reducing the level of formality of the agreement concerned.

Article 81(3) allows for the exemption of agreements which have, on balance a pro-competitive impact on the market or on some aspect of it. This provision requires the agreement to produce some kind of technical or economic progress, consumers must receive a fair share of the resulting benefit, any market restrictions imposed must be indispensable to the attainment of the beneficial results and it is unacceptable for the agreement to eliminate competition over a substantial part of the market in question. On the matter of consumer interests the key factor is the delivery of lower prices, although other considerations such as environmental factors and improved customer service are also important: see for example Pronuptia v Schillgalis.

To save time and preserve scarce resources the EU has implemented a system of block exemptions, whereby entire classes of agreement can be exempted to allow lawful economic activity, which sails close to the wind of competition policy to be undertaken without sanction. This system is organised on the basis of collections of black-listed and white-listed terms referable to various standard kinds of economic cooperation. White-listed terms are acceptable and agreements that contain these only will be exempt without the need for individual review. Blacklisted terms must be avoided because they will automatically put an agreement in breach of EU competition law. Block exemptions are complex and lengthy documents, but in general terms consumer interests are prioritised in determining whether or not an agreement is treated as acceptable.

Article 82 of the Treaty lays down a strict prohibition on the abuse of market power by undertakings that are in a dominant position in the market or markets in which they operate. It is obvious that a company which is very powerful within its market has the potential to behave in a way which damages the integrity of the market to serve its own ends. As a direct consequence it is inevitable that consumer interests will be harmed.

As with Article 81 and the free movement of goods rules, the Courts and the Commission take a very strict line on the contravention of Article 82 and in the past this has benefited EU consumers greatly. Over the years, hundreds of instances of market abuse, including predatory pricing practices in cases such as AKZO Chemie BV v Commission, refusals to supply goods (Boosey & Hawkes), tying in agreements (Hoffman La Roche v Commission), market compartmentalisation (United Brands v Commission), and the manipulation of essential facilities such as ports (B & I Line plc v Sealink), have been ended by the intervention of the EU competition authorities under the auspices of Article 82. By definition, each and every one of these examples of behaviour had a detrimental effect on the interests of EU consumers.

The Article 82 fining regime is truly draconian. Massive penalties have been imposed and an undertaking is liable to a fine of ten per cent of turnover (not profit) in serious cases. For multinational companies (with enormous annual turnovers), which are so often the subject of competition investigation, such a fine presents a daunting prospect. It should be noted that recently the EU has overhauled and modernised its enforcement mechanism. This aspect of the EU competition strategy serves only to underline its commitment to the cause of market integration and consumer protection.

Comments in Conclusion

The free movement provisions of the Treaty of Rome neatly complement the competition law rules creating a comprehensive regulatory system for the maintenance of the Single Market which leaves very few significant areas of ambiguity or holes through which anti-competitive or trade restrictive behaviour can leak. As a consequence the interests of European Union consumers are fairly well served by the existing framework, largely, it is suggested, due to the happy coincidence that the micro-interests of consumers mirror in large part the macro-interests of the Single Market which the Commission and the Court endeavour quite obsessively to protect.
It is certainly true that the fundamental aims and objectives of the Single Market project, in job creation, wealth generation, fiscal restraint and control, and the maximising of competitiveness on the European and also the global stage, are all to the advantage of individual consumers within the EU. It is however difficult to judge precisely how effective the Single Market project has been to date, because we cannot compare our current state with the state in which we would have been if we had chosen not to pursue integration on the basis of rules such as those contained in the free movement of goods and competition regimes.

If there is a problem with the enforcement regime applicable to this aspect of the Single Market it is not so much one of substantive law as it is one of a distinct lack of resources. The Competition Directorate at the European Commission is staffed by only a few hundred Community employees, and yet it is given the role of policing the incredibly complex and important area of EU competition law across all 25 Member States in what is currently the largest and richest market in the world. Far from being the overstuffed bureaucracy that many right-wing and euro-sceptic commentators claim, the entire European Commission is equivalent in terms of its staff to a London Borough Council. Therefore, if one improvement could be made by this commentator to the existing enforcement system on free trade and competition law, it would not be some technical change in law or policy, or some grand extension of jurisdiction, but merely the investment of more resources. Investment in policing free trade and competition would, if wisely spent, pay dividends in the long run (in fines, improved efficiency and a cleaner market) that could far exceed the initial outlay. Such a joyous situation would be almost unique in the history of the European Union. It is argued that such investment would also be the easiest and most effective single way to benefit the interests of EU consumers.

Another general failing of the European Union in the context of its administration of the respective free movement of goods and competition regimes is that there is a profound lack of public knowledge as to the scope of the law, its usefulness and the tangible benefits that the application of these enforcement systems bestow on the market and individual EU consumer. It could hardly be said that the EU enjoys a surfeit of goodwill in terms of its reputation with its citizens. Better ‘marketing’ of these laws would be to the benefit of the EU consumer and the EU itself, which in this particular context, is striving to do good work for the benefit of all.

In summary it would be hard to argue that rules prohibiting state intervention to discriminate against foreign products and regulations forbidding such activities as price fixing, market manipulation and the abuse of dominant positions by undertakings could possibly be to the disadvantage of EU consumers. The case law of the Court of Justice and the Court of First Instance and the decisions of the Commission indicate a consistent institutional commitment to hold consumer interests as sovereign in the application of these rules, and some deference has been shown in circumstances where a blind application free market regulation may not be to the benefit of a particular class of consumer. The complementary roles performed by the free movement and competition regimes are clear and broadly functional in practice and, it is concluded, the implemented system constitutes a necessary response to EU market conditions.

THE END

WORD COUNT: 5246 (footnotes not included)

BIBLIOGRAPHY

Craig & De Burca, EU law Text, Cases and Materials (Oxford University Press: 2003)
Hartley T., The European Court, Judicial Objectivity and the Constitution of the European Union, (1996) 112 LQR 95.
Steiner & Woods, Textbook on EC Law (Oxford University Press: 2003)
Pirsig R., Zen and the Art of Motorcycle Maintenance: An Inquiry into Values, (1984) Bantam
Stephen Weatherill, Cases and Materials on EU Law, (Oxford University Press: 2004)
EUguides - Consumer Policy in the European Union: http://www.eubusiness.com/guides/consumer
Pelkman, J., "The New Approach to Technical Harmonisation and Standardisation," Journal of Common Market Studies 25, 3 (March, 1987).
Treaty of Rome (as amended)
Competition Act 1998
Modernization Regulation (Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

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