European Law: Substance

This final Part analyses the substantive heart of European law, that is: the law governing the internal market and European competition law. From the very beginning, the central economic task of the European Union was the creation of a “common market”. The Rome Treaty had not solely provided for a common market in goods. It equally required the abolition of obstacles to the free movement of persons, services and capital. Europe’s “internal market” was thus to comprise four fundamental freedoms. Two of these freedoms will be discussed in turn: Chapter 9 looks at the free movement of goods, while Chapter 10 examines the free movement of persons. The two subsequent chapters analyse two pillars of European competition law: Articles 101 and 102 TFEU. The former deals with anti-competitive agreements, the latter concerns the abuse of a dominant position by an undertaking. European competition law is thereby traditionally seen as a functional complement to the internal market. It would – primarily – protect the internal market from private power.

1. Chapter 9 Internal market: goods

2. Chapter 10 Internal market: persons

3. Chapter 11 Competition law: cartels

4. Chapter 12 Competition law: abuse

Introduction

The traditional heart within common markets is the free movement of goods. And in order to create a European “common market” in goods, the Union legal order has established a constitutional regime in which illegal barriers to intra-Union trade must be removed. This constitutional regime is however split over two sites within Part III of the Treaty on the Functioning of the European Union. It finds its principal place in Title II governing the free movement of goods. But the latter is complemented by a chapter on “Tax Provisions” within Title VII.

This Chapter analyses the free movement of goods provisions in four steps. Section 1 examines the prohibition on customs duties. These are fiscal duties charged when goods cross (national) borders. Section 2 moves to the second type of fiscal charge: discriminatory taxes imposed on foreign goods. Section 3 then investigates the legality of regulatory restrictions to the free movement of goods. Regulatory restrictions are not, unlike fiscal duties, pecuniary charges. They simply “regulate” access to the national market by – for example – establishing product or labelling requirements. Finally, Section 4 will look at possible justifications for regulatory restrictions to trade in goods.

The idea of European union is as old as the European idea of the sovereign State. Yet the spectacular rise of the latter overshadowed the idea of European union for centuries. Within the twentieth century, two ruinous world wars and the social forces of globalization, however, discredited the idea of the sovereign State. The decline of the monadic State found expression in the spread of inter-state cooperation. The various efforts at European cooperation after the Second World War indeed formed part of a general transition from an international law of coexistence to an international law of cooperation.

The European Union was born in 1952 with the coming into being of the European Coal and Steel Community (ECSC). Its original members were six European States: Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. The Community had been created to integrate one industrial sector; and the very concept of integration indicated the wish of the contracting States “to break with the ordinary forms of international treaties and organizations”. The 1957 Treaty of Rome created two additional Communities: the European Atomic Energy Community and the European (Economic) Community. The “three Communities” were partly “merged” in 1967, but continued to exist in relative independence. A major organizational leap was taken with the 1992 Maastricht Treaty. It integrated the three Communities into the European Union. But for a decade, this European Union was under constant constitutional construction. In an attempt to prepare the Union for the twenty-first century, a European Convention was charged to draft a Constitutional Treaty in 2001. But this Treaty failed; and it took almost another decade to rescue the reform into the 2007 Reform (Lisbon) Treaty that came into force on 1 December 2009. The Lisbon Treaty has replaced the “old” European Union with the “new” European Union. It is this European Union that will be analysed in this “Introduction to European Law”.

Introduction

British constitutionalism defines (primary) legislation as an act adopted by the Queen-in-Parliament. Behind this “compound” legislator stands a legislative procedure. This legal procedure links the House of Commons, the House of Lords and the monarchy. European constitutionalism also adopts a procedural definition of legislative power. However, unlike British constitutional law, the Treaties distinguish two types of legislative procedures: an ordinary legislative procedure and special legislative procedures. Article 289 TFEU states:

1. The ordinary legislative procedure shall consist in the joint adoption by the European Parliament and the Council of a regulation, directive or decision on a proposal from the Commission. This procedure is defined in Article 294.

2. In the specific cases provided for by the Treaties, the adoption of a regulation, directive or decision by the European Parliament with the participation of the Council, or by the latter with the participation of the European Parliament, shall constitute a special legislative procedure.

Introduction

The creation of governmental institutions is the central task of all constitutions. Each political community needs institutions to govern its society; as each society needs common rules and a method for their making, execution, and arbitration. The European Treaties establish a number of European institutions to make, execute, and arbitrate European law. The Union’s institutions and their core tasks are defined in Title III of the Treaty on European Union (TEU). The central provision here is Article 13 TEU:

The provision lists seven governmental institutions of the European Union. They constitute the core “players” in the Union legal order. What strikes the attentive eye first is the number of institutions: unlike a tripartite institutional structure, the Union offers more than twice that number. The two institutions that do not – at first sight – seem to directly correspond to “national” institutions are the (European) Council and the Commission. The name “Council” represents a reminder of the “international” origins of the European Union, but the institution can equally be found in the governmental structure of Federal States. It will be harder to find the name “Commission” among the public institutions of States, where the executive is typically referred to as the “government”. By contrast, central banks and courts of auditors exist in many national legal orders.

The organisational structure of the EU may, with all its complexity, seem Byzantine to outsiders. One will recognise an interesting mix between the traits of a traditional international organisation and those of a state-like entity with typical separation-of-powers issues.

According to Article 13 TEU (ex Article 7 TEC), the EU possesses the following institutions:

1. – the European Parliament

2. – the European Council

3. – the Council

4. – the European Commission

5. – the Court of Justice of the European Union

6. – the European Central Bank

7. – the Court of Auditors.

In addition, advisory institutions, such as the European Economic and Social Committee or the Committee of the Regions , shall assist the European Parliament, the Council and the Commission. While the ‘institutional triangle’, consisting of the Council, Commission and Parliament which are largely responsible for the Union’s legislation, will be described in some detail in this chapter, the courts of the EU, the European Court of Justice, the European General Court as well as the Civil Service Tribunal, will be explained in Chapter 5 (Judicial control within the Union). This section aims at explaining the composition and internal decision making of the Union’s institutions, while their interaction in the context of European legislation will be analysed in Chapter 3 (The making of Union law).

Gradually establishing the free movement of goods, one of the four freedoms of the internal market, was one of the centre-pieces of early market integration in the EEC. This was pursued by internal and external measures. Already Article 9(1) of the original 1957 EEC Treaty (now Article 28(1) TFEU, ex Article 23(1) TEC) provided for the gradual establishment of a customs union between the Member States and a common customs tariff vis-à-vis third countries.

Internally, a customs union requires the elimination of customs duties and ‘charges having equivalent effect’ (Article 30 TFEU, ex Article 25 TEC) as well as of discriminatory or protectionist internal taxes (Article 110 TFEU, ex Article 90 TEC), plus the elimination of quantitative restrictions on imports and exports and ‘measures having equivalent effect’ (Article 34 and 35 TFEU, ex Articles 28 and 29 TEC).

Externally, the Common Customs Tariff is fixed by EU legislation in the form of Council regulations, which have been regularly updated since 1968. The Common Customs Tariff forms part of the Community’s exclusive powers in the field of the Common Commercial Policy.

However, the establishment of a true internal market for goods freely circulating within the entire area of the EU was not only a ‘legislative’ task, pursued by rule-making through treaty norms as well as secondary legislation in the form of harmonisation directives and regulations. To a large extent, the common market is the ‘product’ of the ECJ. The Court has pushed forward market integration in a line of landmark cases, such as Dassonville and Cassis de Dijon , in which it broadly interpreted the Treaty notion of ‘measures having equivalent effect’, and deduced a duty of ‘mutual recognition’ of goods lawfully produced and marketed in any of the Member States of the EU. The combined effect of these and subsequent ECJ cases has been a considerable limitation of the power of Member States to maintain rules which could exclude the goods of other Member States from their national markets. However, the Court has not been insensitive to criticism from the national level and proved in cases such as Keck that it was willing to restore, at least to some extent, the autonomous rule-making power of Member States.

For centuries, the history of the small continent, or quasi-continent, of Europe has been a history of war and peace, where rival political entities, predominantly in the form of nation-states, have tried to dominate each other. The terrible twentieth-century experience of two World Wars, fought mainly on European territory, provided the necessary impetus to seek alternative ways of political survival, co-existence, or even cooperation. In its historic context, European integration must be understood as an attempt primarily motivated by the desire to secure peace and stability through establishing appropriate institutions. The institutions created in post-war Europe were based on ideas, partly dating back to the Middle Ages. However, it was the situation after 1945 which made it possible to think about actually setting up new structures which would make war in Europe, if not impossible, then at least much less likely. The creation of a European Coal and Steel Community (ECSC) in 1951, by which two strategically important industry sectors of rival nations like France and Germany were pooled, was such an important and highly pragmatic first step. It was soon followed by the establishment of two further organisations, the European Economic Community (EEC) and the European Atomic Energy Community (EURATOM) in 1957, which were designed as open regional organisations with a long-term goal of a yet undefined European unity.

Until today the process of European integration has been characterised by a constant tension between the maintenance of individual Member State power and further integration, leading to ‘an ever closer union among the peoples of Europe’, as promised in the opening lines of the 1957 Treaty of Rome’s preamble.

In addition to the effective implementation of the free movement of goods, characteristic of a customs union, the Community has always aimed at guaranteeing the free movement of persons in order to create a true internal market. This ‘internal market’ is defined in Article 26(2) TFEU (ex Article 14(2) TEC) as ‘an area without internal borders in which the free movement of goods, persons, services and capital is ensured’. The history of the EU is the history of the gradual implementation of these so-called four freedoms which follows a similar regulatory pattern, that is, ensuring non-discrimination and eliminating intra-EU restrictions by Member States.

This chapter will provide an overview on the EU rules on the free movement of natural and legal persons, that is, individuals and companies. They originate in three sets of Treaty provisions: the free movement of ‘workers’; the freedom of establishment; and the freedom to provide services. The resulting, rather narrow economic rights have been broadened through the case law of the ECJ and secondary EU legislation, which has almost led to a general right of free movement. The Luxembourg Court did so by broadly interpreting the entitlements contained in Treaty provisions and by gradually restricting the powers of Member States to limit these rights.

Union law consists of so-called primary and secondary law. The concept of primary law relates to law made by the Member States via their international law treaty-making powers. Therefore, it comprises the initial 1957 Treaty of Rome plus various treaty amendments, such as the SEA, the Maastricht, Amsterdam, Nice and Lisbon Treaties, the Charter of Fundamental Rights as well as the accession treaties. Secondary law, on the other hand, refers to law made by the Union’s institutions based on the authorisation contained in the Treaties (the primary law). Articles 288 to 292 TFEU outline the different categories of legal acts of the Union. Whereas Article 288 TFEU refers to the instruments to be used by the Union, Articles 289–292 TFEU establish a hierarchy of norms between legislative and non-legislative acts. Article 294 TFEU specifies the most important form of law-making, the ordinary legislative procedure, whereas various special legislative procedures are found throughout the Treaty.

What kind of instruments are used for Union law-making?

The instruments at the disposal of the Union for law-making are regulations, directives and decisions, as well as soft-law instruments such as recommendations and opinions. Article 288 TFEU briefly characterises the legal quality of these legal acts:

To a considerable degree EU law has been shaped by the European Court of Justice (ECJ). The Court has rightly been called a ‘motor of integration’ because, in the years of Euroscepticism and political standstill on the question of ‘deepening’ integration, it has largely created the ‘acquis communautaire’. Its case law, in particular in the field of the four freedoms, has made a significant contribution to the harmonisation and mutual recognition of national standards which, in turn, was essential for the creation of a true internal market.

The Court was able to attain this crucial role as a ‘quasi-law-maker’ because of its broad jurisdictional powers. In fact, the ECJ acts as ‘constitutional court’ of the EU exercising ‘judicial review’ over both the EU and its Member States. According to the ECJ’s own reasoning in Case 294/83 Les Verts v. Parliament [1986] ECR 1356, the Community is:

The ECJ, composed of judges from all Member States, exercises this judicial control mainly through ‘annulment actions’ directed against acts of the EU institutions, ‘infringement actions’ directed against Member States and ‘preliminary rulings’ providing guidance to national courts for the interpretation of EU law.