Author: Shahlar Ibadzade, LLM in Saarland University: Europa-Institut – European and International law, 2019-2022
Editor: Tofig Shahniyarov, MPA at ADA University, 2020-2022, Doctor of Philosophy – PhD at Middlesex University
In the first part of the article, the EU Internal Market is being discussed. As a single market, the activities within the European Union (EU) and its privileges for the free movement of goods, services, capital, and people among member states are described in detail. In this regard, the internal market is designed to remove barriers to trade and to increase competition, to lead to economic growth and increased consumer choice. The article also highlights the basic understanding of the EU Internal Market and its legal background.
When it comes to the second part of the article, these freedoms are detailly highlighted as they aim to create a level playing field for businesses across the EU by enhancing consumer choice and promoting economic growth. These four free movement rights are integral to the functioning of the EU Internal Market and have been instrumental in promoting economic integration and prosperity across the EU.
The internal market of the European Union (hereinafter “the EU”) is a single market in which the free movement of goods, services, capital, and people are assured and in which citizens are free to live, work, study and do business. Since its establishment in 1993, the single market has opened itself more to competition, created jobs, and reduced many trade barriers. The legal basis of the internal market in the EU Treaties are articles 4(2)(a), 26, 27, 114 and 115 of the Treaty on the Functioning of the European Union (hereinafter “the TFEU”).
The EU internal market depends on a combination of negative and positive integration. A full understanding of the internal market, therefore, requires a proper understanding of both mechanisms, as well as their interaction. The term negative integration denotes the use of legally enforceable prohibitions that forbid Member States to restrict freedoms. For example, Article 34 TFEU prohibits any Member State rule that restricts the free movement of goods unless it can be justified. As this prohibition is directly applicable and supreme, it allows individuals and companies to challenge national rules limiting their free movement before a national court.
Negative integration needs to be complemented by so-called positive integration. The concept of positive integration essentially denotes the use of EU legislation to harmonize or replace national laws. Such EU rules can then serve the required public interests, such as food safety, without creating unnecessary obstacles to free movement. For example, the EU could adopt a directive on the minimum standards for dairy products. This directive could provide effective and uniform protection to all consumers in the EU but would also allow producers that meet these minimum standards to sell their products throughout the entire EU. By harmonizing the level of protection at the EU level, therefore, legislation that protects public interests does not have to create differences between national laws that hinder freedoms.
The effective implementation and respect of the four economic freedoms that all direct and indirect discriminations on nationality are prohibited. Direct discriminations are deemed as laws, rules and practices that explicitly put nationals (or products manufactured in other Member States) at a disadvantage on the ground of their nationality or origin. The European Court of Justice (hereinafter the “ECJ”) holds steadily that the four economic freedoms require the full respect of the principle of equal treatment which means that comparable situations should not be treated differently and that different situations should not be treated in the same way unless such treatment is objectively justified.
Indirect discrimination (restrictive measures) is considered laws, rules and practices that apply indistinctly to nationals and non-nationals (or products manufactured in other Member States) but create detrimental effects mainly for non-nationals. The ECJ ruled that a national provision shall be deemed as indirectly discriminatory if it is intrinsically liable to affect non-nationals more than nationals and if there is a consequent risk that it will place the former at a disadvantage.
The leading case of this broad interpretation is the Dassonville case (case C-8/74) in which the ECJ held that Article 34 TFEU prohibits all trading rules enacted by a Member State which are capable of hindering, directly or indirectly, actually or potentially, intracommunity trade.
After the judgment in Dassonville, the European judges applied this broad interpretation also with respect to the other freedoms: in Säger for services, Bosman for workers and Gebhard for capital. The obligation not to discriminate applies to the institutions of central governments as well as to the institutions of regional or local public authorities. However, discriminatory and/or restrictive measures can be justified under specific circumstances. The TFEU explicitly recognizes that public policy, public security, and public health can justify the adoption of discriminatory and/or restrictive measures by Member States. In order to be justified, all discriminatory and/or restrictive national measures shall, in any case, be ‘proportionate’, and the task of each Member State is to provide evidence of such ‘proportionality’. In any scenario, such burden of proof cannot be so extensive as to require a Member State to positively prove that no other conceivable measure could enable that objective to be attained under the same condition in accordance with the outcome of Italian Trailers.
A discriminatory and/or restrictive national measure can be deemed ‘proportionate’ if the following requirements are respected:
- ‘appropriateness’ or ‘suitability’: the discriminatory and/or restrictive national measure must be appropriate in order to achieve the purported regulatory goal, and the national legislation must pursue the goal in a consistent and systematic manner;
- ‘necessity’: the discriminatory and/or restrictive national measure must not go beyond what is necessary in order to achieve the goal. If a less restrictive measure is available to attain the same objective, this means that the proposed national measure has failed the proportionality test.
The Basic Four Economic Freedoms
The four fundamental economic freedoms are a core part of the European multi-level legal system, according to the teleological profiles of the Internal Market outlined by Art. 3 of the TEU and in a day-by-day dialogue with European citizenship and the fundamental rights recognized at the European level (first of all by the Charter of Fundamental Rights of the European Union).
Free Movement of Goods
The free movement of goods has traditionally been the most important fundamental freedom within the internal market. Yet, in many respects, the free movement of goods has for a long time, provided a sort of model to be followed by the other three fundamental freedoms.
The Treaty aims to eliminate all restrictions on the cross-border trade of goods with three main instruments:
- a customs union, in which customs duties between Member States are prohibited and a common customs tariff in relation to third countries is established (Articles 28 – 32 TFEU);
- the prohibition of discriminatory taxation on goods from other Member States (Article 110 TFEU);
- the abolition of all quantitative restrictions, and measures having equivalent effects, on imports and exports between the Member States (Articles 34 – 36 TFEU).
Beginning from the last group of provisions, it may be worth recalling that goods originating in one Member State have the right to be exported from that State under Article 35 TFEU and the right to be imported into another Member State under Article 34 TFEU: in this respect, such rights are protected through the bans contemplated thereunder to both quantitative restrictions and measures having equivalent effects. However, both Articles 34 and 35 are subject to the exhaustive list of derogations found in Article 36 TFEU, which can be invoked by the home or host State to justify a refusal to allow the import or export of particular goods.
While Articles 34 – 36 TFEU address non-fiscal barriers to trade, Articles 28 – 30 and 110 TFEU concern fiscal barriers to trade. Specifically, Article 30 prohibits customs duties and charges having equivalent effects and concerns charges levied at the frontier of a State. By contrast, Article 110 TFEU regards charges that is levied internally within the State on imported, exported and domestic products. While Article 30 contains an absolute prohibition on duties, Article 110 bans only discriminatory taxation. In any case, there is no equivalent to the express derogations found in Article 36, in respect of Articles 30 and 110. For the Treaty provisions on goods to be engaged, three conditions need to be satisfied:
- The product must be deemed as a «good»;
- The good must be used in cross-border trade between Member States;
- The person to whom the provision is being applied must be an addressee of the Treaty.
The Court has defined «goods» as products that can be valued in money and which are capable, as such, of forming the subject of commercial transactions and possessing tangible physical characteristics. Generally, the definition of goods poses a few issues. Some products, however, are difficult to classify; for example, the Court has found that electricity does fall within the concept of goods, but most other intangible products do not have the same criteria.
As to the material scope of the relevant Treaty provisions, Articles 30, 34, 35, 36 and 110 TFEU apply to the movement of goods across national borders. In other words, there must be a cross-border element, meaning that goods must either originate in the Member States and be traded between them, or come from third countries and be in free circulation in the Union under Article 28(2) of the TFEU. Generally, where there is no cross-border movement of goods, EU law does not apply: as a result, Member States are free to apply reverse discrimination, that is, treating domestically produced goods less favourably than imports.
As to the personal scope, Articles 30, 34, 35, 36 and 110 TFEU apply irrespective of the nationality of the traders involved. On the other hand, such provisions apply to Member States: however, the word “State” has been broadly construed so as to cover also central and local governments as well as other arms of government in whatever capacity they are acting, and even professional regulatory bodies and private bodies supported by the State either financially or sub specie supervision.
For internal taxation discrimination, Article 110 TFEU draws a distinction between «similar» products and products in competition. The first step, therefore, to apply Article 110(1) or (2) is to determine whether the goods are «similar». In a number of cases, the Court has construed “similar” very broadly, meaning with similar characteristics and comparable use. At an earlier stage, this led to the adoption of the so-called globalized approach, that is, Article 110 was taken as a whole and applied without distinction to all the products concerned. Such an approach, however, appeared to be problematic, especially because it did not clearly distinguish between «similar» and “competing” products. As a result, by generalizing the application of Article 110(1), due to the aforementioned broad interpretation of “similarity”, the differences between the appropriate responses against the infringing State – i.e., imposing the equalization of the tax burdens on the domestic and the imported goods under Article 110(1), or the removal of the protective effect pursuant to Article 110(2) – could have been de facto obscured.
If the products are similar, the taxation must then be the same and the goods must not be discriminated against either directly or indirectly. Measures taxing domestic and imported goods at different rates or taxing only imported products are directly discriminatory. For example, in the Lütticke case, the Court found that Germany directly discriminated against powdered milk imported from Luxembourg because it was subject to a tax not payable by the German product. Conversely, in the Haahr Petroleum case, the fact that imported goods unloaded at certain Danish ports where subject to an additional 40% surcharge on the shipping tax imposed by Denmark on domestic goods was considered by the Court as another example of direct discrimination.
Meanwhile, the Court also made an important decision in the Keck and Daniel Mithouard case. Here, Keck and Mithouard sold goods at a loss, that is at a price below that which they had been purchased wholesale. And it was prohibited under French law. They argued that the foregoing represented a method of sales promotion which would turn into a restriction of the volume of sales of imported goods, and, therefore, the French ban was in breach of Article 34 TFEU.
In rejecting Keck and Mithouard’s argument, the Court took the opportunity to distinguish between “product requirements” and “certain selling arrangements”. Whereas in respect of the former, the principles set out in Cassis de Dijon should continue to apply, in the meantime, with regard to the latter, the application to products from the other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgment provided that provisions apply to all affected traders operating within the national territory and provided that they affect in the same manner, in law and in fact, the marketing of domestic products and those from other Member States.
In other words, domestic provisions that restrict or prohibit altogether “certain selling arrangements” do not breach Article 34 TFEU so long as two conditions are satisfied: (i) the provisions apply to all affected traders operating in the territory (so-called principle of universality), and (ii) the provisions are not discriminatory in law and in fact (so-called principle of neutrality). Moreover, the rationale of the foregoing is that, so long as the aforesaid conditions are fulfilled, such rules do not prevent foreign goods from accessing the domestic market, nor do they impede access to foreign products more than they impede access to domestic goods.
When it comes to the restrictions on exports, while Article 34 TFEU deals with imports, Article 35 is applicable to circumstances where the Member States attempt to hinder the export of goods to other Member States but does not apply to exports to third countries. The wording of Article 35 TFEU mirrors that of Article 34, as such, it prohibits both quantitative restrictions on exports and measures having an equivalent effect.
On the contrary, Article 35 TFEU was deemed to slightly differ from Article 34 in one specific respect, with regard to measures having equivalent effects: while Article 34 TFEU prohibits both distinctly applicable (i.e., discriminatory) and indistinctly applicable measures, Article 35 TFEU would only ban discriminatory measures.
Article 35 TFEU, therefore, applies to all national measures which tend to make export sales more burdensome than domestic sales, whether this is by direct discrimination or simply as a matter of fact. However, like Article 34, equally applicable measures hindering exports may be justified either by invocation of the explicit derogations listed in Article 36 TFEU or if they are necessary to meet some mandatory requirement (and are proportionate).
Free Movement of People
The whole EU regulation of the free movement of persons shows a common fundamental purpose, which may be found in the aim of ensuring the actual free circulation within the Internal Market of those persons who live in (and are citizens of) the Member States and has its foundation in the key principle of the prohibition of discriminations based on the nationality (Article 18 TFEU).
Free Movement of Workers
As of today, the right of free movement of workers within the EU territory is sanctioned by Articles 45-48 TFEU. Article 45 is a rule having direct effects in the cases of Van Duyn, Watson and Belmann and Terhoeve and the workers are entitled to challenge, in front of the courts or authorities of the relevant Member State, the illegitimacy of any discrimination impairing their access to the work, the employment conditions, the social security and insurance terms and any other phase of the employment relationship. The same rights as well as the existence of discriminatory measures may be invoked also by the employers who, for instance, encounter difficulties in hiring employees of different Member States due to national laws or regulations.
The persons who may benefit from the freedom at stake are the “workers”. In this respect, it is crucial noting that, absent a definition of “workers” within the Treaties and the EU legislation, the relevant notion (as well as the concept of subordinate employment activity) must be autonomously construed, pursuant to the EU laws and case law, and cannot be interpreted, in any case, in a restrictive manner. However, the EU notion of workers is deemed to be satisfied when three conditions are met according to the Martinez Sala case. Firstly, the person must be a citizen of a Member State. However, it must be noted that pursuing the scope of safeguarding the fundamental (and prevailing) right of integrity of the family, the requirement of EU citizenship does not apply to the members of the family of the workers who are non-EU citizens: indeed, such persons may benefit from the right of free movement and residence as long as they are part of the family of EU citizen workers and regardless of their citizenship.
Secondly, the working activity must be carried out within a Member State other than the home Member State of the workers. As a further consequence, the regulations governing free movement are not applicable to cases which are merely “located” within a single Member State, without any connection with one or more different Member States and are therefore purely national.
The third condition required to apply the freedom of movement of the workers lies in the subordinate nature of the activity, which typically occurs (applying the notion offered, over the decades, by the EU case law) when a person works, for a given time period, in favour of a different person and under the supervision of the latter against the payment of a compensation, regardless of the industry where the activity is performed and of the nature of the legal relationship between the worker and the employer. Moreover, it is required that the activities performed by the worker are actual and true, being excluded from the scope of the freedom of movement those activities which are, in essence, merely ancillary and marginal. Finally, also sports activity has been deemed to fall within the scope of the EU regime on the free movement of workers, on the assumption that this is an economic activity pursuant to the Treaties. In this respect, the ECJ stated that, when a sports activity has the nature of a subordinate employment activity or of a provision of services, as it occurs in the case of the activity performed by professional or semi-professional sports persons, then it falls within the scope of Articles 45 and following or Articles 56 and following the TFEU.
Free Movement Restrictions
Pursuant to the EU legislation, employees’ freedom of movement may be restricted in two different cases: with respect to employment in the public administration or when grounds of public order, public safety or public health occur. Firstly, Article 45(4) TFEU states that the entire regime governing the free movement of employees does not apply to employment in public administration. Secondly, Article 45(3) TFEU states that the freedom of movement of employees may be limited (or even denied) based on the grounds of public order, public safety, or public health. Such exceptions are common to all the four key freedoms of the EU internal market.
Finally, it must be noted that, in any case, all the above restrictions, related to employment in the public administration or to public order, public safety and public health grounds, being restrictions to a fundamental EU freedom, must always comply with the general limitations posed to all the restrictions to key European freedoms and, therefore, must comply with the principle of proportionality, be adequate to pursue the relevant scope and not exceed the measures which are necessary to safeguard the interest to be protected in the actual case.
Free Movement of the Citizens
As anticipated, the “leading” rule governing EU ’citizens’ right to free movement lies in Article 21 TFEU. Such Article sanctions, then, the right of all the citizens of the Member States to freely move and reside within the entire territory of the Union, without any reference, anymore, to the economic “value” of the activity carried out and, therefore, also regardless of any activity performed by the person (citizen) in a different Member State. Article 21 TFEU was introduced by the Maastricht Treaty and may be considered as one of the most significant “ramifications” of European Citizenship. In such a perspective, the right of free movement and residence of persons has its foundation in EU Citizenship and not in the exercise of economic activity and it turns out to be an instrument for the integration of the European society itself and not merely of the European Market.
The ECJ clarified that Article 21 TFEU is a rule having direct effects and grants rights that the European citizens may claim vis-à-vis the hosting Member State where they have no right to reside for any other title and also vis-à-vis their own Member State. However, it is also worth noting that the European case law clarified that the right of movement and residence granted by Article 21 TFEU is not an absolute right, but that the exercise of such right is conditioned upon the limitations and the conditions provided for by the Treaties and the relevant EU legislation.
As a consequence, all the restrictions to the freedom of movement must be founded on the personal behaviour of the concerned person, which must represent an effective, actual and serious risk susceptible to impair a fundamental interest of the hosting Member State. Hence, grounds with a general scope, with punitive or preventive purposes, cannot be adduced to justify any restrictive measure of the freedom of movement and residence.
Free Movement of Services
Currently, rules governing the free movement of services are included in Part III (‘Union policies and internal actions’), Title IV (‘Free movement of persons, services, and capital’), Chapter 3 (‘Services’), Articles 56 to 62 of the TFEU. Within the meaning of the Treaties, ‘service’ can be briefly defined as, any self-employed economic activity, having a temporary nature and normally provided for remuneration. In light of the above, the following paragraphs will separately analyze the elements defining a service, identified in the self-employed, temporary character of its performance.
Self-employed economic activity
The service must have been provided by a self-employed person, outside of an employment relationship, under his sole responsibility, and therefore not under the direction of an employer. Moreover, Article 57, para. 2, TFEU, specifies which provisions fall within the regulations of freedom to provide services, expressly mentioning: activities of an industrial character; activities of a commercial character; activities of craftsmen; activities of the professions. Finally, it must be underlined that the rules concerning transport, governed by Articles 90-100, TFEU, as well as banking and insurance services connected with movements of capital, whose regulation shall be affected in step with the liberalization of movement of capital, do not fall within the application of Articles 56-62, TFEU.
In order to fall within the provisions on the freedom to provide services, the service must have a temporary nature. The temporary nature is the discriminating threshold between freedom of capital and freedom to provide services. Indeed, while the concept of freedom to provide services presupposes a temporary nature, freedom of capital requires a lasting presence in another Member State.
The ECJ has pointed out that the temporary nature of the provision of services has to be determined with reference to its regularity, periodicity, duration, and continuity from an economic point of view. However, no provision of the Treaty establishes the duration or frequency beyond which one might speak of a freedom to provide service or freedom of capital. Consequently, the freedom to provide services can encompass economic activities of different natures, including services which are provided for an extended period of time, even years.
The rules on freedom to provide services (as well as that on the freedom of capital) come up against legal limits in the case in which the activity is connected with the exercise of official authority, and there are grounds of public policy, public security or public health. In other words, when there are the above grounds, Member States may impose measures that discriminate on the basis of nationality or residence.
While the possibility of introducing discriminatory measures exists only in those cases, the Court has recognized the possibility of introducing measures which restrict the freedom to provide services where these are applicable without distinction to all EU citizens, and there are grounds for public interest. The concept of public interest grounds is quite large and will include, for example, the protection of workers, consumers and national historical and artistic heritage.
Furthermore, because a restriction on the freedom to provide services can be applied in addition to the above conditions, it is also necessary that the restrictions introduced are necessary to achieve the purpose; the measure adopted do not go beyond what is necessary to attain it (principle of proportionality), and the interest that is to be protected does not already have adequate protection in other provisions.
Free Movement of Capital
The freedom of capital can tentatively be defined as the right to move to a Member State other than that of origin in order to pursue in a stable way an economic activity that is not subject to the same conditions as provided for its own nationals by the host Member State. In practical terms, therefore, freedom of capital can be attained:
- through the creation or transfer of a place of business or profession in a Member State other than that of origin (Art. 49, paragraph 2, TFEU);
- through setting up one or more secondary locations (branches, agencies or subsidiaries) in a Member State other than that of origin (Art. 49 paragraph 1, TFEU).
In the first case, it is customary to speak of primary capital, while in the second case of secondary capital, insofar as the main activity continues to be conducted in the State or origin. As in the case of freedom to provide services, freedom of capital regards non-subordinate work activities. Moreover, while the freedom to provide services applies to activities carried out occasionally and temporarily, freedom of capital concerns activities carried out continuously and permanently. Consider, for example, the case of a doctor, a German national, who decides to carry out his activities exclusively (or at least mainly) in France. In this case, there will be a hypothesis of freedom of primary capital. However, the same doctor of German origin decides to carry out his activity in his country of origin and only occasionally provide services in France, which would be fallen under the rules on freedom to provide services.
The rules on freedom of capital apply to both individuals and entities. The prerequisite for the application of freedom of capital of individuals is possession of the nationality of the EU State. As for the freedom to provide services, freedom of capital includes the prohibition of discrimination, either direct or indirect, on the basis of nationality. This implies the obligation for the host Member State to reserve for natural or legal persons the same treatment as for its own citizens or for their bodies, with any discrimination based on nationality being prohibited. On the other hand, the State of origin may not impede the natural or legal person who decides to settle in another Member State.
In light of the above, the ECJ stated that national authorities receive an application for a lawyer’s certification from an EU citizen who is already allowed to work as a lawyer in his home country. However, such authorities must also decide how well the knowledge and qualifications shown by the person’s diploma in his home country match those required by the rules of the host State. If there is a partial match between those diplomas, the relevant national authorities may request additional evidence that the applicant possesses the necessary skills and expertise.
Moreover, the rights to the free movement of capital cover cross-border merger operations. Indeed, according to the ECJ, it is contrary to the freedom of capital to refuse to register in the commercial register a merger between a company established in that State and one established in another Member State.
In conclusion, the EU Internal Market and its four fundamental freedoms have been vital in promoting economic integration and prosperity across the EU. The free movement of goods, services, people, and capital has created a level playing field for businesses, enhanced consumer choice, and increased competition, which in turn has led to greater innovation and economic growth. The Internal Market has also played a significant role in promoting social and political cohesion within the EU by facilitating the movement of people and ideas across borders.
Overall, the EU Internal Market and its four freedoms are a testament to the EU’s commitment to creating a more prosperous, integrated, and united Europe. By continuing to address the challenges of the Internal Market, the EU can build on its successes and ensure a bright future.
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