Barriers to Trade

The European Union treaty prohibits quantitative restrictions and measures having equivalent effect between member states.  This applies both to imports and exports.  Certain limited exceptions, based on narrow public policy considerations, apply.

The prohibition applies to measures taken by member states.  This includes not only laws and binding rules, but also administrative practices, incentives, and arrangements.  It covers the state itself and o public and private bodies controlled by it. Measures taken by public regulatory bodies and professional bodies, even those with a substantial degree of independence are likely to constitute measures for this purpose.

In the mid-1990’s the European Court of Justice held that the requirement can oblige member states to take positive action to remove obstacles to free movement of goods created by third parties.  Where French farmers had blockaded imported goods and authorities had abstained from active steps to prevent it, there was held to be a breach of the provision. The state was obliged to take all necessary and proportionate measures to prevent citizens from interfering with the free movement of goods.

It does not follow that states must take action against all interference with free movement of goods.  States must allow their citizens to exercise fundamental freedoms.  They are not obliged to suppress all action which interferes with free movement.  Where however state systematically fails to police or take action against systematic or prolonged protest, they may be in breach of the obligation.

Quantitative Restrictions

The EU itself may not apply quantitative restrictions or equivalent measures.  If the EU imposes requirements which do not have an objective justification or are not proportionate, and which have the effect of disrupting trade then they may be invalidated.  A challenge to requirements for statistical declarations as being a measure have an equivalent effect was rejected on the basis that it was objectively justifiable and proportionate.

A quantitative restriction, quota, and outright ban encompassed restraint or restriction on imports or exports.  Measures having an equivalent effect are divided into two categories.  The first comprises measures other than those applicable equally to domestic or imported goods.  They are said to be distinctly applicable. They cover measures which hinder imports which could otherwise take place or which make importation more costly relative to domestic goods.

The prohibition applies to measures which are equally applicable to domestic and imported products where the restrictive effect of the measures on the free movement of goods exceeds what is objectively justifiable. This would occur where the restrictive effect on the free movement of goods is out of proportion to the purpose of the measure or where the same objective could be attained by different means which are less of a hindrance to trade.

Licensing Not Generally Permitted

Requirements for import and export licenses within the EU are largely prohibited.  They may be justified on very limited grounds referred to in another chapter. Licensing systems must not be discriminatory and must not have the effect of restricting trade unless they could be strictly justified on public policy, public health grounds etc.

It is not permissible to require prior authorisation for imports of goods that which have been authorised for sale in another state and which are identical.  The same principle applies when the imports are substantially similar.

Equivalent Measure

A measure may be equivalent to a quantitative restriction where it potentially discriminates against a parallel importer.  They are traders who are not authorised to deal in a particular product by the distributor, who purchase it lawfully in another state where the price is lower and resell it in the first state.

The prohibition applies irrespective of the form of the measure.  A measure need not have a significant impact in order to constitute a breach.  However, a reasonable restriction in an indistinctly (indirectly applicable) measure may fall outside the prohibition.  States may take action on an objective basis in the public interests, provided they are reasonable.

The provisions effectively prohibit many restrictions affecting product specifications and marketing rules. In a famous early case, the Irish state which had financed the Irish Goods Council’s “Buy Irish” campaign was held to be in breach of the provision.  A national quality scheme under which only national products are awarded the mark was held to have an effect equivalent to a quantitative restriction if it emphasises the national origin of a product and encourages consumers to buy it to the exclusion of the other EU products.

The prohibition applies to trade within the EU between EU states.  Purely internal measures are in principle outside the prohibition.  Where the national rule creates discrimination against imported goods from other states, it may apply in so far as the arrangement concerned is linked to the importation of goods in intra-EU trade.  This approach has been criticised on the basis of trespassing on purely internal matters.

It is presumed by the Court of Justice that where goods have been lawfully produced and marketed in one state that they may be introduced into other EU states without further restriction.  States must justify failure to so permit by reference to objective reasons of public policy.

Limits and States’ Rights to Regulate

This approach of the EU courts affirmed on the famous Cassis de Dijon, which was of immense importance in ensuring free movement of goods.  It essentially requires states to justify measures that restrict free trade within the EU.

The European Court of Justice has found that many national measures which were claimed to be justified on the basis of consumer protection were not necessary.  The Courts of Justice has held that indications of origin were not necessary on consumer protection grounds in many cases as they facilitated prejudice against foreign goods.

There is a rule of reason by which states may use measures that are reasonable to protect this vital public interest in a manner conforming with EU law.  This principle applies only in the absence of rules harmonising the area concerned under EU law.  Objectives by which measures may be justified include public health, fairness, culture and consumer protection. Any such measures must be proportionate in terms of their legitimate aims.

In a case involving Dundalk Urban District Council, a public contract was advertised requiring products to be certified in accordance with Irish standard specification. The requirement was unnecessary in terms of safety standards, performance, and reliability and breached the prohibition.  On the other hand, objective measures designed to prevent unfair practice may be reasonable.

The protection of the environment is a potentially justifiable ground.  However, in many cases, the measure has been held to be disproportionate to the circumstances.  Common EU environmental standards have reduced the possibility of reliance on this ground.

The socio-cultural identity of a state has been accepted as a potential justification for measures.  Where French legislation prevented the sale or hire of all films for a year from cinema release, it was justified on the basis of the protection of the French film industry.  Other potentially permissible grounds include

  • The maintenance of a diverse press,
  • improvement of working conditions,
  • prevention of fraud,
  • protection of human rights.

The categories are not closed.

Proportionality is central to upholding measures if a justifiable basis exists. In many cases, the actual measure taken has been found to be disproportionate, notwithstanding that a permissible basis for the measure could be established.

Health inspections at frontiers may be justified under exceptional and limited circumstances.  There must be no discrimination.  They must not be arbitrary.

When EU adopts Common Rule

The EU has adopted, common rules in many areas, which reduces the possibility of national measures having a quantitative effect.  These include in particular, common rules on the protection of most intellectual property rights,  common consumer protection rules, and common environmental standards.

Once the European Union legislates in a particular area, states are precluded from enacting conflicting legislation.  It is a question of interpretation as to whether the community law has fully legislated in the area concerned so that domestic law is incompatible.

Some Drawback from Very Broad Approach

The earlier broad approach of the courts was argued to be capable of applying to almost any internal domestic regulation which might have some incidental effect on trade.  The Court of Justice revised its approach in the early 1990s. It indicated that the prohibition did not apply to national rules, that they apply indistinctly to all traders within the territory of the state and they affect in the same manner, in law and in fact, the marketing of both domestic and imported products even though they have some impact on the overall volume of sale.

The above limitation applies to indirect measures which affect marketing arrangements. This may include rules on advertising, opening hours, monopoly rights for particular professions or business and rules regarding itinerant sales.

The general more rigorous approach applies to measures relating to the goods as such. The distinction may not be clear in all cases.  National measures relating to products will include those relating to

  • designation,
  • weight
  • composition,
  • labelling,
  • packaging
  • requirements relating to importation process itself,
  • licensing,
  • requirements relating to manufacturing of the products.

Any restrictions in these areas more likely to be categorised as measures having an effect equivalent to quantitative restriction.

The newer approach has been criticised as going too far in excluding types of regulation concerning sales and marketing which might properly be within the scope of the prohibition.  The new approach seemed to prevent traders challenging national rules restricting commercial freedoms.

Latterly, the Court of Justice has modified its approach to consider marketing and advertising rules as potentially in breach of the general prohibition,  if they impede access by EU imports to the home market relative to domestic goods.  It is relevant that there may be other means of advertising and promotion. The extent of the restriction is also relevant.

Commission Rapid Intervention against Hidden Barriers

EU regulation has established the Rapid intervention mechanism where there are clear unmistakable and unjustified obstacles to free movement of goods which may result in serious disruption to the free movement of goods and may cause loss. A formal decision may be addressed to the state concerned, requiring the obstacles to be removed within that time limit set by the Commission.

The regulation places a duty on the Commission to act within five days of becoming aware of the relevant fact.  The state is given 3 to 5 days to submit a response / defence.  The state must comply with the Commission’s decision. There is an expedited procedure if there is a failure of compliance upon exhaustion of the procedure. Enforcement proceedings may be taken before the Court of Justice.

 

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