Free Movement of Goods

The free movement of goods is one of the four fundamental freedoms listed under article 26 of the TFEU. At its core, lies a simple concept. There should be no barriers which prevent the free and unrestricted movement of goods across the European Economic area. However, since its inception,  it has been hampered by obstacles ranging from the more obvious custom duties and tariffs, to the more discreet, such as labelling requirements or health and safety standards.

Under Article 30 of the TFEU there is a clear and express ban on the use of custom duties or tariffs by one member state against another. It also bans charges which would have a similar effect. The reasoning behind this is obvious. The introduction of such Tariffs on imported goods would make domestic products far cheaper and thus more attractive. Every member state would do this, and thus this would create a very weak and divided European Union. Under Article 110 there is the prohibition of discriminatory taxes on imported goods, while Articles 34 and 35 prevent quantitative restrictions.

The use of tariffs to raise the price of imports is known in economic terms as protectionism. The opposite of protectionism is trade liberalisation. While protectionism may help a country in the short term, in the long run everyone will impose these custom duties if allowed, which has a very negative effect on the economy. As a result, the European Union is committed to full trade liberalisation across its member states, and the Court of Justice has the power to strike down a measure which it believes impedes the free movement of goods.

There are exceptions however, based on the grounds of public health, security, life and health of animals and plants, etc. However, these are interpreted very restrictively by the Court of Justice. This is understandable, as were there to be too many exceptions which could be easily availed of, all countries would use them to raise the price of imports, thus hampering the free movement of goods.

Article 30 of the TFEU prohibits the introduction of new duties or charges while also prohibiting the increase of those which already exist. This was seen in the case of Van Gend En Loos.  Van Gend was a private firm that imported chemicals from Germany. In 1959 a Dutch law was passed which imposed a duty of 8% on some imported chemicals. Van Gend objected to paying the duty and the ECJ held that the duty was a breach of Community law. This case also set out the basis for Direct effect .

However, there may be times where a charge is introduced for non-protectionist reasons. This was argued in the case of Diamentarbeiders 1969 (Diamond Workers). In this case, the Belgian authorities imposed a charge of less than 1% on diamonds in order to raise money for Belgian Diamond workers. The Court of Justice held that custom duties are prohibited independently of any consideration of the purpose for which they were introduced and the destination of the revenue obtained thereof was irrelevant. Therefore the duty was prohibited.

There was also, at the beginning, debate over what exactly constituted ‘goods’. In  the art treasures case, Commission v. Italy , the facts were that the Italian Government prohibited the exportation of art treasures(articles of artistic, historic, archaeological or ethnographic nature) and claimed that the art treasures did not constitute "goods". The European Court of Justice defined goods as "products which can be valued in money and which are capable, as such, of forming the subject of commercial transactions." Therefore, art treasures fell within the meaning of "goods" under Article 9(1)(now 23(1)). The ECJ also extended this definition in a few cases. In the Region of Wallonia case, Commission v. Belgium , the facts were that Belgium prohibited the importation of waste and contended that waste did not constitute "goods" if it could not be recycled or reused because they have no commercial value. The ECJ rejected this submission and held that all waste was to be regarded as goods.  In Almelo v. Energiebedriff Ijsselmij case , the ECJ made it clear that electricity constituted "goods". However, the ECJ did not come up with the conclusion that all intangibles constituted "goods". It is clear that the court will look at the effect of the charge and not its purpose.

While customs duties are relatively easy to spot, charges having equivalent effect are much more difficult and have been the source of much case law.  In the Statistical Levy case, Commission v. Italy , even though there was no definition of charges having an equivalent effect in the EC Treaty, the ECJ defined this term as "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.".

In the Commission v Luxembourg and Belgium, often referred to as the Gingerbread case, the two countries had introduced a special import duty on imported gingerbread. The purpose of the special duty was to equate the price of foreign gingerbread with that of domestic gingerbread, as domestic produced gingerbread was more expensive due to a high internal rate of taxation on rye, an ingredient of gingerbread. This argument was rejected by the Court.

However, the problematic cases concerning charges having a equivalent effect are these two following cases.  In the Storage Charges case, Commission v. Belgium, the facts were the Belgian authorities imposed charges on the goods undergone customs clearance in a warehouse. The ECJ held that charges for customs clearance constitutes charges having an equivalent effect if they are imposed solely in connection with the completion of customs formalities.  Meanwhile, in the Animals Inspection Fees case, Commission v. Germany , the facts were that German imposed charges covering actual costs incurred in maintaining the inspection facilities. The ECJ held that the fee does not exceed the actual costs incurred as a consequence of the inspections. The inspections themselves are prescribed by European law and have the objective of promoting the free movement of goods. Hence, imposing charges genuinely incurred for such services do not amount to charges having equivalent effect to customs duties.

According to the two ECJ judgments above, charges made for services authorized by the Community legislation may not constitute charges having a equivalent effect to customs duties if they have met the following conditions.

1.       The charges do not exceed the actual cost of the services.

2.       The services are required by Community legislation.

3.       The services promote the free movement of goods.

4.       The charges must not be imposed solely in connection with the completion of custom formalities.