September 25, 2021

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Success of the ECJ in the creation of a unified market with the center on four freedoms

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This article is written by Ms Reet Balmiki, from NALSAR University of Law. This is an article which deals with the successful role of the European Court of Justice (ECJ) in the creation of a unified market.

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The Single European Market (SEM), or as commonly called the ‘unified market’ or the ‘single market’ has a complex socio-political, legal and economic history attached to it. As defined by the Treaty on the Functioning of European Union (TFEU) under Article 26, a single market is “an area without frontiers in which the free movement of goods, persons, services and capital is ensured”. The freedoms aforementioned are collectively known as the “Four Freedoms”. The market ensures seamless trade among the countries, allows for healthy competition among EU nations and other nations as well, and nurtures labour and technical growth.

The core idea of a common internal market can be traced back to the Treaty of Rome, 1958 which was signed by the then 6 member-nations of the European Economic Community. It was not until the mid-1980s that the idea of SEM was officially put into the making. The wide acceptance of the White Paper which was issued in 1985 ensured that the SEM was a near-reality. The Single European Act was finally brought into force in the year 1987 and the end of the year 1992 was set as a deadline for completing the creation of a unified market. Through the years, various technological developments, changing national policies and the emergence of new fields of law have decisively shaped the SEM, as we see it today.

Apart from the efforts of the European Commission, EU and the national legislatures to effectively harmonise the single market legislation, the European Court of Justice’s (ECJ) evolving jurisprudence has played a detrimental role in the creation and development of the European Unified Market. In this article, we will discuss the outstanding role of the ECJ in the Unified Market’s history through various case laws and jurisprudential developments alongside the four freedoms to effectively trace its success.

The ECJ is the Supreme Court of the EU in matters of Union Law. It is often misunderstood as the Supreme Court of the nations and their governing laws. Instead, it is the Supreme Court for ‘Union laws’ only. Nevertheless, national courts refer cases to the ECJ regarding matters of and related to the Union law. From its official commencement in 1952, the ECJ has been the prime reason for the constant application of the EU laws. It contains one judge from each member-nation of the EU, which amounts to an entirety of 27 judges. The Court hears matters with three, five or fifteen judges depending upon the gravity and seriousness of the case at hand.

Figuratively, ECJ gives the flesh and blood to the existing treaties and guides the creation of new legislation and treaties that have to comply with the ECJ’s jurisprudence. Legislations, treaties and articles are of no use if they aren’t put to the best-intended interpretation consistently while allowing for departures due to any external developments. Recognizing and understanding the ECJ’s role becomes of paramount importance under this light. By adjudicating several conflicts of law and interpreting the law, the ECJ keeps the legislation alive and clarifies the position of a certain subject in the law.

Certain preliminary rulings from the ECJ and several other landmark cases on the integration of national economies and the creation of a unified market are sufficient enough to state that the ECJ has been the chief player in the development of the unified European market. It is a stressful exercise to understand the role of ECJ by studying its case laws independently. The previously mentioned four freedoms will help us to plot the cases in certain compartments and ease the process of analysis. Needless to say, we will now look at the four freedoms in light of the ECJ’s rulings.

The ECJ’s rulings and the initial legislations have created the base for a unified market. These four freedoms stand as concrete pillars to the palace the unified market intends to build. The ECJ, by being the final arbiter, has drawn from legislation and its own decisions to develop a coherent jurisprudence. Each of the four freedoms ascribes to each essential idea for the unified market which will be explained with important judgments of the ECJ.

Free movement of goods

Though there is no explicit definition of what constitutes a ‘good’, the ECJ in a 1999 ruling, where the question was about fishing rights, has given the term a comprehensive interpretation.

Article 30 of the TFEU explicitly bans the imposition of customs and border duties for the movement of goods. Some early cases like the Commission v. Italy (1969) elaborate what ‘charge’ constitutes and lay down exceptions for imposing charges on goods respectively.

In the case of Commission v. Italy (Taxation of Rum) 1989, the ECJ has ruled that the rule prohibiting excess taxation of goods by the nation receiving them is “to ensure the free movement of goods between the member states under normal conditions of competition, by eliminating all forms of protection which might result from the application of discriminatory internal taxation against products from other member states, and to guarantee absolute neutrality of internal taxation as regards competition between domestic and imported products”. The excerpt from this case showcases the clear enunciation of an already existing principle to further clarify the legislative intent.

An interesting account of other quantitative measures and other kinds of measures having an equivalent effect can be found in the case of Dassonville, 1974. In this case, the seller files a case against a Belgian law that mandates the presence of a legal certificate issued by the concerned authority for scotch whisky imported from France. Interestingly, France doesn’t have a similar kind of mandate for certificates. When the issue was referred to the ECJ by the Belgian National Court, the Court held that it was contrary to the provisions of TFEU. The Court ruled extensively regarding the conflict of provisions in this regard.

Similarly, in the case of Rewe-Zentral (1978), the ECJ held a German law requiring all alcohols to have a minimum of 25 percent of alcoholic content. The Court, while sensibly observing the pervasiveness of technical barriers for the movement of goods and the indistinctly effective restriction, rejected the German’s arguments and held the law to be contrary to Article 36 of the TFEU. Beyond the subject matter, the case also establishes the principle of ‘mutual recognition’ of national rules. This is an essential pathway of the harmonisation of various national laws to achieve the goal of a unified market including various nations with their own laws and socio-political needs.

On the other hand, the ECJ has put its efforts to make room for special national needs and has allowed for certain exceptions. In the case of Commission v. Italy, 2003, the ECJ offers an interesting understanding of its developed jurisprudence. In this case, the law in question, though applying to goods of its nation and other nations, affected the other nations disproportionately. The Court recognized the disproportionate effect and ruled against it. In the Keck and Mithouard (1993) case, the Court has ruled that if a selling arrangement is applicable in law and in fact exists, it does not fall under the purview of Article 34 of the TFEU.

While associating itself in favour of a sensible idea of free movement of goods, the ECJ, as feared, didn’t exceed while ruling on a related case. The Court in the case of Schmidberger (2003) held the fundamental right of association over this freedom and considered it as enough justification. The balanced approach is evident furthermore here.

Even in cases of restrictions placed by a member state, the Court, if satisfied with the justification provided by the state, can uphold it to be valid. Commonly, justifications relating to public health, public security and general public policy are accepted.

Free movement of goods forms an essential part of an openly accessible market and has wide effects on large-scale economies and supply chains. This allows for a free choice of trade of goods. There also exists a conflict between the national interests and the goal of the European unified market. The ECJ has a proactive role in limiting the legislative conflict. This aspect shall be dealt with further in the analysis section.

The ECJ, from cases like Rewe-Zentral to the very recent 2003 case, has taken a consistent standpoint of view and has maintained a healthy jurisprudence in this regard with very few exceptions like Keck’s case.

Free movement of persons

One of the primary goals of European integration is the free movement of persons within the EU. The promotion of free movement and free right to reside in any EU nation if they are not an undue burden on the host nation has been a fundamental one since the 1950s. The basic idea being, the nationals that migrated or moved for whatever reason and to whatever nation within the EU, shouldn’t be discriminated against by the domestic individuals and should be treated equally to them with all the social benefits.

An interesting classification lies in the difference between ‘any citizen’ and ‘worker’. EU citizenship is an entirely different subject when compared to the free movement of the workers. The former includes certain nation-specific implications and a few exceptions. The latter emphasizes workers in the context of the market as a factor in production.

Apart from the idea of fundamental freedom in the primary treaties, there are several other legislations and treaties which govern the free movement of workers and their rights. The free movement of workers legislation is one such law.

The ECJ, again, has an impressive jurisprudence in this regard. This paragraph deals with the employment opportunities and rights of the workers. In the famous case of Angonese, (2000) the Court held against the national law requiring a bilingual certificate for everyone applying for the job. The Court reasoned that, though the law mandates it for everyone applying, the said certificate can only be obtained in that nation, thus it affects other nationals disproportionately. An interesting observation in this regard would be to observe the similarity in reasoning in the current case and the Commission v. Italy, 2003 case. The jurisprudence states that the effects of a certain law must be looked at on a more subjective level. On the contrary, in the case of Groener v. Minister of Education (1989), the Court upheld the law applying to everyone as it did not have a disproportionate effect.

The issue of socio-economic benefits the workers can obtain offers a deeper understanding of the conflict of laws. In Hendrix v. Employee Insurance Committee (2005), where the person claimed that he was entitled to obtain incapacity benefits from the Netherlands even after he moved to Belgium. The Court observed the absence of any ‘unfairness’ and held that the benefit is closely related to the socio-economic situation of the Netherlands and thus held the claim to be invalid.

The Court further opined that, in the absence of any justification that can be understood from the facts, any such law denying benefits would be contrary to the EU law. The court, while upholding the freedom of movement, has approved certain residential qualifying periods of the nations. A similar issue of obtaining social assistance and advantage exists for non-workers residing in other nations within the EU too. In Dano v. Jobcentre Leipzig (2014), the court upheld the right of the German government to deny child benefits to a woman residing in Germany.

The Court of Justice while prioritizing freedom, has kept itself accordant with the exceptions of “public health, public security or public policy” and “employment in public services” under Articles 45(3) and 45(4) of the TFEU respectively.

The Schengen Area and the EFTA nations’ treaty further extend free travel for everyone without border checks and stringent immigration policies.

To sum up, the ECJ has ensured that a community of over 500 million belonging to different historic and social backgrounds get the socio-economic benefits undeterred by the nation they choose to reside or work in. Though there exist concerns of the migrant crisis and management concerns of nations, the EU laws and the ECJ have been successful so far in creating a community rather than just a market.

Free movement of services

With a fair understanding of the ECJ’s jurisprudence and the law regarding the previous 2 freedoms, we will now delve into the freedom of movement of services. Services, according to the Court of Justice, include “temporary services” and “establishments”. For a free movement of goods, establishment and movement of services becomes the detrimental factor. With great importance, this freedom remains one of the most conflicting freedoms of all. National policies and regulatory standards often hinder this freedom. Thus, a closer look at the ECJ’s rulings and the evolution of law in this regard becomes necessary.

The landmark Reyners case forms the origin for jurisprudence in this regard. The 1974 case held the decision of the bar council to not admit a Dutch national on grounds of not having Belgium’s nationality as unjustified and invalid. This case, alongside being one of the earliest cases, also clears the fog regarding the public service and private service distinction.

The restriction in the above case is a prima facie denial of free movement of service. But the jurisprudence is not limited to only primary restrictions imposed. The ECJ expanded the law in this regard in the Sager 1991 case. The Court ruled that prohibition of restrictions also extends to restrictions that are “liable to prohibit or otherwise impede the activities of a provider of services established in another member state where he lawfully provides his services”. The ECJ, similar to the line of reasoning adopted in cases of free movement of goods, has consistently held that remote restrictions without any justifications are also invalid.

The gravity and complexity of this freedom increase more so in the context of establishments. Unlike services, establishments, as ruled by the Court of Justice, are entities that participate “on a stable and continuous basis”. However, freedom of establishment only extends to allowing the incoming establishment. The functioning of its services and businesses can be subject to regulatory laws and directives.

The case of Cassis de Dijon is relevant in this context too. The case of Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano (1995) consolidates the jurisprudence in this regard. The Court held the suspension of a German lawyer by the Italian authorities on grounds of not having Italian registration to be invalid. The Court went on to state that though the measures were not entirely restrictive they were contrary to the provisions as they were “liable to hamper or to render less attractive the exercise by Union nationals…of the exercise of fundamental freedoms guaranteed by the treaty”. This “wide approach” has its roots in the Cassis de Dijon case. A similar case is the Vlassopolou, 1991 case, where the Court held that “Member States may not ignore the knowledge and qualifications already acquired by the person concerned in another Member State”. We can see a clear convergence of the free movement of persons, services, and establishments from the above cases. Thus, the canon of law produced by the ECJ is clear though they are interlinked.

The movement of business also carries movement of tax regulations and service regulations with it. National legislation in this matter is not harmonized to the effect that other freedoms are harmonized. Different tax requirements and multi-layered national interests come in the way of full integration of the market, especially under this freedom. The court has taken a pragmatic approach in deciding cases between the right to establish companies freely and member states’ right to determine regulations for companies regulated in its territory. The distinction can be understood from two landmark cases.

In the R v. HM Treasury 1988 case, the court held that the company could not shift its base from the UK to the Netherlands without settling its tax accounts in the UK. Though the question was about freedom of establishment, the ECJ has prioritized national legislation over Union freedoms. On the other hand, in the controversial Centros case, the court held the law to be contrary to the Union law’s provisions. The limited company based in the UK was entitled to shift its servicing establishment to Denmark. The conflict arose due to the differential capital requirements for an establishment. The ECJ, with a broad approach, yet again upheld the freedom and refused Denmark’s arguments. Still, the debate around shifting ‘real seat’ and ‘legal seat continues. It is an economic and political debate rather than a law one. The implications and aftereffects bring the law in its entirety to question. The ECJ, by upholding the freedom for establishments and services as an essential one to the unified market, has put out an evaluated jurisprudence.

Freedom of capital

The last among the four freedoms is the freedom of capital. This freedom is supplemented and supported by numerous directives, treaties, and other agencies with this duty. An exhaustive definition or list of what exactly constitutes capital cannot be stated easily. From direct investments, shares and dividends to gifts and sureties, the list has a lot to speak for itself.

European currency and its capital flows have a peculiar history. As of today, euros can be transferred within the EU nations in any amount. They bear no costs except for domestic transfer and exchange costs. The goals and objectives of creating a unified capital flow system are manifold. Implications and reasons extend to crude monetary policy discussions.

The scope of this discussion is limited to the ECJ’s influence and its case laws. Though we might have to understand the subject matter while going through the facts of the case. This section tries to discuss within the aforementioned limit whilst discussing the jurisprudence’s development.

In the recent 2002 case of Commission v. France (2002), it was held by the ECJ that “all restrictions on the movement of capital between the Member States and between the Member States and third countries are prohibited” and “general prohibition on restrictions on the movement of capital between the Member States. That prohibition goes beyond the mere elimination of unequal treatment, on grounds of nationality”.

A wide approach is taken by the courts while deciding cases upon this issue. Like restrictions on other freedoms, freedom of capital also doesn’t necessitate a direct restriction. There have been cases in the ECJ which were held to be contrary to the EU laws though the restrictions had a remote implication.

In the case of Finanzamt Köln-Altstadt v. Schumacker (1995), it was held that “the rules regarding equal treatment forbid not only overt discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result”.

The movement of capital has effects on entire economies and monetary policies. The freedom also extends to certain kinds of limits about shareholding rights, debentures, and securities. In a unified market where capital must flow freely, functioning of this freedom without any hindrance becomes the key. A comprehensive ruling in this matter is the case of  Commission v. Portugal (2010). In the 2010 case, Portugal retained golden shares in Portugal telecom. Though this doesn’t have a direct impact, the Court struck down stating that this created “disproportionate rights” and reduced the “attractiveness of an investment.”

Similar cases in this arena are the same. Though the case laws are clear on certain aspects of capital flow, cross-border mergers, and acquisitions of establishments in this unified market, remains a concern. In a number of other cases, the ECJ’s consistent stand reflects its natural approach to favour the sustenance of a real unified market.

So far, we have discussed the cases which were based on legislations and directives’ articles. Before we go into the final analysis of the ECJ’s jurisprudence a brief introduction to this provision would be helpful. Article 114 of TFEU is one such provision that demands special attention. It confers the EU with the competence to make any other legislation in furtherance of SEM. Initially, when it was inserted in 1986, there were apprehensions by the member states that this could possibly provide a gateway for the Union to override any national policy.

Thus, the ECJ once again had to clarify the interpretation of this provision. In the European Parliament v. Council of the European Union (2006) case it was held that “it can only be used for the ‘approximation’ of laws and administrative practices and not for other purposes related to the SEM”.

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A unified market essentially means the liberalization of movement and having unified institutions that ensure the market’s survival and growth. To have supranational institutions like the European Council and the ECJ which can go to the extent of influencing nations themselves is neither a linear process nor a simple existence.

Throughout history, from being the birthplace of a new world through science and philosophy, European nations have come a long way. A vision to have equal competition and thus equal growth took years in the making itself. Achieving a ‘complete’ unity among nations with different histories and political concerns sounds realistically impossible. Perhaps, the very idea of a unified market on this scale was once ridiculed.

It goes without saying that the ECJ has an essential part in the creation of this market. Beginning from the Dijon case where the court put out the idea of “mutual recognition” of legislation among each other, to the very recent Commission vs Italy, 2003 case, the ECJ has been in the process of constant evolution and reaffirmation.

Having a law at the Union and various laws within the nations brings in an inevitable conflict. Therefore, the ECJ was the player to settle these conflicts of legislation and interests. Across the cases discussed in the four freedoms, we can clearly observe a conflict between the union laws and the member state’s interests. The ECJ, thus, must do a ‘balancing act’ between both. The court, though reasoning in favour of the unified market throughout the years, has never represented itself directly or indirectly as an agent to the unified market.

The ECJ’s jurisprudence in its majestic equality and reasonable accommodations has limited the tension between nations, unions, and private entities to the extent it could. Today, there is a catena of cases available for every freedom and all aspects of the Unified market. A close study of cases specific to a topic reveals more about the deepened legal basis for the unified market.

A unified market system sustains only in the presence of a uniform law. The ECJ is a doubtless success in that regard. The values the ECJ holds is evident from the words of the President of the ECJ, Koen Lenearts– “…beyond a core nucleus of shared values where the ECJ must ensure uniformity, EU law cannot disregard the cultural, historical and social heritage that is part and parcel of national constitutional traditions. Beyond that core nucleus, the ECJ welcomes ‘value diversity’”.

After years of evolution of complete jurisprudence, a number of directives and treaties, and various developments around the world, a completely unified market is still in the making. The ECJ, like always, has a duty to keep up with further developments and changes to foster the development of the unified market. The ECJ’s success is visible in the reasoning of various judges. For what it has done to create a unified market, the ECJ jurisprudence’s success will remain a legacy.


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