Editor’s Note: The Campbell Law Observer has partnered with Judge Paul C. Ridgeway, Resident Superior Court Judge of the 10th Judicial District, to provide students from his International Business Litigation and Arbitration seminar the opportunity to have their research papers published with the CLO. The following article is one of many guest contributions from Campbell Law students to be published over the Spring 2015 semester.
BY: Ryan Heffner, Guest Contributor
American legal professionals are often well versed in fundamental doctrines of American constitutional law such as the Supremacy Clause, and its impact on the constitutional balance of power between the federal government and the states. With the advent of the Transatlantic Trade and Investment Partnership Treaty, a proposed free trade agreement between the United States and the European Union, American legal professionals might soon find themselves interpreting a different type of supremacy clause, that of European Union. The Treaty of Lisbon (“the Treaty”) is akin to constitutional law for the European Union and has a powerful impact on the laws of the twenty-eight member states. One right that is provided for in the Treaty is the free movement of goods and services.
Free Movement of Goods
The right to the free movement of goods between the twenty-eight member states of the European Union is rooted in Article 34 of the Treaty. Article 34 provides that “[q]uantitative restrictions on imports and all measures having equitant effect shall be prohibited between Member States.” Countering Article 34 is Article 36, which allows member states to adopt measures restricting the free movement of goods based on certain stated public policy reasons. Article 36 also states that “[s]uch prohibitions or restrictions shall not […] constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.” This distinction between Article 34 and Article 36 has invited extensive ligation. As a result, three main interpretations of Article 34 have emerged through the Court, centering on the cases of Dassonville, Cassis de Dijon, and Keck.1
In Dassonville, which involved a restriction on the importation of Scotch whisky into Belgium from France without a certificate of origin from British officials, the European Court of Justice opened the floodgates to extensive litigation challenging national laws restricting the free movement of goods.2 The Dassonville court outright declared “[a]ll trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade are […] quantitative restrictions.”
The Court reinforced the Dassonville decision in Commission v. Austria and Commission v. Italy, expanding its definition of quantitative restrictions from only national laws that directly undermine equal treatment and market access to national laws that have the mere potential of indirectly undermining equal treatment and market access.3 According to the Dassonville line of cases, therefore, any national law (with few notable exceptions) that restricts the free movement of goods, no matter how small, indirect, or insignificant, is illegal under Article 34.4
Not content with only equal treatment and market access, the Court opened the floodgates wider in the Cassis de Dijon case. Cassis de Dijon concerned a German law that required fruit liqueur to be twenty-five percent alcohol.5 Cassis de Dijon (a product of France) was typically only fifteen to twenty percent alcohol. Therefore, under the German law it was illegal to sell Cassis de Dijon in Germany. In response, Germany argued that the law was permissible because it addressed vital public health and unfair competition concerns. Moreover, Germany argued that the law was not a violation of the Court’s principles of equal treatment and market access because the law applied equally to national products, as well as imports.6
The Court disagreed with Germany’s argument and struck down the law as illegal under Article 34. Moreover, in ruling on Cassis de Dijon, the Court adopted two new principals: mutual recognition and mandatory requirements.7 Under mutual recognition, if a good fully complies with the laws of the producing member state, it cannot be restricted further in other member states.8 For American legal professionals, mutual recognition is fairly akin to our Constitution’s Full Faith and Credit Clause.
The Court later took a small step back from its record of continually enlarging Article 34. Under mandatory requirements, the Court reluctantly recognized that in certain public interest cases, member states have authority to restrict the free movement of goods.9
In Commission v. Germany, the Court reversed its stance on mandatory requirements. The Court in that case faced a centuries-old German law that clearly defined “the ingredients permitted in beer.”10 Many foreign beer makers did not use all the ingredients mandated by the German law; and therefore, could not sell their product in Germany as “beer.”
Germany, relaying on mandatory requirements, cleverly argued that the real intent of the purity law was to protect consumers. Although conceding that the law might improve consumer protection, the Court still struck it down for being overboard, concluding instead that a simple listing of the ingredients would suffice. 11
Finally, the Court in Keck decided to further close the floodgates, distinguishing the mutual recognition principle of Cassis de Dijon. In Keck, the Court ruled that although product rules (laws that require a physical change to a product) violate the mutual recognition principle, mere selling arrangements (regulations on how the product may be sold) are not necessarily a violation of Article 34 and pervious case law.12
The problem, however, has been defining the scope of selling arrangements versus product rules. On one hand, in Dynamic Medien, the Court ruled that a law banning the sale by mail order of DVD’s, without an age-clarification sticker, was a product rule. The Court reasoned that the law was directed more at an alteration to the product (age-clarification sticker). On the other hand, in Morellato, the Court concluded that an Italian law, regulating the labeling required on bread packaging, was a selling arrangement. The Court reasoned that because the law only dealt with labeling, and not with the physical bread, it was not a product rule.
However, even if a restriction is considered a selling arrangement, that does not necessarily, make it perfectly legal.13 It is critically important to remember that direct restrictions, as well as “all measures having equitant effect” on the importation of certain foreign goods, are illegal under Article 34. Therefore, even if a restriction fits the requirements necessary to be considered a selling arrangement, the Court has concluded that if the said restriction either directly discriminates, “has a greater effect on imported products than on domestic ones,” or is “equally applicable but tends as a matter of fact to burden imports more[,]” it is likewise illegal, unless justified under other articles.14
Free Movement of Services
The right to the free movement of services between the twenty-eight member states of the European Union is also rooted in the Treaty of Lisbon, especially in Article 56. Article 56 declares that “[…] restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other15 than that of the person for whom the services are intended.” Article 57 provides some important context in declaring that a “service” is “[…] normally provided for remuneration […] (something of value).16 Moreover, Article 57 also outright declares that “'[s]ervices’ shall in particular include: (a) activities of an industrial character; (b) activities of a commercial character; (c) activities of craftsmen; [and] (d) activities of the professions[.]” However, the important question then becomes whether certain national public services (e.g. healthcare, education, ect), offered by the member state to mostly anyone (nationals, legal residents, ect.), for a small fee, are considered “services” under Article 56.17 With regard to national sovereignty, the Court has generally answered that question in the negative.
Along the lines of Dassonville and Cassis de Dijon, the Court noted in Gebhard18 that all national laws that are “liable to hinder or make less attractive the exercise of fundamental freedoms” are generally disfavored. Moreover, in Arblade, the Court declared that Article 56 “[…] requires not only the elimination of all discrimination on grounds of nationality […] but also the abolition of any restriction, even if it applies without distinction to” citizenship “which is liable to […] render less advantageous the activities of a [service provider] established in another Member State where he lawfully provides similar services.” The Court, therefore, has even struck down facially-neutral national laws that somehow impede the current business plan of foreign member states’ service providers.19
Two particularly relevant cases are Alpine Investments and Commission v. Italy. Alpine Investments mainly concerned a Dutch law that prohibited Dutch companies from cold-calling potential customers, even those residing in member states which do not necessarily prohibit telemarketing. The intent of the law was to preserve the reputation of Dutch companies. However, the Court noted that “[…] such a prohibition deprives the operators concerned of a rapid and direct technique for marketing and for contacting potential clients in other Member States.” The Court declared that the law could “[…] constitute a restriction20 on the freedom to provide cross-border services.”
Likewise, Commission v. Italy mainly concerned an Italian law that prohibited all car insurance companies from rejecting potential clients.21 The intent of the law was to provide all Italian drivers access to the car insurance market, even those who would tend to be refused coverage in a free market. Of course, car insurance companies were concerned that the law would substantially increase their risk and cost them money. Therefore, it was argued, in Commission v. Italy, that the law would substantially deter foreign member state insurance companies from offering car insurance policies in Italy; and thereby, restricted the free movement of services.
The Court reasoned that although the law did not restrict foreign member state insurance companies’ access to the Italian insurance market, it did force them to greatly revise their current business plan, imposing substantial additional expenses. Therefore, the Court found that the law acted as a de facto restriction on the right to the free movement of services; and therefore, was illegal. Mirroring the principles of mutual recognition and product rules, the Court implicitly concluded “[…] that a service provider should be able to do business throughout the Union in the same way, and with the same products, as she provides in her home state, unless there is a very good reason justifying derogation from this rule.”22
However, the Court has also concluded that a mere increase in cost (e.g., taxes), which are imposed equally on both domestic and foreign member state service providers, do not necessarily violate Article 56.23 Therefore, while the Court concluded that a tax levied on private telecom technology did not violate Article 56, mainly because the tax was not seen as a premise to discriminate and applied equally, it looked unfavorably on a Spanish regulation that exempted lottery winnings from national taxation, only if the said lottery was organized by a Spanish organization.24
Finally, as was the case with the free movement of goods, laws directing how a service may be marketed and sold have often caught the attention of the Court.25 In terms of restrictions on marketing and prices, the Court declared in Cipolla, which dealt with “[…] regional rules in Italy that fixed legal fees at a set level […] and prohibited lawyers from charging less[,]” that rules limiting price competition may amount to restrictions on trade.26 In Cipolla, before leaving the final decision27 to the Italian courts, the Court concluded that “[…] the prohibition […] limits the choice of service recipients in Italy, because they cannot resort to the services of lawyers established in other Member States who could offer their services in Italy at a lower rate than the minimum fees […].”
In terms of access to regulated industries and professions, the Court interestingly ruled, in Commission v. Belgium, that “[…] an apparently very simple administrative procedure was [a violation] of Article 56 […].”28 The supposed violation centered on a law that required all foreign service providers doing business in Belgium to annually fill out a simple form, indicating their identity and the services offered. The form was accessible online, was free to file, and could be completed within a half hour. Nevertheless,primarily because Belgium “[…] could not show that the information was actually necessary to safeguard some public interest[,]” the Court struck down the law.
Overall the Court is less likely to entertain marketing and other administrative restrictions on services than on goods. This may be because of the different characteristics between goods and services. Goods tend to be physical in nature; they can be touched, seen, smelled, tasted, and heard. In contrast, services are often a concept, which often require more robust marketing in order to communicate their value to potential customers.
Ryan Heffner is a 2L student and will graduate from Campbell Law School in May 2016. He may be reached by email at email@example.com.