The Single Market Part 3 - What Does the Free Movement Of Goods Mean? Before the EU was created, goods moving freely between the EU states faced a number of barriers, all of which the EU prohibits. In this post I take you through some of the main ones. In the next post I discuss how environmental, social and other policies interact with the single market. First barrier tariffs/custom duties A tariff or customs duty is a financial charge paid by an individual or a company bringing goods into a country. These are prohibited between the 28 member states. This barrier was got rid of in the 1960s and all the countries who joined since have strictly adhered to this prohibition. According to international law, tariffs need to be published in advance if they are going to be charged. So effectively they are
very easy to prohibit: the EU just ensures that no such notification is made by member states to the World Trade Organisation (WTO), (the international organisation that regulates much of world trade between states). It may be useful to explain why tariffs existed so you can appreciate the importance of getting rid of them. They existed to protect an industry from outside competition. If you want national industries to develop and there was a more efficient or better producers in another country, you would raise the tariff to such an extent that it would not be profitable for the better/cheaper producer to trade. This would spiral into a tariff war where countries retaliate, tit-for-tat, to each others tariffs. The result of that was that few countries could export what they produce well and overall everyone looses out. Getting rid of all these barriers allows each country to export what it s good at and spurs industries that are under-performing to raise their game. But as I will explain below, the EU does not simply allow this kind of economic survival of the fittest, it also (i)
harmonises important aspects of production (product, social and environmental standards), so preventing a race to the bottom that would mean industries adopt the standards of the least stringent country and (ii) the supports key industries through the Agricultural & Fisheries Policies and supports the poorer regions in each country through the Regional Policy, which together make up the overwhelming part of the EU s budget. As I say more on this later. Now lets turn back to looking at the barriers to free movement of goods. Second barrier Other charges levied at the border These are also prohibited. Countries may seek to raise money and or protect their industries by making up for the lost revenue from tariffs by charging importers for things like health checks on animal cargo, customs checks and all manner of dubious charges. Although they are not as easy to spot as a tariff which must be
published, such charges have been quite easy to deal with. (To be clear, states can still in some cases carry out health check etc but they can not charge for them. They may charge for a service you would not automatically expect to have at the border such as storage for cargo or long-term parking). Third Barrier Quotas and Bans A state could achieve the same protectionist aims as the tariffs or equivalent charges, by simply banning a good or putting a numerical limit. For instance, state A could pass a law banning cars from entering the country, or it could say only 2,000 cars a year could be imported. Much less common were bans or quotas on exports, which mainly related to precious resources, like minerals or agricultural products. So the EU treaties prohibit quotas and bans. Again because they such blunt instruments that were usually contained in a country s legislation, getting rid of them has been fairly straight-forward.
Fourth Barrier Product Requirements Today, and since the 1980s, this and the next category of barriers is by far the most important. Unfortunately, one has to get to grips with some details of the EU law to understand what we benefit from now and what rules we would still be effectively bound by if we wanted to carrying on trading with the EU in the event that we pull out with the EU (and we will of course want to do). So if we got rid just of tariffs, equivalent charges to tariffs, and quantitative restrictions, could a protectionist government impose any more subtle obstacles to foreign goods? Absolutely. They could create national rules which on the face of it look as if they are not targeting foreign goods but in reality they are. Take a quick look at comedian Kevin Bridges routine on Scotland creating its own products that captures the idea very well. http://bit.ly/1n4isnh (from 1m 00secs to about 1m.35secs)
So the idea is that a country could create product standards to exclude foreign goods (like the 6-pronger in Kevin Bridges routine). Countries can be very creative. Examples include: a law saying that only spirits with a certain alcohol content can be sold as spirits, or a law that margarine should only be sold in rectangular tubs and so on. Product standards or product requirements relate to the shape, presentation or content of a good. Here, the EU has two policies running side-by-side. Policy No 1 Mutual Recognition subject to exceptions The first policy is to deal with diverging national product standards by analyzing them on a case-by-case basis, prohibiting them if they do not clearly pursue a legitimate aim, otherwise forcing states to recognize each others products. One the one hand, the problem with these rules may that they are protectionist. So if all beer brewed in EU country A is at least minimum of 5% Av, passing a law to prohibit beer of a weaker
strength is essentially a ban on foreign beer. One the other hand, sometimes these national rules on product requirements pursue a legitimate aim, such as environmental protection, consumer protection and safe-guarding human, plant or animal health. So this first approach involves saying that once a good is lawfully produced in one member state, it has the right to free movement into any EU member state, unless there is a rule in another member state preventing the good from coming in for reasons of environmental protection, consumer protection and safe-guarding human health (the most common reasons invoked). We call this mutual recognition. States must recognize each others goods unless a strong objective reason exists to justify the limitation on free movement. Let me develop a couple of the above examples and apply the rule to it: Example 1 : Lets say France, Belgium and the UK are the biggest and cheapest
beer producers in the EU. They produce beer with differing alcohol strengths, ranging from 3% to 4.5%. Germany passes a law that only beer with 5% alcohol content or higher can be called beer in Germany. The Germans justify this on the basis that people will drink less if they get a quicker kick from the stronger alcohol they drink. Now, it just so happens that for historic reasons, all beer produced in Germany is at least 5% strength. So the starting point is that the French, Belgian and UK producers of beer have a right to sell their beer anywhere in the EU if lawfully manufactured in those countries> lets assume that s the case. However, if a country can show a strong reason why its product requirement should apply, the French, UK and Belgian beer does not need to be admitted to Germany. Those product requirements relate usually relate to consumer protection, or protecting animal, human health or the environment and they can t just be disguised protection for German industry. Germany is using a human health argument, so it would have to prove its case: that a higher initial alcohol kick leads to less drinking!! By the way, the facts here are slightly adapted from a real case that came
before the Court of Justice! Fortunately, the Court did not have a sense of humour developed enough to accept such an argument given in particular that (i) Germany could provide no real statistical evidence to back this rather original theory of how people drink and (ii) this German rule was quite clearly motivated by protecting German beer from competition. (I should point out that Germany was by no means the only member state that tried to use product requirements to protect national industries). This measure will almost be an illegal product standard. (There are 2 routes by which this could be challenged in law. The Commission enforces EU law by taking member states in breach of EU law to the Court. Also a national of any member state can take a member state to the state s national court to enforce their EU law rights are clear and precise, as these rules have been held to be. So the Belgian, UK and French producers could sue the German state in the German courts. They have the right to do that under EU law). Example 2: Lets change the facts above to see how the rule would operate to justify a restriction on trade. Imagine again that we are trying to
figure out if French, Belgian and British beer lawfully sold in those countries can be exported to Germany. This time, however, under French, UK and Belgian law, there is no requirement to label beer with its alcohol strength, while in Germany, by law, all beer must be labelled with that information. Germany justifies the law by arguing that people need to make informed decisions, namely the publicans and shops buying the beer from the beer producers and the punters buying the beer in pubs and grocery stores. So the starting point again is that mutual recognition means that goods lawfully sold in one country the UK, France and Belgium - must be allowed in to all others including Germany, unless Germany s product requirement clearly pursues a justifiable aim and is not disguised protection to its industry. Here you can see very clearly why Germany would be on much firmer ground to prevent the goods from the other 3 states. There is a much clearer mix of consumer protection and public health reasons that Germany is likely to be able to support even without strong evidence as regards the impact on consumers. It is clearly
important for people (especially consumers) to know what they are buying. The German product standard here is very likely to be considered legal by Court of Justice, and hence a justifiable exception to free movement. Policy No 2 Harmonisation I said above that there were two policies that the EU pursues to deal with the issue of diverging national product requirements. The above policy is mutual recognition subject to exceptions and the obligation that there is no disguised protectionism. This principle has its limitations. The main problem with it is there is no legal certainty that the many national product requirements out there are legal until they are tested in the courts. So companies wanting to do business across borders want more certainty and they get it on the whole by harmonization. This means that the EU passes laws creating common rules on the product requirements they think will promote trade. By the way, when I saw the EU passes laws, I usually mean the Council of
Ministers and the European Parliament as co-legislators. The Council is composed of ministers of each 28 member states, so they are the governments that each of the 28 elected in national general elections, while we all directly Members of the European Parliament (MEPs). Both institutions must agree to a proposal for it to become law. There will be a separate blog post on lawmaking so that s just the bare bones for now. So the Council and the Parliament have a broad discretion to decide whether a law is needed to deal with divergences in national measures. They adopted the approach that they would only harmonise where this was essential to ensure that products functioned in a way that they can be used in different countries. However, this has been a huge programme of harmonisation. When it was launched in 1986, there were about 300 pieces of legislation needed by 1992 to help complete the Single Market. That of course was spin because the Single Market will never be complete as long as there are new products coming along. The process continues to this day.
You have doubtless heard stories of the EU harmonising banana sizes, or banning Britain using the word sausage for sausages. These stories and others like them are nonsense, and those spreading the stories can not usually point to the specific provisions in EU legislation to support their arguments. Indeed, one journalist, Sarah Helm of the Guardian, who knew Boris Johnson has recently claimed that he spread many of these rumours when he was the Europe correspondent of The Daily Telegraph. Here s a link to the article: http://bit.ly/210ceov. He has strengthened Sarah Helm s recollection of events by repeating some of these allegations in an article he wrote on the 22 nd February 2016: http://bit.ly/1ugyb9l