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The European Union's (EU) internal market, also known as the EU Single Market, is a single market that seeks to guarantee the free movement of goods, capital, services, and people – the "four freedoms" – between the EU's 28 member states.
The internal market is intended to be conducive to increased competition, increased specialisation, larger economies of scale, allowing goods and factors of production to move to the area where they are most valued, thus improving the efficiency of the allocation of resources.
It is also intended to drive economic integration whereby the once separate economies of the member states become integrated within a single EU wide economy. Half of the trade in goods within the EU is covered by legislation harmonised by the EU.
The creation of the internal market as a seamless, single market is an ongoing process, with the integration of the service industry still containing gaps. It also has an increasing international element, with the market represented as one in international trade negotiations. Notably, the internal market is open to three non-EU states via the European Economic Area.
The internal market has been extended to the European Free Trade Association countries, Norway, Iceland, Liechtenstein and Switzerland through the EEA agreement and treaties with Switzerland. These treaties have exceptions, most notably food. The four countries must accept all rules related to the internal market without being able to vote on them.
- 1 History
- 2 Free movement of goods
- 2.1 Customs duties and taxation
- 2.2 Quantitative restrictions and measures having equivalent effect
- 3 Free movement of capital
- 4 Free movement of services
- 5 Free movement of persons
- 6 Public Sector Procurement of Goods and Services
- 7 Notes
- 8 References
- 9 External links
Two of the original core objectives of the European Economic Community (EEC) were the development of a common market offering free movement of goods, service, people and capital (see below). Free movement of goods was established in principle through the customs union between its then-six member states.
However the EEC struggled to enforce a single market due to the absence of strong decision making structures. It was difficult to remove intangible barriers with mutual recognition of standards and common regulations due to protectionist attitudes.
In the 1980s, when the economy of the EEC began to lag behind the rest of the developed world, the Delors Commission took the initiative to attempt to relaunch the common market, publishing a White Paper in 1985 identifying 300 measures to be addressed in order to complete a single market. The White Paper which was well received and led to the adoption of the Single European Act, a treaty which reformed the decision making mechanisms of the EEC and set a deadline of 31 December 1992 for the completion of a single market. In the end, it was launched on 1 January 1993.
The new approach, pioneered by the Delors Commission, combined positive and negative integration, relying upon minimum rather than exhaustive harmonisation. Negative integration consists of prohibitions imposed on member states of discriminatory behaviour and other restrictive practices. Positive integration consists in approximation of laws and standards. Especially important (and controversial) in this respect is the adoption of harmonising legislation under Article 114 of the TFEU.
The Commission also relied upon the European Court of Justice's Cassis de Dijon jurisprudence, under which member states were obliged to recognise goods which had been legally produced in another member state, unless the member state could justify the restriction by reference to a mandatory requirement. Harmonisation would only be used to overcome barriers created by trade restrictions which survived the Cassis mandatory requirements test, and to ensure essential standards where there was a risk of a race to the bottom. Thus harmonisation was largely used to ensure basic health and safety standards were met.
By 1992 about 90% of the issues had been resolved and in the same year the Maastricht Treaty set about to create an Economic and Monetary Union as the next stage of integration. Work on freedom for services did take longer, and was the last freedom to be implemented, mainly through the Posting of Workers Directive (adopted in 1996) and the Directive on services in the internal market (adopted in 2006).
In 1997 the Amsterdam Treaty abolished physical barriers across the internal market by incorporating the Schengen Area within the competences of the EU. The Schengen Agreement implements the abolition of border controls between most member states, common rules on visas, and police and judicial cooperation.
Even as the Lisbon Treaty came into force in 2009 however, some areas pertaining parts of the four freedoms (especially in the field of services) had not yet been completely opened. Those, along with further work on the economic and monetary union, would see the EU move further to a European Home Market.
Free movement of goods
Customs duties and taxation
The European Union is also a customs union. This means that member states have removed customs barriers between themselves and introduced a common customs policy towards other countries. The overall purpose of the duties is "to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the Common Market".
Article 30 TFEU prohibits member states from levying any duties on goods crossing a border, both goods produced within the EU and those produced outside. Once a good has been imported into the EU from a third country and the appropriate customs duty paid, Article 29 TFEU dictates that it shall then be considered to be in free circulation between the member states.
Neither the purpose of the charge, nor its name in domestic law, is relevant.
Since the Single European Act, there can be no systematic customs controls at the borders of member states. The emphasis is on post-import audit controls and risk analysis. Physical controls of imports and exports now occur at traders' premises, rather than at the territorial borders.
Charges having equivalent effect to customs duties
Article 30 of the TFEU prohibits not only customs duties but also charges having equivalent effect. The European Court of Justice defined charge having equivalent effect in Commission v Italy.
- [A]ny pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or 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 having equivalent effect... 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.
A charge is a customs duty if it is proportionate to the value of the goods; if it is proportionate to the quantity, it is a charge having equivalent effect to a customs duty.
There are three exceptions to the prohibition on charges imposed when goods cross a border, listed in Case 18/87 Commission v Germany. A charge is not a customs duty or charge having equivalent effect if:
- it relates to a general system of internal dues applied systematically and in accordance with the same criteria to domestic products and imported products alike,
- if it constitutes payment for a service in fact rendered to the economic operator of a sum in proportion to the service, or
- subject to certain conditions, if it attaches to inspections carried out to fulfil obligations imposed by Union law.
Article 110 of the TFEU provides:
- No Member State shall impose, directly or indirectly, on the products of other member states any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
- Furthermore, no Member State shall impose on the products of other member states any internal taxation of such a nature as to afford indirect protection to other products.
In the taxation of rum case, the ECJ stated that:
- The Court has consistently held that the purpose of Article 90 EC [now Article 110], as a whole, 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."
Quantitative restrictions and measures having equivalent effect
In addition to prohibiting customs duties and discriminatory taxes, the TFEU, in Article 34, prohibits quotas and “measures having equivalent effect”. But what are measures having equivalent effect and how do they affect trade between member states? The Treaty does not answer these questions and European Court of Justice has over several decades provided detailed case law interpreting Article 34. In a well-known series of cases beginning with Dassonville, continuing with Cassis de Dijon and culminating in Keck and Mithouard, the Court has said that discriminatory and non-discriminatory rules of member states (therefore not actions of private corporations or individuals) that hinder intra-Union trade, in the absence of a permissible justification, shall be illegal.
Directly discriminatory rules
Directly discriminatory rules distinguish between national and imported goods in law and in fact. A prohibition of imports imposed by state A on goods from state B is directly discriminatory but restrictions do not have to take the shape of prohibitions or quotas. A Member State can lead advertising and promoting campaigns that favours domestic products, or it can impose higher prices or more stringent conditions (such as health inspections) on imported goods. The key to discrimination is that domestic products are not subject to the added difficulties, and are therefore put at an advantage.
Indirectly discriminatory rules
Indirectly discriminatory rules that hinder trade do not distinguish in law but do so in fact. They impose a higher burden on the importer due to additional work it has to complete to make the product marketable. Although in law the rules apply equally to domestic producers and importers, in reality the burden is born by importers, the domestic producers already complying with the rules. If, in addition, the product is marketed in a number of member states, the exporter from state A might be subject to as many different regimes as there are countries into which he is hoping to import.
For example, a (fictitious) law in state A is that alcoholic drinks of a particular kind must not contain more than 20% alcohol. Producer from state B makes and regularly exports drinks which contain 25% alcohol. Law in state A applies to all those who wish to market the alcoholic drinks in question – whether they are domestic in origin or foreign. In that respect, in law, they do not discriminate. On the other hand, as a result of their presence, a legally marketed drink from state B either has to be modified and its alcohol contents reduced to only 20% or must be absent from the market of state A altogether. EU law, under the circumstances mentioned in the previous paragraph, prohibits this kind of distinction: although the law appears to treat all parties equally, in fact domestic producers are favoured.
Product requirements and certain selling arrangements
Naturally, allegations can be made against any rule that inconveniences the trader, and this includes a very large number of rules. Therefore, in the last of the mentioned cases, Keck, and those that followed it, the Court decided that only rules relating to product requirements (shape, size, colour, etc.) should be illegal, while those relating to selling arrangements (opening hours, staff training requirements, etc.) will mostly not be. The division was an attempt to limit the number of cases to only those situations where, in the absence of discrimination, there is real danger of importer suffering the presence of dual burden.
Under certain circumstances, member states whose rules have been disapplied may defend them. For rules that discriminate, a defence will be possible under Article 36 which mentions, among other grounds for prohibition or restriction of free movement, public morality, public policy, public security, protection of health, etc. For example, a national restriction of import of meat from certain countries will be justified, though deemed contrary to free movement rules, if the member state can justify it by proving that it was necessary for "the protection of health and life of humans". A restriction of importation of pornographic material may be justified on the grounds of public morality, if such material is normally illegal in the said Member State. Non-discriminatory rules may be justified not only by reference to Article 36 but also to a Court-made list of exceptions which were first set out in the Cassis de Dijon case, and are commonly referred to as "mandatory requirements"
Free movement of capital
Free movement of capital is intended to permit movement of investments such as property purchases and buying of shares between countries. Until the drive towards Economic and Monetary Union the development of the capital provisions had been slow. Post-Maastricht there has been a rapidly developing corpus of ECJ judgements regarding this initially neglected freedom. The free movement of capital is unique in that it is a goal of the EU to pursue a liberal capital regime with third countries.
Capital within the EU may be transferred in any amount from one country to another. All intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs. This includes all member States of the EU, even those outside the eurozone providing the transactions are carried out in euro. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as domestic, however paper-based payment orders, like cheques, have not been standardised so these are still domestic-based. The ECB has also set up a clearing system, TARGET, for large euro transactions.
Free movement of services
The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis. While services account for between sixty and seventy percent of GDP, legislation in the area is not as developed as in other areas. This lacuna has been addressed by the recently passed Directive on services in the internal market which aims to liberalise the cross border provision of services. According to the Treaty the provision of services is a residual freedom that only applies if no other freedom is being exercised.
The Free Movement of Services is established in Article 56 TFEU, with further guidance in Article 57 – 62 TFEU. Exceptions are found in Articles 51-55 TFEU (common with Freedom of Establishment). The freedom prohibits restrictions on free circulation of services within Member States. Services are defined in the negative, “they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons.” (Art. 57 TFEU)
The services are distinguished from freedom of establishment based on their temporary rather than permanent nature and from free movement of workers based on the fact that the freedom affects corporate entities and individuals outside of the relationship of employment. Chapter 3 of Title IV applies to services as long as either the service moves across the border, or the provider moves or the service itself moves (e.g. an internet purchase).
The freedom to provide services is directly effective, meaning that member states must ensure that national laws do not conflict with the provisions. The Court has recognised that the obstacles to freedom to provide services may arise both from discriminatory and indistinctly applicable rules.
Freedom of establishment
The principle of the freedom of establishment has a basis in Articles 49-55 of the TFEU. To better understand the freedom of establishment, Article 49 and Article 54 tend to be read together.. According to Article 49 "...restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited.... Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54..." This second paragraph defines 'companies or firms' as "...companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making." The right of establishment, therefore, is granted both to natural and legal persons.
The principle has been broadly interpreted by the European Court of Justice. However, its restrictions have been narrowly and literally interpreted. For example, in the case of Reyners, the European Court of Justice held that "...the exceptions allowed by the first paragraph ... cannot be given a scope which would exceed the objective for which this exemption clause was inserted.". The teeth of this principle is that natural persons, who are nationals of a Member State, and Community companies may take up economic activity in any Member State in a stable and continuous way and cannot be discriminated against based on nationality or the mode of incorporation. (See also: Directive 2004/38/EC on the right to move and reside freely)
Free movement of persons
The free movement of persons means EU citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and more recognition of professional qualifications of other states. Fostering the free movement of persons has been a major goal of European integration since the 1950s.
Broadly defined, this freedom enables citizens of one Member State to travel to another, to reside and to work there (permanently or temporarily). The idea behind EU legislation in this field is that citizens from other member states should be treated equally with domestic ones – they should not be discriminated against.
The main provision of the freedom of movement of persons is Article 45 of the TFEU that prohibits restrictions on the basis of nationality.
Free movement of workers
Workers have the right to move to a different Member State, to look for work and be employed under the same conditions as nationals of that State (subject to a number of reserved areas greatly varying according to country: this means in many instances nationals of country A exercising a profession in country B the equivalent of which a national of country B would not be authorised to exercise in country A), number and benefit from the same social and tax advantages. This right has been extended by the Court of Justice to family members that accompany the worker, although they derive their rights from the main holder. Family members from non-EU states also have these rights. To claim these rights, family members must complete specific paperwork. In the United Kingdom, for example, the relevant document is the EEA family permit.
Free movement for the non-economically active
Following the Maastricht Treaty, the rights of economically active persons to free movement within the EU have been complemented by limited rights for non-economically active citizens to move freely within the EU, under Article 21 (1) of the TFEU and Directive 2004/38/EC on the right to move and reside freely within the EU.
The Schengen Area
Through the Schengen Area most EU member states (excluding Bulgaria, Croatia, Cyprus, Ireland, Romania and the United Kingdom) and four EFTA-members, Iceland, Liechtenstein, Norway, and Switzerland, have abolished physical barriers across the single market by eliminating border controls.
Public Sector Procurement of Goods and Services
Public procurement legislation and guidance requiring equal treatment, non-discrimination, mutual recognition, proportionality and transparency to be maintained when purchasing goods and services for public sector bodies are also based on the four freedoms.
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