Models of / Approaches to Market Integration:
Different models of market integration work between and prioritise different tensions.
Choices and Tensions:
Trade vs Policy making
Regulation vs De-regulation
Courts vs Legislature
EU unity vs Member state diversity
‘The models represent fundamentally different philosophies of market integration, and entail different consequences for sovereignty, the balance of legislative and judicial powers, the protection of public policy interests, and democracy. In the historical experience of the EU, no model has been adopted in a perfect form.’ [1]
Host Country Rule:
Rules of the host country (where the economic activity is taking place) applies.
EG: France saying that paint cannot be made with lead, so no paint imports into France cannot contain lead.
Home country rule is the norm in trade between independent countries.
Advantages:
Member states retain national regulatory authority (and therefore sovereignty), as long as they do not discriminate between member states. Therefore, states are free to maintain different standards and levels of protection.
EG: France cannot say that it allows the import of all sausages, except those produced in Germany.
Disadvantages:
Requires manufacturers to produce according to the laws of all member states to effectively use and access the internal market.
Maintains significant obstacles to trade.
Relies on strong principle of non-discrimination.
Home Country Rule:
Rules of the home country (the products country of origin) applies.
EG: German exporters will have to abide by German law.
Advantages:
So long as manufacturers comply with the rules of their home country, they can export to any member state.
Gets over obstacles to trade as manufacturers only have to comply with one set of laws and regulations.
Disadvantages:
Problematic as it may incentivise companies to choose to manufacture in states that have a lower regulatory standard or may incentivise member states to lower their domestic standards (or tax / social contributions etc.) to encourage manufacture.
Relies heavily on concept of mutual recognition and trust, which must be ensured for by the judiciary.
Mutual Recognition = the principle of EU law under which goods that are legally sold in one EEA country can be marketed and sold in any other.
Harmonization:
Common EU rules apply, replicating the conditions of a single unitary state at EU level. This creates re-regulations of the market at the EU level.
Advantages:
So long as manufacturers comply with the EU’s rules, they can export to any member state. Gets over obstacles to trade as manufacturers only have to comply with one set of laws, reducing overall cost and improving efficiency.
Prevents member states from making rules that comparatively advantage themselves.
Passes regulation onto technocratic institutions, making it more efficient.
Disadvantages:
Requires a vertical transfer of power to the supranational level, meaning member states lose their regulatory powers.
Can be hard for EU to come up with a common set of rules throughout all member states due to diversity in all member states and sensitivity to different national preferences.
No one rule will cater for the diversity in every EU member state, so some state will always lose out.
Regulation in the hands of technocrats is less accountable, reaffirming the common rhetoric that the EU faces a democratic deficit.
Keeping power closer to the national level ensures this accountability.
It is hard to ensure effective enforcement and compliance. A harmonised model relies on supremacy and direct effect.
The Internal Market:
The internal market celebrated its 30th anniversary in 2023. As an economic Union, the internal market is the single most important reason that external states wish to join the EU and member states wish to remain within the EU.
Art 26 TEU:
1. ‘The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties.
2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.’
Purpose of the Internal Market:
Economic Rationale
Theory of Comparative Advantages: [2] when strong restrictions on trade are removed, trade is improved overall. This is beneficial to both / all countries involved since it reduces cost.
EG: clothes / textiles manufactured in the UK can be sold to Portugal, and Portugal can sell wine to the UK. Both are good at producing in the area of their expertise but could benefit from the import of other produce.
Ordo-liberalism: a free market is an ideal, but sometimes it doesn’t work (EG: due to monopolies). State regulation solves this.
The Spaak Report supported the removal of trade restrictions, preparing the ground for the Treaty of Rome. [3]
Integration Rationale
‘Ever closer union among the European peoples’ [4]
Securing peace: strong economic integration will discourage war due to the heavy interdependence between states.
Functionalism: spill-overs will result from the internal market and will create deeper integration with harmonised rules.
The EU Market Externally and Internally:
Externally, the internal market establishes a common tariff for goods coming into the market from third countries (common commercial policy).
Internally, there are no customs duties between member states (free trade area) and there are no other restrictions on free movement between member states (common market).
Market Integration in the EU:
Market integration within the EU is a combination of the different models of integration.
Two ‘engines’ to market integration:
Negative integration – removing national laws hindering trade.
Positive integration – creating common rules for the EU.
EU Harmonisation:
Art 114 TFEU – Allows EU to establish measures for ‘establishment and functioning of the internal market’ (positive integration) without requiring unanimity.
In theory, this is of limited competence.
In TOBACCO ADVERTISING I, the EU began, under a directive, to limit advertising of cigarettes and tobacco.
The CJEU accepted that the legislation enabling this was valid, but that the EU must satisfy requirements of subsidiarity and proportionality. The CJEU annulled the directive.
EU has no ‘general power to regulate the internal market’.
EG: limiting advertising in newspapers was proportionate (the newspapers would not be able to be sold in all EU states) but limiting sale of branded ashtrays was not.
‘Tobacco Advertising sent an important signal. Article 114 TFEU was not without limits, and the Court was prepared to police them. However, it did not lead to a more general wave of successful litigation.’ [5]
In practice, there has been a generous interpretation of Art 114 TFEU (very few EU laws are struck down by CJEU) which has allowed legislation to incidentally pursue non-economic aims in addition to economic objectives.
EG: prohibition of snus (chewing tobacco).
EG: elimination of mobile phone roaming charges.
EG: regulation of arms and weapons possession.
CJEU’s case law becomes a ‘drafting guide’. [6]
EU Free Movement Law:
Scope of Rights:
The “Four Freedoms”:
Art 34-36 TFEU – Goods
Art 45 TFEU - Workers
Art 49 TFEU - Establishment
Art 56 TFEU - Services
Art 63 TFEU – Capital
Infringement and Enforcement of Free Movement Rights:
Free movement rights (except capital) are judicially enforced through direct effect, so this is negative integration. Free movement is reinforced by mutual recognition.
For these rights to be engaged with though, lengthy and expensive litigation would have to be engaged with, resulting in it being easier for companies to simply follow local rules. [7]
Structure of CJEU Enforcement Claims:
Restriction – does national law restrict free movement?
Justification – if national law does restrict free movement, is it justified and proportionate?
Restriction:
Depends on individual free movement in question.
Justification:
Justifications for member states restricting free movement can be found in both written sources (treaty derogations) and unwritten sources (‘mandatory requirements’).
Treaty Derogations:
EG: Free Movement of Goods (Art 36 TFEU) does not ‘preclude prohibitions or restrictions… justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property.’
‘Mandatory Requirements’: [8]
The CJEU has supplemented the treaty derogations with ‘mandatory requirements’. The court has made it clear that free movement can be justified where any other policy objective is in the general interest.
Examples:
Consumer Protection.
Environmental Protection.
Social Policy.
Road Safety.
Maintenance of Press Diversity.
Protection of Fundamental Rights.
The principle of mutual recognition ‘leaves little autonomy for Member States to regulate their own market – it can only legislate in relation to products produced domestically – and understands the internal market as fostering competition between regulatory regimes as well as between products.’ [9]
These are not protected where the state is pursuing purely economic interests.
EG: preventing import of German toys in France to protect French toy manufacturing industry.
Proportionality:
Proportionality, of Germanic origins, was initially used prevent state actors from doing more than necessary to obtain their objectives.
The ‘most potent weapon in the arsenal of a public law judge’. [10]
Proportionality ‘… provides a checklist of… criteria that need to be met for behaviour by public authorities to be demonstrably justified in terms of reasons that are acceptable in a liberal democracy’. [11]
Elements of Proportionality:
Legitimate Aim – does the member state pursue a legitimate policy objective?
Suitability – is the measure appropriate to further the achievement of this?
In GERMAN TOLL, Germany imposed a toll for the use of highways on cars not registered in Germany. Germany cited the policy objective of environmental protection.
The CJEU rejected Germany’s reasoning, arguing that the policy did not explain why cars registered in Germany were not subject to the same requirement. Therefore, the measure was not suitable at protecting the environment.
Necessity – is there a less restrictive, but equally effective, alternative?
In WALTER RAU, Belgium required that margarine was sold in cubes (so that it was packaged differently to butter). Belgium justified it on the ground of consumer protection (so that customers would not be confused by the different products being packaged similarly).
The CJEU question the necessity of making manufacturers change their packaging – instead, they could label it better.
‘If a Member State has a choice between various measures to attain the same objective it should choose the means which least restricts the free movement of goods.
Consumers may in fact be protected just as effectively by other measures, for example by rules on labelling, which hinder the free movement of goods less.’
In KER OPTIKA, Hungary prohibited selling contact lenses online. Hungary justified this on the grounds of public health.
The CJEU found that Hungary had suitably protected public health as people should have a medical examination before their first pair of lenses. However, it stated that the sale of contact lenses online in all cases was not necessary – returning customers could purchase repeats online.
‘… necessary [that] that legislation does not go beyond what is necessary in order to attain that objective, in other words that there are not other measures less restrictive of the free movement of goods by means of which that objective could be achieved.’
Balancing – do the benefits of the measure outweigh the costs?
In VIKING LINE, a ferry operator in Finland wanted to ‘reflag’ one of its ships in Estonia (to comply with Estonian rules, not Finnish rules). An association of Finnish trade union took action against the ferry operator to prevent the reflagging.
The CJEU stated that the freedoms can be invoked in both vertical (any individual / company etc. against national public bodies) and horizontal (between individuals / companies etc.) situations. Thus, free movement of services applies to actions of trade unions through horizontal direct effect.
The CJEU continues, stating that, restriction was justified on the grounds of fundamental rights (right to strike). However, the CJEU said that it was not proportionate to prevent shipowners from registering vessels in other member states.
Imported the idea that the EU has ‘not only an economic but also a social purpose’.
Intensity of Review:
There are different standards of review: strict scrutiny or more politically sensitive deferential scrutiny. Sometimes, it can be observed that the CJEU is more deferential than usual.
In OMEGA, Germany prohibited laser tag as it undermined human dignity (a constitutional right in Germany).
The CJEU stated that member states have a ‘margin of discretion’ and human dignity was a general principle of EU law, finding the prohibition was proportionate.
‘… the need for, and proportionality of, the provisions adopted are not excluded merely because one Member State has chosen a system of protection different from that adopted by another State.’
Over-constitutionalisation of the Internal Market:
Fundamental freedoms, by their fundamental nature, are central to, and have helped develop, the EU internal market. Judicial engagement with these rights has shaped the way the market is perceived and functions.
Critique of Over-Constitutionalisation:[12]
The fundamental freedoms are entrenched in the EU treaties, giving them a quasi-constitutional status. Some have argued that this has led to an over-constitutionalisation of the freedoms.
Problems:
Interpretation of free movement rights may be too wide.
Rights impact member states to an extent that restricts national autonomy and democratic decision-making.
Rights impact the EU by constraining the legislative process.
Potential Solutions:
Limiting the scope of application of free movement rights.
More deferential justification / proportionality review.
De-constitutionalisation of the internal market.
It is questionable whether any of these are viable options or make practical difference.
There are significant numbers of fundamental freedoms cases now brought before CJEU, but this is slowly being supplanted by cases focused on fundamental rights.
Resources:
References:
[1] Snell, ‘The Internal Market and the Philosophies of Market Integration’ in Peers and Barnard (eds.), European Union Law (3rd ed, OUP 2020) 362 [2] See Ricardo, On the Principles of Political Economy and Taxation (1817) [3] Report of the Heads of Delegation to the Foreign Ministers at the Messina Conference (21 April 1956) [4] Treaty Establishing the European Community, preamble (1957) [5] Snell, ‘The Internal Market and the Philosophies of Market Integration’ in Peers and Barnard (eds.), European Union Law (3rd ed, OUP 2020) 356 [6] Weatherill [7] Snell, ‘The Internal Market and the Philosophies of Market Integration’ in Peers and Barnard (eds.), European Union Law (3rd ed, OUP 2020) 345 [8] Case C-120/78, Rewe-Zentral v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) [9] Dawson and De Witte, EU Law and Governance (Cambridge University Press 2022) 142 [10] Tridimas [11] Kumm [12] Grimm, Scharpf and Garben
Cases Mentioned:
Case C-376/98 Germany v Parliament and Council (‘Tobacco Advertising I’)
Case C-591/17, Austria v Germany (‘German Toll’)
[1] Case C-261/81, Walter Rau Lebensmittelwerke v De Smedt PVBA
[1] Case C-108/09, Ker-Optika bt v ÀNTSZ Dél-dunántúli Regionális Intézete
[1] Case C-438/05, Viking Line
Case C-36/02, Omega Spielhallen und Automatenaufstellungs-GmbH v Oberbürgermeisterin der Bundesstadt Bonn
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