EU LAW-Free Movement of Goods and the Four Freedoms

EU Law Blog Project by:

Treva Mcintosh ID No.13028751

Heena Morgan ID No. 13008392

Florence Randall-Douglas ID No. 12525805

Farhia Mohamed Yusuf ID No. 12939954

Blog Logo of the Four Freedoms

INTRODUCTION

The 1958 Treaty of Rome establishes the European Economic Community (EEC) now the European Union (EU) which brought together six countries to work towards integration and economic growth through trade. The central objective of the EEC was the creation of the single market which would provide a single  territory for the free movement of goods and the four freedoms (establishment, peoples, services and capital) with an internal customs union and external common customs tariff. Since 1958, the Treaty of Rome has been amended several times and is now known as the Treaty on the Functioning of the European Union (TFEU) and the total number of EU Member States has increased to 28 in 2004 after the reunification of Europe after decades of division.

The Single Market

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The single market extends, through trade Agreements, to Non-EU States such as Iceland, Norway, Liechtenstein and through bilateral treaties with Switzerland. The aim of the single market is not only to assist in economic growth and market competition but also social and political. The framework for the functioning of the internal market is Article 26 (TFEU) which articulates  the free movements of good and the four freedoms. Goods is given a broad definition in Commission v Italy[1] as being products which “can be valued in money and subject to commercial transactions.”

[1] [1968] Case 7/68

FREE MOVEMENT OF GOODS WITHIN THE EUROPEAN UNION

For the aim of the single market to be realised, it is necessary for the removal of obstacles to the free movement of goods between Member States. Thus, Article 110 (TFEU) removes the imposition of direct or indirect internal taxation of any kind on products of other Member States and the Customs Union prohibits the imposition of customs duty on goods moving across the internal market.

The Custom Union

The Customs Union is an essential component in the functioning of the single market and the legal framework for its creation is Article 28 (TFEU). Article 30 (TFEU) prohibits customs duties, or any charges having equivalent effect, including those of a fiscal nature, on goods being imported or exported between Member States. This also includes goods originating from a third country which are already in free circulation within the Member States. In 2017 the value of export trade in goods within the EU ranged from EUR 750 billion for Germany (22.4 % of total intra-EU exports) to just over EUR 1 billion for Cyprus (0.03 % of total intra-EU exports). The graph below shows the wide variation in the value of export trade in goods by Member States with partners within the EU and considered the biggest trading partnership in the world.


The earlier decision by the Court of Justice of the EU (CJEU) in Van Gend en Loos v Nederlandse Administratie der Belastingen[1]confirmed the removal of internal tariff barriers to free movement of goods. The legislative abolition of internal customs duties and other restrictions to trade within the single market has made those goods favoured by over 500 million consumers to be the most successful, irrespective of the country of origin, thus creating economic growth.

Customs Common Tariff

Goods imported directly into a Member State from outside the EU face customs common tariff, that is, a common level of duty charged by Member States on goods imported from third countries. Thus, a product imported from, for example, China by a Member State is liable to a customs common tariff of that State. The rate of duty may differ from one kind of goods to another, depending on what they are and where they come from, thus the rates depend on product sensitivity. The product could then be exported to other Member States without any import duty being paid. In 2017, trade between Member States was only second in volume to trade with the most important trading partner of the EU, the United States of America.

The graph below shows the percentage of goods traded with the world’s largest markets in 2017.

[1] [1963] Case 26/26 ECR

 

The Single European Act 1987

Prior to 1986, there were difficulties with the EU’s legislative mechanism since it required unanimity. It struggled to secure intergovernmental agreements to its legislative proposals due to lack of cohesive decision-making amongst its Member States as each was trying to protect its individual markets with the result that Treaty objectives were often delayed, creating unintended barriers to trade. However, the prevailing economic slow-down and the beginning of a shift to globalisation at the time, the Commission accepted a White Paper in 1985, addressing the problems and suggesting measures, such as the removal of physical, technical and economic barriers, to be taken in order to complete the single market. This led to the enactment of the Single European Act (SEA) which came into force in 1987, setting a precise deadline for the completion of the internal market. It revised and amended the Treaty of Rome, particularly regarding the decision-making procedures. Instead of individual Member State’s veto on proposals, SEA allowed for qualified majority voting with the result that adoption of proposals becoming considerably faster. It also called for the need for new strategies on essential harmonisation and of mutual recognition in the redevelopment of the single market.

Since the relaunch of the single market in 1993 to take account of broader social, consumer and environmental issues, 75% of intra-EU trade is in goods which accounts for 21% of the gross domestic product (GDP). In 2016 alone, traded goods within the EU reached a volume of €3.1 trillion and it is projected that removing the remaining non-tariff barriers, such as divergent technical regulations and administrative obligations, would inject another €183 billion into the EU economy.

The graph below indicates the share of the GDP of intra-EU exports of goods from 2000, when the EU comprised only 15 Member States, to the present 28 Member States.

Restrictions to Market

One way of achieving the aim of Article 26 is by the development of EU-wide rules on matters which affect inter-state trade, such as product standards and consumer rights.[1] Harmonisation precludes the adoption of possibly divergent national rules and ensure the free circulation of products within the internal market. Some sectors are still governed by national provisions but the principle of harmonisation ensures that these provisions do not lead to the creation of unjustified barriers to trade.

The prohibitions contained in both Articles 34 and 35 (TFEU) are designed to remove all hidden barriers that are of a non-pecuniary nature on the free movement of goods. Both articles are in two parts: firstly, the prohibition of quantitative restrictions (QRs) and secondly the prohibition of measures having equivalent quantitative restrictions (MEQRs). Article 34 prohibits QRs on imports and all types of MEQRs and Article 35 prohibits QRs on exports and all types of MEQRs. Article 36 (TFEU) provides a balance for the restrictive and proportional interpretation of measures in Article 34 and sets out an exhaustive, legitimate circumstances to derogate from it. It may be invoked in respect of both QRs and all types of MEQRs.

Quantitative Restrictions (QRs)

QRs put a limit on the amount of imports which may be construed in various ways: by reference to value, physical quantity or some other factors. For example, limiting the number of cars that could be imported per year from another Member State is a QR. In Riseria Luigi Geddo v Ente Nazionale Risi,[2] the CJEU defines QRs as “measures which amount to a total or partial restraint of, according to the circumstances, imports, exports or goods in transit.”[3] In R v Henn and Darby,[4]the defendants were convicted for fraudulent evasion of the prohibition of importation of indecent or obscene articles contrary to relevant UK statutes which banned the importation of pornographic materials. Though the UK breached Article 34 by banning an import from another Member State, the CJEU held that the ban was justified, under Article 36, on the grounds of public morality.

Measures of Equivalent and Quantitative Restrictions (MEQRs)

Article 34 prohibits any quantitative restrictions on imports and all measures having equivalent effect, no matter how that measure is formulated. This is illustrated in the case of Procureur du Roi v Benoit and Gustave Dassonville[5]where the defendants purchased Scotch whisky in France and imported it for sale in Belgium. This contravened a 1934 Royal decree that prohibits the importation of a product bearing a ‘designation of origin’ without a confirmation certificate from the state of origin, the United Kingdom. In order to satisfy the Belgian law, the defendants forged the certificates and were convicted of fraud. The defendants claimed that the conviction was contrary to the provisions of Article 34 as the Scotch whisky was freely available in a Member State that had paid the excise duty and could be imported into Belgium without a certificate of authenticity from the British customs to confirm that the whisky was from Scotland.

Distinctly Applicable Measures

In its ruling, the CJEU defines MEQRS as “all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade” [6] are to be considered as measures having an effect equivalent to quantitative restrictions. The requirement of a “certificate of authenticity that is not easily obtainable by the importers of an authentic product that has been lawfully put into free circulation in another Member State by importers of the same product coming directly from the country of origin constitutes a measure having an effect equivalent to a quantitative restriction as prohibited by the Treaty.”[7] The definition of MEQRs in Dassonville reaches beyond traditional measures to encompass various other indirect measures of hindrance or discrimination. These measures discriminate against imported goods as the measures do not apply equally to domestic and imported goods. Such measures make imported goods either too expensive and/or difficult to obtain. Article 2 of Directive 70/50 provides an example of national rules that demand higher standards in respect of imported goods than domestic goods.[8] Thus, in Firma Denkavit,[9] a case of a national law imposing rules which are contrary to Article 34, an importer is expected to produce a certificate certifying that the animal feed being imported had undergone inspection and specified treatments in the exporting country. The CJEU holds that a requirement that imported goods should be inspected is a breach of Article 34 because of the delays in the inspection and increased transport costs. In Commission v Ireland,[10] even though the “Buy Irish” campaign did not achieve its expected results, it was enough that the potential existed for intra-EU trade to be hindered. The campaign by the Irish Goods Council to promote Irish goods was regarded as a MEQR in violation of Article 34 because it encourages discrimination of goods from other EU States.

Indistinctly Applicable Measures

These are measures that are equally applicable to both domestic and imported goods. However, the effect of the measures could disadvantage imported goods by requiring them to satisfy a Member State’s national rules for similar products. An example is a national rule that imposes conditions on the packaging or composition of a product. In Walter Rau,[11] in order to reduce consumer confusion when purchasing margarine, a Belgian statute requires all margarine sold in Belgium to be in cube-shaped packages. Although the law is addressed to all margarine producers irrespective of origin, it has the effect of stopping the sale of imports which are packaged differently, thus inadvertently protecting the domestic market. Article 36 allows the justification of Belgium to apply rules prohibited under MEQRs on the grounds of public policy. The CJEU accepts this justification but finds that Belgium fails on proportionality as there are other ways to achieve the government’s objective.

In Cassis de Dijon,[12] a German law prohibited the importation and marketing of a French blackcurrant liqueur with an alcoholic strength of less than 25%. Though the law applied equally to domestic and imported liqueurs, it had the effect of impeding the importation of the French cassis which had an alcohol level of between 15% and 20%. In its judgment, the CJEU finds that the application of product standards to imports hinders importation and amounts to MEQRs. The Court went beyond Article 36 which has an exhaustive list of derogations from Article 34 and introduced two new principles; mutual recognition and mandatory requirement.

Mutual Recognition

The principle of mutual recognition does not allow technical rules, such as those in Cassis, developed at national level, to impede access to intra-EU market for products which are not subject to harmonisation. It allows for a lawfully sold product in one EU country to be sold in another even if the product does not comply with the technical rules of the other country. This principle applies not only to free movement of goods but also throughout the internal market. It provides a conceptual basis for accepting not just intra-EU products, but also intra-EU qualifications, tests and certificates, official documents etc. that are recognised as functionally equivalent to the domestic products and services. In principle, therefore, the Court has established and accepted that goods from a Member State could be marketable in all other States, and sometimes it may be necessary to derogate from the principle of mutual recognition.

Mandatory Requirements

The principle of mandatory requirement allows the application of necessary standards to imports to protect important interests such as consumer protection or public health.[13] Thus, an equally applicable rule which would otherwise violate Article 34 may be saved if it could be shown that it is necessary to protect some public interest objective.[14] There is, therefore, a balancing process involved, in which proportionality is the central concept.[15]

In Cassis, the Court provided a list of reasons which might justify restricting the movement of goods which included fiscal supervision, the protection of public health, the fairness of commercial transaction and consumer protection. Since then the list has been broadened and non-exhaustive. Cassis created a new class of exceptions to free movement existing alongside and in addition to Article 36. These exceptions are broader and cover a wider range of interests than those of Article 36, however, they are narrower in that they only apply to equally applicable measures. Where a measure directly discriminates, an appeal to the principle of mandatory requirements may not be made.

With the decision in Cassis that equally applicable rules could be MEQRs, all sorts of cases tested the applicability of the principle to any kind of measures which could be argued to have a negative effect on importations. For example, the rules on Sunday trading in the United Kingdom were challenged as contrary to Article 34: if shops could open on Sundays, they could sell more goods, and some of those goods could be imported.[16]

The decision of the CJEU in Keck[17] sets a limit to the kinds of equally applicable rules which could be MEQRs.[18] It, however, excluded a group which it termed “selling arrangements.”[19] Rules governing the way products are sold are not MEQRs within the meaning of Dassonville and Article 34. Member States are at liberty to legislate however they like on matters such as advertising, shop opening hours, sales techniques and prices but the measures taken must not have a greater effect on imports than they do on domestic goods. If this is the case, then measures concerning selling arrangements will be classified as MEQRs. The Court is of the view that selling arrangements do not prevent access to market for imports, nor does it impede it any more than is the case for domestic goods.

Finally, the single market and free movement of goods have proved, economically and commercially, to be the biggest success for the EU. The single market constitutes the largest barrier-free, common economic market in the world, encompassing over half a billion citizens in an economy with the GDP of €13 trillion. It is estimated that completing the single market could potentially add another €651 billion to the EU economy per year. The imagebelow shows the upward trajectory benefits of the single market and the free movement of goods.

[1] Damian Chalmers, Gareth Davies and Giorgio Monti: European Union Law (3rd ed. Cambridge University Press) pg. 671

[2] (1973) Case 2/73 ECR 865

[3] Ibid at 879 (7)

[5] (1974) Case 8/74 ECR 837

[4] (1979) Case 34/79 ECR 3975

[6] Ibid at 852 (5)

[7] [1974] Case 8/74 ECR 852 (9)

[8] Though the Directive is no longer in force, it remains instructive in understanding the case law that has developed.

[9] [1979] Case 251/78 ECR 3369: Firma DENKAVIT FUTTERMIITEL GMBH, Warendorf v Minister for Food, Agriculture and Forestry of the Land of North Rhine-Westphalia], Düsseldorf

[10] [1982] Case 249/81 [1092] ECR 4005

[11] [1982] Case 261/81 ECR 3961: Walter Rau Lebensmittelwerke, Hitler (Federal Republic of German v De Smedt PVBA, Zemst (Belgium)

[12] [1979] Case 120/78 ECR 649: Rewe-Zentral v Bundesmonopolverwaltung für Branntwein (popularly known as Cassis de Dijon in reference to the name of the wine.

[13] Damian Chalmers, Gareth Davies and Giorgio Monti: European Union Law (3rd ed. Cambridge University Press) pg. 776

[14] Ibid.

[15] Ibid.

[16] See [1989] Case C-145/88 Torfaen Borough Council v B&Q ECR 3851 and [1992] Case C-169/91 Stoke-en-Trent and Norwich City Council v B&Q ECR I-6635. See also Damian Chalmers, Gareth Davies and Giorgio Monti: European Union Law (3rd ed. Cambridge University Press) pg. 786

[17] [1993] Joined Cases C-267/91 and C-268/91 Keck and Mithouard ECR I-6097

[18] Damian Chalmers, Gareth Davies and Giorgio Monti: European Union Law (3rd ed. Cambridge University Press) pg. 786

[19] Ibid.

 

MOVEMENT OF PEOPLE AND FREEDOM OF ESTABLISHMENT

Prior to the 1992 Maastricht Treaty, the European Communities treaties provided guarantees for the free movement of economically active persons, but not, generally, for others. The 1951 Treaty of Paris establishing the European Coal and Steel Community established a right to free movement for workers in these industries and the 1957 Treaty of Rome provided for the free movement of workers and services.

Distinguishing Freedom of Establishment and Freedom of Services

As illustrated below, Article 21 TFEU provides EU citizens with the freedom to move and reside in member states. However, it is necessary to investigate other Articles of the TFEU in order to ascertain precisely what rights individuals and companies may enjoy, together with any applicable restrictions enforceable by the host country.

It is necessary to distinguish Freedom of Movement and Freedom of Establishment, as both are similar in certain aspects regarding employment and relocation. In particular, under Article 54 TFEU both areas have restrictions and both must follow national legislation. However, Article 49 states that Freedom of Establishment enables a permanent right of establishment whereas under Article 57, Freedom of Services, clarifies that workers who relocate for a predetermined duration in a host member state to provide a service, establishes a temporary right. A test was derived during the case of Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano EUECJ C-55/94 concerning a lawyer who was denied the opportunity to open an office in Italy due to national legislation. The test simply asked whether the service provided was temporary or permanent. If a service is intended to be provided permanently, it would qualify under Freedom of Establishment and addressed under Article 49.

Freedom of Establishment

All nationals of EU countries are citizens of the EU, under Article 20 of TFEU and are entitled to move freely to and from member states, together with the right to reside.  Article 21 of the TFEU permits EU citizens to reside in a Member State for up to 3 months during which time they must be completely self-sufficient and independent of any social welfare provided by the host country, although they are permitted to seek and gain employment. After three months they may remain in the host country if they meet at least one aspect of the criteria of Article 7 of the Directive 2004/38/EC (p93) that is, to have sufficient resources; be in higher education or be a family member of an already established EU citizen. After five years, the individual and their family are entitled to permanent residency, if they have not claimed any social security benefits nor sought publicly funded medical intervention.

Employed, unemployed and inactive EU citizens in host Member States (in millions, 2013)

However, the right to establish oneself in a member state is not a unilateral process as there is no uniform Europe-wide Directive. For example, Spain requires non-nationals to register themselves on the Registro Central de Extranjeros and at the local police station in order to obtain a document proving an entitlement to stay beyond 90 days. Currently, in the UK, the documentation confirming the length of time living and working in the UK must be produced with the application for permanent residency or citizenship. However, this may change if the UK ceases to be a Member State of the EU.

Freedom of Establishment gives individuals the right to establish a permanent business, self-employment or become an employee, together with their families, on the same basis as the nationals of the host country. This right is enshrined under Articles 31-34 of the Agreement of the European Economic Area 1994. The right is extended to families with non-EU spouses or children as clarified by the Court of Justice of the European Union in R v Immigration Appeal Tribunal and Surinder Singh ex parte Secretary of State for the Home Department.  Further clarification on the application of this judgement was provided in Baumbast and R v Secretary of State for the Home Department which stated that it is not necessary for the resident individual to be a citizen of the EU as long as one member of the family qualifies as such. The Baumbast case confirmed that under Article 18(1) EC, the children were entitled to continue their education while one of their parents was working in a Member State.  In cases where one member of a couple is an EU citizen and the other is not, they are still both entitled to their rights under Freedom of Establishment as confirmed in the joined Cases C-64/96 and C-65/96. Therefore, it is apparent certain rights must not be impinged when considering legal applications regarding EU economic migration while also ensuring compliance with Art.79 TFEU regarding immigration and Member States. However, Directive 2004/38/EC ensures that the host member state is not financially disadvantaged by any European migrants irrespective of whether they are transient (up to 3 months) or permanent resident.

However, applications to remain in a host country are considered on a case by case basis; therefore, it is essential the relevant paperwork is available. If the paperwork is incorrect, confusion may arise for children as their rights to education may be compromised as a consequence. Under Article 12 Regulation (EEC) No 1612/68 some children may be affected by their parents’ marital disputes or the parents not being EU citizens. Cases such as Chen (Zhu) v Secretary of State for the Home Department (Case C-200/02), Ruiz Zambrano v Office National de l’Emploi (C-34/09, and Ibrahim and Teixeira ensured primary carers of EU children are given permission to live and work in the host nation.  Problems may be experienced when the child applies for permanent residency in adulthood as the relevant paperwork may not be easily available or if the primary carer has left the child for a significant time (see Chen).

The following two case studies are two different real-life experiences by EU citizens applying for their right to remain (names have been changed to protect their identities).

CASE STUDY A – ‘KRISTOF’

26-year-old Kristof was born in Romania and a citizen of Hungary. The purpose of his arrival in the UK in 2012 was to undertake a university degree. During this time he was also able to gain employment as he had ‘home student’ status as an EU subject. After completing his studies, he secured employment, including obtaining a National Insurance number, and in January 2019 he applied for permanent residency for EU nationals. In his experience, he found that there was plenty of information available online, together with a step-by-step guide to complete his application. His application was trouble-free and he successfully obtained his permanent residency card and able to apply for British citizenship and passport within one year.
CASE STUDY B – ‘MARIA’

Maria is of Brazilian origin and entered the UK in 2006 to join her mother, who was working in the UK. Both had Italian passports. Maria studied in the UK for 12 years and was employed for 3 months before being asked to cease employment, as there was discrepancy over her right to work. However, the Home Office issued a document for her to provide to her employer confirming she was permitted employment. In 2014 her mother had to return to Italy for two years to deal with family matters. In 2017, the interviewee applied for leave to remain in the UK but was refused. The documentation required by the Home Office was evidence of the time she had spent in education which was provided by her school and college. The Home Office then asked for her boarding card from 2006, when she had arrived as a child into the UK which she was unable to provide. As a consequence, she was refused leave to remain and her application for citizenship was declined. Following the Home Office refusal, she applied for and was granted Italian citizenship as her mother and grandmother were both Italian citizens. In late 2018, after her mother had been granted UK citizenship, Maria applied for UK citizenship again which was granted and is now awaiting her passport.

During the time of the various applications to Italy and the UK, Maria became a mother herself in 2017. She was unable to access maternity benefits from her workplace due to her brief employment and unable to access housing benefit or child benefit. She had no income at all during her pregnancy and was supported by a charity who provided food and baby necessities. Her child is now 1 year old and Maria has recently been advised she can now access these benefits.

The individual in Case Study B is still unclear why there was so much difficulty in obtaining the legal status permitting her to continue residing in a country she perceives as her home. The process was much more straightforward after her mother’s British status was confirmed.

As a consequence of the UK preparing to leave the EU, the cost of application for settled and pre-settled status has now been eliminated. While it is commendable such a policy is in place; there is still a danger of vulnerable groups not been able to afford the cost of applying for citizenship. The cost necessary to apply for British citizenship, currently £1,012, is often prohibitive for many, including domestic violence victims and those currently being looked after by local authorities.

There have been occasions when Freedom of Establishment has been considered unfairly restrictive. In the Union Royale Belge v Bosman Case C-415/93, the footballer (Bosman) was refused a transfer into a French football club on expiry of his contract with a Belgian club, as the new club refused to pay the transfer fee. In football, it is not uncommon for a player to move to another team. The European Court of Justice determined that Bosman’s Freedom of Establishment was obstructed. The positive outcome ensures that footballers are now entitled to move freely between Member States without obstruction, once their existing contracts have expired. However, another example of restriction to Freedom of Establishment was the lack of acceptance or recognition of professional qualification or experience.

In Reyners v. Belgium C-2/74, the Plaintiff was unable to practice law in Belgium as he was not a Belgian. It was decided that the national legislation violated Article 49 and it was not one of those listed under Article 51 as a permitted breach. Confusion continued around the recognition and acceptance of qualifications within the European boundaries. In Thieffry v Conseil de l’Ordre des Avocats a la Cour de Paris C-71/76  (p.782) the Plaintiff’s legal qualifications were not accepted in another Member State, thus prevented her from undertaking employment in that country. A similar situation was addressed in Vlassopoulou v. Ministerium vur Justiz Baden Wurttemberg C-340/89 (p. I-2360).  In this instance, the Plaintiff obtained her law qualification in Germany, but not recognised in her home country, Greece, preventing her from working in her country of origin. The question of discrimination was raised, as EU citizens were treated differently from nationals. Although this case was addressed in 1989, the issue surrounding qualifications remained unresolved. It appears each case was addressed independently and has taken decades to establish Europe wide acceptance of qualifications.

In 2005 the Professional Qualifications Directive was introduced in an attempt to create harmonisation of qualifications and experience for certain professions. In 2013, Directive 2013/55/EC was amended to ensure all Member States automatically recognised professional qualifications and experience on a reciprocal basis. A further Directive introduced the European Professional Card (EPC) enabling automatic recognition of workers within the sector of public health and safety who wish to work in a Member State for a temporary period of 12-18 months. At the moment the EPC is restrictive but may extend this benefit to other temporary workers at a later date. However, at the time of writing, the UK is in the process of negotiating an exit from the European Community and this arrangement will need further clarification.

The issues surrounding temporary or contract employees involves posted worker cases whereby EU citizens are required by their employer to work in another Member State for a defined duration, often at a salary lower than the nationals, and they are not protected by collective bargaining rights. Under Article 21 the worker is entitled to remain in the host Member State after completion of their contract, and they may take advantage of their right of establishment. This became recognised as social dumping. The problems associated with this method of employment/economic migration is first; that workers are exploited as they are paid below the minimum wage of the host country. Secondly, an increase in this practice would eventually reduce wages within the industry in both countries, and thirdly, it would affect the workers’ right to strike. This situation was apparent in the case of International Transport Workers Federation, Finish Seaworker’s Union v Viking Line ABP.  In 2018, these problems were addressed in Directive (EU) 2018/95 to help prevent, or at least reduce, exploitation of temporary migrant workers.

Enforced Returns of EU Nationals

EU nationals may be returned for not exercising or abusing Treaty rights, or for deportation on public policy grounds (such as criminality).

YearTotal enforced returns (1)Of which: Total enforced removals (2)Of which: Other returns from detention (3)
Year ending March 20153,2423,21527
Year ending March 20164,1134,02390
Year ending March 20175,2304,954276
Change: latest year+1,117+931+186
Percentage change+27%+23%+207%

Table notes

Source: Home Office, Immigration Statistics January to March 2017, Returns table rt 02 (Returns volume 1). (1) Total enforced returns covers enforced removals from detention, non-detained enforced removals and other returns from detention where the Home Office will have been required to facilitate or monitor the return. This new grouping has been created to reflect the likely level of enforcement activity that led to these returns. (2) Enforced removals include enforced removals from detention and non-detained enforced removals. (3) Other returns from detention relate to those returns occurring either from detention or up to two days after leaving detention AND where it had been established that a person has breached UK immigration laws and/or have no valid leave to remain in the UK.

FREEDOM OF SERVICES


Generic B2C Cross-border Parcels Delivery

Generic B2C Cross-border parcels delivery chain

Restriction on the Movement of Services

The sole purpose of European Union solidarity is to integrate the European people by providing them with the freedom to move services, capital, workers and goods from one EU state to the next. At the core of the EU is the purpose of uniting various countries under one economic umbrella but with the recognition of each state’s autonomy. According to Article 49 of the EC Treaty (now Article 56 of the TFEU), a business organisation from a Member State is allowed to establish itself in another EU Member State. Since the EU advocates a single internal market, European people can work, live, study and conduct business in any EU member state with very few restrictions. The EU has gone to extremes in the attempt to promote a smooth movement of services within EU Member States such as providing European professional cards to nurses, real estate agents, pharmacists and physiotherapists.

Regulating the Services Market

Appropriate application of European Union regulations contributes to the establishment of the EU internal and services market. According to Article 56 of the EU laws, a legal person from one member state can offer his or her services freely in another country, albeit temporarily, without facing discrimination based on nationality. The freedom to receive and provide services applies to all the services that require remuneration, but these services are not regulated by the rules related to the movement of persons, goods and capital. Restrictions on services provided within the Union are supposed to be prohibited as per the regulations of the service provider’s country along with the rules of the recipient’s state. In some cases, controversial services such as abortion and lottery might still be considered as services according to the EU’s laws as illustrated by Society for the Protection of Unborn Children Ireland Ltd. v Grogan (1991). However, each State can regulate such services in a non-discriminatory and proportionate manner as evidenced by Verona v Diego Zenatti (1999).

It is worth noting that the freedom to receive as well as provide services in other EU Member States is one of the core principles that support a single market for services. The rationale behind the EU’s support for a single market for services is that services constitute approximately 70% of the EU’s gross domestic product and create an equal share of employment opportunities. As a consequence, the EU parliament has been mandated with the significant role of formulating and amending legislature regarding the services market. For instance, in the year 2014, the EU parliament established a legislature regarding trust services for electronic trade and electronic identification in the internal market to facilitate the trade of telecommunication services.

Impact of the service Market

Cross-border Services

Article 57 (TFEU) specifies that services should fall under the following categories: activities of craftsmen, industrial characters, professionals, and commercial individuals. Cross-border services are supposed to be restricted with reference to their substantive time and scope. Therefore, service providers are supposed to offer their expertise in another EU country for a given time, meaning their services should be provided temporarily. The companies or individuals rendering services in another nation are supposed to be equipped with working conditions like their home country. It is worth noting that the term ‘temporary’ in this context does not imply short-term services. According to the European Court of Justice decision, having a time restriction on a service is equivalent to breaching the freedom of services provided, and hence the duration of the services should depend on how the service provider operates. Therefore, a cross-border service should be based on a well-structured contract with the description of the specific work required and the order of the Member State customer requesting the service. The contract should also include the location of service provision, the manner of rendering the service, the terms and conditions as well as the scope of the service.

Professionals in Cross-border Services

 

In some cases, service providers encounter barriers in other Member States which prevent them from providing quality output. As a result, The European Court of Justice has provided individuals who offer cross-border services certain rights that cannot be challenged by the host Member State. On one hand, these regulations proclaim that service providers should not be demanded to live permanently in the host Member State and they should not pay for social insurance if they have already paid for it in their native State. On the other hand, service providers are supposed to issue several documents to the country where they will be rendering services before commencing their work. Some of these documents include a national identification card, notification paper, qualification certificates as well as the contract itself. Moreover, the service provider should be closely monitored by the relevant regional chamber council or any other body in the EU country where the services are being provided.

Given that over 70% of the EU’s employment is dependent on the services market, a considerable percentage of these services are cross-border in nature. The high demand for cross-border services has made most private delivery operators rely on other networks to satisfy their customers’ needs. As a consequence, some additional costs are associated with cross-border delivery services. These costs depend on the nature of the e-commerce product, the measure of network optimisation, the volume and weight of each flow as well as the culture of delivery in the destination states.

Professionals allowed to have an EPC

Justifying Restriction on Services

The restrictions on the movement of services are meant to protect the interests of both service providers and recipients in different EU countries. The TFEU are formulated in a manner that allows integration and harmonisation of services using standard rules, at the same time recognising the national regulations of each EU Member State. Earlier in this blog, we observed that the rules require the service providers to justify their qualification by submitting various certificates to relevant boards before commencing their operations. This restriction prevents recipients from being serviced by unqualified individuals. The other limitation entails the provision of a conducive environment by the State where the service is being rendered. This helps professionals to provide quality services to their clients. All restrictions regarding the movement of services have a common objective: the creation of job opportunities in all EU Member States to expand the economy. As services move within the Member States, the EU has raised much revenue from the market because a lot of taxable funds have been released.

Impact of Services Market on Economy

Services and the Market Society

People in EU countries currently pay for all the services that they receive in the market. The market value for crucial services such as education, transportation and health have been escalating for several decades since the introduction of the services market. As highlighted in article 57, services are supposed to be provided by professionals with some expertise or knowledge which brings about demand and supply. Services which can only be provided by a few professionals are costly, but the EU has provided a platform where people can seek affordable services by either visiting or welcoming professionals from other EU countries to provide the services.

The market society for services has led to ego-centrism, fixation on private ownership, consumerism and commodity fetishism. Selfishness or ego-centrism occurs when individuals choose to put their well-being entirely on top of others regarding services. For instance, people with political and financial privileges hire the most qualified doctors for minor personal health services instead of letting them serve those who might need them more.

Services Directive

The Services Directive was adopted in the year 2006 but implemented by all the countries with EU membership in the year 2009. The sole purpose of having the Directive in Europe is to attain the entire potential of the services market through the removal of both administrative and legal hitches to trade. Consumers and businesses have found it easier to use and provide services due to the improved transparency and simplification measures brought about by the Directive. Since the introduction of the Directive, most businesses have experienced simplified formalities and procedures, more natural establishment and more straightforward provisions of cross-border services.

Moreover, consumers have benefited from receiving high-quality services, enhanced transparency and information regarding services providers as well as strong consumers’ rights. In other words, Services Directive in practice entails quick guidance, rights of the recipient of services, points of single contacts and administrative cooperation. The implementation of Services Directive is supposed to simplify the establishment as well as remove the barriers for services providers in their native country and abroad, create the availability of a variety of quality services, escalate the rate of cross-border services provision and emphasise the rights of consumers.

TFEU Services Directives

FREE MOVEMENT OF CAPITAL

Amongst the fundamental freedoms that underpin the European Union single market the free movement of capital is the most recent.[1] It came into force with the introduction of the Treaty of Maastricht, following which all restrictions on capital movements and payments across borders were prohibited with the aim to create and integrated, open and efficient European financial markets.[2] This has allowed European citizens and companies to carry out many transactions, such as opening bank accounts, investing and purchasing real estate in another country.[3] In addition to that, the free movement of capital is the only freedom that goes beyond the boundaries of the European Union internal market as it allows capital flows between EU countries and non-EU countries. The potential impact of this global extension of the EU legal regime is most visible in the field of direct taxation and money-laundering. As a consequence of the substantial growth in global capital flows, EU countries implemented safeguard measures in order to prevent international fraud.

Legal basis of the free movement of capital

The free movement of capital is the only “freedom” under the Treaty Establishing the European Community where the original Treaty rules have been repealed and replaced.[4] The original provisions were unique in being so drafted as to be held incapable of giving rise to rights enforceable by individuals before their national courts.[5] The liberalization of capital movements within the European Community was achieved only in 1994 by virtue of a series of Council Directives.[6] The general principles are defined in Articles 63 to 66 of the Treaty on the Functioning of the European Union.

Article 63 TFEU stipulates that “… all restrictions on the movement of capital between Member States and third countries shall be prohibited”. The provision catches any national measure which is liable to prevent or deter investment or payment from one Member State to another. This measure restricts capital going out of a state or capital coming in from another state.[7] The wording of the Treaty contains all the fundamental features of this principle. First of all, Article 63 has direct effect; it does not need any implementation at national level and it confers rights on individuals which they can rely on before national courts.[8] This concept was confirmed in the case of Skatteverket v A (C-101/05). The principle of direct effect is largely a product of judicial activism, which has contributed enormously to the economic integration of the Community.[9] The judiciary assumed jurisdiction to develop this principle by reference to Article 220 TFEU (ex-Article 164 EEC), which requires the Court of Justice to ensure that “in the interpretation and application of the Treaty, the law is observed”.[10] The Court is also strongly guided by Article 31(1) of the Vienna Convention on the Law of Treaties which states that “A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the Treaty in their context and in the light of its object and purpose”.[11] The origin of this principle can be traced back to the celebrated case of Van Gen den Loos, where the Court said it was “necessary to consider the spirit, the general scheme and the wording” of the relevant provision and concluded that Article 12 EEC “produced direct effect and creates individual rights which national courts must protect”.[12] In addition to that, Article 63 (TFEU) prohibits all restrictions, not just discriminatory ones. It lays down a general prohibition which goes beyond the mere elimination of unequal treatment on grounds of nationality, as stated in the case of Commission v Portugal (C-367/98).[13] It is interesting to note that the Treaty on the Functioning of the EU does not define the term “movements of capital”. Since the Treaty does not provide a workable definition of the notion of capital, it may be useful to turn to the judicial branch for assistance.[14] There are a handful of cases where the Court intervened to provide some guidelines to resolve the problem.[15] One of the earliest case relevant in this context was R v Thompson, Johnson and Woodiwiss, where the main issue to be resolved was whether certain coins could be considered capital or goods.[16] The opinion of the Advocate General sheds some light on this issue who declared that “capital within the meaning of Community law must also be taken to mean gold and silver coins which are legal tender or means of payment of all kinds”.[17] Further classification of what constitute capital was given in the joint case of Grazia Luisi and Giuseppe Carbone v Ministero del Tesoro. The Court made a distinction between current payments and movements of capital: “current payments … are transfer of foreign exchange … within the context of an underlying transaction, whilst the movements of capital are financial operations essentially concerned with the investment of funds”.[18] In the absence of a definition, the Court of Justice of the European Union has held that the definitions in the nomenclature annexed to Directive 88/361/EEC can be used to define that term.[19] According to these definitions, cross-border capital movements include:

  • foreign direct investments (FDI),
  • real estate investments or purchases,
  • securities investments (e.g. in shares, bonds, bills, unit trusts),
  • granting of loans and credit.[20]

Removing cross-border restrictions: Is it beneficial?

Since the introduction of the free movement of capital, there has been a vast amount of debate on whether it is beneficial for a country to lift its barriers to cross-border capital flows.

  • Reason in favour of the free movement of capital:
  • stimulates cross-border trade and investments, which increase the level of exports;[21]
  • encourages the formation of companies with subsidiaries and branches in other Member States and lowers the cost of investment for financial asset providers in such States;[22]
  • raises the economy’s productive capacity, thereby potentially increasing the welfare;[23]
  • capital inflows may alleviate real price rigidity and/or costly adjustments to relative prices, by providing foreign exchange and raising investment for economic growth.[24]

[1] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 4th February 2019

[2] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 4th February 2019

[3] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 4th February 2019

[4] John A. Usher, “The Evolution of the Free Movement of Capital” (2007) 31(5) F.I.L.J 1533,1533

[5] John A. Usher, “The Evolution of the Free Movement of Capital” (2007) 31(5) F.I.L.J 1533,1533

[6] John A. Usher, “The Evolution of the Free Movement of Capital” (2007) 31(5) F.I.L.J 1533,1533

[7] Damian Chalmers, Gareth Davies and Giorgio Monti, European Union Law (3rd edn, Cambridge University Press 2015) 710

[8] European Commission, “Legal basis for the free movement of capital” <https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/120216-legal-basis-free-movement-capital_en.pdf> accessed 4th February 2019

[9] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 40

[10] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 41

[11] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 41

[12] Van Gen den Loos v Nederlandse Administratie der Belastingen (1963) ECR 1 Case 26/62, page 13

[13] European Commission, “Legal basis for the free movement of capital” <https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/120216-legal-basis-free-movement-capital_en.pdf> accessed 4th February 2019

[14] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 49

[15] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 49

[16] Sideek Mohamed, European Community Law on the Free Movement of Capital and the EMU (1st edn, Brill 1999) 49

[17] R v Thomson, Johnson and Woodiwiss (1978) ECR 2247 Case 7/78, page 2289

[18] Grazia Luisi and Giuseppe Carbone v Ministero del Tesoro (1984) ECR 377, (1985) 3 CMLR 52 Joined Cases 286/82 & 26/83, page 404

[19] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movemnts_en> accessed 4th February 2019

[20] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 4th February

[21] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 3

[22] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 3

[23] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 3

[24] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 3

Fig. 1 The two-gap model: a capital inflow shifts the foreign exchange constrain to the right

  • Reason for retaining barriers to capital flows:
  • no significant relationship between financial openness and growth in real per capita income across countries (conditioning variables are initial income, initial schooling, average investment/GDP, political instability and regional dummies);[1]

[1] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 174

Fig. 2 Conditional relationship between financial openness and growth

  • capital inflows may destabilize macroeconomic conditions within a country, an example is represented by Chile, which implemented a financial liberalisation program in the 1970s-1980s. After a period of high growth, the capital account of the balance of payments was opened to medium and long-term international capital movements.[1] There was a large capital inflow, causing the exchange rate to appreciate and the expenditure on imports to rise, creating a current account deficit.[2] As the rate of capital inflow declined, a real devaluation of the peso was required to raise the competitiveness of the export sector.[3]

Despite the debates and the uncertainties, Member States promoted legislations to remove cross-border capital restrictions. Over the years, the liberalisation of capital flows progressed gradually. Initially, the free movement of capital was not intended to apply directly, but to facilitate, by way of Directives, the formation of a common market in financial services.[4]

The first Community measures were limited in scope with the Treaty of Rome requiring the restrictions to be removed only to the extent necessary for the functioning of the common market.[5] In 1960, the “First Capital Directive” ended restrictions on certain types of commercial and private capital movements, such as real-estate purchases, short-or-medium-term lending for commercial transactions and purchases of securities traded on the stock exchange.[6] Amendments to the “First Capital Directive” were made in 1985 and 1986, bringing further unconditional liberalisation.[7] All remaining restrictions on capital movements between Member States’ residents were removed in 1988 with the aim to complete the single market, to set up the Economic and Monetary Union and to introduce the Euro.[8] In 1994, the Maastricht Treaty introduced the free movement of capital as a Treaty freedom which stands on an equal footing with the other freedoms.[9]

Enforcement and monitoring of the free movement of capital

Nowadays, the European Commission enforces the free movement of capital by monitoring capital flows and ensuring that EU countries properly apply the rules of the Treaty.[10] This freedom cannot exist without sensible safeguards and protections and, as a consequence, EU countries are legally allowed to take precautions to ensure that foreign investment does not expose them to public security threats.[11] In the last twenty years most developed countries and many developing countries have lifted most of their capital controls in order to benefit the widespread advantages of the free movement of capital.[12] In the spring of the 1997 there was such widespread support for free capital flows that the International Monetary Fund (IMF) Interim Committee suggested amending the IMF’s Articles of Agreement to extend its jurisdiction to include capital movements and make capital account liberalization a purpose of the IMF.[13] Soon after this recommendations was announced, however, a series of financial crisis spread and disproportionately affected countries that had recently liberalized their capital accounts.[14] These experiences caused a reassessment of the desirability of capital controls and, as a consequence, many policymakers and leading economists supported the use of capital controls.[15] Concerns about capital account liberalization were also raised by the Group of Twenty-Two (G22) and by some senior officials from the IMF who cautiously endorsed taxes on capital inflows.[16] In July 2018, the Commission published a communication in which it recalled the fundamental rules under EU law for the protection of investments within the Single Market. The Communication aimed to provide guidance on existing EU rules for the treatment of cross-border EU investments.

Exception and justified restrictions on movement of capital

Most of the exceptions are confined to capital movements relating to third countries, as expressed in Article 64 TFEU which allows Member States to apply restrictions, to certain categories of capital movements that existed before a certain date. On this regard, in the case of Skatteverket v A (C-101/05), the Court established the following principle: “… that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States …”.[17]

The only justified restrictions on capital movements, within the European Union, are laid down in Article 65 TFEU and they include:

  • measures to prevent infringements on national law, in particular in the field of taxation and the prudential supervision of financial institutions (prudential measures);[18]
  • procedures for the declaration of capital movements for administrative or statistical purposes (e.g. cash control at the border);[19]
  • measures justified on the grounds of public policy or public security.[20]

However, these measures must not represent a means of arbitrary discrimination (e.g. measures targeting specific individual investors) or a disguised restriction (Article 65(3) TFEU). Additionally, in the cases of Commission v Spain (C-463/00) and Commission v Portugal (C-367/98), the CJEU ruled that “such procedures must be based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned”.[21] Restrictions on the grounds of public security must observe the principle of proportionality; they must remain within the limits of what is suitable for securing the objective and must not go beyond what is necessary to achieve the pursued objective.[22] This was confirmed in several cases, including the cases of Commission v France (C-265/95) and Commission v Belgium (C-47/08), where the Court noted that “… in order to be so justified, the national legislation must be suitable for securing the objective which it pursues and must not go beyond what is necessary in order to attain it, so as to accord with the principle of proportionality”.[23]


[1] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 4

[2] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 4

[3] Graeme Baber, The Free Movement of Capital and Financial Services: An exposition? (1st edn, Cambridge Scholars Publishing 2014) 4

[4] EC Commission (1985), “Completing the Internal Market”, COM (85) 310 final, paragraphs 32-33

[5] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 15th February 2019

[6] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital > accessed 15th February 2019

[7] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 15th February

[8] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital > accessed 15th February 2019

[9] Fact Sheets on the European Union, “Free Movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 15th February 2019

[10] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 19th February 2019

[11] European Commission, “Capital movements” <www.ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/capital-movements_en> accessed 19th February 2019

[12] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 171

[13] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 171

[14] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 172

[15] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 172

[16] Sebastian Edwards, Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (1st edn, University of Chicago Press 2007) 172

[17] Skatteverket v A, Judgment of the Court (Grand Chamber), 18th December 2007 – Case C-101/05, paragraph [37]

[18] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 18th February 2019

[19] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 18th February 2019

[20] Fact Sheets on the European Union, “Free movement of capital” <www.europarl.europa.eu/factsheets/en/sheet/39/free-movement-of-capital> accessed 18th February 2019

[21] Commission v Spain, Judgment of the Court, 13th May 2003 – Case C-463/00, paragraph [49]

Commission v Portugal, Judgment of the Court, 4th June 2002 -Case 367/98, paragraph [49]

[22] European Commission, “Legal basis for the free movement of capital

<https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/120216-legal-basis-free-movement-capital_en.pdf> accessed 19th February 2019

[23] Commission v France, Judgment of the Court, 9th December 1997 – Case C-265/95, paragraph [45]

Commission v Belgium, Judgment of the Court (Grand Chamber), 24th May 2011 -Case C-47/08,

paragraph [45]

Fig. 3 Exception to the free movement of capital stipulated in the Treaty

Impact of the free movement of capital

In 1993 the European Union set to become a single integrated market as most of the remaining national barriers to the free flow of goods, capital and labour were removed causing a significant increase in the economic interdependence between Member States.[1] As a consequence of that, a number of decision-making capacities in the economic, social and foreign policy spheres were transferred from the national to the Community level.[2] A European Central bank was introduced with the ultimate aim to take over the running of monetary policy from the national central banks. A full economic integration was made possible by both the free movement of capital and the introduction of the Economic and Monetary Union (EMU).[3] The elimination of national barriers, including the free movement of capital, had an impact in the area of taxation and money laundering. For long time taxation was considered as an area with the almost exclusive competence of the individual Member States of the European Union.[4] However, the direct effect of some of the EC Treaty rules on the free movement of capital and persons, and the primacy of the Community law in general, restricted, partially, internal taxation powers and limited the tax sovereignty of Member States.[5] On this regard, it is important to add that direct taxation is not part of any explicit attribution of competence to the Community and, consequently, harmonization of direct taxes has a much smaller treaty basis than harmonization of indirect taxes.[6] Moreover, primary EU law does not provide a definition of direct taxation, only the Directive 77/799/EEC[7] supplies a non-exhaustive list of direct taxes that fall within the ambit of the European Union. Article 115 TFEU is the only article that, potentially, confers power to the Community which may be relevant to the field of direct taxation. According to that provision, the Council can issue directives for the harmonization of national measures “as directly affect the establishment or functioning of the common market”.[8]  In addition to that, the European Union retains some formal rights to legislate in the area of direct taxation in order to further the objectives of the internal market but only with the approval of all Member States.[9]

Money laundering would never have become an issue for international legal co-operation unless it had been possible to move money between jurisdictions.[10] Nowadays, it is possible to move money anywhere instantly. This comes not only with benefits but also costs. One of the costs of globalisation is the danger of capital movements prompted by speculators or investors with “herd instincts”.[11] Another is the easier access which countries with structural deficits have to foreign borrowing, which gives easier access to capital markets for money laundering.[12] On this topic, the European Council has made the following statement: “Far from being restrictive in nature or an obstacle to liberalisation, a successful effort against money laundering is in fact an essential pre-condition for enhancing international trade and commerce, financial market liberalisation and the free movement of capital under optimal conditions”.[13]

Overall, the free movement of capital is seen to be positive as it promotes investments and economic growth as well as it gives financing opportunities. It, also, represents an essential condition for the proper functioning of the European Union Single Market. Despite these benefits some concerns have been expressed as capital inflows may destabilize macroeconomic conditions within a country. In addition to that, some restrictions have been imposed on the grounds of public policy and public security.


[1] Charles R. Ben, “Economic and Monetary Union in Europe” (1992) 6(4) Journal of Economic Perspectives 31,31

[2] Charles R. Ben, “Economic and Monetary Union in Europe” (1992) 6(4) Journal of Economic Perspectives 31,31

[3] Armin Cuyvers, “Free Movement of Capital and Economic and Monetary Union in the EU” (2017) 13 East African Community Law 410,410

[4] Mattias Dahlberg, Direct taxation in Relation to the Freedom of Establishment and the Free Movement of Capital (1st edn, Kluwer Law International 2005) 1

[5] Ana Paula Dourado, Free Movement of Capital and Capital income taxation within the European Union (1st edn, Kluwer law International 1994) 1

[6] Ben Terra and Peter Wattel, European Tax Law (4th edn, Deventer: Kluwer 2005) 16

[7] Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, O.J. L 336, 27 December 1977, pages 15-20

[8] Mathieu Isenbaert, EC Law and the Sovereignty of the Member Stated in Direct Taxation (1st edn, IBFD 2010) 190

[9] Frans Vanistendael, “Does the ECJ have the power of interpretation to build a tax system compatible with the fundamentals freedoms” (2008) 17(2) EC Tax Review 52,53

[10] Peter Alldridge, Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Process of Crime (1st edn, Hart Publishing 2003) 92

[11] Peter Alldridge, Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Process of Crime (1st edn, Hart Publishing 2003) 91-92

[12] Peter Alldridge, Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Process of Crime (1st edn, Hart Publishing 2003) 92

[13] Proposal for a European Parliament and Council Directive amending Council Directive 91/308/EEC of 10 June 1991 (Document 599PCO352)

CONCLUSION

The free movement of goods and the four freedoms were enshrined in the Treaty of Rome in 1957 and reinforced in the Single European Act (1986), in the Treaty of Maastricht (1992) and in the Treaty of Lisbon (2007) and sit at the heart of the European Union. These freedoms form the cornerstones of the European Single Market, representing the very essence of the European integration project. They can be considered as constitutive rights giving us the identity of European Market Citizens and defend our economic interests from Member States who want to interfere with them. However, not all the freedoms are equally developed. The free movement of goods, which was the priority when the Treaty of Rome was signed, is the most advanced whilst the free movement of service is the least developed category. The main benefits of the free movement of goods, service, people and capital are economic integration and the strengthening of trade within the European Union. Despite the benefits, Member States can apply restrictions on the grounds of public policy or public security and those restrictions must observe the principle of proportionality. This ensures that all Member State remain within the limits of what is suitable for securing the objective and must not go beyond what is necessary to achieve the pursued objective whilst maintaining the integrity of the Treaties.

9 Comments

  1. A very thorough and comprehensive illumination of the formation of the European Union and the foundation it created for economic activity between member states particularly in regards to international trade between member states.
    I think that the information shared is very accessible, engaging and educational to all levels of reader from secondary school students to some in politics who often get wires crossed and facts skewed.

    Like

  2. Very thorough content with great insight to the complexity of the European Union.
    Good idea on presenting individuals’ experience of entering
    the UK.
    Well structured!
    Well done

    Like

  3. An interesting write-up on the technicalities of EU Law and the Four Freedoms.
    It certainly plugs gaps in my knowledge of the European Union.

    Like

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