4 Freedoms In Eu Law Essays

“We must not make a scarecrow of the law”

(Measure for Measure, 2.1.1)

Charlotte O’Brien, Senior Lecturer, York Law School, University of York

Laurent Pech, Professor of European Law, Jean Monnet Chair of EU Public Law at Middlesex University London

This post primarily aims to clarify the scope of EU free movement rules with the view of addressing some of the most common (legal) misconceptions one may regularly encounter in the British media and elsewhere. We argue that the much of the criticism of free movement has targeted a ‘straw man’, with little regard to the actual regime.

In the UK, for instance, there seems to be a wide consensus across the political spectrum on the need to restrict ‘current EU freedom of movement rules’ yet ‘current’ EU rules are often misunderstood or misrepresented. To argue that the UK has simply ‘no control’ over immigration from the rest of the EU is inaccurate. Similarly, one may regret that some EU actors tend to paint freedom of movement as one which could not be subject to restrictions and one which would be inherently connected with rules on the free movement of goods, capital and services.

These aspects and many others will be addressed below via 10 questions & answers, which should be of interest to members of the general public looking for an (hopefully) accessible and legal overview of EU free movement law. The post will end with a brief outline of the main models and possible options for the UK to consider when it will have to agree the ‘framework for its future relationship with the Union’ to quote Article 50 of the Treaty on European Union (hereinafter: TEU).

(1) Does EU Law guarantee an absolute right to move and reside anywhere in the EU?

No. Treaty rights of free movement are subject to limitations.

Article 45(3) of the Treaty on the Functioning of the European Union (hereinafter: TFEU) states that the rights to (a) accept offers of employment, (b) move freely between States to take up employment, (c) reside in other Member States, and (d) the right to stay in another Member State after employment has finished, are subject to ‘limitations justified on grounds of public policy, public security or public health’. This means, to simplify, that national authorities can adopt restrictive measures on a case-by-case basis against EU workers on any of these three grounds. Arguably the most mutable of these grounds is the public policy limitation, and Gareth Davies has argued that this limitation has been underexplored when it comes to free movement concerns, suggesting that greater use of permitted restrictions might have avoided free movement becoming as contentious an issue as it did in the UK.

Article 45(4) TFEU adds a further exception – that the free movement provisions shall not apply to employment in the public service, so that where roles are thought to be nationally sensitive, involving participation in the exercise of powers conferred by public law and duties designed to safeguard the general interests of the State, they may be reserved for nationals. This does not amount to a right to employ non-nationals and then treat them differently – once admitted to the labour market, they should not be discriminated against.

Similarly, there is another derogation in respect of activities connected with the exercise of official authority for self-employed persons and providers of services (see Articles 51 and 62 TFEU). Discrimination against non-nationals is allowed but only with regard to positions involving a direct and specific connexion with the exercise of official authority. This is why it would not for instance be lawful to adopt a general ban on non-UK academics providing‘advisory work’ for UK public bodies such as the Foreign and Commonwealth Office on Brexit related matters.

The key point remains that EU Treaties have always clearly provided that free movement rights are not absolute and included in addition a number of permanent derogations to the general principle of non-discrimination on grounds of nationality. Unsurprisingly, however, a number of guiding principles have been developed by the Court of Justice to prevent an abusive reliance on these exceptions by national authorities.

Secondary EU legislation forms the ‘specific expression’ of the EU Treaty free movement rights, and sets out additional and more specific conditions and limitations. The key condition for those concerned about benefit tourism is that an EU national does not have a right to reside in a host Member State if they become an “unreasonable burden” upon the public purse. Directive 2004/38 (the “EU citizens’ Directive”, which is the source of the main legal rules on this issue) sets out the ‘categories’ of people with an EU-law based right to reside in a host Member State for longer than three months – essentially, workers/the self-employed and their family members, students, and the self sufficient. Students must have health insurance and make a declaration of sufficient resources.

In recent years, CJEU rulings have made some of these limitations more explicit. The Dano case made clear that someone who moved for the ‘sole’ purpose of claiming benefits would not have a right to reside in a member state under EU law. The Breycase approved of member states setting a right to reside condition in order for a claimant to be eligible for particular social security benefits, not just social assistance benefits. So member states have discretion over the arrangement of their welfare systems and eligibility conditions, and are entitled to set conditions tied to having a right to reside that only apply to EU nationals, and make it impossible for economically inactive EU nationals to claim benefits.

And in Alimanovicand Garcia Nieto, the CJEU emphasised that EU nationals do not have entitlement to social assistance benefits during their first three months of residence in a host Member State, or at any point at which they are classed as a ‘jobseeker’, even where the benefit in question appears to be an unemployment benefit. EU jobseekers are entitled to claim benefits that facilitate access to the labour market, but not where the benefit has a social assistance element and primary aim of the benefit is the preservation of dignity. In the Commission v UK case the CJEU appear to have extended the exclusion to full social security benefits, not just those with a social assistance element. Economically inactive EU nationals must be self sufficient in order to have a right to reside, and EU nationals who are workers must demonstrate that their work is genuine and effective.

Furthermore, there are some geographic limitations – free movement of persons applies for people moving from the Overseas Countries or Territories associated with the Union (OCTs), to the EU, but does not apply to people moving from the EU to OCTs as will be explained below.

(2) Does EU Law prevent temporal and geographical exceptions?

It would be wrong to think that EU law has never allowed for some extensive geographical and temporal exceptions with respect to the free movement of people.

While the default principle is that EU law applies in the territory of all the Member states, some exceptions exist especially when it comes to overseas regions and territories of relevant Member States (so much so that there is a specialised field of study known as EU Law of the Overseas). This means for instance EU free movement law does not uniformly apply to the whole of the territories of all the Member States. The relevant legal framework is rather complex. In a nutshell, there is free movement in one direction only. Inhabitants of the countries making up the Netherlands Antilles may move to any EU Member State as they are Dutch and EU citizens, but EU citizens from any other Member State do not have symmetrical rights to move there. This is lawful provided that the authorities of the countries of the Dutch Caribbean apply the same restrictions on entry and residence equally to the nationals of the Member State with which it is associated and the nationals of other EU Member States (authors are grateful for Prof Kochenov’s insight on this issue. For more details on ‘one-way EU free movement’ with respect to the OCTs, see his article here).

But one does not have to go overseas to see territories where the application of EU law may vary dramatically depending on the subject matter. To give a single example, while EU rules on free movement of goods apply to the Channel Islands, the rules relating to the free movement of persons and services do not (see Protocol No 3 to the UK’s Act of Accession). 

To make matters even more complex, EU free movement rules may apply to nationals of non-EU Member States. For instance, they apply to Swiss nationals and nationals of Norway, Iceland and Liechtenstein (though note that free movement is in effect asymmetrical as far as Liechtenstein is concerned – see question (7) below) which are not EU Member States, by virtue – to simplify – of a number of bilateral agreements between the EU and those countries. 

With respect to temporal exceptions to the free movement of people within the EU, one may for instance refer to the Treaties of accession of 2003, 2005 and 2012, which included provisions allowing for transitional restrictions to be imposed by existing EU Member States on workers from the new EU Member States that joined the EU in 2004, 2007 and 2013 respectively. To give a single example, one may cite the chapter entitled ‘freedom of movement for persons’ of Annex XII to the 2003 Act of Accession regarding Poland. According to this text, the rules governing freedom of movement of workers and freedom to provide services shall apply subject to a number of transitional provisions on the basis of which the then EU-15 could adopt national measures in order to regulate ‘access to their labour markets by Polish nationals’ or adopt measures derogating from the freedom to provide services as far as companies established in Poland are concerned.

By contrast to most EU Member States, the UK decided not to derogate from the free movement of workers during the seven-year period with respect to nationals of the countries that joined the EU in 2004. In other words, the UK along with Ireland and Sweden sovereignly decided to open their labour markets directly from 1 May 2004 with respect to workers from countries such as Poland. The UK did however impose transitional provisions departing from the principle of equal treatment (see Question (3) below).

The UK also subsequently decided to derogate from free movement with respect to Bulgaria and Romania when these two countries joined the EU in 2007. This meant that workers from the two countries were not allowed, as a matter of principle, to work freely in the UK before 1 January 2013, that is, seven years after Bulgaria and Romania had joined the EU. To oversimplify, Romanian and Bulgarian nationals wishing to work in the UK had instead to secure the permission of the Home Office for doing so. The same has applied to Croatian workers since Croatia joined the EU in 2013.

(3) Has EU Law led to an uncontrolled migration regime within the EU?

The free movement system means that EU nationals and their family members who fulfil the conditions within EU law can move and reside freely within the EU, which means that Member States cannot impose quotas, or add additional conditions through an immigration points system – unless some derogation from Article 45 TFEU were agreed to be necessary on pressing grounds of, e.g. public policy.

Fulfilling the conditions set by the EU, in order to exercise free movement rights, typically means being a worker. This is therefore not uncontrolled migration, but the means of control is not immigration law – it is the labour market, which is the key to a right to reside and to stay in another Member State. This is an important point too often ignored. Moving away from this labour market based regulated form of intra-EU migration control would necessarily mean implementing instead a dirigiste bureaucratic form of migration control. This would not be a cost-neutral policy decision. It would likely be more time consuming and costly than the current market-based regulation system derived from EU law. One well informed expert suggested in this respect that ending the free movement of people in the UK would create a ‘bureaucratic nightmare’.

As noted above, Member States have in recent years been permitted to moderate the effect of accession of new states upon their labour markets by temporarily derogating from the free movement of workers with regard to new acceding states. While, as previously mentioned, the UK chose not to derogate from free movement for the A8 enlargement in 2004, it imposed a ‘worker registration scheme’ according to which A8 workers were not entitled to any out of work benefits until they had completed 12 months of registered work, and if the registration was not completed correctly, all subsequent work, until the lapse of the transition measures, was to considered unlawful, not conferring a right to reside or counting towards permanent residence. The transition measures ended in 2011.

The UK’s derogation from the free movement provisions in 2007 for the A2 States, Bulgaria and Romania, involved adopting a worker authorisation scheme, which essentially required Bulgarian and Romanian nationals to apply for authorisation to work on the basis of falling into an authorised category of work, ie specific sectors.  These transition measures ended on the 1 January 2014. The UK also derogated from the free movement provisions on the accession of Croatia in 2013, and now requires Croatian nationals to obtain authorisation to work, and limits such authorisation to skilled work.

There was some implication in the lead up to the UK referendum that membership of the EU increased the ‘risk’ of unauthorised immigration and/or asylum seeking from third countries. But EU free movement law does not affect Member States’ (non-asylum) immigration regimes applied to non-EU nationals who are not family members of EU nationals. The Common European Asylum System provides a means for determining the state responsible for processing asylum claims, and under the problematic Dublin system this usually means that the country of first entry is responsible – putting most pressure on countries around the periphery of the EU, not the UK. A proposal for a reformed system for asylum burden sharing is in preparation, but the UK has secured an opt-out.  

(4) Does EU Law prevent Member States from dealing with welfare tourism?

The short answer is a clear no. The CJEU has found that Member States are entitled to reserve the right to equal treatment as regards welfare benefits to those with an EU law-based right to reside.

To establish such a right, EU nationals must show that they fit one of the given categories in Directive 2004/38 – i.e. that they are workers, family members of workers self-sufficient, or students (who must declare self-sufficiency). EU law does not provide a right to reside for persons who move solely to claim benefits, and creates only limited rights for jobseekers, who are not entitled to claim social assistance.

There is no entitlement for those who move to seek work to social assistance for the first three months of residence; instead those who have been working elsewhere and who are entitled to a contributory job seeking benefit in their home State are entitled to bring it with them when they arrive in a host State, if they meet the conditions for ‘exporting’ their benefit.

As far as workers are concerned, EU law requires EU national workers to be treated equally with own state nationals for the purposes of social and tax advantages. In some cases this means that social security (but not social assistance) benefits can be exported to another Member State, so long as the EU national is a worker in the paying State. EU nationals who do not fall into these categories do not have a right to reside under EU law and so do not have equal access to welfare benefits. 

Member States thus have some considerable freedom to limit benefit entitlement to those considered to be contributors, and so to avoid awarding benefits to those perceived to be benefit tourists. It is therefore misleading to suggest, as Theresa May did in August 2015, that EU law would guarantee a freedom to claim benefits.

However, in any discussion of the need to ‘deal’ with welfare tourism, we cannot ignore the absence of evidence that the problem exists. If we look to the take empirical evidence on the costs/benefits of EU immigration, e.g. the cost/benefit study by UCL, this suggests that EU nationals are net contributors, and ONS figures show that in the UK, EU nationals are less likely than UK nationals to be unemployed. The Department for Work and Pensions responded to a EU Commission query in 2013saying that they had no evidence of benefit tourism.  Oxford University’s Migration Observatoryconcluded that the more recent the migrant’s arrival, the more likely the positive contribution. One may finally mention a report by the Centre for Economic Performance (CEP) at the London School of Economics, published on 11 May 2016, in which its authors argue that ‘the empirical evidence shows that EU immigration has not had significantly negative effects on average employment, wages, inequality or public services at the local level for the UK-born … At the national level, falls in EU immigration are likely to lead to lower living standards for the UK-born. This is partly because immigrants help to reduce the deficit: they are more likely to work and pay tax and less likely to use public services as they are younger and better educated than the UK-born. It is also partly due to the positive effects of EU immigrants on productivity.’

(5) Does EU Law prevent Member States to prevent abuse and fraud such as marriages of convenience?

EU free movement law is regularly presented as preventing national authorities from ‘controlling’ EU citizens seeking to move and reside in the UK. One must however emphasise that EU law cannot be relied upon in case of abuse. In other words, EU law explicitly entitles Member States to ‘adopt the necessary measures to refuse, terminate or withdraw any right conferred by [EU free movement law] in the case of abuse of rights or fraud’ and gives the example of marriages of convenience (see Article 35 of Directive 2004/38).

To prevent any abusive use of this ‘abuse clause’, whereby member states might unduly strip people of their rights, EU law also unsurprisingly provides that any measure adopted by a national authority on this basis must however be proportionate and subject to the usual procedural safeguards such as access to judicial and administrative redress procedures in the host Member State.

It would be wrong therefore to claim that EU law prevents Member States from tackling abusive reliance on EU free movement rights, which has been defined as any ‘artificial conduct entered into solelywith the purpose of obtaining the right of free movement and residence under [EU] law which, albeit formally observing of the conditions laid down by [EU] rules, does not comply with the purpose of those rules.’ Fraud, that is, any deliberate deception or contrivance made to obtain the EU right of free movement and residence may similarly be sanctioned by the relevant host Member State.

In practice, it is for each Member State to decide how best to tackle fraud and abuse of EU free movement rights. As noted above, EU law does not prevent Member States from investigating individual cases where there is a well-founded suspicion of abuse and adopt necessary sanctions in cases of proved abuse. It is not unusual for national authorities to choose not to go to the expense of doing so; a recent analysis on the Free Movement blog noted that ‘the latest figures suggest there are very few investigations and the Home Office is unwilling to release information on the outcome of the investigations.’ However, this lack of action is sometimes attributed to the legal constraints of EU free movement law (see e.g. the letter sent by David Cameron to Donald Tusk on 10 November 2015 citing inter alia ‘sham marriage’ to justify a rewriting of EU free movement rules). These legal constraints however merely call for a case-by-case assessment of any possible abuse of EU free movement rights and for any individual investigation to be carried out in accordance with fundamental rights. In other words, EU law only requires Member States to comply with the rule of law in this area. 

(6) Does EU Law prevent Member States from removing criminals from their territories?

Some British newspapers regularly seek to paint the EU as preventing the UK from denying entry, refusing residence or deporting citizens from other EU Member States. This is plainly false. The EU Treaties explicitly provide that national authorities can limit the exercise of EU free movement rights on grounds of public policy, public security or public health. The main piece of EU legislation dealing with the rights of EU citizens and their family members to move and reside freely within the EU contains a whole chapter on ‘restrictions on the right of entry and the right of residence on grounds of public policy, public security or public health’ (see Chapter VI of Directive 2004/38).

In other words, and to cite the European Council, host Member States may ‘take the necessary restrictive measures to protect themselves against individuals whose personal conduct is likely to represent a genuine and serious threat to public policy or security. In determining whether the conduct of an individual poses a present threat to public policy or security, Member States may take into account past conduct of the individual concerned and the threat may not always need to be imminent. Even in the absence of a previous criminal conviction, Member States may act on preventative grounds, so long as they are specific to the individual concerned.’ (Decision of the Heads of State or Government, meeting within the European Council, concerning a new settlement for the UK within the EU – N.B. This statement merely summarises the current situation notwithstanding that it appears in the now defunct ‘new settlement’ following the outcome of the UK’s Brexit referendum)

Compliance with the rule of law and respect for human rights however mean that EU Member States must comply with a number of substantive and procedural safeguards provided by EU law. When it comes for instance to public policy or public security, national measures justified on these grounds must be proportionate and based exclusively on the personal conduct of the individual concerned, which must represent a genuine, present and sufficiently serious threat affecting one of the fundamental interests of society. EU law also provides for a number of procedural safeguards. For instance, any decision to deny entry or expel an EU citizen must be notified in writing and include precise and full information of the grounds on which the decision is based. In the absence of such safeguards, nothing would prevent national authorities from behaving arbitrarily and target certain individuals or groups for political or economic reasons.

While one may legitimately defend the view that the substantive and procedural safeguards provided by EU law are too protective of EU citizens and their family members, critics in most cases fail to make clear the extent to which the current safeguards should be lowered.

To argue however that the EU Court of Justice has prevented the UK from deporting 50 criminals from other EU Member States, as was argued by Vote Leave during the Brexit campaign, is simply false. The record on this issue has been set straight by Professor Steve Peers in this blog post.

(7) Does EU Law prevent Member States from imposing a ‘brake’ on EU immigration?

The short answer is yes as EU law currently stands. This certainly does not mean that EU Law provides for any ‘absolute’ right to move and reside freely within the territory of EU Member States. As described above in our answer to Question 1, EU free movement rights can only be exercised in accordance with the conditions and limitations laid down in the Treaties and the legal instruments adopted thereunder. And while the EU Treaties provide for general derogations as regards the principle of non-discrimination on grounds of nationality with respect to employment in the public service or activities connected with the exercise of official authority, any permanent quota or reliance on a ‘brake system’ regarding intra-EU migration would not be compatible with EU law. Any general ban on EU workers being treated equally with national workers as regards employment, remuneration and other conditions of work and employment would similarly breach EU Treaties.

The compatibility of a provisional, temporary ‘emergency brake’ on equal treatment with EU Treaties was however assumed by the European Council when it agreed last February to push for the adoption of a new ‘alert and safeguard mechanism’ in order to assuage the concerns of the UK government then led by David Cameron (this mechanism formed part of the ‘new settlement for the UK within the EU’ whose entry into force was however dependent on a decision by the UK to stay in the EU). This proposal was not for a brake on immigration, but on EU national workers’ access to in-work benefits.

This mechanism was supposed to work as follows:

(i)                 Any Member State facing an inflow of workers from other Member States of ‘an exceptional magnitude over an extended period of time’ could avail of the new alert and safeguard mechanism;

(ii)               In order to be authorised by the Council to limit the access of newly arriving EU workers to non-contributory in-work benefits for a total period of up to four years, the Member State was expected to demonstrate the existence of ‘an exceptional situation’ affecting ‘essential aspects of its social security system’ or leading ‘to difficulties which are serious and liable to persist in its employment market or are putting an excessive pressure on the proper functioning of its public services’.

(iii)             Assuming that such a demonstration had been offered, the Council could authorise the Member State concerned to restrict access to non-contributory in-work benefits to the extent necessary.

(iv)             Finally, any authorisation would have a limited duration and the 4-year restriction on access to non-contributory in-work benefits could only apply to EU workers newly arriving during a maximum period of 7 years.

Contrasting legal views have been expressed regarding the compatibility of this new safeguard mechanism with the EU Treaties. In our opinion, this mechanism would have been vulnerable to legal action as its compatibility with EU Treaties is arguable in the absence of a Treaty amendment.

Notwithstanding this legal issue, we have always found it difficult to understand how the UK could rationally avail itself of such mechanism considering that it then enjoyed the highest rate of employment in UK history. Furthermore, evidence of any negative impact of EU work immigration to the UK on vulnerable workers and the sustainability of the UK welfare system was lacking (see this Financial Times article published on 22 February 2016). Furthermore, it has since emerged that the UK government did not in fact possess any hard evidence which would show the negative impact of EU migration to the UK and could justify the activity of the agreed ‘emergency break’ (see this article by the former deputy director of the policy unit’s in David Cameron’s government: ‘To be honest, we failed to find any evidence of communities under pressure that would satisfy the European Commission. At one point we even asked the help of Andrew Green at MigrationWatch, an organization that has been critical of migration. But all he could provide was an article in the Daily Telegraph about a hospital maternity ward in Corby. There was no hard evidence.’)

This EU safeguard mechanism is, in any event, no longer on the table. The UK could however seek to join the EFTA and remain part of the EEA post Brexit, which would offer the advantage of maximum access to the EU’s internal market with the additional option of availing of the special safeguard regarding free movement of people laid down in Article 112 of the EEA agreement:

1. If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113.

2. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement.

3. The safeguard measures shall apply with regard to all Contracting Parties.

Assuming that the UK aims and is able to remain part of the EEA after its eventual exit from the EU, triggering this provision with the view of limiting EEA labour immigration to the UK would not however be cost-free. Indeed, and to the best of our knowledge, none of the contracting parties to the EEA has ever done so with respect to labour immigration if only because another provision of the same agreement entitles parties negatively affected by safeguard measures to take ‘proportionate rebalancing measures’ (the special regime granted to Liechtenstein with regard to nationals of EU Member States and EFTA States, which will be briefly mentioned below, is not directly based on Article 112 EEA).

In other words, should the UK as an EEA member trigger this provision in order to impose quantitative limitations or restrictive rules regarding entry, residence and employment of EEA nationals in the UK, it could then be subject to what would be essentially retaliatory measures focusing for instance on UK banks’ passporting rights (i.e. rights derived from EU law which enable banks based in the UK to offer financial services to the rest of the EEA without having to follow the regulations of the countries where they are offered). Furthermore, the UK would have to accept that any dispute in this context may be referred to an arbitration panel (see Protocol 33 on arbitration procedures of the EEA Agreement).

In addition to this EEA general safeguard mechanism, the EU and EFTA countries were able to agree a rather unique arrangement regarding Liechtenstein with respect to free movement of people, which was initially supposed to be provisional (see Protocol 15 on transitional periods on the free movement of persons) but ended up becoming de facto permanent (for more details see this 2015 Communication from the European Commission). In a nutshell, due to its specific nature as a microstate with a population of 36,925 with an already unusually high percentage of non-national residents and employees, Liechtenstein was permitted to introduce quantitative limitations (aka a quota system) to control the number of EEA citizens wishing to take up residence via a system limiting the number of residence and short-term permits a year. In 2015, the Commission concluded that there is ‘no need to make any changes to the current rules’ until another review of this specific arrangement takes place in 2019.

It has been suggested that a Liechtenstein-inspired solution may be the way forward as far as the UK is concerned (see the proposal by Vicky Ford, a Conservative MEP as reported in The Guardian). This is highly doubtful if only because the quota system agreed for Liechtenstein was explicitly justified on the basis of this country’s ‘specific geographic situation’ and a total number of employees which is almost equal to the number of residents, 52 % of whom commute from neighbouring countries, a situation in no way comparable to the UK’s (see Question 10 below for an overview of other possible options for the UK to consider).

(8) Does EU Law only guarantee a right of permanent residence after five years?

There has been a fair amount of confusion on the EU right of permanent residence in the UK. To put it briefly, it is regularly argued that such a right would only arise after five years of residence but this is not entirely accurate.

This point is not easy to explain briefly. To begin with, it is correct to state that EU Law provides for a right of permanent residence for EU citizens and their family members after five years of continuous legal residence in the host EU country. This right directly derives from EU law and is explicitly mentioned in Directive 2004/38.

What is usually misunderstood however is that EU citizens and their family members (irrespective of nationality) can acquire a right of permanent residence, in the sense of continued and uncontested – but conditional - residence as soon as they move and reside in a different Member State. In other words, provided that an EU citizen maintains his/her status as worker or self-employed person, or that he/she have sufficient resources for himself/herself (and eventual family members) as well as a comprehensive sickness insurance cover, EU law guarantees a right of continued residence in the host Member State.

The added value of the new right of permanent residence after five years of residence laid down in Directive 2004/38 lies in the fact that once it is obtained, this right is no longer subject to the conditions previously mentioned.

To summarise, EU law guarantees a conditional right of permanent residence before five years and a nearly unconditional one after five years (it may be lost through continuous absence from the state for over 2 years; and there are powers to remove criminals from the country as discussed in the answer to question (6) above).

To claim that only those having resided in the UK for more than five years are entitled to claim a right of permanent residence misrepresents EU law as it stands. This is an important point considering that it is regularly reported in the press that the UK government may only seek to allow EU citizens with a right of permanent residence to stay in the UK by the time the UK leaves the EU, while those with allegedly no permanent residence right by then would be offered an ‘amnesty’ (see this article from The Telegraph published on 7 October 2016).

This reflects a misunderstanding of EU law. As noted above, and just to give a single example, any EU worker residing in the EU is entitled to reside permanently in the UK from day 1 of his/her residence in the UK as long as he/she maintains his/her status of EU worker. It might be clearer to propose that rights attach to ‘Article 16’ (of the EU citizens’ Directive) or ‘unconditional’ permanent residence, rather than just ‘permanent residence’.

In any case, if the yardstick is those with an unconditional right to reside thanks to the Directive 2004/38 concept of permanent residence, then the threshold is not always five years. There are exceptions for instance for those who retire in the host member state (the threshold is 3 years of residence, if they have been working in the host state for at least the past 12 months), or if they have to stop working as a result of permanently incapacitating illness (the threshold is two years), or if they become incapacitated as a result of an accident at work or occupational disease (and are entitled to a relevant benefit from the host state), in which case there is no duration of residence requirement. It is therefore not only EU nationals who have resided for five years who have a ‘clear cut’ right to reside.

One should also note in passing that to speak of amnesty in this context is to deeply misunderstand the legal meaning of this concept, which either refers to a general official pardon for people, convicted of political or criminal offences or an undertaking by public authorities to take no action against specified offences during a fixed period. To speak of ‘amnesty’ to address the situation of EU nationals who have exercised their free movement rights to move to the UK in full compliance with the conditions laid down in EU Law, creates an unfortunate and misleading depiction of lawfully resident and working EU nationals.

(9) Would EU Law or International Law protect ‘acquired’ free movement rights following a British exit from the EU?

First of all, it is worth noting that we are talking about protection of rights in the event of a ‘repeal’ of those rights – i.e., if legislation in the UK is amended to remove free movement rights following the formal withdrawal of the UK from the EU. It is worth pointing out in this respect that counsel for the government in the litigation on whether triggering Article 50 requires parliamentary consent, has argued that the rights of EU nationals do not simply fall away on exiting the EU. Those rights are part of domestic law, implementing EU law. It is not impossible that the UK could leave the EU and leave all the free movement rights in tact. However, we face a question of what happens if it does not.

Prior to the referendum, there have been repeated suggestions that British citizens in the EU and EU nationals in the UK would be able to rely upon the Vienna Convention’s protection of ‘acquired rights’ to enable them to stay and to protect their status there.

Legally speaking, this is problematic and highly unlikely. The Convention in question – the Vienna Convention on the law of the Treaties – contains a provision, Article 70(b), which states that the termination of a treaty:

“Does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.”

However, this provision refers to rights of ‘the parties’. The parties to the EU Treaties are Member States, not individuals. It was therefore wrong for Gisela Stuart or Boris Johnson to imply that Article 70 of the Vienna Convention directly addresses individual free movement rights acquired Pre-Brexit. For instance, the International Law Commission had for instance made clear that this provision is simply not concerned with the acquired or vested rights of individuals. This is why Jean-Claude Piris (former General Director of the Legal Service of the Council of the EU) described the Vienna Convention claim as a ‘new legal theory’ with no ‘legal support in the Treaties’, which must be disregarded as it ‘would lead to absurd consequences’.

To summarise, while international law does recognise the notion of ‘acquired rights’, there is, as observed by Professor Vaughan Lowe QC a ‘general agreement that the category of ‘acquired rights’ does not extend beyond property rights and certain contractual rights’, which means that the EU ‘rights to live, work, receive medical care and retire in an EU Member State other than one’s own (or for companies, the right of establishment) would not be included within that category.’

In any case, claiming a continued right of residence is a claim for a present and future right, not an acquired one. It would be strange were it possible to claim continued reliance upon EU Treaties which have ceased to apply, given that Article 70 (a) of the Convention states that the termination of the Treaty “Releases the parties from any obligation further to perform the treaty”. The sorts of past State rights that might be protected by the Convention could be that the EU could not demand that the UK pay back Structural Funds paid to correspond with past periods during which the UK was a member of the EU, where those funds were paid in good legal order.

And it is worth pointing out that the Convention is a UN instrument, and there is little ground for supposing that it would be readily actionable to claimants facing negative administrative decisions, since it does not create direct rights. Nor is it able to trounce both EU and national laws in other Member States. If it were able to do so, that would raise significant questions of supremacy, sovereignty and transparency. 

During the course of the campaigns, Matthew Elliot of Vote Leave also suggested that the EU Charter of Fundamental Rights would protect British nationals’ rights to stay in the EU. However, (a) the Charter is silent on the matter of rights of ex-EU nationals; (b) it does not create any additional rights not already in existence within EU law; and (c) The Charter is an EU instrument. If the UK exit agreement includes provisions on UK nationals in the EU (and EU nationals in the UK), then those provisions must be interpreted in accordance with the Charter – e.g. in accordance with a right to family life. Outside of the agreement, these individuals may anyway fall within the scope of EU law, e.g. through having married a national of a Member State who has exercised their right to free movement, or being the primary carer of a host State national. In any event, if the UK was no longer bound by the Charter as a non-member, then UK nationals in the EU seeking to rely upon it would have to show that their situation fell within the scope of EU law (such as EU legislation on migration from non-EU countries) for the Charter to apply, and then show that a fundamental right covered by the Charter was engaged.

The key point here is that international law relating to ‘acquired rights’ does not offer any solid basis for a claim to retain EU rights of residence post-Brexit. And this is why the UK government, without mentioning the Vienna Convention, has decided that the criteria which would ‘enable EU citizens to remain in the United Kingdom following exit from the European Union will depend on the outcome of the negotiations and the scope of any reciprocal agreements concerning British citizens who live in other member states.’ (Lord Keen of Elie, 29 June 2016)

While there are no clear legal guarantees for either the residence rights of UK nationals in the EU or of EU nationals in the UK, there are nevertheless strong legal arguments in favour of offering protections to EU nationals in the UK. The ‘bargaining chip’ stance is dehumanising and ethically problematic; it puts the lives of nationals from other EU countries living in the UK ‘on hold’ for an indefinite period of time (with very practical consequences such as increased difficulties to get loans or mortgages, not to mention the anxiety it has created). This is why, for instance, Michael Howard, the former Conservative leader, called on Mrs May to ‘lead by example’ end the ‘dreadful uncertainty’ facing EU migrants living in the UK.

That being said, the suggestion implicitly made by David Davis that EU nationals could be deported retrospectively (i.e. even if they arrived before the UK leaves the EU) may, in circumstances where their right to family life was at stake, be open to legal challenge on the basis of the UK’s Human Rights Act. See e.g. Matthew White’s post on ‘When can EU citizens be expelled from the UK after Brexit?’ available here and Camino Mortera-Martinez & John Springford’s CER insight piece ‘Britain will struggle to make EU migrants ‘go home’’ available here.  Equally, UK citizens in the remaining EU could invoke the right to family and private life in the European Convention on Human Rights, as well as rights in national constitutions, even if they were not covered by EU immigration law or transitional arrangements. It should be noted however that winning an Article 8 ECHR claim in the immigration courts it is not straightforward.

(10) What are the main options available to the UK government?

It is not yet entirely clear whether the UK government wishes to revise or completely reject the application of current EU rules in the UK. A complete rejection would not be compatible with an extensive access to the EU’s single market à la norvégienne (see below for more details on this model).

There is however a large spectrum of different free movement options that are, in theory, possible for the UK to consider but the default (political) principle may be summarised as follows: The more extensive the UK restrictions on the free movement rights of EU citizens and family members, the less extensive the UK’s access to the EU’s single market is likely to be. This was the point made by the German Chancellor, Angela Merkel, when she stated that full access to the European single market depended on whether on the acceptance of the EU’s four freedoms, including the freedom of movement of people: “If Britain says no, it can’t get full access to the European single market”.

Assuming the UK wishes to retain as much access to the European single market as possible, it would then have to seek membership of the EEA – the so-called Norway model. This involves not being an EU member, but applying much of EU law, including provisions on free movement, equal treatment on the ground of nationality, and social security coordination. Some have suggested, slightly further along the spectrum, a Norway-minus model, that adapts the EEA model, to allow for more restricted movement of workers, perhaps in return for ‘a bit less single market’ access. Alternatively, the UK could instead join the EEA and seek to trigger its safeguard mechanism as noted above in our answer to question 7.

The Swiss bilateral agreement model is another option that involves free movement but permits greater restrictions on equal treatment with regard to welfare benefits. The model is complicated, relying on a ‘patchwork’ of agreements that need regular updating. The relationship is not entirely stable – calls to renegotiate the free movement provisions have been rejected by the EU; a Swiss quota initiative has soured the EU-Swiss relationship, in the light of which the Swiss government appears to be considering a second referendum which could ask voters to decide between the unilateral imposition of curbs on EU migrants and maintenance of Switzerland’s current access to the EU’s single market (another alternative plan is to sidestep ‘quota in favour of giving current Swiss residents labor-market precedence’ but this idea is unlikely to be agreed by the EU).

The Turkish system is much closer to the other end of the spectrum, since there is no free movement as such, but there are some special arrangements, such as the accrual of increasingly ‘equal’ employment rights. Turkish workers legally employed in the EU are entitled to the same working conditions as EU nationals, and also have a sliding scale of rights: after one year of legal employment they are entitled to have their work permit renewed if a job is available; after three years of legal employment they are entitled to switch employers and respond to other job offers within the same occupation; after four years of legal employment they have free access to any paid employment in that EU country. Borrowing from this approach could involve heavy restrictions – such as requirements for residence and work permits – but allowing EU workers, once they had been accepted into the UK, to accrue residence, employment and social rights during their time here.

Or it is possible to envisage ad hoc models at different points along the spectrum. One such is a Continental Partnership, involving a reciprocal quota system – the UK imposing a quota system on EU entrants, and the EU imposing a quota system on UK entrants. This is problematic, since it is not clear how this could be made workable, partly in light of the substantial cross border populations already in situ, and the migration flows that stem therefrom, and also because of the fluidity with which people would likely shift status (assuming the system did not apply to visitors). The idea of a quota imposed on the EU as a whole would be tricky to administrate fairly – how could/should a system deal with a quota being ‘used up’ by one or more states disproportionately? And should UK nationals be denied the possibility to move to Poland because the EU quota has already been met by UK nationals in Germany?  The EU Treaties also state that quotas on non-EU citizens coming to work are decided by Member States individually (Article 79 TFEU).

A variation on this idea is ‘preferential movement’ – allowing free movement for immigrants above a set salary or skill level, and setting quotas below it – primarily because that accords with ‘UK public attitudes to immigration’, rather than with economic evidence. It would likely be administratively and legally complex to set the categories, then maintain two parallel immigration systems for the same nationality cohort and monitor continued status for each individual within the allocated category. Furthermore, it would seem irresponsible for public policy to be driven by popular ‘feelings’ about the impact of immigration rather than by evidence of the impact of immigration, especially in a context where the public may have been misled by media misrepresentation (see e.g. this article in The Economist on the EU myths propagated by the British media).

Another idea floated recently was that of a ‘job-first’ model. This is also not without problems. It is not clear that it would reduce immigration (which is the apparent purpose), but would simply place the recruitment process one step back. This could give more power to gang-masters, who already have the machinery for cross-border recruitment in place, and are often linked to employers who provide tied accommodation, and transport their workers to and from the place of work. This could lead to EU nationals being imported in groups, and living quite controlled lives, segregated from much of the UK population.

The other scheme apparently debated by the UK cabinet, which one may label ‘targeted work permit system’, is similarly problematical. As reported by the Financial Times, this system would ‘most likely allocate a set number of visas by sector’ for highly skilled workers in receipt of a job offer. By contrast, unskilled workers could only gain entry into the UK on the basis of a temporary workers scheme, which would grant EU unskilled workers access to the UK for a fixed period of time with no accrued residency rights. Such a ‘targeted work permit system’ however assumes that one can clearly define what is an ‘unskilled worker’ as opposed to an ‘highly skilled’ one. It would be incompatible with access to the European single market in a similar way to Norway or Switzerland and would be incredibly administratively complex.

Others have suggested the devolution of immigration policy as far as EU nationals are concerned. This would mean for instance giving Scotland, Northern Ireland but also London and Gibraltar the right to continue to apply current free movement rules to EU nationals and family members (EEA membership for Scotland would make this a compulsory feature as rightly noted in this Financial Times article by Martin Sandbu) or alternatively, to apply a different but more liberal immigration system on a regional basis (see e.g. the ‘regional visa system’ proposal made by the City of London which is available here). However, it is difficult to see how such systems could be made tenable, without introducing intra-national migration controls.

In our opinion, the UK government should not seek to fundamentally undermine the current EU’s labour market-based system of intra-EU migration control, where evidence suggests that the system works well for the UK – a system which both the Japanese government and the US Chamber of Commerce have described as key for attracting and maintaining foreign investment in the UK. Instead of devising cumbersome and costly alternative schemes, it may be more appropriate to instead aim to revisit the question of restrictions already permitted within EU law, while also questioning whether the ‘mischief’ that these proposals are intended to address actually exists.

Barnard & Peers: chapter 13, chapter 27

Photo credit: LSE blog

"Internal market" redirects here. For other uses, see Internal market (disambiguation).

European Single Market

     EU member states     Non-EU states that participate with exceptions
(see integration of non-EU states)

Policy of European Union
TypeSingle market
Member states
Establishment1 January 1993

• Total

4,986,038 km2 (1,925,120 sq mi)

• EU

4,324,782 km2
1,669,808 sq mi

• Total 2015 estimate


• EU 2015

GDP (nominal)2015 estimate

• Total

$19 trillion

• Per capita


European Union

This article is part of a series on the
politics and government of
European Union

The European Single Market, Internal Market or Common Market is a single market which seeks to guarantee the free movement of goods, capital, services, and labour – the "four freedoms" – within the European Union (EU).[1][2][3][4] The market encompasses the EU's 28 member states, and has been extended, with exceptions, to Iceland, Liechtenstein and Norway through the Agreement on the European Economic Area and to Switzerland through bilateral treaties. Through the Deep and Comprehensive Free Trade Area (DCFTA), three post-Soviet countries Georgia, Moldova and Ukraine were given access to the Single Market in selected sectors.[5]Turkey has access to the free movement of goods via its membership in the European Union Customs Union.[6]

The 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.[7] 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.[8] It also has an increasing international element, with the market represented as one in international trade negotiations.


One of the original core objectives of the European Economic Community (EEC) was 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, Margaret Thatcher sent Arthur Cockfield, Baron Cockfield, to the Delors Commission to take the initiative to attempt to relaunch the common market. Cockfield wrote and published a White Paper in 1985 identifying 300 measures to be addressed in order to complete a single market.[9][10][11] The White Paper 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.[12]

The new approach, pioneered at the Delors Commission, combined positive and negative integration, relying upon minimum rather than exhaustive harmonisation. Negative integration consists of prohibitions imposed on member states banning discriminatory behaviour and other restrictive practices. Positive integration consists of approximating laws and standards. Especially important (and controversial) in this respect is the adoption of harmonising legislation under Article 114 of the Treaty on the Functioning of the European Union (TFEU).

The Commission also relied upon the European Court of Justice's Cassis de Dijon[13] 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[14] 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)[15] and the Directive on services in the internal market (adopted in 2006).[16]

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.[17]

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.[14]

The four freedoms of the Single Market[edit]

Free movement of goods[edit]

Customs duties and taxation[edit]

Main article: European Union Customs Union

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".[18]

By agreement between the Union and the states concerned, Andorra, Monaco, San Marino and Turkey also participate in the EU Customs Union.

Customs duties[edit]

Article 30 TFEU prohibits member states from levying any duties on goods crossing a border and covers 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.[19]

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[edit]

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.[20]

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.[21]

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,[22]
  • if it constitutes payment for a service in fact rendered to the economic operator of a sum in proportion to the service,[23] or
  • subject to certain conditions, if it attaches to inspections carried out to fulfil obligations imposed by Union law.[24]

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".[25]

Quantitative and equivalent restrictions[edit]

Free movement of goods within the European Union is achieved by a customs union and the principle of non-discrimination.[26] The EU manages imports from non-member states, duties between member states are prohibited, and imports circulate freely.[27] In addition under the Treaty on the Functioning of the European Union article 34, ‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States’. In Procureur du Roi v Dassonville[28] the Court of Justice held that this rule meant all "trading rules" that are "enacted by Member States" which could hinder trade "directly or indirectly, actually or potentially" would be caught by article 34.[29] This meant that a Belgian law requiring Scotch whisky imports to have a certificate of origin was unlikely to be lawful. It discriminated against parallel importers like Mr Dassonville, who could not get certificates from authorities in France, where they bought the Scotch. This "wide test",[30] to determine what could potentially be an unlawful restriction on trade, applies equally to actions by quasi-government bodies, such as the former "Buy Irish" company that had government appointees.[31] It also means states can be responsible for private actors. For instance, in Commission v France French farmer vigilantes were continually sabotaging shipments of Spanishstrawberries, and even Belgiantomato imports. France was liable for these hindrances to trade because the authorities "manifestly and persistently abstained" from preventing the sabotage.[32] Generally speaking, if a member state has laws or practices that directly discriminate against imports (or exports under TFEU article 35) then it must be justified under article 36. The justifications include public morality, policy or security, "protection of health and life of humans, animals or plants", "national treasures" of "artistic, historic or archaeological value" and "industrial and commercial property". In addition, although not clearly listed, environmental protection can justify restrictions on trade as an overriding requirement derived from TFEU article 11.[33] More generally, it has been increasingly acknowledged that fundamental human rights should take priority over all trade rules. So, in Schmidberger v Austria[34] the Court of Justice held that Austria did not infringe article 34 by failing to ban a protest that blocked heavy traffic passing over the A13, Brenner Autobahn, en route to Italy. Although many companies, including Mr Schmidberger's German undertaking, were prevented from trading, the Court of Justice reasoned that freedom of association is one of the "fundamental pillars of a democratic society", against which the free movement of goods had to be balanced,[35] and was probably subordinate. If a member state does appeal to the article 36 justification, the measures it takes have to be applied proportionately. This means the rule must be pursue a legitimate aim and (1) be suitable to achieve the aim, (2) be necessary, so that a less restrictive measure could not achieve the same result, and (3) be reasonable in balancing the interests of free trade with interests in article 36.[36]

Often rules apply to all goods neutrally, but may have a greater practical effect on imports than domestic products. For such "indirect" discriminatory (or "indistinctly applicable") measures the Court of Justice has developed more justifications: either those in article 36, or additional "mandatory" or "overriding" requirements such as consumer protection, improving labour standards,[38] protecting the environment,[39] press diversity,[40] fairness in commerce,[41] and more: the categories are not closed.[42] In the most famous case Rewe-Zentral AG v Bundesmonopol für Branntwein,[43] the Court of Justice found that a German law requiring all spirits and liqueurs (not just imported ones) to have a minimum alcohol content of 25 per cent was contrary to TFEU article 34, because it had a greater negative effect on imports. German liqueurs were over 25 per cent alcohol, but Cassis de Dijon, which Rewe-Zentrale AG wished to import from France, only had 15 to 20 per cent alcohol. The Court of Justice rejected the German government's arguments that the measure proportionately protected public health under TFEU article 36,[44] because stronger beverages were available and adequate labelling would be enough for consumers to understand what they bought.[45] This rule primarily applies to requirements about a product's content or packaging. In Walter Rau Lebensmittelwerke v De Smedt PVBA[46] the Court of Justice found that a Belgian law requiring all margarine to be in cube shaped packages infringed article 34, and was not justified by the pursuit of consumer protection. The argument that Belgians would believe it was butter if it was not cube shaped was disproportionate: it would "considerably exceed the requirements of the object in view" and labelling would protect consumers "just as effectively".[47] In a 2003 case, Commission v Italy[48] Italian law required that cocoa products that included other vegetable fats could not be labelled as "chocolate". It had to be "chocolate substitute". All Italian chocolate was made from cocoa butter alone, but British, Danish and Irish manufacturers used other vegetable fats. They claimed the law infringed article 34. The Court of Justice held that a low content of vegetable fat did not justify a "chocolate substitute" label. This was derogatory in the consumers' eyes. A "neutral and objective statement" was enough to protect consumers. If member states place considerable obstacles on the use of a product, this can also infringe article 34. So, in a 2009 case, Commission v Italy, the Court of Justice held that an Italian law prohibiting motorcycles or mopeds pulling trailers infringed article 34.[49] Again, the law applied neutrally to everyone, but disproportionately affected importers, because Italian companies did not make trailers. This was not a product requirement, but the Court reasoned that the prohibition would deter people from buying it: it would have "a considerable influence on the behaviour of consumers" that "affects the access of that product to the market".[50] It would require justification under article 36, or as a mandatory requirement.

In contrast to product requirements or other laws that hinder market access, the Court of Justice developed a presumption that "selling arrangements" would be presumed to not fall into TFEU article 34, if they applied equally to all sellers, and affected them in the same manner in fact. In Keck and Mithouard[51] two importers claimed that their prosecution under a French competition law, which prevented them selling Picon beer under wholesale price, was unlawful. The aim of the law was to prevent cut throat competition, not to hinder trade.[52] The Court of Justice held, as "in law and in fact" it was an equally applicable "selling arrangement" (not something that alters a product's content[53]) it was outside the scope of article 34, and so did not need to be justified. Selling arrangements can be held to have an unequal effect "in fact" particularly where traders from another member state are seeking to break into the market, but there are restrictions on advertising and marketing. In Konsumentombudsmannen v De Agostini[54] the Court of Justice reviewed Swedish bans on advertising to children under age 12, and misleading commercials for skin care products. While the bans have remained (justifiable under article 36 or as a mandatory requirement) the Court emphasised that complete marketing bans could be disproportionate if advertising were "the only effective form of promotion enabling [a trader] to penetrate" the market. In Konsumentombudsmannen v Gourmet AB[55] the Court suggested that a total ban for advertising alcohol on the radio, TV and in magazines could fall within article 34 where advertising was the only way for sellers to overcome consumers' "traditional social practices and to local habits and customs" to buy their products, but again the national courts would decide whether it was justified under article 36 to protect public health. Under the Unfair Commercial Practices Directive, the EU harmonised restrictions on restrictions on marketing and advertising, to forbid conduct that distorts average consumer behaviour, is misleading or aggressive, and sets out a list of examples that count as unfair.[56] Increasingly, states have to give mutual recognition to each other's standards of regulation, while the EU has attempted to harmonise minimum ideals of best practice. The attempt to raise standards is hoped to avoid a regulatory "race to the bottom", while allowing consumers access to goods from around the continent.

Free movement of capital[edit]

See also: Payment Services Directive, Capital control, Single Euro Payments Area, and Economic and Monetary Union of the EU

Free movement of capital was traditionally seen as the fourth freedom, after goods, workers and persons, services and establishment. The original Treaty of Rome required that restrictions on free capital flows only be removed to the extent necessary for the common market. From the Treaty of Maastricht, now in TFEU article 63, "all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited". This means capital controls of various kinds are prohibited, including limits on buying currency, limits on buying company shares or financial assets, or government approval requirements for foreign investment. By contrast, taxation of capital, including corporate tax, capital gains tax and financial transaction tax, are not affected so long as they do not discriminate by nationality. According to the Capital Movement Directive 1988, Annex I, 13 categories of capital which must move free are covered.[57] In Baars v Inspecteur der Belastingen Particulieren the Court of Justice held that for investments in companies, the capital rules, rather than freedom of establishment rules, were engaged if an investment did not enable a "definite influence" through shareholder voting or other rights by the investor.[58] That case held a Dutch Wealth Tax Act 1964 unjustifiably exempted Dutch investments, but not Mr Baars' investments in an Irish company, from the tax: the wealth tax, or exemptions, had to be applied equally. On the other hand, TFEU article 65(1) does not prevent taxes that distinguish taxpayers based on their residence or the location of an investment (as taxes commonly focus on a person's actual source of profit) or any measures to prevent tax evasion.[59] Apart from tax cases, largely following from the opinions of Advocate General Maduro,[60] a series of cases held that government owned golden shares were unlawful. In Commission v Germany the Commission claimed the German Volkswagen Act 1960 violated article 63, in that §2(1) restricted any party having voting rights exceeding 20% of the company, and §4(3) allowed a minority of 20% of shares held by the Lower Saxony government to block any decisions. Although this was not an impediment to actual purchase of shares, or receipt of dividends by any shareholder, the Court of Justice's Grand Chamber agreed that it was disproportionate for the government's stated aim of protecting workers or minority shareholders.[61] Similarly, in Commission v Portugal the Court of Justice held that Portugal infringed free movement of capital by retaining golden shares in Portugal Telecom that enabled disproportionate voting rights, by creating a "deterrent effect on portfolio investments" and reduing "the attractiveness of an investment".[62] This suggested the Court's preference that a government, if it sought public ownership or control, should nationalise in full the desired proportion of a company in line with TFEU article 345.[63]

Capital within the EU may be transferred in any amount from one country to another (except that Greece currently has capital controls restricting outflows, and Cyprus imposed capital controls between 2013 and April 2015). All intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs.[64] This includes all member States of the EU, even those outside the eurozone providing the transactions are carried out in euro.[65] 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.[66]

The final stage of completely free movement of capital was thought to require a single currency and monetary policy, eliminating the transaction costs and fluctuations of currency exchange. Following a Report of the Delors Commission in 1988,[67] the Treaty of Maastricht made economic and monetary union an objective, first by completing the internal market, second by creating a European System of Central Banks to coordinate common monetary policy, and third by locking exchange rates and introducing a single currency, the euro. Today, 19 member states have adopted the euro, while 9 member states have either determined to opt-out or their accession has been delayed, particularly since the Eurozone crisis. According to TFEU articles 119 and 127, the objective of the European Central Bank and other central banks ought to be price stability. This has been criticised for apparently being superior to the objective of full employment in the Treaty on European Union article 3.[68]

Freedom to establish and provide services[edit]

See also: European company law and European labour law

As well as creating rights for "workers" who generally lack bargaining power in the market,[69] the Treaty on the Functioning of the European Union also protects the "freedom of establishment" in article 49, and "freedom to provide services" in article 56.[70]


In Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano[71] the Court of Justice held that to be "established" means to participate in economic life "on a stable and continuous basis", while providing "services" meant pursuing activity more "on a temporary basis". This meant that a lawyer from Stuttgart, who had set up chambers in Milan and was censured by the Milan Bar Council for not having registered, should claim for breach of establishment freedom, rather than service freedom. However, the requirements to be registered in Milan before being able to practice would be allowed if they were non-discriminatory, "justified by imperative requirements in the general interest" and proportionately applied.[72] All people or entities that engage in economic activity, particularly the self-employed, or "undertakings" such as companies or firms, have a right to set up an enterprise without unjustified restrictions.[73] The Court of Justice has held that both a member state government and a private party can hinder freedom of establishment,[74] so article 49 has both "vertical" and "horizontal" direct effect. In Reyners v Belgium[75] the Court of Justice held that a refusal to admit a lawyer to the Belgian bar because he lacked Belgian nationality was unjustified. TFEU article 49 says states are exempt from infringing others' freedom of establishment when they exercise "official authority", but this did an advocate's work[clarification needed] (as opposed to a court's) was not official.[76] By contrast in Commission v Italy the Court of Justice held that a requirement for lawyers in Italy to comply with maximum tariffs unless there was an agreement with a client was not a restriction.[77] The Grand Chamber of the Court of Justice held the Commission had not proven that this had any object or effect of limiting practitioners from entering the market.[78] Therefore, there was no prima facie infringement freedom of establishment that needed to be justified.

In regard to companies, the Court of Justice held in R (Daily Mail and General Trust plc) v HM Treasury that member states could restrict a company moving its seat of business, without infringing TFEU article 49.[81] This meant the Daily Mail newspaper's parent company could not evade tax by shifting its residence to the Netherlands without first settling its tax bills in the UK. The UK did not need to justify its action, as rules on company seats were not yet harmonised. By contrast, in Centros Ltd v Erhversus-og Selkabssyrelsen

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