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Four Freedoms (European Union)
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In European Union law, the Four Freedoms is a common term for a set of treaty provisions, secondary legislation and court decisions, protecting the ability of goods, services, capital, and labour to move freely within the internal market of the European Union. More precisely, they are:
These four freedoms form part of the substantive law of the EU.
Although it is not easy to summarize compactly the activities of the European Union, one can define them as the free flow of economic factors, in pursuit of greater prosperity of the states and their citizens.
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In European Union law, the Four Freedoms is a common term for a set of treaty provisions, secondary legislation and court decisions, protecting the ability of goods, services, capital, and labour to move freely within the internal market of the European Union. More precisely, they are:
- The free movement of goods;
- The free movement of persons (and citizenship), including free movement of workers, and freedom of establishment;
- The free movement of services;
- The free movement of capital.
These four freedoms form part of the substantive law of the EU.
Although it is not easy to summarize compactly the activities of the European Union, one can define them as the free flow of economic factors, in pursuit of greater prosperity of the states and their citizens. The law of the Single Market plays a key role there by removing the barriers that member states might otherwise impose on trade originating in other member states.
The four freedoms are fundamental to the common market. Not only goods, but also factors of production can move freely between member states. The single market is intended to be conducive to increased competition, increased specialisation and larger economies of scale. Further, the common market allows goods and factors of production to move to the area where they are most valued, thus improving the efficiency of the allocation of resources.
Article 12 of the EC Treaty prohibits discrimination on the basis of nationality and is one of its fundamental provisions. However, on its own it would not suffice to ensure free movement of factors of productions for the simple reason that not all barriers discriminate. For instance, a prohibition on discrimination would make illegal any measure in State A imposing a total ban or a quota on, say, toys from State B. But that provision would not prevent a measure that mandates that all toys sold in State B be packaged in recyclable material, even if such measure can in practice act as a ban or at least make the export of toys to State B more expensive. This difficulty has largely been eliminated in EU law through the concept known as “home country control”. According to this, a product or a service is allowed to access markets of other member states if it has lawfully been made/provided in the state of origin (Home State). Host State rules that present a barrier to this movement will be illegal unless justified by a set of specifically provided rules in the EC Treaty.
Free movement of goods
Customs duties and taxation
The European Union is 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" ().
Customs duties
Article 25 TC prohibits member states from levying any duties on goods crossing a border, both goods produced within the EU and those produced outside. Once a good has been imported into the EU from a third country and the appropriate customs duty paid, Article 24 TC dictates that it shall then be considered to be in free circulation between the member states.
Neither the purpose of the charge, nor its name in domestic law, is relevant ().
Since the Single European Act, there can be no systematic customs controls at the borders of member states. The emphasis is on post-import audit controls and risk analysis. Physical controls of imports and exports now occur at traders' premises, rather than at the territorial borders.
Charges having equivalent effect to customs duties
Article 25 of the European Community Treaty prohibits not only customs duties but also charges having equivalent effect. The European Court of Justice defined charge having equivalent effect in .
[A]ny pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect... even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product. ()
A charge is a customs duty if it is proportionate to the value of the goods; if it is proportionate to the quantity, it is a charge having equivalent effect to a customs duty ().
There are three exceptions to the prohibition on charges imposed when goods cross a border, listed in . A charge is not a customs duty of measure having equivalent effect if:
- it relates to a general system of internal dues applied systematically and in accordance with the same criteria to domestic products and imported products alike (),
- if it constitutes payment for a service in fact rendered to the economic operator of a sum in proportion to the service (), or
- subject to certain conditions, if it attaches to inspections carried out to fulfil obligations imposed by Community law ().
Taxation
Article 90 of the EC Treaty 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 ECJ stated:
The Court has consistently held that the purpose of Article 95 [now Article 90], 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 (see the judgment of 9 July 1987 in ).
Quantitative restrictions and measures having equivalent effect
In addition to prohibiting customs duties and discriminatory taxes, the EC Treaty, in Article 28, prohibits quotas and “measures having equivalent effect”. But what are measures having equivalent effect and how do they affect trade between member states? The Treaty does not answer these questions and European Court of Justice has over several decades provided detailed case law interpreting Article 28. In a well-known series of cases beginning with case 8/74 Dassonville, continuing with case 120/78 Cassis de Dijon and culminating in C-267/91 Keck and Mithouard, the Court has said that discriminatory and non-discriminatory rules of member states (therefore not actions of private corporations or individuals) that hinder trade shall be illegal.
Directly discriminatory rules
Directly discriminatory rules distinguish between national and imported goods in law and in fact. A prohibition of imports imposed by state A on goods from state B is directly discriminatory but restrictions do not have to take the shape of prohibitions or quotas. A Member State can lead advertising and promoting campaigns that favours domestic products, or it can impose higher prices or more stringent conditions (such as health inspections) on imported goods. The key to discrimination is that domestic products are not subject to the added difficulties, and are therefore put at an advantage.
Indirectly discriminatory rules
Indirectly discriminatory rules that hinder trade do not distinguish in law but do so in fact. They impose a higher burden on the importer due to additional work it has to complete to make the product marketable. Although in law the rules apply equally to domestic producers and importers, in reality the burden is born by importers, the domestic producers already complying with the rules. If, in addition, the product is marketed in a number of member states, the exporter from state A might be subject to as many different regimes as there are countries into which he is hoping to import.
For example, a (fictitious) law in state A is that alcoholic drinks of a particular kind must not contain more than 20% alcohol. Producer from state B makes and regularly exports drinks which contain 25% alcohol. Law in state A applies to all those who wish to market the alcoholic drinks in question – whether they are domestic in origin or foreign. In that respect, in law, they do not discriminate. On the other hand, as a result of their presence, a legally marketed drink from state B either has to be modified and its alcohol contents reduced to only 20% or must be absent from market of state A altogether. EU law, under the circumstances mentioned in the previous paragraph, prohibits this kind of distinction: although the law appears to treat all parties equally, in fact domestic producers are favoured.
Product requirements and certain selling arrangements
Naturally, allegations can be made against any rule that inconveniences the trader, and this includes a very large number of rules. Therefore, in the last of the mentioned cases, Keck, and those that followed it, the Court decided that only rules relating to product requirements (shape, size, colour, etc.) should be illegal, while those relating to selling arrangements (opening hours, staff training requirements, etc.) will mostly not be. The division was an attempt to limit the number of cases to only those situations where, in the absence of discrimination, there is real danger of importer suffering the presence of dual burden.
Justification
Under certain circumstances, member states whose rules have been disapplied may defend them. For rules that discriminate, a defence will be possible under Article 30 which mentions, among other things, public health or public morality. For example, a restriction of import of meat from certain countries will be legal if it has clear medical grounds. A restriction of importation of pornographic material may be justified if such material is normally not available in the said Member State. Non-discriminatory rules may be justified not only by reference to Article 30 but also to a Court-made list of exceptions which were first set out in the Cassis de Dijon case ().
Free movement of workers
Broadly defined, this freedom enables citizens of one Member State to travel to other to work there (permanently or temporarily). The idea behind EU legislation in this field is that citizens from other member states should be treated equally with domestic ones – they should not be discriminated against.
The main provision of the freedom of movement of persons is Article 39 (ex 48) of the EC Treaty that prohibits restrictions on the basis of nationality.
Workers have the right to move to a different Member State, to look for work and be employed under the same conditions as nationals of that State and benefit from the same social and tax advantages. This right has been extended by the Court of Justice to family members that accompany the worker, although they derive their rights from the main holder. Family members from non-EU states also have these rights. To claim these rights, family members must complete specific paperwork. In the United Kingdom, for example, the relevant document is the EEA family permit.
Free trade and markets in labour services is an essential component of economic freedom generally. National statutory minimum wage control is one of the major remaining official barriers to the establishment of a free common or single European labour market. Statutory minimum wage control or wage fixing has been criticised as:
- a special form of tariff protectionism that excludes low cost competitors from the labour market;
- a breach of the anti-slavery clause in the European Convention on Human Rights -- insofar as any authority that dictates minimum prices at which persons must sell their own labour services is effectively exercising economic ownership and control over those persons; and
- indirectly discriminatory. That is to say, while national minimum wage fixing schemes prevent low skill/low productivity workers in general from obtaining employment by selling their services below the official rate, they particularly act against young persons, women, and ethnic and cultural minorities seeking work.
Free movement of capital
Capital within the EU may be transferred in any amount from one country to another. The capital freedom is a special kind of freedom of the EC, because it allows, under certain conditions, unequal treatment of EU citizens.
Freedom of establishment
The principle of the freedom of establishment has a basis in Articles 43-48 (ex. 52-58) of the EC Treaty. To better understand the freedom of establishment, Article 43 and Article 48 tend to be read together. According to Article 42 "...restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be abolished.... Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48..." This second paragraph defines 'companies or firms' as "...companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making." The right of establishment, therefore, is granted both to natural and legal persons. ().
The principle has been broadly interpreted by the European Court of Justice. However, its restrictions have been narrowly and literally interpreted. For example, in the case of Reyners, the European Court of Justice held that "...the exceptions allowed by the first paragraph of Article 55 cannot be given a scope which would exceed the objective for which this exemption clause was inserted." (). The teeth of this principle is that natural persons, who are nationals of a Member State, and Community companies may take up economic activity in any Member State in a stable and continuous way and cannot be discriminated against based on nationality or the mode of incorporation.
Free movement of services
Free movement rights for citizens
Following the Maastricht Treaty, the rights of economically-active persons to free movement within the EU have been complemented by limited rights for non-economically-active citizens to move freely within the EU, under Article 18 (1) of the EC Treaty and Directive 2004/38/EC on the right to move and reside freely within the EU.
The fifth freedom: free movement of knowledge
Since 2007, the European Commission started to advocate making the free movement of knowledge the fifth freedom, in addition to the established Four Freedoms.
Positive and negative integration
The law of the Single Market relies on two processes of integration. The first process is negative and consists of prohibitions imposed on member states of discriminatory behaviour and other restrictive practices. The four freedoms mainly, but not exclusively, rely on this approach. There are other examples in the Treaty where it is utilized (e.g. prohibition on State Aid in Article 87).
The second process is positive and consists in approximation of laws and standards. Especially important (and controversial) in this respect is the adoption of harmonizing legislation under Article 95 of the EC Treaty.
Prior to the Delors Commission's reforms
Prior to the Delors Commission's reforms, harmonising directives had been very detailed. The process for passing such directives was slow and cumbersome, particularly since unanimity was required.
Following the Delors Commission's reforms
In the 1980s, the Delors Commission took the single market as the major goal of the Presidency. The Commission produced a White Paper which was well received and led to the adoption of the Single European Act. The new approach combined positive and negative integration, relying upon minimum rather than exhaustive harmonisation. The Commission relied upon the European Court of Justice's Cassis de Dijon () jurisprudence, under which member states were obliged to recognised 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.
Further reading
See also
External links
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