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The logic of competitive federalism appears to lend support to a strong, substantive version of market access19 and to a wide principle of mutual recognition. Legal guarantees of mobility for persons and resources would maximise the disciplinary effects of exit. Hence, a strong version of market access should in principle apply to the right of free movement of persons and to the right of freedom of establishment and to supply services. However, this alone is not sufficient. Even with strong legal guarantees of free movement, linguistic, cultural and other practical "barriers" to movement on the part of people and organisations could be expected to persist, at least in the context of the EU (by comparison to the culturally more homogenous USA). Nevertheless, migration may still have a powerful effect. It may be sufficient for a few, "marginal" consumers to make (or be prepared to make) the move in order for a disciplinary effect to arise. Another possibility is "selective regulatory migration". This occurs where persons are free to adopt the laws of a particular Member States for selected purposes. In essence the Delaware effect is an illustration of this - an enterprise can choose to be bound by just one aspect of Delaware law (its corporations law)20 while remaining subject to the laws of other member states in relation, for example, to employment law or product liability.
In practice, regulatory competition within the EC does not rest on migration alone. Given the practical barriers to free movement within the EC, in general, it is easier (or, less costly) for goods to move to persons rather than the other way round: therefore, free movement of goods acts as a proxy for free movement of persons. Thus the Cassis principle,21 by requiring the receiving or "host state" to open its markets to goods legitimately produced in any other Member State (the "home state"), provides a vital additional mechanism for subjecting laws to the forces of regulatory competition. This is the essence of "mutual recognition". Consumers in the host state now have a choice of goods produced under different regulatory regimes. Competition between goods produced under different legal systems means, in effect, that the laws of those systems are thrown into competition with each other too.
Nevertheless, if applied without any qualification, there is the danger that mutual recognition would lead to a race to the bottom, and to a deregulation of standards.22 If State A, with high standards, is obliged to admit goods from State B with low standards, State A could well be forced to lower its standards to enable its national industries to compete with imported goods on its own domestic market and also on foreign markets. Proponents of deregulation might argue that this result is desirable, since it represents a spontaneous outcome driven by the operation of a market for legal rules. However, in a situation where the process was triggered by judicial intervention, the argument for spontaneity is a weak one. Furthermore, such a race risks leading ultimately to uniformity at the bottom. Thus, as we shall see, a strong market access test undermines the possibility for diversity at national level which is considered one of the strengths of competitive federalism.
The danger of a race to the bottom is acknowledged within EC law on free movement. One restraint on race to the bottom is the principle of reverse discrimination. State A can insist that its own manufacturers produce goods to the higher standards for the domestic market while being obliged to admit State B's goods made to a lower standard. Consumers then have the choice to purchase the cheaper, inferior quality goods or the more expensive, superior quality goods.23
Stronger protection against a race to the bottom is derived from the presence of justifying factors for state-level laws, such as the derogations provided for in the Treaty and the "mandatory requirements" discussed in Cassis and the subsequent case-law.24 The mandatory requirements idea, and its equivalents in the cases of freedom of movement of workers and services and freedom of establishment, allow Member States themselves to set a "floor" to the competitive process, subject, however, to the need to satisfy a "rule of reason" test combined with the concept of proportionality. The mandatory requirements principle allows a degree of autonomy in national law-making to be preserved and sets some ground rules for regulatory competition, without the need to resort to centralised standard-setting through harmonisation. However, the success of this approach depends on how, in practice, the principle is interpreted and applied. If it is applied too strongly, Member States will use mandatory requirements as a cover for laws protecting local interests against competition. If it is interpreted too loosely, a court-induced race to the bottom may still ensue.
How far, then, do the current EC rules on free movement match up to the logic of competitive federalism? In practice, two issues must be resolved. The first relates to the notion of "access to the market". Is access to be understood in a formal sense or a substantive sense? The second issue concerns justifications and derogations. We ask how far will the Court allow a Member State to take advantage of a justifying factor, and how stringently it will review the national measure in question by reference to the proportionality test. We now turn to a more detailed examination of these questions, beginning with the concept of access.
Tests for determining access to the market can be either formal or substantive. By formal market access, we mean a test which asks whether the formal conditions of entry and exit are met. If any such formal barriers exist they must be removed. Thus, according to the formal market access approach it is sufficient that the goods be allowed onto the foreign market, irrespective of how difficult it is in practice for those goods actually to be sold once they have gained access to that market. By contrast, the substantive sense of the notion of market access focuses on these very practical difficulties experienced once the goods have penetrated the market, and requires that these be eliminated. To give an example, the formal approach to market access would require a German rule banning the importation of French Cassis into Germany to be struck down. The substantive approach would require not only formal access of French cassis to the market (the removal of the import ban) but also, potentially, the elimination of any quality requirements that the French cassis would have to comply with.
We suggest that it is possible to detect in the Court of Justice's jurisprudence, albeit not clearly articulated, a spectrum of possibilities between these two senses of the test.
At one end of the spectrum there are cases in which the Court favours a strong version of market access, according to which all goods and persons should have substantive, and not simply formal, access to the markets in other Member States. Any national regulation which impedes market access is contrary to the Treaty. This version of market access does not depend on showing any form of discrimination. As Advocate General Jacobs said in Leclerc:25
a test of discrimination ... seems inappropriate. The central concern of the Treaty provisions on the free movement of goods is to prevent unjustified obstacles to trade between Member States. If an obstacle to inter-state trade exists, it cannot cease to exist simply because an identical obstacle affects domestic trade.26
With this substantive approach, the emphasis is on direct and substantial hindrance to market access.
This approach can be seen particularly clearly in the cases of Bosman27 and Alpine Investments.28 When considering the rules concerning transfer fees in Bosman, the Court said:
It is sufficient to note that, although the rules in issue in the main proceedings apply also to transfers between clubs belonging to different national associations within the same Member State and are similar to those governing transfers between clubs belonging to the same national association, they still directly affect players' access to the employment market in other Member States and are thus capable of impeding freedom of movement for workers. (emphasis added).
In Alpine, a case concerning a ban on cold calling in the financial services industry, the Court, having noted that the measure was non-discriminatory, said the national measure "directly affects access to the markets in services in the other Member States and is thus capable of hindering intra-Community trade in services".29 Similarly, in Schindler30 the Court ruled that while a ban on holding national lotteries was non-discriminatory,31 foreign service providers were denied access to a new market from which they could gain new customers. In all three cases, the burden of demonstrating the existence of a justifying factor then passed to the defendant, usually the Member State.
Centros32can also be understood as a case in which the Court struck down a rule on the grounds that it substantively impeded market access. Here, a Danish company registrar refused to register a branch of Centros Ltd., a company incorporated in the UK, so as to enable it to carry on business in Denmark. At first sight, this looks like a clear case of formal access being denied, the access being that of Centros Ltd. to the Danish market. What was really at stake, though, was the access of Mr. and Mrs. Bryde, the founders of Centros Ltd., to incorporation procedures of UK company law. The Brydes incorporated Centros Ltd. in England for the purpose of avoiding the Danish law relating to minimum capital requirements for privately-held companies. Apparently they never intended that Centros Ltd. would trade in the UK. This was the reason given by the company registrar for his decision; to allow Centros Ltd. to trade in Denmark would be to condone an abuse of Danish company legislation.
In finding that the registrar's decision contravened the principle of freedom of establishment under Article 43 (subject to the possibility of justification), the Court assumed that a substantive barrier to the exercise by Mr. and Mrs. Bryde of the right to incorporate their business in the UK was sufficient for it to be intervene. Thus, this was not a case of a formal barrier to access. The Brydes were not formally prevented from incorporating Centros Ltd. in the UK. It was simply that the decision to deny them the right to trade through Centros Ltd. in Denmark removed the (substantive) benefit of doing so. Nor was Centros a case in which a test of non-discrimination was applied. Centros, then, is not the equivalent for freedom of establishment of the Cassis test of mutual recognition in respect of free movement of goods; it goes beyond Cassis by adopting a test of market access which is at the category one, extreme end of the approaches adopted by the Court.
The substantive approach to market access guarantees maximum exit, or at least the threat of exit, which provides one of the conditions for the operation of competitive federalism. At the same time, the substantive approach is potentially the most damaging for maintaining national diversity (and the processes of national, democratic law-making)33 since it requires the removal of the national measure which impedes market access. Perhaps for this reason, it is often coupled with a generous approach to the definition of justifying factors, as we shall see in more detail below.34
One step down from category 1 are cases where the Court applies the discrimination test and assumes that if there has been discrimination (direct or indirect) then there has been a hindrance of market access which needs to be justified. This category covers the majority of (older) cases decided on free movement of goods and persons.35 In the context of goods, the requirement of market access underpins the Dassonville36 formula which defines measures having equivalent effect. The Court said:
All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.
The point is reinforced in Rau.37 Once the Court had identified that the national restriction (in casu that margarine should be packed in cubed-shaped containers) was an indistinctly applicable measure having equivalent effect, it said:
Although the requirement that a particular form of packaging must also be used for imported products is not an absolute barrier to the importation into the Member State concerned of products originating in other Member States, nevertheless it is of such a nature as to render the marketing of those products more difficult or more expensive either by barring them from certain channels of distribution or owing to the additional costs brought about by the necessity to package the products in question in special packs which comply with the requirements in force on the market of their destination.38
It then considered whether the restriction could be justified.
Thus, these cases concern measures which are per se illegal: there is a presumption that the national measure constitutes a barrier to market access.39 Underpinning these cases is a strong sense of mutual recognition: that goods (qualifications, services) produced in one Member State are capable of being sold in another Member State. While beneficial for encouraging regulatory competition, these cases again can have negative implications for national autonomy and for the preservation of state-level regulations, threatening a race to the bottom. Moreover, where discrimination is present, unlike in category 1 (above), the Court tends to take a stricter line on justification, particularly in the fields of goods, workers and establishment.40
A further step down are cases in which the Court presumes that there is no hindrance to market access unless discrimination can be shown. This approach can be seen in respect of discriminatory selling arrangements. In De Agostini41 the Court considered a Swedish ban on television advertising directed at children under 12 and a ban on misleading commercials for skincare products. It said that "it cannot be excluded that an outright ban, applying in one Member State, of a type of promotion for a product which is lawfully sold there might have a greater impact on products from other Member States" (paragraph 42). It continued that while the efficacy of various types of promotion is a question of fact to be determined by the national court, "it is to be noted that in its observations De Agostini stated that television advertising was the only effective form of sales promotion enabling it to penetrate the Swedish market since it had no other advertising methods for reaching children and their parents".42 The Court continued that if such an unequal burden in law or fact was found then the national restriction was caught by Article 28 and the burden shifted to the Member State to justify it under principles similar to those in Cassis.
Again, in GIP,43 the Court said that a ban on advertising (this time of alcoholic drinks) was "liable to impede access to the market by products from other Member States more than it impedes access to domestic products, with which consumers are instantly more familiar".44 It was therefore caught by Article 28. It was for the national court to decide whether the public health derogation contained in Article 30 could be "ensured by measures having less effect on intra-Community trade".
De Agostini and GIP45 suggest that in the case of discriminatory selling arrangements there is a presumption that there is no hindrance of access to the market46 and the national regulation should be allowed to stand (a per se legal approach).47 The trader will then need to work hard to rebut this presumption, possibly by producing actual statistical or other evidence (as in De Agostini),48 to show that there has been an impact on his access to the market.
Thus, according to this (category three) approach, in order to preserve national diversity of regulatory standards, the market access test should mean that only discriminatory restrictions, namely directly or indirectly discriminatory measures (those having a different burden in law and fact or the same burden in law and different burden in fact), should be prohibited unless saved by a derogation or a mandatory requirement. Non-discriminatory measures (those having an equal burden in law and in fact) which do not hinder access to the market (see category 4 below), by contrast, should not be subject to the review of the Court.
One drawback of this approach is that litigants will increasingly argue for a broad construction of the concept of indirect discrimination to ensure that the contested national measure is in principle caught by the Treaty and subject to review by the Court. This had already begun to happen in the pre-Keck Sunday trading cases where B&Q argued that the ban on Sunday trading had a greater impact in fact on foreign goods since more foreign goods than domestic goods were sold on Sundays.49
At the other end of the spectrum are cases in which the Court applied a weak form of the market access test - what we term formal market access - without even getting to the stage of considering justifying factors. Keck50 and Graf51 provide examples of this approach. In Keck52 the Court ruled that non-discriminatory restrictions on "certain selling arrangements" did not breach Article 28 provided the conditions laid down in paragraph 16 were satisfied.53 The Court said, in paragraph 17, that such measures were not "by nature such as to prevent their [foreign goods'] access to the market or to impede access any more than it impedes the access of domestic products".54 A major difficulty with this ruling is both the extreme formalism involved in singling out the special category of "selling arrangements"55 and the assertion in paragraph 17 that certain selling arrangements did not prevent access to the market: certain non-discriminatory selling arrangements, such as a total ban on the sale of a particular product such as cigarettes, pornography, alcohol or illegal drugs,56 can be viewed as preventing access to the market. Nevertheless, the Court has applied the ruling with enthusiasm.57
Graf concerned a German national who had worked for his Austrian employer for four years when he terminated his contract in order to take up employment in Germany. Under Austrian law, a worker who had worked for the same employer for more than three years was entitled to compensation when his employment came to an end, subject to a proviso to the effect that the right would be forfeited if the employment was terminated on the worker's own initiative (ie if the worker resigned, as opposed to being dismissed). Graf argued that the proviso contravened Article 39 because it constituted an obstacle to the free movement of workers. The Court disagreed. It said that the Austrian law was genuinely non-discriminatory and that:
... it was not such as to preclude or deter a worker from ending his contract of employment in order to take a job with another employer, because the entitlement to compensation on termination of employment is not dependent on the worker's choosing whether or not to stay with his current employer but on a future and hypothetical event, namely the subsequent termination of his contract without such termination being at his own initiative or attributable to him.
Such an event is too uncertain and indirect a possibility for legislation to be capable of being regarded as liable to hinder free movement for workers where it does not attach to termination of a contract of employment by the worker himself the same consequence as it attaches to termination which was not at his initiative or is not attributable to him... 58
From these cases it can be seen that the goods in Keck had formal access to the French market; and the worker in Graf had formal access both to the German and Austrian labour markets. What the individuals were complaining about was more substantive impediments to their market access. In both cases such complaints fell on deaf ears. Hence in neither case could the applicants challenge the substance of the national legislation in question.
In Graf, the distinction between formal and substantive notions of access is made particularly clear in the Opinion of Advocate General Fennelly. He noted that, in Bosman, the Court had applied a test of whether "provisions... preclude or deter a national of a Member State from leaving his country of origin in order to exercise his right to freedom of movement", and that in Gebhard59 the Court had talked of "national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty". He, nevertheless, argued that these tests related "solely to the sorts of formal conditions of access to the employment market which were at issue in those...cases". He favoured a test under which "neutral national rules could only be deemed to constitute material barriers to market access, if it were established that they had actual effects on market actors akin to exclusion from the market. As in the case of rules regarding selling arrangements in the case of goods, there can be no presumption that neutral national commercial regulations, or those governing pay scales, social protection and other matters of concern to workers, have this effect."
As we have seen, the Court in Graf, relying on a number of pre-Keck cases, identified certain effects which were "too uncertain and indirect" to hinder free movement of persons. Thus, the national employment legislation in question did not fall under the scrutiny of EC law and national diversity was maintained. One aspect of Graf is that the rule in question was regarded as applying in a non-discriminatory manner. In Keck, also, the Court identified non-discriminatory certain selling arrangements as another area which would never be subject to review. As Advocate General Tesauro noted in Hünermund,60 the purpose of the Community rules in respect of the free movement of goods was to liberalise inter-state trade or and not to encourage the unhindered pursuit of commerce in the individual Member States. In these cases, then, the Court accepted that provided formal access to the market was permitted, it would not review other measures which might (more substantively) hinder market access.
What marks out Graf and Keck as cases in which a test of formal market access was appropriate? We have already noted the unsatisfactory aspects of the "selling arrangements" concept used in Keck. In Graf, as we have seen, the Court concluded that any negative effect of the rule being challenged was too "uncertain and indirect", a formula which itself does little to dispel uncertainty. The Court argued that since it was uncertain that Graf would have received compensation upon the termination of employment in any event, for him to lose it by resigning his job to take up an employment in another Member State could not be said to be a sufficient deterrent to freedom of movement. This prompts the question of what the Court would have decided had it been clearer that Graf would otherwise have qualified for compensation. A rule which was discriminatory or which was non-discriminatory but substantially hindered access to the market would have been subjected to closer scrutiny.
However, what more clearly sets Graf aside from decisions such as Centros is that Graf was claiming, in effect, for a kind of levelling up of labour standards. The logic of his claim was that the standards of employment protection operating under the Austrian law on termination of employment should be raised in such a way as to make it easier for workers to exercise rights of entry and exit. If this principle had been accepted, an inverted form of mutual recognition would have been established, under which Member States would have been required to come up to the standards of the most protective jurisdiction in relation to the treatment of migrant workers. It is not surprising that the Court, faced with the invitation to initiate a forced "race to the top", declined to do so, stressing instead the autonomy of Member States in the labour law field. However, the resulting stress on formal access as the relevant test stands in stark contrast to the emphasis, in Centros, on ensuring that the substantive freedom of movement was protected.
In comparing Centros and Graf, it is difficult to avoid the conclusion that the Court was content to accept a test of substantive market access when it came to striking down national level regulation, only to revert to a test of formal access when it would have had the effect of requiring Member States to level up to a higher degree of social protection. Hence the difficulty with an open-ended, substantive market access test is that, in the words of Advocate General Fennelly, it will be "exploited as a means of challenging any national rules whose effect is simply to limit commercial freedom".61 By contrast, a more restrictive, formal access test has the merit of protecting national legislative autonomy: goods have access to the French market but they cannot be resold at a loss and workers can work in Austria and Germany but they cannot challenge the validity of national employment legislation under EC law.
To sum up the argument so far: the crucial determinants of a market access test are whether access is defined formally or substantively, and whether discrimination between nationals of the host state and those of other Member States is required for the Court's intervention to be triggered. Across the range of free movement cases, we find surprisingly little consistency in the approach of the Court; its decisions range all the way from those in which a substantive access test is coupled with the absence of a discrimination requirement, to those in which a formal access test is adopted. These cases may be explained in part by historical accident and their place in the development of a complex jurisprudence by the Court of Justice. Nevertheless, such explanations do not help with clarity. This uncertainty is compounded when we look more closely at the Court's approach to the application of justifying factors.
As we have seen, if a substantive market access test is adopted (categories one to three), the focus shifts to justification. In effect, while there is a presumption in favour of market access, this can be rebutted by the Member State demonstrating an overriding national or pubic interest. This was of course the essence of the decision in Cassis de Dijon. Having established the principle of mutual recognition, the Court said:
Obstacles to movement in the Community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognised as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer.62
In the context of services, the Court has adopted a similar approach. In Gouda63 the Court said that national restrictions come "within the scope of [Article 49] if the application of the national legislation to foreign persons providing services is not justified by overriding reasons relating to the public interest or if the requirements embodied in that legislation are already satisfied by the rules imposed on those persons in the Member States in which they are established".64 The Court has recognised a much longer and fuller list of justifications in the context of workers and services65 than in goods66 and is more lenient in their application in respect of the more sensitive types of services.67 For example, in Schindler68 the Court had to consider the UK's justifications on a ban on holding national lotteries. The UK pointed to its concerns about preventing crime and avoiding stimulating the gambling sector with damaging social consequences - all this at a time when the National Lotteries Act 1993 had been passed, a fact the Court had noted.69 Nevertheless, the Court accepted these arguments at face value. It said:
Those particular factors justify national authorities having a sufficient degree of latitude to determine what is required to protect the players and, more generally, in the light of the specific social and cultural features of each Member State, to maintain order in society, as regards the manner in which lotteries are operated, the size of the stakes, and the allocation of the profits they yield. In those circumstances, it is for them to assess not only whether it is necessary to restrict the activities of lotteries but also whether they should be prohibited, provided that those restrictions are not discriminatory.70
In goods, by contrast, the Court usually gives short shrift to arguments based on the national need to ensure consumer protection or public health. It either finds that there is no such interest or, despite the fact that the case involves a preliminary reference, that the interest can be protected in a more proportionate manner.71 Thus, in Heimdienst72 the Court considered national legislation under which bakers, butchers and grocers could "make sales on rounds in a given administrative district, such as an Austrian Verwaltungsbezirk, only if they also trade from a permanent establishment in that administrative district or an adjacent municipality where they offer for sale the same goods as they do on rounds". Having noted that the measure concerned a certain selling arrangement, it said that the national rule "in fact impedes access to the market of the Member State of importation for products from other Member States more than it impedes access for domestic products"73 and thus breached Article 28. It then considered whether the national legislation could be justified under Cassis-type mandatory requirements such as the need "to avoid deterioration in the conditions under which goods are supplied at short distance in relatively isolated areas of a Member State". On the facts it found that the objective could be obtained by measures that had effects less restrictive of intra-Community trade such as by rules on refrigerating equipment in the vehicles used.
In respect of workers, the Court has also taken a restrictive approach to justification. For example, in Bosman the Court recognised that non-discriminatory measures could be objectively justified but adopted a rigorous approach to the various justifications put forward by the football associations. For example, the football associations argued that in view of the considerable social importance of sporting activities, particularly football, in the Community, the aims of maintaining a balance between the clubs by preserving a certain degree of equality and uncertainty as to results and of encouraging the recruitment and training of young players had to be accepted as legitimate. However, the Court, while recognizing that some form of regulation was legitimate, supported Bosman's contention that the application of the transfer rules was not an adequate means of maintaining financial and competitive balance in the world of football. Those rules neither precluded the richest clubs from securing the services of the best players nor prevented the availability of financial resources from being a decisive factor in competitive sport, thus considerably altering the balance between clubs.74
The Court is also rigorous in its approach to justification in respect of establishment. In Centros, the Court, having found that the case fell within the freedom of establishment principle, then went on to consider whether the Danish government could show that the refusal to register the branch was justifiable in the circumstances. The Danish government argued that the registrar's action was intended to maintain Danish law's minimum capital requirement for the formation of private companies. The purpose of this law was:
first, to reinforce the financial soundness of those companies in order to protect public creditors against the risk of seeing the public debts owing to them become irrecoverable since, unlike private creditors, they cannot secure these debts by means of guarantees and, second, and more generally, to protect all creditors, public and private, by anticipating the risk of fraudulent bankruptcy due to the insolvency of companies whose initial capitalisation was inadequate.75
The Court ruled that the justification offered was inadequate since, in the first place, "the practice in question is not such as to attain the objective of protecting creditors which it purports to pursue since, if the company concerned had conducted business in the United Kingdom, its branch would have been registered in Denmark, even though Danish creditors might have been equally exposed to risk".76 In other words, the registrar's decision failed the proportionality test since it was inconsistent - the vital factor in his refusal was, it seems, the failure of the company to trade in the UK, but this was immaterial to the protection of creditors since they would have been no better off if the company had previously traded and, as a result, had been able to get its branch registered in Denmark.77
There is a paradox in the Court's approach to justifications. The theory of competitive federalism places emphasis on the need for persons to gain unrestricted access to other national markets to ensure that competition between legal systems functions effectively. According to the model, this would suggest a substantive approach to market access combined with restricted use of the justifications by the Member States. As we have seen, however, this might produce the most damaging effects on the diversity of national laws. Given the low numbers of people taking advantage of the free movement rules, for the reasons outlined above, this might be a price worth paying to ensure the successful functioning of regulatory competition. The approach adopted by the Court in the context of free movement of workers and establishment could be justified by this kind of logic. By contrast, since goods are more mobile than persons, there is less of a need for a substantive approach to market access in relation to free movement of goods and greater scope for a more lenient approach to the use of justifications by the Member States to preserve national regulatory diversity. However, as we have seen, the Court's case law tends towards the opposite result: it adopts a restrictive approach to the use of the justifications by the Member States in the context of goods,78 while allowing the Member States considerable latitude in raising public interest requirements in the context of services. This difference in approach might be explained on political rather than economic grounds. It is often difficult for the receiving state to control the activities of a temporary service provider. On the other hand, in the case of non-discriminatory certain selling arrangements the Court has identified an area in which national regulatory autonomy is preserved and protected entirely from judicial review. Although the precise reasoning used to do this in the Keck case has been much criticised, the approach taken by the Court makes sense according to the logic of regulatory competition which we have just outlined.
Nevertheless, when a substantive test of market access is coupled with a restrictive reading of justifying factors, as in Centros, Heimdienst or Bosman, the likely result is a strong push from the Court in the direction of deregulation. While it is possible to construct an argument for deregulation within the EU,79 it is also possible to put the opposite point of view, in favour of the maintenance of high regulatory standards;80 either way, the case should be argued on its merits and not dressed up in the language of market integration. This is one difficulty with the model of competitive federalism, but it is not the only one. Competitive federalism threatens to induce not so much a race to the top or to the bottom, but a race to uniformity which will undermine the benefits, in terms of diversity and experimentation, which regulatory competition is intended to capture, without guaranteeing that the result will necessarily be efficient.
This, above all, is the lesson of Delaware. It is extremely difficult to judge whether or not the substance of Delaware law is more or less efficient than feasible alternatives. What is clear, however, is that the success of Delaware has spawned numerous imitators, and that a high degree of uniformity in the law of the individual states has resulted from the state competition to attract incorporations. This is in contrast to the diversity which continues to characterise European company law systems.81 The paradox of competitive federalism, at least in its stronger forms, it that it undermines the possibility for diversity and hence for experimentation which is said to be one of the advantages of a market for legal rules over a system based on harmonisation of standards. It may be that, if diversity is to be preserved, limits must be placed on the market access principle. But this need not imply the end of regulatory competition, as the next section shows.
19 This terminology is explained in detail below in section 3.2.
20 Due to the application of the doctrine of the state of incorporation doctrine.
21 Case 120/78 Rewe Zentrale v. Bundesmonopolverwaltung fur Branntwein ("Cassis de Dijon") [1979] ECR 649.
22 For a discussion of this problem in respect of food, see O Brouwer, "Free Movement of Foodstuffs and Quality Requirements; Has the Commission got it Wrong?" (1988) 25 CMLRev 237, 248-252.
23 This is the basis for the TV without Frontiers Directive 89/552 OJ [1989] L 298/23 as amended by Directive 97/36 OJ [1997] L202/60. This issue is considered in detail in M Dougan, "Minimum Harmonisation and the Internal Market" (2000) 37 CMLRev 845, 867.
24 See further the chapter by Joanne Scott in this collection.
25 Case C-412/93 Leclerc-Siplec v. TF1 Publicité [1995] ECR I-179.
26 Para.39. See also AG Lenz in Case C-391/92 Commission v. Greece [1995] ECR I-1621, para.14 "Article 30 [new Article 28] goes beyond a mere prohibition of discrimination... The aim of Article 30 continues to be to prohibit such measures in order to establish and maintain an internal market".
27 Case C-415/93 Bosman v ASBL [1995] ECR I-4921.
28 Case C-384/93 Alpine Investments v Minister van Financien [1995] ECR I-1141.
29 Para.38. It then went on to hold that the national measure could be justified under "imperative reasons of the public interest" such as "maintaining the good reputation of the national financial sector" and that the ban on cold-calling was proportionate.
30 Case C-275/92 Customs & Excise v. Schindler [1994] ECR 1039.
31 Para.53.
32 Centros v. Erhvers- og Selskabsstyrelsen [1999] ECR-I 1459
33 For a consideration of the US literature on this issue, see L Tribe, American Constitutional Law, vol.1, (Foundation Press, New York, 2000), 1052.
34 See section 3.3.
35 For references see Barnard, supra n.1
36 Case 8/74 Procureur du Roi v. Dassonville [1974] ECR 837, para.5.
37 Case 261/81 Walter Rau v. De Smedt [1982] ECR 3961.
38 Para.13.
39 See AG Jacobs in Case C-412/93 Leclerc [1995] ECR I-179, para.44 where he said that where a national measure "prohibits the sale of goods lawfully placed on the market in another Member State (as in Cassis de Dijon), it may be presumed to have a substantial impact on access to the market, since the goods are either denied access altogether or can gain access only after being modified in some way; the need to modify goods is itself a substantial barrier to market access".
40 See further section 3.3
41 Joined Cases C-34-36/95 Konsumentombudsmannen v De Agostini [1997] ECR I-3843.
42 Para.43.
43 Case C-405/98 Konsumentombudsmannen (KO) v Gourmet International Products AB (GIP), judgment of 8 March 2001.
44 Para.21.
45 See also Case C-254/98 Schutzverband gegen unlauteren Wettbewerb v. TK-Heimdienst Sass GmbH, judgment of 13 January 2000 considered below.
46 See AG Fennelly in Case C-190/98 Graf v. Filzmozer Maschinenbau GmbH [2000] ECR I-000, para.19 "It is legitimate for the Court to develop presumptions about the market effects of different broadly defined categories of rules, provided that, in concrete cases, the validity of the presumption may be tested against the underlying criterion of market access, rather than automatically being taken as being sufficient in itself to dispose of the case."
47 See K Armstrong, "Regulating the free movement of goods" in J Shaw and G More Dynamics of European Integration, (Oxford, Clarendon, 1996).
48 As the Court said in Joined Cases C-34-36/95 De Agostini [1997] ECR I-3843, "an outright ban", applying in one Member State, on advertising certain products which are lawfully sold there would fall within Article 30 (new Article 28), if it could be shown to have a "greater impact on products from other Member States" (para.42).
49 See, e.g. Case 145/88 Torfaen BC v B&Q [1989] ECR 765 discussed in C Barnard, "Sunday Trading: A Drama in Five Acts", (1994) 57 MLR 449.
50 Joined Cases C-267/91 and C-268/91 Keck and Mithouard [1993] ECR I-6097.
51 Case C-190/98 Graf v. Filzmozer Maschinenbau GmbH [2000] ECR I-000.
52 Joined Cases C-267/91 and C-268/91 Keck and Mithouard [1993] ECR I-6097. For comments on this case, see inter alia Roth, "Comment" (1994) 31 CMLRev. 845; CELS Treaty project (1997) 22 ELRev. 447-452; D Chalmers, "Repackaging the internal market the ramifications of the Keck judgment" (1994) 19 ELRev 385; L Gormley, "Reasoning renounced? The remarkable judgment in Keck and Mithouard [1994] EurBusLRev 63; M Poiares Maduro, "Keck: the end? Or just the end of the beginning?" (1994) Irish J of Eur Law 33 and "Reforming the Market or the State? Article 30 and the European Constitution: Economic Freedom and Political Rights" (1997) 3 ELJ 55.
53 Para.16 provides: "However, contrary to what has previously been decided, the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder, directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgment (...) provided that those provisions apply to all affected traders operating within the national territory and provided that they affect in the same manner, in law and in fact, the marketing of domestic products and those from other Member States."
54 Para.17.
55 See Barnard, supra, n.1.
56 Cf Case 34/79 Henn and Darby [1979] ECR 3795 concerned a total ban on the importation (as opposed to the sale) of products (in casu pornographic literature). This was found to be a quantitative restriction on imports within the meaning of Article 30 (new Art.28).
57 See, e.g.Case C-292/92 Hünermund [1993] ECR I-6787; Case C-412/93 Leclerc-Siplec v. TF1 Publicité [1995] ECR I-179.
58 Paras. 24-25. Emphasis added. For another example of case concerning absence of hindrance of market access, or, to be precise where the hindrance to market access is inherent in the structure of the market itself, as in Joined Cases C-51/96 and C-191/97 Deliège v Asbl Ligue Francophone de Judo, judgment of 11 April 2000, para.64 "although selection rules like those at issue in the main proceedings inevitably have the effect of limiting the number of participants in a tournament, such a limitation is inherent in the conduct of an international high-level sports event, which necessarily involves certain selection rules or criteria being adopted. Such rules may not therefore in themselves be regarded as constituting a restriction on the freedom to provide services prohibited by Article 59 [Article 49] of the Treaty.
59 Case C-55/94 Gebhard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano [1995] ECR I-4165 (establishment of German lawyer in Itlay wishing to use the name avvocato).
60 See AG Tesauro's opinion in Case C-292/92 Hünermund [1993] ECR I-6787 which seems to have influenced the Court more in Keck than those of AG Van Gerven, the Advocate General in Keck.
61 Case C-190/98 Graf [2000} ECR I-000, Opinion, at para 32.
62 Para.8. In addition the Court has recognised the following mandatory requirements: Case 155/80 Oebel [1981] ECR 3409 (protection of the working environment); Case 60/84 Cinethèque [1985] ECR 2605 (cinema as form of cultural expression); Case 145/88 Torfaen Borough Council v. B & Q [1989] ECR 3851 (protection of national or regional socio-cultural characteristics); Case C-368/95 Vereinigte Familiapress Zeitungsverlags- und vertriebs GmbH ("Familiapress") v Heinrich Bauer Verlag [1997] ECR I-3689 (maintenance of the plurality of the press); Case 302/86 Commission v. Denmark [1988] ECR 4607 and Case C-389/96 Aher-Waggon GmbH v. Germany [1998] ECR I-4473 ; Case C-120/95 Decker v Caisse de Maladie des Employés Privés [1998] ECR I-1831 (preventing the risk of seriously undermining the financial balance of the social security system).
63 Case C-288/89 Stichting Collectieve Antennevoorziening Gouda v Commissariaat voor de Media [1991] ECR I-4007.
64 Paras.12-13.
65 See e.g., Case C-288/89 Gouda [1991] ECR I-4007 citing professional rules intended to protect the recipients of a service - Cases 110/78 and 111/78 Van Wesemael [1979] ECR 35; protection of intellectual property - Case 62/79 Coditel [1980] ECR 881; protection of workers - Case 279/80 Webb [1981] ECR 3305; consumer protection - Case C-180/89 Commission v Italy (Tourist Guides) [1991] ECR I-709 Joined Cases C-34/95, C-35/95 and C-36/95 De Agostini [1997] ECR I-I-3843; conservation of the national historic and artistic heritage - Case C-180/89 Commision v Italy; turning to account the archaeological, historical and artistic heritage of a country and the widest possible dissemination of knowledge of the artistic and cultural heritage of a country - Case C-154/89 Commission v France [1991] ECR I-659, Case C-198/89 Commission v Greece [1991] ECR I-727, Case C-23/93 TV10 [1994] ECR I-4795. In addition, the Court has recognised the need to safeguard the reputation of the Netherlands financial markets and to protect the investing public Case C-384/93 Alpine Investments [1995] ECR I-1141; preventing gambling and avoiding the lottery from becoming the source of private profit - Case C-275/92 Schindler [1994] ECR 1039; avoiding the risk of crime or fraud - Case C-275/92 Schindler [1994] ECR 1039; avoiding the risk of incitement to spend, with damaging individual and social consequences - Case C-275/92 Schindler [1994] ECR 1039; requirements of road safety - Case C-55/93 Van Schaik [1994] ECR I-4837; the social protection of workers in the construction industry - Case C-272/94 Guiot [1996] ECR I-1905 and Joined Case C-369/96; and the protection of creditors of a company against the risk of insolvency - Case C-212/97 Centros v. Erhvers- og Selskabsstyrelsen [1999] ECR-I 1459, at para.34. See also Hatzopoulos, "Recent Developments of the Case Law of the ECJ in the Field of Services" (2000) 37 CMLRev 43, 77.
66 Case 120/78 Rewe Zentrale v. Bundesmonopolverwaltung fur Branntwein ("Cassis de Dijon") [1979] ECR 649.
67 See C Hilson, "Discrimination in Community free movement law" (1999) 24 ELRev 445, 461.
68 Case C-275/92 Schindler [1994] ECR I-1039, para.61.
69 See, eg, para.51.
70 In Case C-124/97 Läärä [1999] ECR I-6067, para.36 the Court added that "the mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of the need for, and proportionality of, the provisions enacted to that end. Those provisions must be assessed solely by reference to the objectives pursued by the national authorities of the Member State concerned and the level of protection which they are intended to provide". This is a departure from the "majoritarianism" identified by M Poiares Maduro, We, the Court (Oxford, Hart, 1998), 72 which has characterised many of the decisions on goods.
71 Generally labelling is the most proportionate solution: e.g Case 286/86 Minstère Public v Deserbais [1988] ECR 4907; Case C-358/95 Tommaso Morellato v Unità sanitaria locale (USL) n. 11 di Pordenone [1997] ECR I-1431.
72 Case C-254/98 Schutzverband gegen unlauteren Wettbewerb v. TK-Heimdienst Sass GmbH, judgment of 13 January 2000.
73 Para.[54]. Emphasis added.
74 Para.218.
75 Centros, para. 32.
76 Ibid., para. 35.
77 For criticism of this aspect of the Court's reasoning in Centros, see S Deakin, "Two types of regulatory competition: competitive federalism versus reflexive harmonisation. A law and economics perspective on Centros" (1999) 2 Cambridge Yearbook of European Legal Studies 231.
78 Even where the Court accepts that there is a public interest at stake the Court will apply the principle of mutual recognition. Thus, in Case 272/80 Frans-Nederlandse Maatschappij voor Biolgishche Producten [1981] ECR 3277. See also Case C-292/94 Criminal Proceedings against Brandsma [1996] ECR I-2159 the Court said that while the host state is entitled to require the product to undergo a fresh examination (a system of double checks), the host state authorities are not entitled unnecessarily to require technical or chemical analyses or laboratory tests where those analyses or tests have already been carried out in another Member State and their results are available to the host state authorities. The Court also applies this approach to the freedom to provide services. As we have seen from the words emphasised above in Gouda, the host state can only impose additional requirements on the migrant service provider where the host state's national interest is not already protected from the state of establishment.
79 See M Streit and W Mussler "The Economic Constitution of the European Community: from `Rome' to `Maastricht'" (1995) ELJ 5.
80 S Deakin and F Wilkinson, "Rights versus Efficiency? The Economic Case for Transnational Labour Standards" (1994) 23 ILJ 289.
81 See S. Deakin, "Regulatory Competition versus Harmonisation in European Company Law" in D Esty and D Geradin (eds.) Regulatory Competition and Economic Integration: Comparative Perspectives (Oxford: OUP, 2000).