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©Copyright: G. R. Milner-Moore, 1995.
The Free Movement of Goods
Against Accountability: The Balance
The Basic Formula for Private Accountability
Remaining Details
Summary
Article 7 eec - Article 6 teu
The Free Movement of Goods Provisions
Section F: Specific Objections
Interaction with State Accountability
Competition Law
The Role of the Court
The principle that goods should move freely between Member States lies at the heart of the European Union. It is routinely applied as a check upon Member States' freedom of action. Yet, despite its central importance, it remains unclear whether the principle also imposes obligations upon private parties.
The weight of academic opinion suggests that Community law does not recognize private accountability for interference with the free movement of goods. In contrast, it seems that many commentators believe that private parties should be accountable in some circumstances. The issue is an important one for both symbolic and practical reasons. The following examples give an indication of conduct which is not clearly prohibited by established legal tools, but which might be considered by some to offend against the free movement of goods:
In this paper I consider whether such activities can and should be enjoined by Community law. Many commentators have contributed to this debate. However, the discussion has tended to be legalistic, reasoning by analogy to the free movement of workers. Whilst some commentators hint at another approach, the debate has lacked any reasoned defense of a formula for accountability tailored to private parties. Rather, an all-or-nothing approach prevails, which treats all private parties in the same way, and commonly treats them in the same way as Member States.
The fundamental question is more complex than these polar positions suggest. I shall argue that the free movement of goods provisions are capable of applying to private parties, but should be interpreted as applying only according to a restrictive formula. At the heart of this formula lie the concepts of discrimination and intentional division of the internal market.
I argue that the law is not settled, and that the Court of Justice (the 'Court') should, through a teleological interpretation of the relevant provisions, develop a particularized jurisprudence of private accountability.
In order to pursue the project from this perspective I consider first the existing law and indications of the Court's stance. At this stage I make no assumptions about the form of argument in subsequent sections, though I do suggest that the Court's apparent hostility can be explained by the simplistic manner in which the issue has been presented to it (section A). I then move to a theoretical discussion which attempts to develop a framework for discussing the desirable scope of accountability (section B). This informs the next step, the development of a set of rules of private accountability (section C). This is followed by a section relating the formula I propose to the legal materials (section D) and a section developing the meaning of 'accountability' (section E). The last section attempts to defend the argument against the most obvious objections to it (section F).
If Community law imposes accountability on private parties for interference with the free movement of goods, there is almost unanimous support for the view that it must do so through articles 30-36 of the Treaty, [4] which deal with nontariff barriers. Article 30 deals with restrictions upon imports, whereas article 34 deals with restrictions on exports. I shall focus mainly upon article 30, though much of the argument in this paper applies also to restrictions upon exports.
Three propositions emerge as the background for the debate. First, it seems that the Court is free to interpret articles 30-36 to apply to private parties. There is neither a general objection to such an interpretation of Treaty provisions, nor an objection specific to the form of articles 30-36. Secondly, the Court has not ruled on this point, so the issue remains open. However, thirdly, the Court has indicated a strong predisposition against private accountability.
There is no 'constitutional' obstacle to private accountability (often termed 'horizontal direct effect' [5]) under Treaty provisions. [6] Thus the first significant issue is the wording of the relevant provisions. The central provision is article 30 which states:
Quantitative restrictions on imports and all measures having equivalent effect shall, without prejudice to the following provisions, be prohibited between Member States. [7]
As a matter of first impression, this provision appears to be capable of applying to private parties. Its wording seems almost deliberately to avoid referring to the source of the restrictions it prohibits. This is equally true of article 3(a), which describes the free movement provisions in general terms, and article 36, which provides exceptions to article 30. Further, the Court has interpreted other Treaty provisions lacking a direct addressee as being applicable to private parties [8]. This does not demand the same interpretation in this context, but merely illustrates that no rule of construction militates against it.
The strongest case for interpreting the provisions narrowly is their context. [9] In particular, the provisions are found in a part of the Treaty which seems elsewhere to target exclusively the conduct of Member States. [10] Moreover, the more specific provisions in articles 31 to 35 appear to build upon the prohibitions in article 30 and 34(1) and yet clearly target Member States alone.
These formal arguments are, upon closer examination, considerably weaker than they may appear. In another context the Court treated surrounding provisions addressed solely to Member States as entirely independent. [11] On this view they operate upon a sub-set of the matters dealt with by the more general provisions, here articles 30 and 34(1). Finally, provided that the paradigm case of a violation of articles 30-36 remains State action, the location of these provisions along with others applying solely to State action appears to be neither surprising nor awkward.
Hence there is no obstacle at this first level of analysis which prevents a broad interpretation being given to the free movement of goods provisions.
Since the language of the relevant provisions does not preclude private accountability, the next question is whether the Court has developed rules limiting the circumstances in which Treaty provisions can apply directly to private parties. [12] On another level, one must then consider the Court's reaction to the specific proposition, private accountability under the free movement of goods provisions. It is important to separate these inquiries since the Court's reaction at the second level will owe much to the manner in which the issue was presented to it.
The jurisprudence on this issue is not extensively developed due to the scarcity of decisions. It is not immediately apparent whether the Court has set down conditions, or whether it has merely responded to the circumstances of the particular cases.
In Walrave and Koch v Association Union Cycliste Internationale [13] the Court applied to private parties the articles of the Treaty prohibiting discrimination based upon nationality in general (article 7 EEC), in employment (article 48) and in the provision of services (article 59). The Court seems to base its ruling upon two grounds. It states that the contrary result would enable private parties to neutralize the abolition of barriers, thus defeating a fundamental objective of the Community. [14] Moreover the uniformity of protection would otherwise be threatened since in some Member States terms of employment are controlled by the State. The Court also seems to attach importance to the fact that discrimination was at issue, perhaps because of its unambiguously negative implication.
In Defrenne v Sabena [15] the Court established that the economic and social goals of article 119, which requires Member States to ensure the application of the principle of equal pay for equal work, made it "part of the foundations of the Community". [16] The Court also appears to attach importance to its finding that the article was "mandatory in nature". [17] In Dona v Mantero [18] the Court affirmed the view expressed in Walrave and added that the relevant provisions were "mandatory in nature". [19]
It seems, therefore, that there are certain factors which, even if they are not conditions of horizontal direct effect, are nonetheless important indicators. Hence the free movement of goods principle is more likely to be accorded horizontal direct effect if it can be regarded as 'mandatory' in nature and as 'foundational'. This second element presents no difficulty since the free movement of goods principle is undoubtedly a foundation of the Community. Hence the crucial issue is whether the principle is 'mandatory' in nature.
It is not clear what the Court meant by 'mandatory'. It cannot refer only to the form in which the provision is expressed. Rather it seems to be a circular reference to a factor that is otherwise omitted from the reasoning in the cases. This is the vital consideration whether private accountability will further the goals of the provision, and do so consistently with other values that are implicated. Read in this way 'mandatory' is a label representing the outcome of a policy debate. Part of the reason why this step could be so easily glossed over in Walrave and Defrenne was the powerful notion of discrimination which tends to make the policy issue a simple one. The distinctive form of the Treaty provision was perhaps a further factor in Defrenne. It required Member States to ensure the application of a principle which entailed imposing obligations upon private parties. The policy question was thus answered by the provision itself in favor of private accountability. The Court simply provided a more direct route to achieve it.
A second point to note is that the Court imposed limits upon the scope of the horizontal direct effect it accorded to the particular Treaty provisions. [20] In Defrenne the Court confined its ruling to "direct and overt discrimination", and felt that "indirect and disguised discrimination" must be dealt with by more explicit implementing legislation. [21] This restriction appears to have been motivated, not by a desire to preserve a sphere of private autonomy, but by a realization that the Court was not the forum in which to formulate the detailed rules necessary.
The restrictions that appear in Walrave are more uncertain. Horizontal direct effect was confined to "economic activity", [22] and arguably also to "collective regulations". [23] This second expression gives rise to a debate over whether the Court meant to exclude the sole actor. Whilst many commentators assume that a single private party is covered by these provisions, [24] there are several who argue otherwise. [25] The thrust of the Court's reasoning tends to support the wider view, though one can argue that this position would be unfavorably broad, particularly in relation to article 7 EEC. The expression 'collective regulation' is often interpreted as being a reference to concerted activity. It is, however, possible to read it as a reference to rule-making. Whereas the former interpretation appears to suggest a fairly arbitrary and unconvincing limit to horizontal direct effect, the latter interpretation is superficially attractive. Whilst permitting one of the most threatening forms of private action to be targeted, this limit would lessen concern over the intrusiveness of the rule. Even if this interpretation was intended, it is best seen as a limit only in the context of the provisions considered there.
These limits do not appear to be intended as general restrictions upon horizontal direct effect. It appears therefore that there is no clear doctrinal obstacle to private accountability under articles 30-36. However, it would be a mistake to leap from this conclusion to the view that articles 30-36 must apply to private parties. [26] The cases give indications of the factors the Court will consider, but do not mandate any particular outcome.
There are three areas in which Court rulings can be interpreted to suggest that the Court regards articles 30-36 as exclusively concerned with State action. After describing these I shall refer briefly to the more positive dicta.
The Court's reformulation which operationalizes article 30, the Dassonville formula, [27] refers exclusively to "all trading rules enacted by Member States". [28] This formula forms the foundation, or threshold, for the rules that have been constructed within article 30 to govern its application. [29] It can therefore be argued that the Court has construed article 30 narrowly and has definitively excluded private action from its scope.
However it is possible to read Dassonville as reflecting no more than the paradigm case of article 30, which on any account would be State action. On such a view there remains room for a parallel rule dealing with the scope of article 30 for private action. Moreover, since the formulation merely expresses the paradigm, it need not be read as a deliberate exclusion of private action. In the formula itself the emphasis is clearly upon the effects required to violate article 30, rather than the source of the measure.
The Court has treated some actions by nominally private bodies against the as measures subject to article 30. [30] In each case it emphasized some feature of the private body that made it 'public' in some sense. The reason for this is not made clear. One explanation is that this public element is necessary to the application of article 30, since it enables the body's activities to be treated as actions taken by the State itself.
A less damaging explanation, which will be pursued in section C, is that this public element is not a condition of review but triggers a stricter form of review. On this view private accountability is not precluded but can exist in parallel, adopting a different test for violation.
When it has been invited to apply the competition rules to State action the Court has, on several occasions, considered the relationship between those rules and articles 30-36. Some statements made in the course of this comparison treat the free movement of goods principles as being confined to State actions:
... articles 30 and 34 of the Treaty concern only public measures and not the conduct of undertakings ... [31]
... article 30 of the Treaty, which seeks to eliminate national measures capable of hindering trade between Member States, pursues an aim different from that of article 85, which seeks to maintain effective competition between undertakings. [32]
Such statements did not form part of the Court's ruling in these cases. The focus was the other limb of the comparison, the subjects of articles 85 and 86. The description of article 30 appears to be intended only to establish the view that State action is adequately and appropriately dealt with by other provisions. Even this proposition has since been undermined by subsequent developments. [33] The statements, whilst indicative of the Court's present understanding, do not represent a considered view of the scope of the free movement of goods provisions. [34]
There are three areas in which the Court has made statements which, more or less explicitly, support private accountability. In the first place there has been at least one emphatic statement endorsing the policy argument in favor of such accountability:
It must therefore be remarked that it is impossible in any circumstances for agreements between individuals to derogate from the mandatory provisions of the Treaty on the free movement of goods. [35]
Most significantly, the Court has appeared openly to target private parties in specific situations. [36] Consideration of these cases is deferred until they can be dealt with in the context of the specific formula proposed below.
Together these few dicta do not constitute much support for the thesis that the Court has accepted private accountability under articles 30-36. Even so, they do reveal some sensitivity and are thus relevant to the claim that the Court has not disposed of this issue. In the discussion below I argue that, whilst these few statements cannot support a general doctrine of private accountability, they provide substantial support for a more specific formula. The Court has expressed reluctance to accept private accountability in the form of a broad blanket rule. It should not be assumed that the same disinclination will be shown towards accepting a more narrowly bounded definition of private accountability.
For the sake of completeness alone, mention must be made of a part of the Court's jurisprudence which some interpret as an established application of articles 30-36 to private parties: the attempt to limit intellectual property rights by reference to the free movement of goods. Unfortunately the confusion that has surrounded this issue requires a minor digression.
One way in which national intellectual property laws threaten the free movement of goods is by granting rights that are confined to a single State. Often included is the right to prevent imports of goods from other states under certain circumstances. The Court has claimed for Community law, through articles 30-36, the task of limiting these circumstances. This enterprise has been complicated by the declaration in article 222 that the Treaty does not prejudice Member States' property ownership rules, and the exception from article 30 for "the protection of industrial and commercial property" (article 36).
In order to justify its intervention the Court drew a distinction between the existence and exercise of intellectual property rights. Only the exercise of those rights was subject to Community law, whilst their existence remained a matter for the Member States. This distinction emerged in the early cases dealing with article 85, where to read 'exercise' as referring to private actions was unremarkable. [37] The Court later employed the same distinction as a foundation for the conceptual tools it developed to tackle the issue in the context of articles 30-36.
In relation to articles 30-36, the mechanics of this jurisprudence are unclear. Some maintain that the initial form of the distinction between exercise and existence still prevails, such that it is the private party who is addressed and prevented from banning the parallel import. [38] Others suggest that national legislation is disapplied and thus cannot be relied upon. [39] A third view regards the national court order as the target. Only the first view assumes that the free movement of goods provisions have horizontal direct effect.
When first applied to articles 30-36 the distinction seems to carry with it the mark of its origin in competition cases where private accountability was orthodox, and indeed paradigmatic. [40] However before long there appears also the view that the national legislation was challenged, not private action. Hence by 1974 the competing strands appear in the same cases. [41] As the doctrine has developed from this point it has become apparent that the references to exercise by private parties must now be regarded as shorthand for the second approach, focusing upon national legislation. [42] The Court seems to have been increasingly careful to emphasize this formulation. [43] This tendency was confirmed recently by IHT v Ideal-Standard. [44] In this case the standard ambiguous phrases are repeated but the Court seems to take more care to ensure that the link to national legislation is relatively clear throughout.
Hence even though there are passages that certainly lend support to the expansive interpretation, these must be seen in the context of the development of this area, and in light of the refinements made in subsequent years. The undertone that treats exercise as referring to private action is present in the case law but it is fairly clear that it has been submerged.
It is interesting to consider why the Court has moved away from targeting the private party, especially since this tendency might be read as a more general rejection of private accountability. Two reasons can be suggested. First, if the private party was regarded as violating articles 30-36 then the difficult question of remedies, such as compensation, would be raised. In this regard recall the third view mentioned above, which holds that the national court is itself subject to article 30. [45] This has the advantage that it targets activity that looks more like 'exercise' and whilst being practically indistinguishable from it, does not implicate private accountability and the associated question of remedies. Secondly, the possibility of establishing a doctrine that would not be easy to contain favors an orthodox approach even if it involves some strain.
In conclusion, this set of cases cannot be regarded as establishing private accountability. Rather they indicate a certain ambivalence about an issue that spans the borderline between the free movement of goods and intellectual property law. They lend, at best, a fairly amorphous support for private accountability.
Thus, whilst the Court appears predisposed against private accountability, it has never determined the question. As a matter of law the position remains open. This was acknowledged by Oliver [46] and apparently also by Gormley [47] and others. [48] It is submitted that these views remain applicable today. Even so, several Court dicta combine to cast a sizable shadow over the prospects for private accountability. However, as noted above, the shadow is in part a product of the manner in which this issue has been presented to the Court.
The first part of this Section has argued that the interpretation of articles 3036 remains undetermined. The most distinctive feature of the Court's general approach to questions of interpretation is the role of teleology. [49] This suggests that the question whether articles 30-36 apply to private parties must be answered with an emphasis upon the purpose of those provisions. [50]
This demands a formulation of the 'purpose' of articles 30-36. However, there is a danger that the definition of this purpose will be circular. For example, one view might be that their purpose is to ensure that State restrictions on trade are removed, which effectively answers the question. [51] Thus one must ensure that the theoretical analysis goes far enough back to avoid prejudging the issue. [52]
Articles 30-36, which expand upon the more general statement in article 3(a), are designed to implement what is known as the free movement of goods principle. However, this 'principle' is incomplete as a starting point for determining the interpretation of these articles. It is not an end in itself but a means. It is an element in the establishment of a common market which is itself a means to promote the goals of the Community, as stated in article 2. The free movement of goods principle remains an empty notion unless an attempt is made to understand its role in the institution of this common market. One requires a deeper understanding of the contours of the principle before it can be employed to determine the scope of legal provisions.
The teleological interpretation of articles 30-36 must therefore commence with inquiry into the notion of a common market. [53] This coincides with the description in Polydor v Harlequin Record Shops [54] of the Court's role in developing the relationship of industrial and commercial property rights to the free movement of goods. There the Court stated that:
The scope of that case-law must indeed be determined in the light of the Community's objectives and activities as defined by articles 2 and 3 of the EEC Treaty. [55]
This approach to the limitations upon the free movement of goods principle must apply equally to the determination of its scope.
However, to look at the common market and the free movement of goods is only the beginning of the necessary inquiry. It is a simplification to view articles 30-36, or article 30 alone, as having a single purpose. [56] Rather, any interpretation of these provisions must incorporate a balance of conflicting interests. On the other side of the scales from the free movement of goods are values such as health, safety, and private (or State) autonomy. Any attempt to provide an appropriate interpretation must recognize these two competing influences. [57]
This section sets out to achieve two related tasks. The principal task is to establish the appropriate scope of private accountability for violation of the free movement of goods principle. The conclusions of this endeavor might then be used to criticize Community law. However, given the role of teleology as an interpretative device in Community law, this same enterprise informs the debate into what the law is. Thus this section has a second and related task, to provide a foundation for interpreting articles 30-36.
The framework for this section is to start with the free movement of goods principle and then to focus upon values that may be set against it. This excludes the argument that accountability may further European integration in a broad sense, by its symbolic importance and by influencing attitudes. This line will not be pursued independently for two reasons. First, disagreement exists over the extent and desirability of integration as an end in itself. Second, the question of the Court's ability to use arguments of this nature raises very sharply the debate over its appropriate function. For these reasons it seems best merely to acknowledge the existence of this further theme which may support accountability. As will appear, the fact that private accountability even implicates further integration is troublesome enough.
As noted at the end of section A, the free movement of goods principle must first be given some content. This content should be derived from its role in relation to the common market.
The only Treaty provision which elaborates upon the notion of a common market is article 8a, added by the Single European Act. [58] This defines the equivalent term, the 'internal market', as "an area without internal frontiers in which the free movement of goods, persons, services, and capital is ensured in accordance with the provisions of this Treaty." (Emphasis added).
This statement is so general that it offers no guidance in determining the scope of the free movement of goods principle. Court dicta are only slightly more helpful:
... the Treaty, by establishing a common market and progressively approximating the economic policies of the Member States, seeks to unite national markets in a single market having the characteristics of a domestic market. [59]
The concept of a common market ... involves the elimination of all obstacles to intra-Community trade in order to merge the national markets into a single market bringing about conditions as close as possible to those of a genuine internal market. [60]
Such definitions emphasize one feature of the common market that I return to, the emphasis upon unification of markets to create the resemblance of a domestic market. [61] They tend to reinforce the intuitive feeling that any obstacles to free trade are suspect, regardless of their source. This feeling appears to influence at least one standard definition of the common market, that given by Kapteyn and VerLoren Van Themaat:
The full definition of the common market thus becomes the meeting place of supply and demand from all the Member States without any discrimination by the Member States or the participants in it on grounds of nationality or any other distortion of competition. [62]
This definition refers to nationality rather than to the national origin of the goods. However, these authors offer an expansive interpretation of the concept of discrimination on grounds of nationality, a subject that I consider in section D.
It is necessary therefore to rely upon a source of theory on the common market which will inform rather than merely confirm the intuition referred to above. Only from such a foundation rather than indeterminate labels can one establish whether and how private action interferes with the free movement of goods.
Economic theory can assist in understanding the aims of a common market. This type of theory informed the debate which led to the formation of the European Economic Community. [63] Even in the changed context of the European Union the common market remains essentially an economic concept. Moreover, the relevance or legitimacy of employing economic theory is supported by the Commission's use of this form of analysis in evaluating the impact of the 1992 programme for the removal of trade barriers. [64] The Court has also, on occasion, referred to certain elements of the theory. [65]
Certain aspects of the theory of a common market are not essential to understanding the free movement of goods principle. A common market combines a customs union with the mobility of factors of production besides goods. [66] A customs union, in turn, combines a free trade area with a common tariff applied to goods originating outside the union. [67] When considering the role of the free movement of goods one can focus upon the customs union element of the whole. This is the smallest unit capable of independent analysis in this context. If one looked only at the free trade area then important aspects of the Community's position, reflected in the common external tariff, would be ignored. On the other hand, for these purposes one can largely ignore the role of the other factors of production, such as labor and capital, in a common market. The mobility of these factors is complimentary to, and in part substitutes for, elements of the free trade in goods, but does not alter the analysis presented below. [68] Indeed, increasing integration in the form of economic and monetary union again presupposes a functioning common market and so does not substantially alter this analysis. [69] For these reasons I confine this discussion to the customs union.
Unfortunately the activities of private parties are rarely considered in the course of theoretical studies into trade distortions. [70] Thus I must turn to the general theory of free trade within a customs union which focuses upon State measures. Though the analysis presented here is, by necessity, rudimentary, it provides the necessary basic tools. The model begins by supposing protectionist national trade policies (each State imposes tariffs, quantitative restrictions, and their equivalents of sufficient magnitude to enable national industry to compete with imports). Standard theory [71] divides the advantages to be derived from moving from this position to a customs union into the static and dynamic. [72] The static effects are changes in supply and demand patterns which have welfare implications for consumers and producers. In contrast, dynamic effects are those that occur over the long term, such as economies of scale and increased competition.
The positive static effect is as follows. [73] With fewer barriers, trade is thought to better achieve allocative efficiency, meaning that goods are produced in the State (and in the place) which can produce them at a lower cost. Thus the same goods will be produced with less waste of resources and there will be a corresponding increase in consumption resulting from lower prices. These effects follow from the introduction of direct, or level, competition between domestic and imported goods.
The accepted view is that the dynamic effects of a customs union are of much greater magnitude than those associated with static effects. [74] The primary dynamic effects are increased efficiency through increased competition; through economies of scale; and through the development of larger enterprises.
Under increased competition existing companies will be motivated to increase their efficiency to avoid loss of business in favor of imports whose competitive impact had been emasculated by the protectionist barriers. In other words, the costs of supply considered in determining the static effects are no longer treated as given. Thus a spiral of efficiency improvement is supposed, the importer and domestic producer influencing each other to refine their working methods. Of course effects of this nature are imagined to result from domestic competition, but the argument here is that the broader competition base will be more effective in achieving the same goals.
The economy of scale argument is that with a broader market to supply, capital expenditures will be spread over more units, such that each product will be manufactured more efficiently. [75]
A final set of benefits are produced by the larger size of companies that the larger market will sustain. Such companies have stronger bargaining positions and will be able to force others into more efficient production methods. Whilst expanding they will tend to have access to the most modern equipment and thus to efficient production.
This discussion enables one to form a more precise notion of the manner in which State measures infringe against the common market ideal. It seems that the core phenomenon is the prevention of level, or undistorted, competition between domestic and imported goods. [76] Any measure which interferes with the competitive process by favoring one product over another, infringes. It distorts the position that free competition would otherwise establish. Competition at this level is demanded to realize the static gains, and the first dynamic gain, increased efficiency. It is also a precondition for the other dynamic gains. [77]
This discussion has returned to familiar themes. Nonetheless it is to be hoped that these themes now possess some new depth. Moreover, attention can now be directed away from other threads which tend to recur in the discussion of the free movement of goods or article 30. For example, the volume of trade between States appears to have only limited independent relevance. [78] Most importantly, there is no necessarily State-like element to the notion of a barrier to free trade.
Few doubt that the activities of private parties must be regulated in some way in order to realize the gains suggested above. All of the effects described depend upon free, or workable, competition. [79] It is thus essential to have a 'competition policy' to curb private action that might tend to undermine this competitive environment. [80]
The analysis above suggests that it might be simplistic to regard private action solely in this context. Private actions are capable of interfering with the free movement of goods in a similar manner to State measures. [81] They can remove the possibility of level competition between domestic and imported goods. For example, if a chain store refuses to sell any imported products, there is no doubt that the competition between imported and domestic products is undermined. Nor would such conduct be captured by the conventional heads of competition policy. [82] Hence the realization that the free movement of goods provisions and those concerned with competition policy share a common concern for undistorted competition does not suggest that private action is adequately addressed through the latter. Their concern is related but not identical.
A response to this position is that the existence of competition between private parties makes their conduct qualitatively different from actions by the State. Even if private actions have the same impact as State measures, the very existence of competition neutralizes this impact in a manner having no parallel in relation to State action. In order to examine this claim it is necessary first to clarify it:
Objection based upon specificity of private action
If workable competition is maintained almost all undesirable private action will be avoided since it will be inefficient and thus eradicated by a properly functioning market. For example, discrimination against imported products is not consistent with the aim of minimizing the costs of business since it reflects an interest of non-economic derivation. It thus reduces business profits by reducing the competitive position of the business against undertakings which, since they do not discriminate, will be able to operate on lower costs. Thus discrimination will be a rare phenomenon. Even where it exists those with an economic interest in the enterprise will not tolerate the sacrifice of potential profit which discrimination entails. They will pay no regard to the non-economic interest in discriminating, which was the motivation for the managers. As a result the managers, or the management approach, will be altered. Moreover, enterprises which discriminate and make lower profits will be more likely to go out of business. [83]
As noted, this argument presupposes workable competition, and thus upon competition policy. Competition policy is required to target those situations in which the competitive process is disturbed and those situations in which competition alone cannot undermine the excesses of a particular actor. These goals are met by the conventional heads of competition policy.
Article 86 deals with the case of a market participant which is sufficiently dominant to be insulated in its operations from competitive pressure. The example, discrimination on grounds of national origin of goods is likely to be regarded as an abuse of any dominant position, prohibited by article 86. [84]
Where a rule-like restraint prevents the participants from undermining the practices of one participant then either article 30 or article 85 will intervene, as follows:
If the constraint is imposed from outside the market then it will have some authority derived from statute. In these circumstances the standard will be treated as a State measure and will thus be subject to review under article 30. [85]
In the other situation, where participants in the market attempt to take a step back and impose constraints upon themselves as a group, then article 85 will be relevant. [86] For example, the major retailers might agree not to sell imported products. Article 85 applies due to the adverse impact upon third parties who are denied access to the market. It would be likewise if the competitors did not agree formally, yet operated a concerted practice with the same result.
There are several situations in which this argument fails, and several ways in which it is an over-simplification. Two obvious qualifications which deserve further explanation are (1) that there will not always be an effective market; and (2) that discrimination will often be economically efficient.
Discrimination will be efficient where consumers have a taste for it. [87] Such consumers will be prepared to pay more for the knowledge that the product conforms to their prejudices.
Even where discrimination is not profitable, it may have an economic impact upon the enterprise which is disproportionately small in comparison to the impact it has upon the common market. The small loss sustained by reinforcing the existing dominance of domestic products may be easily absorbed by an enterprise. In contrast, the common market gain depends upon the breaking down of this existing structure, and thus suffers to a greater extent.
It also seems that in many cases the market forces are simply too remote to play the powerful role assigned to them under this model. [88] The impact of a single action upon the competitive position of the firm will be exceptionally limited. Moreover consumers might not be influenced by the higher price, as for example where the discrimination relates to only one product on their list. Furthermore, even if the cost of discrimination is transmitted to those with an economic interest, this might produce no effect. They might be unaware of the cause, or might be the managers themselves, who are prepared to sacrifice some financial gain for the satisfaction.
One indication of the weakness of the objection is that discrimination on any grounds, including nationality (forbidden explicitly by article 7 EEC) or sex (forbidden by article 119) would on the same theory be eradicated by market pressure. The argument that economic processes might undermine undesirable practices is insufficient to preclude intervention. An alternative is to recognize that in many cases the economic argument will work, and yet to demand a rule to provide for those instances when it does not. [89]
As regards the second element to the objection, the view that existing tools can be employed to fill all gaps where the competitive process fails, consider the following lacunae: single large undertakings which are not dominant (including large groups of companies), some forms of collective action (e.g. employees); trade union activity, [90] some forms of promotional activity; and agreements excepted from the competition rules on de minimis grounds. [91] Thus even if the existing tools govern some, or many, of the required situations, there remain circumstances in which there is no legal rule currently available.
Moreover, the account given of article 30 and the competition rules was optimistic. Even if the interpretations given above are sustained, they indicate the need to strain existing provisions to fill obvious gaps and do not demonstrate a consistent and seamless set of rules.
In conclusion, it appears that private actions are capable of producing similar effects to State measures. Only some such actions are prevented by existing provisions, and then with some strain. There remains an area in which there is a prima facie case for regulation which is not substantially weakened by the argument that competitive markets will achieve the same ends.
The discussion thus far has argued from the core province of the free movement of goods in the direction of the private party. In this section I propose a second source of support for private accountability. This support comes from one limb of Community competition policy.
Competition policy is generally demanded in order to prevent breakdowns in the competitive mechanism through the existence of monopolies and agreements between competitors which limit competition between them. It is demanded at the Community level for the same reasons. [92]
However, Community competition policy has a second thread. [93] It is especially sensitive to arrangements that seek to resurrect barriers along national boundaries. These national boundaries are lines of weakness in the patterns of competition within the Community. Thus they must be policed with particular strictness. An obvious example of this is the control of agreements between operators at different levels in the chain of production (vertical agreements). A failure to control this form of agreement could lead to the segregation of the internal market along national lines. This role of competition policy is innovative and reflects the positive aim of market integration:
An agreement between producer and distributor which might tend to restore the national divisions in trade between Member States might be such as to frustrate the most fundamental object of the Community. The Treaty, whose preamble and content aim at abolishing the barriers between states, and which in several provisions gives evidence of a stern attitude with regard to their reappearance, could not allow undertakings to reconstruct such barriers. [94]
Another example of this same phenomenon is the rule that agreements which do not restrict competition between the parties, but which have an effect on third parties, are suspect under Community competition law. [95] Often this rule has been invoked where the parties to an agreement were reinforcing the segregation of markets. A notable example is the Milchförderungsfonds [96] decision where the Commission condemned a marketing arrangement between several producers which sought to promote their produce by referring to its national origin.
One should note the obvious parallel between this mission and the removal of barriers to free trade. [97] Both aim to integrate the national markets and to ensure that level competition can occur between domestic and imported goods. This recalls the analogy between the internal market and a domestic market. [98] Domestic markets include regional variations but do not possess lines of weakness to the same degree.
It would be surprising if Community law did not therefore take a "stern attitude" to private actions which, though not forming part of an agreement, still segregate national markets, or attempt to reinforce prejudices and thereby distort competition. This is not so much an independent source of support for private accountability as an indication of how the same concerns apply in a familiar context.
Having argued that private accountability should be accepted because private measures can have the same impact as State ones, it is superficially attractive to extend to private actions the jurisprudence developed in the context of State measures.
However this approach imposes one compromise of interests onto a situation involving different interests. To develop this point demands a minor digression into the form of the limits applied to the free movement of goods principle when considering State accountability. As described above, economic theory suggests a fairly unambiguous starting point for consideration of State accountability: all measures that affect the competitive relationship between national and domestic products are suspect. [99] Yet this represents only the beginning of the discussion into what forms of State measure should be prohibited. It establishes a threshold level above which there is a prima facie case for prohibition. Against these economic factors are set those non-economic values achieved by the regulation in question. [100] In addition to the inherent value of the regulatory measure, the State's autonomy to regulate must be included at this stage. [101]
This balancing operation is most apparent when the grounds of exception in article 36, or the mandatory requirements, are raised. However, even when not openly applied, the same balancing operation is involved, simply at one remove. It operates through rules designed to approximate to the balance. [102] One example is the rule that the mandatory requirements are not available to rescue any measure which discriminates on its face. [103]
This digression should make clear the impossibility of transposing to private action the compromise formed in relation to State measures. Rather one must face the issue of how far private autonomy should trump the economic values discussed above. An additional complication is that whereas States are similarly situated, private parties have many roles and operate in many spheres. I emphasize therefore that my specific proposals are but one attempt to perform this complex balancing operation.
Those who have argued that Community law recognizes private accountability have, on occasions, hinted at some limitation to its reach. These represent particular balances of the competing interests described above, and are thus candidates for consideration in this section. The following restricted spheres have been suggested: intentional action, [104] discriminatory action (possibly limited to direct discrimination), [105] and the "use of legal rights and remedies". [106] Quinn and MacGowan suggest a composite formula which confines private accountability to the situation of two parties who are in a legal relationship where one party's acts are legally binding upon the other and are taken in pursuance of an economic activity. [107]
Most of these suggestions draw upon limitations that are suggested in the Walrave and Defrenne cases discussed above. [108] However, these limitations, though they address private accountability, arise in an entirely different context and thus reflect a distinct compromise of interests. Their application to private accountability under the free movement of goods principles must be established rather than assumed. [109]
The following discussion attempts to justify a particular balance of interests by looking at specific examples of private activity. However, on turning to concrete situations it is no longer possible to rely upon paradigms and to avoid attempting to delineate the boundary between 'public' and 'private'. This boundary would retain a central role even if private parties were accountable under articles 30-36. It would then form the boundary between different forms of accountability. Traditionally, the 'public' element has conditioned any form of accountability, and its interpretation has been distorted accordingly. This shift in emphasis is particularly important in relation to the first of the specific scenarios considered below, the accountability of rule makers. It is for this reason that the discussion cannot be further postponed.
This distinction is a recurrent one which can be drawn in many ways. [110] However, there is a major difference between those theories that focus upon public bodies alone (the 'formal approach'), and those that look to public functions (the 'functional approach'). [111] In relation to the direct effect of directives, the Court has adopted the formal approach. However, as regards article 30, both approaches can claim some support from the two leading cases.
The first of the two leading cases on this subject is Apple and Pear Development Council v Lewis. [112] The predominant approach taken in this case seems to be formalist. In the central part of the judgment, the Court states that "a body such as the Development Council" cannot enjoy the same freedom as purely private actors. [113] Moreover, the Court's characterization of the body draws upon the fact that it was set up by the State and given statutory power to obtain finance. Even so, at a later point the Court pauses and states that "the nature of the functions discharged" by the body had also been taken into account in the central ruling. [114]
This ambiguity should be contrasted with the clear formalism adopted in relation to the direct effect of directives. Here certain bodies are regarded as 'emanations of the State' [115] and so are bound by all directives, even those relating to purely 'private' matters such as employment. [116] There is a danger that this approach will influence the resolution of the ambiguity in relation to article 30. It might be thought that the issue in each situation is the same, the extent of 'vertical' as opposed to 'horizontal' direct effect. However, these labels presuppose that the boundary between public and private must follow the boundary of the State. This assumption is valid in relation to Directives since here any form of direct effect is premised upon an estoppel rationale, that the State cannot rely upon its own failure to implement as a defense. [117] This rationale, albeit strained, dictates that the crucial question in this context is the boundary of the State. The rationale has no application to the question of the scope of article 30.
The most important objection to the formal approach is its excessive rigidity. On this view every action of a public body would necessarily be seen as State action. [118] A distinction framed in terms of functions is more appropriate for articles 30-36 since it draws a line at a point suggested by the balance of interests test described above. The nature of the autonomy interest set against the free movement of goods is very different in relation to the categories which fall on either side of the line drawn in this way. A private body performing public functions cannot have the same claim to private autonomy as one which operates entirely within the private sphere. Accordingly, the standard of review may legitimately vary across that line. In contrast, the formal test does not capture a similar shift in the balancing operation. A public body and a private body exercising similar functions would fall on opposite sides of the line even though their task may justify similar encroachments upon autonomy.
Against this background one can assess the second leading case, Pharmaceutical Society, [119] which again displays some tension between the two approaches. The Court first considers the origin or source of the body, its functions and its special powers. It then concludes that "measures adopted by a professional body on which national legislation has conferred powers of that nature" may constitute 'measures' for the purpose of article 30. [120] The attempt to determine the approach underlying these few cryptic sentences can do no more than look for emphasis. Since the ruling is not clear on the point and given the adverse implications of the alternative, this case should be read as endorsing the functionalist approach. [121] On this view the Court did not determine that the Society was an emanation of the State or a public body, but that it was a private body subject to review in the exercise of its public functions. [122]
It is interesting to note that commentators often employ the terms 'State measure' and 'public measure' as equivalents. [123] This discussion suggests that the two labels may have very different implications since only the latter is consistent with the functional approach. In this regard it is significant that the Court has employed the label 'public measures' in this context. [124]
To define 'public function' is an enormous and established enterprise which cannot be attempted within the confines of this paper. The enterprise seeks to capture the intuition that some activities are simply the type of things done by governments, or that might have been done by government instead. Any simple attempt to develop this further only exchanges one set of labels for another. This uncertainty shows only that the distinction is subject to doubts at the periphery, a weakness shared by all alternatives. [125] The test can be applied with ease to some situations. Thus the determination of ethics for an entire profession should be seen as a public function. The development of a promotional scheme by an industry organization for that industry should not be, at least not in the absence of special powers.
The form of remedy available when a private party exercises a public function is considered in section E.
The following two dicta suggest a starting point for the proposed balancing operation:
(1) In Terrapin v Terranova [126] the Court ruled that Community law does not prevent a trademark owner from banning parallel imports of goods bearing a similar trade mark of independent origin. The Court then added:
It is for the national court ... to ascertain in particular whether the rights in question are in fact exercised by the proprietor with the same strictness whatever the national origin of any possible infringer. [127]
(2) As regards the conduct of a national monopoly, the Court stated, in Giuseppe Sacchi: [128]
... although the existence of a monopoly ... is not itself contrary to the principle of the free movement of goods, such a monopoly would contravene this principle if it discriminated in favour of national material and products. [129]
These two dicta suggest that a possible reconciliation of the values of free movement and private autonomy might be found in the notion of 'discrimination'. For this multi-layered concept to be useful it is necessary to undertake a preliminary investigation of its complexities.
All discourse concerning discrimination presupposes the existence of a disparity of impact to the detriment of a certain group, here imported products. According to one sense of 'discrimination' this disparity is all that is required. However, one can move away from this effects test in a number of directions so as to introduce greater margin for private autonomy. The first such direction takes one from a result based test to one that rests upon process, or reasoning. [130]
One formulation which targets reasoning rather than results is as follows. It is discrimination to treat products differently on grounds of their origin where this gives rise to a detriment to one group. There are several shades to this notion. Under the first, the formal basis for the difference in treatment, for example the criteria appearing on the face of a rule, alone constitute its 'grounds'.
Alternatively, the notion of 'grounds' can be more broadly construed to cover the actual reasoning process. This can be extended to cover unconscious reasoning, or can be confined to only those factors which the honest decision maker would cite as the justification for their decision. It enables one to look behind the formal justification and to dismiss that as a pretext for the real decision making. Only those aspects of reasoning which are causally related to the ultimate decision are implicated. [131] The sense of discrimination developed in this paragraph is captured by the following test: [132] would the result be the same if the groups were reversed? Or, would the decision have been the same if the decision maker had been misled as to national origin alone?
In contrast to an effects test, which must normally be supplemented by a set of permissible justifications, there is not the same need for a second stage of analysis under the reasoning test. [133] If the purported 'justification' genuinely features in the reasoning process in place of national origin then this legitimate factor will constitute the ground of the decision. In other words, the same result would have emerged if the groups had been reversed. Accordingly, there is no discrimination and no need for independent justifications. In contrast, if the reasoning proceeds on the basis of national origin then it is not obvious why this flawed decision making process should be rescued by justifications which are developed, by definition, at a later stage. One should note that this test operates as a fair approximation to a test of objective justification since the rational actor will tend to reach justifiable results if illegitimate factors are excluded from consideration.
Since the emphasis under a formal discrimination test is upon appearance rather than upon reasoning, there will be circumstances in which justifications must be available to avoid undesirable results.
There is also a second dimension to the concept of discrimination. This looks to the motive of the action. Did the private party act maliciously, or simply without awareness of the effect of the decision, when differentiating on grounds of national origin? A test of discrimination which focuses purely upon reasoning would not be concerned with this inquiry.
With these preliminary remarks in the background, this section now considers instances of private action in various contexts.
(a) Rule Makers
One area in which activity by private parties very closely parallels activity characteristic of the State is rule-making. In contrast to the actions of an isolated party, which an effective market can often dilute and undermine, actions governed by rules cannot be undermined by those also subject to those rules. [134] Thus a strong prima facie case exists for stringent review of all forms of rule.
Many rule-makers may be regarded as exercising public functions. This is especially likely where their authority is derived from statute. In such cases the preliminary remarks suggest that the strict form of review applied to States themselves should apply.
The case for a strict standard of review is strong even in relation to purely private parties. However, here rule-making is unlikely to be a discrete enterprise removed from the central activities of the decision maker. This suggests a basis for greater deference to autonomy. The test of discrimination upon grounds of national origin provides a suitable compromise standard. One factor that makes this test especially suitable is that it does not need to be supplemented by a catalog of justifications. The private body exercising public functions can reasonably be heard to plead public policy and related grounds, either as mandatory requirements or through article 36. The same is not so of the private body engaged in an activity lacking any public element. In this context it is neither appropriate nor desirable to require justifications to be pleaded. Even the onus of establishing a justification is an imposition upon freedom.
Structural concerns also dictate a less intrusive standard. Many rules of a purely private origin will be formed by or under a contract between several parties. This category of rules will be prohibited by article 85 where they are anti-competitive. A strict standard of review would therefore create an ambiguous overlap. On the other hand a standard based upon discrimination can co-exist with the competition provisions since it targets relatively extreme conduct and so does not cut across established policies and doctrines. This particular interaction is considered further in section F.
(b) Promotion
This is an area which has necessitated contortions in the Court's jurisprudence in related areas. In Commission v Ireland ("Buy Irish") [135] the Court accepted that promotional activity by the Member State could be a measure under article 30. However, it focused upon the state's "considered intention to substitute domestic products for imported products". [136] It appears that a State may support promotions which mention the quality of domestic goods rather than their origin alone. Such activity would potentially affect trade between Member States, and yet does not seem to be condemned by the decision. [137] This is confirmed by Apple and Pear Development Council v Lewis [138] where a line was again drawn between campaigns drawing attention to the virtues of domestic produce and those concentrating upon their domestic origin.
It seems that Court adopts a peculiar form of reasoning in these decisions. It does not prohibit the State from conducting or supporting all campaigns which favor domestic produce, but only prohibits those campaigns in which national origin is central. A similar approach has been taken under the competition rules. In Milchförderungsfonds [139] the Commission decided that producers could not join together and promote their milk on the basis of its national origin, though it might be acceptable for them to draw attention to the qualities of the products. [140]
There is a thread here that should be generalized beyond these particular outcroppings. [141]. A prohibition on such prejudicial marketing is not an unreasonable interference with the autonomy of a single enterprise. Yet, such activities are barriers to the free movement of goods since they interfere with level competition by bringing traditional prejudices to the fore. State sponsorship introduces a further factor but this should not be a precondition of intervention. [142]
It is unclear how far beyond the paradigmatic advertising campaign this principle should reach. A simple indication of origin on a product seems to be acceptable, at least as a pragmatic compromise. At this stage of integration, [143] with private accountability in any form only lately recognized, the disruption involved in mandating their elimination is not warranted since the harm they cause is limited. [144] Imagine, for example, the number of exceptions that would have to be developed for products such as wine. Moreover, awkward questions would be posed in relation to intellectual property rights in geographical origin marks.
It will therefore be necessary to draw the line between an origin mark and an advertisement of national origin. Factors such as the size of lettering and its location, will be relevant to this determination. The basic question should be whether the indication goes beyond the provision of information to an appeal to national sensibilities. [145] The use of national symbols, for example, must be prohibited. [146]
(c) Resellers
As a first reaction many would suggest that no controls should be placed upon a store's choice of which products to stock. Certainly an effects test seems to be an unjustified invasion upon private autonomy. Yet, it seems possible to endorse the reasoning test again. [147] If the shop makes the decision not to stock a certain product simply because of its origin then it does not seem excessive to intervene. This is exactly the form of prejudice that must be eliminated for competition to be level. Imported and domestic goods will not compete equally if discrimination in this form is permitted.
Two particular issues concerning the reseller are considered below. These are resellers' reactions to the discriminatory tastes of consumers and the 'buy domestic' shop.
(d) Services
This raises the same type of question as above. Imagine the repair shop which refuses to work on imported goods; or the insurer which refuses to insure imported goods; or the magazine that refuses to advertise imported products. For similar reasons the same form of discrimination provides an appropriate balance of interests.
(e) End Users
Consumer choices must be unambiguously excluded from the scope of accountability. This proposition is unlikely to be controversial. Even if it was practical to demand that such choices be made without discriminating, few theories could support such an invasion of private autonomy. Autonomy would be threatened not only because the rule prohibits certain reasoning but also because of the intrusion caused by the inevitable vexatious claims.
However the same argument does not necessarily apply to all end users. Consider the multinational corporation based in one State that demands that the sales force have company cars made in that State. It is not immediately clear that the private autonomy argument applies with the same weight to this situation. It appears to be reasonable to demand the absence of discrimination here too. [148]
The relationship between consumers and resellers
One issue postponed from above is whether the reseller discriminates on grounds of national origin when his decision incorporates the tendency of consumers to prefer domestic produce (itself unchallengeable). Here national origin is not a direct ground of the decision, but is indirectly incorporated therein.
There would be little difficulty if a reseller's actions perfectly reflected consumer (dis)tastes. This much would be a necessary corollary of the exclusion of consumers from the proposed rule. However, resellers also influence the purchasing decisions made by other consumers since they determine which products are exposed to competition on the shop floor. If consumer distaste is incorporated into that decision then its impact may extend beyond those possessing the distaste. In such a situation the distaste is not only reflected but is amplified.
However, this is insufficient reason to prevent the reseller from relying upon consumer distaste. How, for example, could the reseller distinguish discrimination from an adverse reaction to product quality? Rather, the best compromise is to ensure that the claim is confined so that it has no greater impact than is necessary as a corollary of the exclusion of consumers themselves from the rule. The reseller should not be permitted to assume that consumers will discriminate, but must presume their neutrality until concrete suggestions to the contrary in any situation. Moreover, the proportionality of the decision to the likely extent of distaste will, again, help to detect cases in which the claim is a mere pretext.
(f) 'Buy Domestic' Shop
The 'buy domestic' shop presents a convenient example through which to explore a complex issue. The analysis above suggests that this type of shop infringes in two ways: by discriminating in stocking only domestic produce and by promoting those goods by reference to their domestic origin.
The awkward issue which arises is this. By prohibiting conduct of this nature the consumer is denied a valuable means to discriminate. Is this consistent with the proposition that to regulate consumer choices is too great an imposition upon private autonomy? If a particular individual dislikes all imported products, and disapproves of the common market, they are still deprived of the effective means to operationalize this philosophy. Moreover, by prohibiting "buy domestic" shops one stifles the reseller's ability to take an effective stand against the common market.
The reservation above to preserve origin marks was expressed in part as a pragmatic compromise. This situation is the pressure point which determines whether that compromise concedes too little. The question whether autonomy demands scope for this form of economic protest clearly invokes values of a deeply contentious type.
(g) Producers
In their selection of raw materials it makes sense to treat producers in the same way as several of the categories above: they must not discriminate. Their promotional activities have also been considered above.
However, a more difficult question arises when one considers multinational producers. The decision of which countries to operate in must be reserved to private autonomy. There is no sensible way to review a decision as complex as this without the risk of arbitrariness. However, given that the undertaking operates in two or more states, there is a second inquiry that can be made. Does it artificially keep the two product markets separate?
This demands a somewhat lengthier analysis. The simplest example, which will be referred to in this section, is that of a trade mark proprietor who employs different marks on the same goods in each State. [149] One might also consider the manufacturer who employs different packaging [150] or a different marketing mix [151] in each Member State. Such differences might be motivated by legitimate factors, but might also be applied to segregate the national markets by insulating them from effective parallel imports in order to enable higher prices to be charged.
Clearly a test based upon 'discrimination' makes less sense in this context. However in Centrafarm v American Home Products Corporation [152] the Court suggested another way to approach this situation. The main ruling in that case was that where a proprietor used different marks on the same goods in two Member States, a parallel importer was not permitted to exchange the marks. Thus the proprietor would be able to ban any parallel import carrying an exchanged mark. However the Court also stated:
... it may be lawful for the manufacturer of a product to use in different member-States different marks for the same product. Nevertheless it is possible for such a practice to be followed by the proprietor of the marks as part of a system of marketing intended to partition the markets artificially. In such cases the prohibition by the proprietor of the unauthorised affixing of the mark by a third party constitutes a disguised restriction on intra-Community trade for the purposes of the above-mentioned provision [article 36]. [153]
Hence where the manufacturer was employing a scheme "intended to partition the markets artificially", the parallel import could not be banned. [154] One can question whether this is the appropriate remedy in this situation, [155] but even so it is clear that the Court takes a hostile attitude to conduct of this form. Moreover the Court seems prepared to penalize the actor.
The Court offers no explanation of what it means by 'intended'. [156] However, it is important to note that the Court does not simply forbid all schemes intended to partition the market. It adds an important restriction to the scope of this prohibition by incorporating 'artificiality' as an element of what must be intended. [157]
What is 'intended' by an actor is an issue which has been much debated in various contexts. [158] To determine which of the effects of an action are intended by the actor, one first considers 'why' the actor behaved in such a way. [159] This focuses attention upon the reasons for action. [160] Once reasons for action become central then an appealingly simple interpretation of the Court's dictum becomes possible. The reference to intention can be read prohibiting certain illegitimate reasons for partitioning the market. This is suggested by the Court's ruling that not only must the partition itself be intended, but it must also be intended to be artificial. [161] This test resembles that developed above in relation to discrimination upon grounds of national origin.
Hence the proprietor is prohibited from employing certain reasons, which are encapsulated in the label 'artificial', in the decision which leads to partitioning of the market. The primary forbidden reason must be the potential for financial gain by segregating markets. In contrast, factors such as the unavailability of an appropriate mark in the second State and consumer protection would not be prohibited in the decision making process. [162]
This composite test is not the only interpretation of the Court's language. However, this test provides a suitable balance of interests. It does not ensure that the only differences in treatment which arise are those that can be objectively justified. Even so it provides an approximation that is consistent with private autonomy and which guarantees at least some protection for free movement. By addressing the grounds for a decision the test is consistent with that proposed for discrimination. It represents a coherent stopping point short of reviewing the objective justification for private action. The prohibited conduct will be referred to hereafter by the label, 'artificial partitioning'.
(h) Intellectual Property
The traditional issue of the conformity of national law to article 30 is independent of private accountability. Thus proprietors of intellectual property rights should not be accountable simply for relying upon a national law which could be disapplied in that context for violating article 30. The private party should be accountable only for discriminating [163] or for artificially partitioning the market. The parallel application of articles 30-36 to national law and to private parties, who may rely upon the national law, is considered in section F.
Although the discussion above has focused upon specific situations, discrimination emerges as an appropriate key to the balance in most situations. On the basis of this a general rule can be suggested which prohibits discrimination in all decisions [164] unless circumstances dictate that a more specialized rule is appropriate. Promotional activity exemplifies one such specialized sphere. Moreover, the rule must not be so general as to cover consumer activity, for the reasons specified.
Below I consider some developments to, and complications regarding, elements of the tests suggested above. In examining these tests in peripheral situations, the crucial question is whether compromises can be found which preserve the balances of interests which they reflect.
In this section I consider several responses, centered upon the concepts of 'national origin' and 'grounds', that might be made by a decision maker to the charge of discrimination.
'National origin'
Upon closer examination 'national origin' has no simple meaning. A product might incorporate raw materials drawn from several Member States and might be manufactured in several stages in different States. It is possible, and necessary in some contexts, to establish complex legal rules to specify the origin of such a product. [165] However, the definition of national origin for the discrimination test of private accountability should not be understood in this way. Rather, the test should focus upon forms of reasoning that are equivalent in terms of their impact upon level competition. Hence the rule should prohibit all discrimination against products on grounds of their association with a Member State. The label 'national origin' should be understood accordingly. [166]
Some reasoning will refer to national factors which are more closely associated with the nationality of the actors than with the national origin of the products (defined as above). These forms of decision should not be collapsed into the rule against discrimination upon grounds of national origin. They represent a special case of the rule which prohibits discrimination upon grounds of nationality. Whilst there will be situations in which both forms of discrimination are implicated, the two rules are logically distinct. The central case under each rule cannot be characterized as a violation of the other rule. If the distinction is not maintained then necessary and desirable specialization within each rule will be impossible. Whether article 7 EEC, which clearly prohibits discrimination on grounds of nationality, can be interpreted to address both forms of discrimination is a question considered in section D.
'Grounds'
A decision maker, whilst accepting that the decision was not blind to national origin, may claim that national origin stood only as a proxy for otherwise legitimate factors. The question is whether such a decision is still suspect as one made upon grounds of national origin. Here I consider the following three scenarios:
(1) Stereotyping
One can argue that national stereotypes will often have an objective basis and are an efficient way of transmitting information. [167] However, the answer conventionally given to this issue in relation to other forms of discrimination seems applicable here also. The decision maker must take steps to confirm the appropriateness of the stereotype to the particular case. Whilst this might not always be easy to do, this seems to be the best compromise in the situation under discussion. The requirement of reasonableness, though indefinite, ensures that an unnecessary burden is not placed upon the private actor. To permit stereotypes not only provides an easy defense that would be abused, but would be counterproductive in a wider sense. It would establish an incentive for the development and preservation of specious generalizations. The existence of these misleading stereotypes is a barrier to level competition between imported and domestic goods.
(2) Product Types
Products whose national origin is integral to their identity pose the following problem. [168] It seems necessary to permit some reference to this national origin in decision making since it overlaps with product characteristics. For example to permit a reseller to stock equal numbers of French and German wines seems desirable and should not be captured by the rule, even though it demands that individual purchasing decisions are made on grounds of national origin.
On the other hand this argument should not permit a decision maker to sell only French wines alone where the basis for this is their domestic origin. The question must be whether national origin per se or national origin as a product characteristic is incorporated into the decision. Certainly, this is an awkward question, but the intuition is clear: the decision maker must be neutral as to national origin. [169] The result will be that the test of discrimination will have limited impact in this area.
(3) Rational Discrimination
A decision may be made on grounds of a policy objective that crystallizes around national origin. For example a store may refuse to stock certain products on the basis of an objection to the foreign policy of the State of origin. Here categorization according to national origin becomes a tool in the pursuit of a further objective. It can be claimed that private autonomy demands some scope for implementing such policies and that the discrimination test should only target blind prejudice and not reasoned objection.
It must be conceded that the situations considered in this sub-section are not central cases of discrimination. There is one way in which this divergence can be clarified. Discrimination of this form may be seen as an application of a higher level policy that is itself neutral as to national origin: products should be disfavored if they originate in a State which engages in certain types of activity. Even so, each product is regarded as having an inherently national character or identity since it remains a vehicle for expressing displeasure against a State.
Any exception covering these forms of decision making threatens to eviscerate the general rule. Not only would it permit extreme cases that might be thought to have no merit, but also it would provide an uncertain defense that would be abused. According to one logic it is therefore best to deny all forms of this defense to avoid the need to draw a line. However, this appears to show no regard to the interest in permitting private parties to use economic means to express displeasure.
A compromise might be sought as follows. Only objections sufficiently proximate to the products in question should be permitted. [170] Moreover, the decision maker must only employ the objection as a presumptive standard. It must be possible to establish that the products are not covered by the rationale. When the interaction between a policy objective and national origin takes this form the decision should be excluded from the notion of 'discrimination'.
For example, consider a trader who is offered a consignment of fish from State X. The following objections may be disregarded as insufficiently proximate: disagreement with State X's foreign policy; disagreement with State X's laws on the processing of beef. On the other hand it may be legitimate for the trader to establish a presumptive rule against fish from State X on the basis of the fishing practices followed by the majority of the producers in that State. It must be open to the party offering the stock to establish that these factors do not apply to the consignment. However, in contrast to the position with stereotypes, it is not necessary for the trader to investigate further himself. He can erect a burden of proof.
The decision maker might cite national law as a defense. This seems powerful where the national law is specific and, whilst being prima facie suspect under article 30 as applied to State measures, is justified under article 36 or by a mandatory requirement. For example, it would be incoherent for a private party to be unable to rely upon a national law banning the sale of imported beef where the law is justified according to Community law. The efficacy of this legitimate limitation on the free movement of goods should not be undermined by private accountability.
However, it must be recalled that the formula for private accountability focuses upon reasoning and not results. Therefore in cases where the true ground of the decision is obedience to national law the discrimination test will not be met. Accordingly there is no need for a substantive defense of national law in these cases.
A substantive defense will thus be relevant only as a fortuitous escape for those private actors who discriminate without regard to (or awareness of) the national law. This is clearly undesirable according to the logic of a private accountability formula whose principal focus is reasoning. There is a way to avoid this situation without upsetting the result specified by the national law. The compromise approach refuses specific forms of relief, since these would undermine the effectiveness of the national law, but permits a remedy in damages. The quantum of damages would be minimal given the absence of any real harm. Even so, it seems that the conduct should be seen as a technical breach. This ensures consistency with the remainder of the discussion in this paper concerning the inter-relation between national law and private action.
The discussion above considered a national law directing a certain result. An alternative form of national law may simply authorize discrimination (or might be sufficiently general to permit that interpretation). In other words such a law does not impose a result that is discriminatory, but purports to sanctify discriminatory reasoning. Such a measure would probably violate article 30 and it is hard to imagine it being justified. Whilst legitimate goals overriding the free movement of goods may be served by a law which demands certain conduct which has a discriminatory impact, it is hard to see how a permission to discriminate can behave in this way. [171]
One must also consider the decision maker who bases his actions upon an unjustified national law. Even though the national law can be disapplied and the Member State required to amend its law, the private party should be able to escape liability in this situation. This is because again national origin is not the ground of the decision. [172] This interpretation of the test for discrimination is consistent with the demands of legal certainty. This reasoning applies only to national laws specifying conduct and not to laws authorizing discriminatory reasoning. In the latter context it is less concerning that a party will be held liable, despite believing national law prevented this. One can expect parties to be suspicious of such an interpretation of national law.
In summary, a party who follows a law that demands certain conduct cannot be regarded as discriminating, even when that law is not justified. Where the party discriminates but then claims that a national law in fact mandates the result achieved, he has no defense. Where that law is justified, however, specific relief should not be granted. In contrast, a national law authorizing discriminatory reasoning can never form the ground of a decision in the appropriate sense and, being invalid as a matter of Community law, cannot operate as a defense.
In the preceding discussion the victims of discrimination have been either imported goods as a whole, or goods from one particular Member State. This raises one important question, whether the rule prohibits discrimination in a Member State by a national of that State against goods originating there. Perhaps this will be rare, but it presents a theoretical difficulty since it might be regarded as a purely domestic situation beyond the competence of Community law. [173]
This situation should be covered by the rule. The reasoning process and not the result is challenged and so the Community dimension clearly exists. Nor is there a threat to the autonomy of Member States to regulate internal matters. It is therefore suggested that the only basis for refusing to include this situation within the rule is formal, and should be discounted.
The formula can be summarized as follows:
(1) Most decisions by private parties should be prohibited when they discriminate on grounds of national origin (as defined). The following special cases must be noted:
No justifications can be pleaded to discrimination, since any justifications which served as the genuine bases for decision will constitute the grounds for that decision in place of national origin. An internal exception permits national origin to serve as a presumptive classification in decision making where this implements a sufficiently proximate policy objective.
(2) In addition, multinational enterprises infringe where they intend to artificially partition the internal market: where the potential for profit is the ground of their decision to differentiate products marketed in two States.
This section is confined to two criticisms of the specific test I have proposed. The wider criticism of private accountability will be considered below, in section F.
One might challenge this analysis on the basis of authority: there are only three cases cited, two concerning the exceptional area of intellectual property, the other concerning State monopolies.
However, these cases are not meant to prove that private accountability is established Community law. Rather they provide indications of support from the Court for the form of accountability proposed. They display some tension which reflects the arguments advanced in favor of rejecting the simplistic approach presently adopted.
The dicta themselves are inconclusive concerning the present status of Community law. Accordingly, the question of what the law is cannot be considered in isolation from what it should be. These dicta therefore provide precedents which are capable of being interpreted as the roots of a doctrine of private accountability if that doctrine is favored. This depends upon whether it is regarded as a suitable response to the concerns which were manifested in those dicta themselves and yet only incompletely and ambiguously resolved by them.
The view that these dicta manifest a general concern rather than one confined to isolated situations may seem strange given that the dicta are taken from specialized areas: intellectual property and State monopolies. However, it is not surprising to be obliged to look to peripheral areas for hints of the underlying concern. Nobody has brought an action addressing the point directly, not least because academic writing tends to be discouraging. Moreover the Commission seems to feel that article 30 does not apply to private parties. Thus it is in dealing with overlapping areas, such as intellectual property, that one would expect the Court to consider these issues.
The intellectual property dicta can be read as confined to the special circumstances of intellectual property, being no more than carelessly worded applications of the principle that the Court is really targeting the national legislation relied upon by the private party. [174] However, this begins to look particularly contrived. [175] This has led some to suggest that the doctrines cannot stand in the face of the more careful analysis that has prevailed in recent years. [176] Moreover, even if the peculiar doctrine of reliance upon national law provides the technical avenue through which the relevant concerns were introduced, that doctrine does not seem to be central to the two dicta. They address conduct by the proprietor which is set against the background of national law, but which is largely independent of it. To argue that the concern underlying these dicta is confined to the specific situations raises national law from the background into a central role. The dicta reflect the intuition that private parties should not be able to undermine the common market, an intuition which does not depend upon the means they employ, in this case national trade mark law. The doctrine of reliance upon national law merely provides a convenient tool to incorporate this general concern in this area.
The Sacchi [177] case is seldom referred to by those who argue in favor of private accountability under free movement principles. There are two possible reasons for this. The first is that the reference to 'discrimination' simply does not fit with the common conception of the scope of private accountability. The second, which I shall explore here, is that the case expresses factors peculiar to State monopolies, which cannot inform the debate about truly private parties. This cannot easily be separated from the question of the legal basis for the decision since this also relates to how the undertaking was perceived.
The case concerned a television monopoly and raised complex issues under many Treaty provisions, especially article 90(2). [178] It is hard to follow since the Court does not cite the basis for some propositions that it makes. Even so, the statements made in relation to the free movement of goods appear to be derived from articles 30-36, independently of the exceptional provisions directed at State monopolies. [179] In this regard it is interesting to note that the same case is often cited as support for the view that article 7 EEC applies to private parties. [180]
Moreover, one can challenge the assumption that the undertaking is private. [181] If the undertaking is merely an emanation of the State then accountability under articles 30-36 would now be unremarkable in light of subsequent cases, such as Pharmaceutical Society. [182] Moreover, the concerns governing such a situation would have little application to private parties. On the other hand, the competition provisions are applied as if the undertaking was private. Moreover there is no indication that this analysis, which would then have been entirely novel, was being employed. [183] Indeed, as noted, the case is often regarded as establishing the liability of private parties under article 7 EEC.
The most likely position is that the Court did not consider in any detail the precise basis upon which to intervene in this extraordinary situation. Rather, it recognized a significant threat to the free movement of goods and reacted accordingly, without attaching any significance to the status of the actor involved. Given that State monopolies are at best exceptional examples of private parties. [184] this lack of concern over status is the main importance of the case. By not emphasizing this, the Court indicates a relatively expansive concern for accountability. It applies the intuition that actors should not be able to undermine the common market and does not depend upon a technical characterization of the actor.
It is also interesting that the Court turned to the concept of discrimination as an appropriate balance of interests, in this area at least. This would be a peculiar balancing of interests in relation to a central organ of the State and again demonstrates the instinctive nature of the Court's response.
One can argue that discrimination will rarely be proven since defendants will simply invent some plausible rationale ex post. The mere recital of standard arguments might become the norm and proof of violation will rest upon fortuitous circumstances and upon imprecise deductions. As such, the rule would have little utility but would serve only to encourage vexatious litigation by the embittered. From the perspective of a party desiring to discriminate, the rule would simply demand elaborate preparations to disguise the true basis for the decision.
The key to this objection is that the formula proposed does not permit the court to reassess the appropriateness of the substantive decision. It must only ask whether the stated reason was genuinely employed at the time. However, the following procedure appears to enable the rule to function usefully. [185] The plaintiff must establish that there is a disparity in treatment and provide some indication that this result would not have been achieved in the absence of forbidden reasoning. Factors such as consistency and proportionality will supplement the reversing the groups test in this determination, even without being demanded in themselves. The defendant then has the onus of establishing that legitimate factors alone led to this seemingly incoherent result. If a plausible case is made out then the onus returns to the plaintiff to demonstrate that the suggested reasoning is really a pretext, perhaps again by reference to proportionality and consistency.
These tools provide sufficiently clear indicia to enable the court to avoid the two extremes of being either too intrusive or unable to interfere at all. The rule will be available to challenge the most egregious and obvious violations. However, since violation of the rule will not be easy to establish this should limit purely vexatious claims. In the absence of compelling evidence in the form of inconsistency, lack of proportionality, or direct indications of motive, the plaintiff should anticipate little gain from the suit. [186] It is true that some decision makers will be able to obfuscate their true reasoning. Even so, the value of the rule is found primarily in its ability to deal with obvious cases that are presently unchallengeable.
A similar analysis applies to the test of artificial partitioning. The plaintiff must establish a prima facie case that the differentiation is only consistent with forbidden reasoning. The defendant will then have to provide a plausible alternative, which the plaintiff will argue is a pretext. Much more emphasis will be placed on this third stage, with a corresponding loss in utility. It appears that often the decision maker will be able to present a plausible enough claim. [187] Even so, the most extreme cases will be covered. Moreover, the decision may be important enough to be documented internally, meaning that discovery may reveal direct evidence of reasoning. Given the importance of this issue, the threat of speculative claims, whilst concerning, does not seem to be prohibitive.
The breadth of interpretation given by some writers to article 7 EEC (now article 6 TEU) is such that it may obviate the need to base private accountability in the provisions concerning the free movement of goods, at least as regards the test of discrimination. This possibility will be considered first, followed by the more likely avenue, article 30-36.
The first sentence of article 7 EEC states: [188]
Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.
Some have given a very broad interpretation to this provision. Kapteyn and VerLoren van Themaat suggest that it covers any discrimination by private parties on grounds of "certain personal or business relations with another Member State". [189] They appear to include the country of origin of a product within this category. [190]
Application to private parties
This is a question that most regard as determined by the Court in Walrave and Koch. As discussed above, there are others that read that decision more restrictively to apply only to collective arrangements between private parties. [191] The other case often cited is Giuseppe Sacchi. [192] This case, as discussed above, concerned a national monopoly. The Court ruled that article 7 EEC bound the monopoly. However, the argument can again be made that the monopoly is for these purposes an adjunct of the State. The contours of this argument were considered above.
Thus, though there is no unambiguous ruling on the issue, it seems that the provision is applicable to private parties. [193]
'Discrimination on Grounds of Nationality'
Assuming that it can apply to private parties the crucial issue will be the limits of the interpretation of the terms 'discrimination' and 'nationality'. A broad interpretation can be derived in two ways. The first regards a decision which discriminates on grounds of national origin of products as necessarily being a form of discrimination on grounds of nationality. Nationality is given a natural meaning, though it seems to be accepted that companies have a nationality in this context.
However, this assumes a very broad definition of discrimination. The only necessary relationship between national origin and nationality is statistical. A national origin criterion will impact most heavily upon a nationals of the State of origin. The relationship is no closer than this since. A decision based upon national origin is not equivalent to one based upon nationality, even though the two concepts are related.
It is clear that, in relation to action by Member States and the Community, article 7 EEC encompasses "covert discrimination". [194] Even if this same test applies to private parties, [195] it is not broad enough to incorporate instances of discrimination on grounds of national origin. Covert discrimination is best understood as covering cases where a neutral factor is used as pretext for nationality, where nationality forms the real ground of the decision. It does not cover those decisions which are neutral concerning nationality save in their impact. There is limited direct authority for this interpretation. [196] More significantly, to include this sense of discrimination would have very broad implications, even in relation to State action. It is inconceivable that this broadest sense could be applied to private parties.
The claim that all decisions made on grounds of national origin are automatically to be regarded as discriminating on grounds of nationality must therefore be rejected due to the great breadth of coverage that this would imply for article 7 EEC. The second approach avoids this difficulty by focusing purely upon interpretation of the word 'nationality' in the provision. This approach reads 'nationality' as a proxy for a group of related notions, including national origin. Discrimination upon grounds of national origin would be seen as a distinct concept, parallel to discrimination on grounds of nationality, but forbidden by the same provision.
This second angle appears to be that adopted by Kapteyn and VerLoren van Themaat. They argue that this wide interpretation is indicated by the "tenor" of the provision, and its reference in to "special provisions". They argue that this expression refers not only to those specific articles of the Treaty [197] dealing with discrimination on grounds of nationality (such as articles 48 and 59), but also to those dealing with other grounds of discrimination. An important example is article 95, concerning discrimination against products from other Member States.
However, this construction is not compelling. There is no indication which special provisions are referred to by the article. Even if they include provisions which target discrimination upon grounds of national origin, the claim that article 7 EEC must do the same is still not established. Moreover, it is hard to determine what concerns form the tenor of the provision. Hence both limbs of the argument add little to the bare claim that to extend the language in this way is desirable on policy grounds. However, this claim is unnecessary if there is a more suitable basis for the same development. The remainder of this section attempts to establish that articles 30-36 provide this. The Free Movement of Goods Provisions
The private accountability formula can be accommodated under article 30 as a further rule internal to that article. Alternatively it can be approached through the second sentence of article 36. The second of these alternatives is preferable, as will emerge from the discussion below.
At first it seems strange to argue that the suggested formula fits into a text which displays no such detail, nor even an obvious basis for divergent treatment of Member States and private parties. However, it is surprising how little fidelity has been shown by the Court to the text of article 30. It has avoided speaking in terms of the 'effect' of a quantitative restriction and has apparently never sought to give meaning to the notion of 'equivalence' in this context. Rather the Court has collapsed these notions into a single label, 'measure having an effect equivalent to a quantitative restriction', which it has applied to measures according to a scheme that finds no handle in the text itself. [198] This direction, which is clear even in Dassonville, was firmly established by Cassis de Dijon, by Cinéthèque and now by Keck. [199] In these cases the Court formulated a set of rules internal to article 30 which are represented by the label, 'measure having an effect equivalent to a quantitative restriction'.
If the Court has felt able to conduct this form of rule-making under the umbrella of article 30 for public measures then it should likewise be able establish rules for private measures. [200] Private measures could be treated as another special case within the complex framework. There would be no need for private measures to be channeled via the Dassonville formula, through the mandatory requirements and through proportionality. Rather the formula developed in section C, or an equivalent, could exist in parallel.
However, this approach faces several obstacles. In the first place it must challenge contrary authority head on. Whilst I have suggested that this is entirely feasible, it is a challenge that the approach considered below can conveniently avoid.
Secondly, the private measure which violates article 30 would, it seems, be capable of justification on the grounds listed in article 36(1), subject only to article 36(2). This arrangement would result in the strange position whereby private parties invoke public interest or public morality to justify their actions. Whilst several of these avenues could be closed by subsidiary doctrines that reserved these defenses to public bodies, the result would not be tidy. Moreover this operation incorporates some circularity since any of private action violating article 30 would automatically fail article 36(2), regardless of its success under article 36(1).
These obstacles are essentially cosmetic and do not dissolve this approach. On the other hand they weaken the case for this approach in preference to that considered next.
Where a private body exercises a public function the suitable legal basis is article 30. The reference to 'measures' in that article must be construed as meaning all 'public measures' [201] where that term is wide enough to cover actions pursuant to a public function. Such measures could then be justified under the mandatory requirements or article 36. This arrangement causes very little disruption to established authority. [202]
As regards all other forms of private conduct, the second sentence of article 36 ("article 36(2)") provides a more suitable basis for accountability. [203] The dicta in American Home Products and Terrapin both rely on this article as the source of their doctrines that appear to target individuals. [204] Sacchi may also support this since it refers to the free movement of goods provisions in general rather than to article 30 itself, though this is the reference point envisaged by Elliniki. Article 36 provides:
The provisions of articles 30-34 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of ...
Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.
Under the approach I am advocating here the second sentence is an independent source of obligation. The private party who engages in 'arbitrary discrimination' or who erects a 'disguised restriction on trade' violates article 36(2), but not article 30. These terms would be construed in accordance with the formula I have suggested in section C.
Clearly two problems must be faced before proceeding in the description of this section. The first is the claim that article 36(2) is unable to operate as a source of obligation. The second is that its terms cannot be interpreted in the way I suggest.
The Role of Article 36, second sentence
The conventional interpretation of article 36 treats article 36(2) as a qualification to article 36(1), which excepts certain measures from article 30. [205] Under this view many measures are never considered against article 36(2) since they are filtered out by its dependence upon article 36(1), and thence upon article 30. At a textual level the conventional interpretation reads "such prohibitions or restrictions" in article 36(2) as "prohibitions or restrictions on imports, exports or goods in transit justified on grounds [specified in article 36(1)]". It thus employs the entirety of article 36(1) as a threshold criterion for article 36(2). This in turn mandates that a measure breach articles 30-34 before article 36(2) can apply. [206]
The alternative approach also fits the language of article 36. Under this alternative approach "such prohibitions or restrictions" is simply a shorthand for the extended formula, "prohibitions or restrictions on imports, exports or goods in transit", which governs article 36(1). There is no reference back to the justifications in that provision.
The conventional interpretation of the function of article 36(2) is expressed in R v Henn and Darby [207] in the following terms:
[article 36(2)] is designed to prevent restrictions on trade based on the grounds mentioned in the first sentence of article 36 from being diverted from their proper purpose and used in such a way as either to create discrimination in respect of goods originating in other member states or indirectly to protect certain national products. [208]
This has become the standard reference point for interpretation of the role of the provision. [209] However it must be emphasized that the alternative approach will produce the same results in the standard case. Even so, there may be a small formal difference as regards the provision breached. [210] This arises if article 36(2) is seen as entirely independent and unable to influence the assessment of justification under article 36(1). [211] However, the relationship between these provisions has never been clear and it seems plausible to accord to article 36(2) sufficient independence to be an independent source of obligation, whilst retaining its pertinence in determining 'justification' under article 36(1). [212]
The Argument
For the alternative approach to succeed it must be established that article 36(2) can be detached from article 36(1) and that, moreover, it can be an independent source of obligation. It transpires that the second part of this claim is more easily vindicated than the first.
A summary of the argument is necessary at this point in order to explain the relationship of the following sections. The argument is that when articles 30-36 are applied to the activities of national courts and administrators the standard approach to article 36(2) must be abandoned. It must be seen as an independent source of obligation since in these situations it addresses the actions of parties other than those who violate article 30, though in one sense they are part of the same entity, the State. This analysis is vindicated, at least implicitly, by several cases which have raised the issue in the context of measures justified under article 36(1). Even so, the reasoning applied in this context is necessarily of broader scope, and implies the more general independence of article 36(2). This severance is not alarming since the Court has elsewhere recognized that article 36(2) reflects a general principle. It is thus quite appropriate to expand the scope of the provision where this produces coherent results.
(1) Administrative Discretion
The question considered here is how articles 30-36 relate to a national law incorporating a discretion. Discretion can be conferred in many ways. I shall focus here on the power to grant derogations from a rule and the power to interpret the law as it applies to individual cases. The two cases on this subject have considered only the former.
In Denkavit Futtermittel [213] the Court dealt with national legislation for which justification was claimed on the basis of public health under article 36(1). The Court ruled that the power of derogation contained in that law was acceptable under article 36, but only:
... if this power of derogation does not give rise to arbitrary discrimination between traders of different member states. [214]
The words "give rise to" are not entirely clear. However it is submitted that the context makes clear that the Court is referring to the effect of the exercise of the discretion by the administration.
This proposition may seem to be orthodox since the administrator is a part of the State. However, note that only article 36(2) is here directed at the administrator whilst the measure that violates article 30 and is justified under article 36(1) is the national law. [215] Thus, although articles 30 and 36(1) are in the background, the key provision from the administrator's perspective is article 36(2). This position is itself somewhat removed from the orthodox stance.
It appears to reject, in this context, the approach which sees each administrative act as a 'measure' which may infringe article 30. Whilst this approach seems to be the natural one to adopt when the administrator makes a rule, it would be excessive to regard every exercise of discretion as a separate measure. [216] If so then many exercises would have to be justified according to the mandatory requirements or article 36. Moreover, since the focus is upon the individual measure, the form of justification must differ. The administrator must do more than argue that the general regulatory scheme is justified in one of these ways, but must also establish that this specific application of that scheme meets those ends, and is proportional. Indeed it is not even clear that the existence of a general scheme which is justifiable could be invoked as a factor to support the individual measure.
An alternative approach does not see the exercise of discretion as an individual measure. Rather it is treated as an application of the legislative measure, and subject only to article 36(2). This appears to be precisely the position taken in the Denkavit case discussed above.
The implication of this position is that administrative discretion under a law that does not itself violate article 30, for example because of the mandatory requirements, is likewise not an individual measure. Hence it cannot be challenged under article 30. Moreover unless article 36(2) is given limited independence from article 36(1) it cannot be challenged by this provision either. Thus the provision could be employed for purposes other than those for which it was intended, and yet escape suit.
There is some indication that the Court has taken at least the first step in this direction. In Anton Adriaan Fietje [217] the Court ruled that the national legislation violated article 30. It then provided the national court with some guidance on whether the law could be justified in the public interest, as a consumer protection measure. This is a clear reference to the mandatory requirements doctrine of Cassis de Dijon. Indeed this is made explicit in Advocate General Mayras's opinion. [218] Finally the Court considered whether the power granted to administrators to allow derogations affected the conclusions. Having ruled that this power was permissible "in the case of a measure justified on grounds recognized by the Treaty", the Court stated:
However, exceptions must not lead to the favouring of domestic products because this would constitute arbitrary discrimination against, or a disguised restriction on products imported from other member states. [219]
In this passage the Court again identifies the exercise of discretion as a possible source of arbitrary discrimination or disguised restriction on trade. This appears to be a reference to article 36(2). Since the rest of the case concerns the mandatory requirements it is possible to interpret this case as applying this reasoning in the way I have suggested, independently of article 36(1). On the other hand, the Court does introduce these final comments with the qualification "in the case of a measure justified on grounds recognized by the Treaty". This could be read as confining the dicta to cases justified under article 36(1). Against this reading one can say that the Cassis de Dijon mandatory requirements are "grounds recognized by the Treaty", though they are appended to article 30 rather than article 36, and that it was clearly such justifications that the Court was considering. The Court had been referring to the "ground of public interest in consumer protection" so there is continuity of language to support this interpretation.
Nonetheless the main reason for extending the principle in this way is the incoherence that would otherwise result. [220] Further support can be derived from considering the position of selling arrangements after Keck. [221]
The Keck illustration
It would be strange if one could not challenge, after Keck, a selling arrangement which was enforced in a discriminatory or protectionist way. [222] If article 36(2) applied to such cases then there would be a fall back provision to ensure that some control was exercised to prevent the perversion of otherwise acceptable legislation to discriminatory purposes. [223]
The mechanism for this could be quite simple. Any 'prohibitions or restrictions on imports, exports or goods in transit' are subject to article 36(2). Whilst these words are generally assumed to relate back to those provisions that violate article 30-34, they can be read more generally. Thus a measure, such as legislation concerning selling arrangements, would be a 'prohibition or restriction' within article 36(2) even though after Keck it would not be seen as a 'measure having equivalent effect' under article 30. This interpretation is consistent with Keck since the Court did not state that such arrangements fell outside the provisions on the free movement of goods, but merely that they were excepted from the Dassonville formula, a rule internal to article 30.
The following passage, which appears in Keck as a proviso to the new exception, might be taken to suggest that this role for article 36(2) is met adequately by another means:
provided that those provisions ... affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States. [224]
It is possible to argue from this that Keck does not exclude selling arrangements from the scope of article 30, but builds a second level of protection. It sets up a second threshold level, parallel to the Dassonville formula, by which the application of article 30 is triggered whenever the provision has a disparate impact (to be established in fact, and thus over the life of the legislation) upon 'marketing' of the products. The meaning of 'marketing' is unclear here. It is likely that it means 'exposure to sale'. This suggests that whenever the application of the legislation in fact favors the exposure of domestic goods then the legislation itself violates article 30 and could be challenged.
Imagine that a local authority decides to target its enforcement upon a large store, which stocks many imports, rather than the local stores which tend to stock only local products. The factual effect of this decision falls more heavily upon imported than domestic goods. But if this was treated as a violation of article 30, thus bringing the whole legislation into violation, then the new threshold would not appear to perform its task of eliminating unmeritorious claims by traders. [225] Perhaps the reference to 'same manner' rather than 'same extent' can support a different interpretation which prohibits discrimination on grounds of national origin in enforcement. It is possible to continue to refine this notion in this direction. However as one does so it approaches the test laid down in article 36(2). [226]
Hence it seems that the statement from Keck illustrates that the Court senses a need for a fall back provision that will govern the misapplication of the selling arrangement legislation. However a simpler and more manageable means to achieve the same result is provided by article 36(2) if it is interpreted as suggested.
(2) The National Court
In Allen & Hanburys v Generics [227] the Court stated that the principles of the free movement of goods "apply equally to all the authorities of a Member State", [228] including the judiciary. However, as in the discussion above, this would be disruptive if taken to the extreme. It would suggest that every judicial decision would be subjected to the same requirements of justification as the national legislation, only now at the level of the specific application. Moreover in this context there is an added problem, albeit of a predominantly theoretical nature. If each court decision was a suspect measure then it could be challenged in a separate action, and so on. It is thus impossible to see each decision as an independent measure. On the other hand one might wish to treat rules made by the court in the same way as legislative rules.
Even so, at least in the attempt to determine the mechanics that apply articles 30-36 to the sphere of intellectual property, it is tempting to treat each court order as a measure subject to article 30. Allen & Hanburys is often cited as authority for this view. However, whilst the case contains the general language cited above there are also more specific propositions in the decision that merit closer attention. The main ruling in the case was
It must therefore be concluded that an injunction issued against an importer-infringer in the circumstances described by the national court would constitute arbitrary discrimination prohibited by article 36 of the treaty and could not be justified on grounds of protection of industrial and commercial property. [229]
This provision does not entail the view that every court decision is a suspect measure. Rather it supports the view that the only measure is the national legislation, but that the court's actions are relevant to determining the application of article 36(2). Only article 36(2) targets the court's decision. [230]
This analysis derives considerable support from Deutsche Renault, [231] as confirmed in IHT. [232] The latter case includes the statement that:
There would in particular be a disguised restriction if the national court were to conduct an arbitrary assessment of the similarity of products. [233]
These three cases concern measures that were justified under article 36(1). Thus the appearance of article 36(2) is not surprising. Yet the way it is employed is interesting. Imagine that the court makes an arbitrary assessment in another context and thus discriminates against imports, even in a context where the national law had not violated article 30, or had satisfied a mandatory requirement. The three cases, by applying article 36(2) to the court, provide a means to control this form of decision that does not have absurd implications.
(3) Other signs of Independence
There are other suggestions that article 36(2) need not be interpreted as being dependent upon article 36(1). The most significant is the appearance of the terms of article 36(2) in Coditel v Cine Vog [234] as a proviso to article 59, even though no such words appear in the Treaty. It has also been suggested that article 36(2) has been used in determining whether there has been any violation by the State of article 30. [235] These peculiarities suggest that article 36(2) embodies a general principle which is capable of being divorced from the specific context assigned to it by the standard formulation. This generality is found in the link to other forms of discrimination which undermine the effectiveness of the common market. [236] If the terms of article 36(2) reflect a general principle then there should be less concern at the use of that provision as a gateway through which to apply the general principle to further situations.
Interpretation of the second sentence.
The only claim made regarding the language of article 36(2) is that it provides a coherent and convenient avenue to introduce that formula into Community law. The central part of the suggested formula seems to fit easily with the expression 'arbitrary discrimination'. The special treatment for promotional activity must be developed within this limb, and can perhaps be seen as a specialized sense of discrimination akin to formal discrimination. The producer who intentionally segregates the market can be seen as establishing a 'disguised restriction upon trade'.
One might object that these expressions in article 36(2) are not this malleable, and that they have established meanings. In fact this does not seem to be so. There are cases that seem to consider the second sentence as an effects test. However, even more numerous are the cases that seem to interpret it as a reasoning test of discrimination. This emerges from the standard formulation in Henn and Darby. [237] It is particularly apparent in, for example, Commission v United Kingdom [238] where the Court investigates whether the justification proposed for the measure in question was merely a pretext. Hence to interpret article 36(2) in a similar fashion in relation to private actors would not be unorthodox.
On the other hand it must be admitted that this approach prevents a uniform interpretation of article 36(2) from being developed. Even if the application of this provision to State action settled upon an understanding of discrimination in terms of reasoning, the overlap would be largely superficial. The highest form of possible unity resides in the fact that the provision would become the source of rule which performed essentially the same function, that of a fall back provision, in essentially the same manner, by focusing upon reasoning. Even this unity is impossible if the provision is regarded as an effects test in relation to State action.
The Advantages of this Approach
One significant advantage of this approach is that it avoids article 36(1). This is cosmetically appealing since there is no room for justifications within the suggested formula of accountability.
A second advantage is that, if located in article 36(2), the formula would apply equally to interference with exports. The analysis above has focused upon imports, yet it is clearly possible for private action to interfere with exports instead. If the formula was internal to article 30 then a similar formula would be demanded within article 34. [239] This would lack the simplicity associated with interpreting article 36(2) as a fall back.
As is apparent from the above discussion, this approach also fares better in terms of authority. Much adverse authority focuses upon the role of article 30 and thus does not directly address the role of article 36(2). [240] At the same time Terrapin and American Home Products both provide direct support for the approach suggested here. [241]
In the preceding discussion private accountability has been equated with the existence of an obligation imposed upon private parties by Community law. However, genuine accountability also presupposes the availability of effective remedies to enforce that obligation. This second limb of accountability is considered in this section on the assumption that private parties are indeed bound by articles 30-36 according to the formula proposed in section C.
No principle of Community law appears to confer special powers to enforce the obligation in question. The Commission would have no special power parallel to that exercised in relation to the rules upon competition. [242] Moreover, no action under article 169 (or by other Member States under article 170) could be maintained by the Commission against the purely private party. [243]
It is less clear whether a private party exercising a public function can be the subject of a challenge under article 169 or 170. This is simply a question of whether the reference in these provisions to the fulfillment of obligations by Member States can be interpreted to cover all public functions, for example on the basis that they are in one sense performed on behalf of the State. [244] This extension seems simple in cases where the private body is an 'emanation of the State', as under the conventional interpretation of cases such as Pharmaceutical Society. [245] Thus one consequence of rejecting this fiction might be to forfeit the possibility of an action under these provisions. Even so, the exclusion of such remedies presents little concern if effective remedies exist before national courts, as suggested below.
On turning to national courts one must ask whether Community law requires them to provide any remedies for the breach of an obligation imposed by Community law. The answer to this question is not firmly settled. The Court has developed a doctrine that ensures the effectiveness of Community law, at least where this confers a right upon individuals. The development of a similar doctrine in relation to Community obligations is still embryonic.
No mention has yet been made in this paper of rights which are infringed by private parties who restrict the free movement of goods. Rather the focus has been upon their obligations. This makes it harder to establish a remedy, the path from obligation to remedy not being as well trodden as that between right and remedy.
It is therefore tempting at this stage to argue from the obligation first to a right and thence to a remedy. This has been the traditional approach taken by those arguing that a breach of articles 85 and 86, which clearly impose obligations directly upon private parties, must lead to a remedy in damages as a matter of Community law. However, this approach is artificial and shifts focus and concern from the plaintiff to the defendant. Such a shift distorts the central notion of 'effectiveness' since this should be assessed against the rationale for the law. In this instance the rationale is intimately connected to the basis for the obligation, but not to the right, which is only a subordinate analytical tool. Thus the diversion via rights should be resisted if possible. Fortunately there is an increasing awareness that it is unnecessary, evidenced in particular by a recent opinion by Advocate General Van Gerven. [246]
The principle of effective protection of Community rights derives from article 5 and entrusts to national courts the role of "ensur[ing] the protection of the rights which individuals acquire through the direct effect of Community law". [247] The courts are given freedom to determine procedural rules provided that those rules are no less favorable than rules governing the same right of action on an internal matter and do not make vindication of the Community rights impossible in practice. [248] Though this doctrine has been used particularly to require protection of individual rights against the Member State, including the setting aside of national law, [249] the Court has also applied it to violations of individual rights by private parties. [250]
However, the effectiveness principle is simply an application of supremacy, [251] mediated through the national courts' duty of loyalty under article 5. [252] Thus it follows that a Community obligation should be protected in the same way. This is supported by Francovich v Italy [253] where the Court started with the breach of an obligation to enact legislation (a.189) and then ruled that the effectiveness of Community "rules" demanded a remedy, compensation:
the full effectiveness of Community rules would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain compensation when their rights are infringed by a breach of Community law for which a Member State can be held responsible. (Emphasis added)
Despite the reference to 'rights' the impulse reflected here is that an obligation must be protected by an effective remedy. [254]. In the circumstances of this case, the effective enforcement of the Community obligation ensured, at one remove, the effective protection of those Community rights which the State had failed to enact. [255] The Court was able to invoke the familiar language of protecting rights whilst ensuring the effectiveness of Community law. The generality of this principle remains to be determined. [256] Even so, this manner of reasoning provides significant support for arguing directly from obligation to remedy in the context of private accountability. [257]
Thus some effective remedy must be provided by national courts. It is therefore meaningful to talk in terms of 'accountability' and not merely of a nominal obligation. There are two remaining issues. The first is the appropriate form of remedy, and whether this is guided by Community law. The second is the choice of plaintiff.
The only 'effective' remedy appears to be a damages claim. The threat of such a claim will, according to intuition and to economic analysts of law, deter the harmful scheme. [258] Deterrence must be the central function of the remedy in a case such as this. Here the free movement of goods, which influenced the obligation, is only protected if parties are deterred. Any remedy must be judged primarily against this goal. This deterrence function has been noted by the Court itself. [259]
No other remedy appears to offer the possibility of genuine deterrence. Any remedy that simply addresses the future conduct of the defendant clearly has almost no immediate deterrent effect. In the simple case a party has nothing to loose by violating the rule until finally being challenged. It is otherwise only where the conduct is part of a scheme requiring considerable investment. For this reason there is at least minimal deterrence in relation to artificial partitioning. [260] On the other hand the potential for gain prior to being restrained will often outweigh the threat.
It is possible, in cases of discrimination in decision making, to require the decision maker to reassess the decision. This remedy is not practical, especially in view of the delay between the decision and any court judgment. Thus there seems to be no alternative to a simple action for damages, at least not as regards the private party without any public function. [261] This alone will deter without causing impossible disruption.
If it is accepted that only a damages remedy will effectively apply Community law then it seems that a national court should impose this remedy. However, it would be surprising if the definition of 'effectiveness' was entirely a matter for national courts. Rather in a case such as this, where the requirement of 'effectiveness' is quite narrow, one might expect more precision from Community law.
The basic proposition, as has been noted, is that national courts have some freedom as regards remedies. However, the 'effectiveness' principle imposes some restrictions upon this, as can be seen in relation to several cases concerning the Equal Treatment Directive. [262] In Von Colson the Court stated that any remedy must be suitable to achieving the objective of the Directive, which was to 'compensate' the candidate being discriminated against, and to prompt the employer to respect the principle of equal treatment. [263] The Court did not challenge the choice of a damages remedy but rejected the adequacy of the measure awarded. [264] This was developed further in Marshall II where the Court noted that the objective of the Directive required the restoration of equality. [265] Hence it concluded that "a situation of equality could not be restored without either reinstating the victim of discrimination or, in the alternative, granting financial compensation for the loss and damage sustained". [266]
This same tendency to restrict the "degree of discretion" [267] in choice of remedies appears in Francovich, though by a slightly different means. The Court, apparently motivated by concerns of deterrence, specified that a compensatory remedy must be available. It did this through defining the Community right (which it derived from the obligation) as "the right ... to obtain compensation". This approach has since been repeated. [268] It can even be argued that the principle underlying the decision is quite general: that damages are essential to the effectiveness of Community law. [269]
It seems therefore that there exists some support for the view that Community law dictates the effective remedy to national systems in some circumstances. [270] The basis for this is its assessment of the objective of the provision and how to make this effective. Hence there is a strong case for a Community law requirement of damages in the case under discussion here. [271] The means by which such a remedy is claimed in each national system is an independent question that cannot be considered here. [272]
The identity of the plaintiff is not entirely independent from the questions considered above: the desirability of the obligation and the form of remedy. Nonetheless it is important to emphasize that the plaintiff is the end result of, and not the basis of, private accountability. Even so, if no suitable plaintiff could be found then the case for private accountability would fail at this final stage.
The real harm inflicted by the private party who discriminates or artificially partitions the market falls upon the whole of the common market. However, the search must be for a representative plaintiff who can be relied upon to have the interest to enforce the obligation and so avert the harm. The threat of proceedings must be sufficiently credible to influence the actor. The obvious candidates are the manufacturer affected by discrimination, [273] and the parallel importer [274] who incurs the costs of repackaging. [275]
In giving these parties a claim to compensation one must recall that the purpose is to enforce Community law most effectively for the benefit of all. Thus it is not alarming that these parties are located by reference to convenience and not through a complex argument establishing their right. This is a necessary corollary of starting from obligation and working to remedy. However, despite being selected for their convenience in enforcing Community law, these plaintiffs are those most directly affected by the breach. Whilst their harm would not be enough in itself to establish a right to be protected by Community law, it does not seem undesirable for them to be the ones who recover compensation.
The manufacturer should recover the damage sustained through lost sales. [276] The parallel importer should recover the added expenses of repackaging or re-labeling. This measure of damages reveals a further pragmatic benefit of treating the parallel importer as the plaintiff. Undertakings which might have been deterred from parallel importing by the expense of repackaging or re-labeling will now find that this expense can be recovered from the manufacturer.
One objection that can be made to the measure of damages is that the incentive will be too small for any one undertaking to act, whereas there will be great coordination problems in actions by large groups. As regards artificial partitioning this claim has little merit. The threat of suit from all undertakings which seek to parallel import amounts to an expensive, and therefore significant, concern. It certainly undermines the view that there is very little to loose and much to be gained by artificial partitioning.
In relation to discrimination this objection has greater empirical support. Even so, the threat of suit, even for discrimination which causes little loss, is ever present, though to some extent diluted. Moreover, the incentive for suit will be strong where there is a practice of discrimination. In such cases the coordination problems between many potential plaintiffs are likely to be minimal. If the rule bites only against the most extreme forms of discrimination then this is not necessarily a negative feature of its operation. The practical result may be to introduce a form of de minimis dependent upon the interests of those most affected. This approximates to a de minimis rule excluding those transgressions least important from the Community perspective.
Here I consider two distinct objections to the development of private accountability. The first is that it clashes with the existing regime of State accountability under article 30. The second is that a more appealing solution is available in the form of an extension of State accountability to situations involving private action.
The crux of this objection is that private and State accountability do not lie comfortably alongside one another. One area which has been discussed above concerns the role of national law as a defense to private accountability. Another area in which the co-existence may appear troublesome is intellectual property. Here the established jurisprudence of article 30 effectively prevents private parties from relying upon national legislation. Since this is already so, it might be questioned whether private accountability will add anything besides confusion.
In response one should note that private and State accountability would address distinct problems, and apply to different situations. When the private party invokes an intellectual property right the content of that right, being an element of national law, must be reviewed against the rules for free movement of goods related to State action. However, even if the right passes that test it can be subjected to a different test which reviews its exercise by the private party. Thus, if the private party employs the right in a discriminatory fashion, then that action should be condemned. The focus is upon the party's reasoning processes.
However, there is one situation which demands greater attention. I have suggested that a private party should be accountable for artificially partitioning the internal market. In this sphere the application of article 30 to national legislation, at least according to the conventional interpretation of American Home Products, [277] mirrors the proposed private accountability formula in its focus upon the private party's intention. There is no conflict here, but one can question whether the apparent duplication is desirable. Even so, this should not be understood as an objection to private accountability. One should not condemn private accountability itself on the basis that it mirrors a doctrine that is its precursor, reflecting precisely those concerns which would become concretized in the private accountability rule. Rather the doctrine, which has often been regarded as contrived, should be reconsidered in light of the private accountability rule.
At present this doctrine of Community law requires that the right to prevent imports is qualified by reference to intention. An alternative to be considered would define that right without reference to intention. The question of the appropriate response to the private party's intentions would be confronted by other means, including private accountability. The implications of this proposal must be considered further.
First, imagine that the proprietor is sued for intentionally partitioning the market. Just as it cannot legitimate discriminatory reasoning, national law cannot authorize reasoning incorporating the intention discussed above. Thus if such a national law was raised as a defense to private accountability then it should be disapplied under article 30 (as applied to State measures), in the manner discussed in section C.
Secondly, the proprietor might bring an action to ban parallel imports. Under the conventional approach his right to prevent these imports drops away as soon as his intention surfaces. There is no possibility of a remedy and the default position thus prevails: parallel imports continue. Under the proposal the national right remains intact. Whilst this leaves open the possibility of some remedy to ban imports, it does not dictate that there must be such a remedy. As a matter of Community law the proprietor may be estopped from relying upon his right. [278] In such a scenario the resultant position, but not the mechanics, looks very much like a right inherently qualified by reference to intention. [279]
A further strength of this proposal is that it applies in the same way to other means of partitioning. Most obvious of these is the use of different packaging. Though uncertain, it appears that this situation is not presently governed by a similar rule concerning intentional partitioning. [280] However, the logic above would apply in the same way, and permit flexibility.
The proposal allows a subtler consideration of the appropriate remedy in complex cases. Imagine that a trade mark proprietor varies the product characteristics between two national markets as a means to artificially partition the internal market. [281] This proprietor may then use the potential for consumer confusion as a ground to ban parallel imports. The conventional analysis requires this complex question to be answered in one dimension, whether or not imports can be banned. This environment hampers the attempt to construct a solution which avoids misleading consumers whilst also deterring this type of conduct. By introducing the possibility of a damages remedy, private accountability introduces important flexibility.
A related question is whether the same results can be achieved without resorting to direct private accountability and by adapting State responsibility instead. There are two possible avenues by which this extension may be achieved.
The first possibility is to expand the notion of 'reliance on national law', which is familiar in the context of intellectual property. [282] Under such a doctrine any private action which does not violate national law could be seen as authorized by that law and so performed in 'reliance' upon that law. For example, it might be said that in discriminating against imported products, the actor relies upon national law. This national law could be challenged under article 30 and disapplied. A weak argument could then be made that an injunction should be granted to restrain reliance upon a national law that has been disapplied.
Under the second avenue Community law might make States responsible for discrimination that occurs within their jurisdiction. Hence whenever a private party discriminates an action can be brought challenging the State's failure to prevent it. This proposal seems to derive some superficial support from the Member States' duty of loyalty in article 5. The approach has been suggested on several occasions, [283] and has weak support from the Commission. [284]
These two approaches have in common their targeting indirectly what the private accountability principle targets directly. Whilst either approach might be acceptable if private accountability itself was not possible, they seem to be unnecessarily convoluted. If the real target is private action, then why extend the fiction that national legislation alone is being targeted? Moreover, the remedy under this approach is inappropriate. The private party may be prevented from discriminating but will not be required to pay compensation, and will thus remain undeterred. Perhaps the State will be required to pay compensation for its failure to implement Community law, and might require a similar payment by the private party. However this is a poor substitute for targeting directly the parties who should be deterred.
Furthermore, as regards the second approach, based upon article 5 rather than reliance, it should not be thought that it possesses a simple legal basis which might give it an easy avenue to legitimacy. Article 5 has two limbs. The only positive obligation it imposes is to "ensure fulfillment of the obligations arising out of this Treaty". It also requires Member States to "abstain from any measure" which could jeopardize the objectives of the Treaty. It is not easy to interpret either limb as supporting Member State responsibility. The private party would be under no "obligation" and thus the State would have no 'obligation arising out of [the] Treaty' to police. Nor would the State have breached its obligation to abstain. Hence the suggested basis for this doctrine does not readily accommodate it.
On the other hand the reliance doctrine could be presented as an extension of existing principles and thus might be achieved with relative ease. Nonetheless the extent of the fiction involved makes it unappealing for similar reasons. It builds upon existing principles but distorts them considerably.
To further develop the arguments for and against these alternatives would be an extremely lengthy process. [285] However, I hope that this brief discussion demonstrates that pure private accountability is to be preferred.
A standard objection to private accountability is that it would make the competition rules in articles 85 and 86 redundant. [286] However, this criticism cannot be sustained against the form of accountability suggested in this paper. Private accountability would be confined to a narrow sub-set of actions and would thus overlap with, but not replace, the competition provisions. The more important objection simply states that where the private accountability rule and the competition rules overlap, the two will conflict. It is this claim that is considered here.
There are many instances of situations in which the private accountability formula would mirror the approach adopted under the competition rules. For example, if a dominant undertaking discriminates on grounds of national origin then it seems likely that this will be regarded as a violation of article 86. [287] Hence, if the same obligation also was imposed under the free movement of goods principle, there would be no conflict. This same form of interaction would exist in the context of promotional activity where the two sources of obligation would appear to adopt identical criteria.
It is less clear whether this same relationship applies when the private accountability rule and the competition rules meet at the heart of the latter. In particular, some of the interests represented in the detailed formulation of the doctrine implementing article 85 were not considered in the formulation of the private accountability formula. Where such interests dictate special exemptions from the competition rules a private accountability formula which does not recognize similar influences would, it could be argued, simply cut across the more complex balancing operation that had been performed. [288] For example, article 85(3) exempts, inter alia, anti-competitive agreements which contribute to an improvement in production or distribution, or which promote technical or economic progress. The claim is that private accountability would be oblivious to such concerns.
This characterization of the relationship would certainly be correct if the formula for private accountability incorporated a low threshold such that included in its scope were a very broad range of restrictions upon competition. However, the narrow formula that has been proposed seems capable of isolating a class of activity where accountability would not undermine the exceptions from the competition rules. Rather, the formula would target cases in which either the exception itself was suspect or accountability would ensure the recognition of interests not incorporated into the grant of the exception.
Consider first the case of partitioning of the internal market achieved by the establishment of distribution networks. Such arrangements are readily excepted from the ambit of article 85. [289] Private accountability would not arise since the appropriate limb of that rule focuses only upon conduct relating to the goods themselves. Hence the rule would become relevant only if, within the context of such a network, an attempt was made to supplement the partitioning of the markets by the use of different marks or packaging which might limit the effectiveness of parallel imports between the markets. It is clear that in targeting this form of conduct, private accountability would be entirely consistent with the exception from article 85. This exception itself emphasizes the importance of preserving the possibility of parallel imports, by making an export ban an absolute bar to exception. [290] Moreover, attempts to restrict the flow of goods through the parallel market would remain open to challenge. [291] Thus private accountability isolates a sub-set of conduct where liability can be imposed consistently with the purposes of, and interests represented in, the exception from article 85.
The same argument can be made in relation to the other major limb of the private accountability formula, discrimination upon grounds of national origin. Again, this form of conduct is always undesirable. No exception that may be granted to the competition rules would therefore endorse this form of conduct since none of the goals that might permit exception would be served by a scheme endorsing discrimination. [292] Moreover, if the private actors discriminated on grounds of national origin within a context governed by such an exception, the imposition of liability would not undermine it. Rather, liability would tend to eradicate discriminatory behavior which could not have been a necessary part of that exception.
This special element of the competition rules must be dealt with separately. The Court established, in Völk v Vervaecke, [293] that only agreements having an 'appreciable effect' on competition would trigger the application of article 85. This principle has been confirmed and has been developed by the Commission [294]. No such de minimis rule would apply under the private accountability formula and thus the possibility of conflict arises. [295]
The de minimis rule seeks to further economically desirable cooperation between undertakings by removing the threat of liability under the competition rules. [296] This compromise is based upon the view that market conditions are not significantly affected by such cooperation and that third parties and consumers would not be disadvantaged. [297]
This compromise of interests would not be disturbed by private accountability in cases falling below the de minimis threshold. The cases targeted by this rule are a sub-set which do not fit the criteria of economically desirable cooperation. Their removal from the umbrella of protection provided by the Notice is therefore to be favored.
If this characterization of the relationship between private accountability and the competition rules is not accepted then the argument in favor of private accountability is severely undermined. If a conflict between the two sources of obligation was acknowledged then the only alternative would be to develop some way of confining private accountability to a restricted sphere, for example to single actors. The difficulty with this approach is the arbitrary line that it requires to be drawn. This would be particularly apparent in relation to the de minimis rule. Two parties acting together could claim the benefit of this exemption where one could not. Such arbitrariness would make the prospect of private accountability in this form particularly unwelcome.
There are two aspects that must be mentioned at the end of this paper. Both concern the appropriateness of the Court for the development that has been suggested. The first issue is not especially troublesome but the second may be determinative of the whole debate.
Retrospectivity and individual fairness
One can object to judicial expansion on the grounds that it interferes with the legitimate expectations of private parties, and sanctions those who did not have the benefit of notice. This is an important challenge, but one that is dealt with by departing from the traditional retrospectivity of judicial decisions. This was the position taken in Defrenne [298] where the interpretation of the Treaty provision was given prospective effect only. This doctrine was confined to exceptional cases, [299] but the factors that established this in that case are equally present here, particularly as regards liability for artificially partitioning the market.
The judicial function
Whilst accepting that the Court is capable of creating a change of the nature suggested here, some might claim that such an initiative is inappropriate. Though clothed as interpretation, the acceptance of private accountability might be said to resemble judicial legislation. Against this it can be argued that the Court must ensure the dynamic nature of Community law. In particular it should react to the fact that, after the single market programme, the nature of the common market, and so the extent of the impact caused by private action has changed. Accordingly the interpretation could be seen as development, or evolution of existing law rather than as pure innovation.
The determination of what is an appropriate role for a court clearly depends upon the legal order of which it is a part. It also depends upon the state of that legal order, and in particular its maturity. It is thus immaterial that the Court has undertaken greatly more ambitious projects in the past. The question of the appropriate role for the Court is one that cannot be stated in the abstract. It is a broadly political question which must be determined in a different arena. Therefore I confine this discussion to noting several further complications that must inform that debate.
The interpretation given by the Court to articles 30-36 would have 'constitutional' status. Thus Community legislation and national law would be required to respect it. In particular, as a matter of Community law, no legislator would have the competence to override the Court's interpretation.
One answer might therefore be to simply leave this question for Community legislation [300]. However, this option does not appear to be available since the competence of the Community to legislate private accountability must be doubted. If the notion of the common market and the free movement of goods were not interpreted as applying to private parties then it is doubtful whether the Community could extend them. The Court is in a unique position to do so through interpretation of the Treaty itself.
Another factor that might be considered important is the exclusion of private action from the 1992 single market programme. This can be interpreted as a recognition that the initiative is undesirable or unnecessary. [301] However, the substance of the programme simply reflected the existing conception of the appropriate extent of the free movement of goods principle. More importantly, it focused upon the obvious obstacles to the common market created by the absence of harmonisation. It is only through the success of the programme that it now makes sense to talk of private actions as significant obstacles to trade. To have dealt with private action when so many State restrictions remained would have appeared unfavorably idealistic. [302]
Community law should be interpreted to impose obligations upon private parties under the free movement of goods principle. Article 36(2) should be regarded as prohibiting private parties from exercising arbitrary discrimination and from erecting disguised restrictions upon trade between Member States. These terms should be interpreted narrowly, according to the formula proposed in Section C of this paper. Violation of the rule by the private parties bound by it should lead to a remedy in damages. Moreover, articles 30 and 34 should be understood to apply to private bodies where they exercise public functions. Their actions in pursuance of these functions are 'measures' under those articles.
This brief summary of the position advanced in this paper demonstrates that issue of private accountability has been presented principally as a question of how certain Treaty provisions should be interpreted in light of the policy arguments developed in sections B and C. Therefore an important counter to this argument is the claim that the Court's function should not encompass developments of this form. If this view is accepted then the policy arguments stand alone as a critique of Community law.
Below are listed the works that include some reasoned consideration of private accountabilty under the free movement of goods principle:
L. GORMLEY, Prohibiting Restrictions on Trade within the EC (1985)
GREEN, HARTLEY AND USHER, The Legal Foundations of the Single European Market (1991)
KAPTEYN AND VERLOREN VAN THEMAAT, Introduction to the Law of the European Communities (2d ed. 1989)
P. OLIVER, Free Movement of Goods in the EEC (2d ed. 1988)
J. SHAW, European Community Law (1993)
Alexander, Droit Communautaire et droit national des marques, 1976 Cahiers de Droit Europ. 411.
Barents, New Developments in Measures having an Equivalent Effect, (1981) 18 C.M.L.Rev. 271.
Beier, Industrial Property and the Free Movement of Goods in the Internal European Market, 21 I.I.C. 131.
Beraud, Les mesures d'effet équivalent au sens des articles 30 et suivants du Traité de Rome, 1968 R.T.D.E. 265.
Cohen Jehoram, The Delicate Balance between Industrial Property and European Law: The Law as it Stands [1976] 2 L.I.E.I. 71.
Daniele, Réflexions d'ensemble sur la notion de mesures ayant un affect equivalent a des restrictions quantitatives 1984 R.M.C. 477.
Gormley, Current Survey, The Common Market, (1984) 9 E.L.Rev 423.
Hunnings, Consumer Patriotism, 1983 Journal of Business Law 356.
Jacobs, Industrial Property and the EEC Treaty - A Reply (1975) 24 I.C.L.Q. 643.
Johannes, La propriété industrielle et le droit d'auteur dans le droit des communautés europeénes, 1973 R.T.D.E. 369.
Joliet, Patented Articles and Free Movement of Goods within the EEC, Current Legal Prob. 15.
Joliet and Delsaux, Le Droit d'auteur dans la jurisprudence de la Cour de justice des Communautés europeénes 1985 Cahiers de Droit Europ. 389.
Koch, Article 30 and the Exercise of Industrial Property Rights to Block Imports, 1986 Fordham Corp. Law. Inst. 609.
Lecrenier, Les articles 30 et suivants CEE et les procédures de contrôle prévues par la directive 83/189/CEE, 1985 R.M.C. 6.
Marenco, Competition between National Economies and Competition between Businesses - A Response to Judge Pescatore, (1987) 10 Fordham Int'l Law Journal 420.
Marenco and Banks, Intellectual Property and the Community Rules on Free Movement: Discrimination Unearthed (1989) 15 E.L.Rev 224.
Nolin, La Condemnation par La CJCE des campagnes de promotion pour l'achat de produits nationaux, 1983 R.M.C. 460.
Pescatore, Public and Private Aspects of European Community Competition Law, (1987) 10 Fordham Int'l L. J. 373
Oliver, A Review of the Case Law of the Court of Justice on Articles 30 to 36 EEC in 1984, (1985) 22 C.M.L.Rev. 301.
Quinn and MacGowan, Could Article 30 impose obligations on Individuals?, (1987) 12 E.L.Rev 163.
Usher, Duties imposed on individuals under the EEC Treaty, in FUNDAMENTAL DUTIES (Lasok 1980)
Van Gerven, The Recent Case Law of the Court of Justice [1977] C.M.L.Rev. 5.
VerLoren van Themaat and Gormley, Restrictions of Free Trade, (1981) 3 Northwestern Journal of International Law & Business 577.
Waelbroeck, Les rapports entre les règles sur la libre circulation des merchandises et les règles de concurrence applicables aux enterprises dans la CEE, in LIBER AMICORUM PIERRE PESCATORE (1987).
White, In Search of the Limits to Article 30 of the EEC Treaty, (1989) 26 C.M.L.Rev. 235.