Movement of Goods and Services across Borders - Coursework Example

Movement of Goods and Services across Borders Introduction The movement of goods and services across borders is affected by various factors, including trade blocs and trade barriers. The European Union (EU) is an economic union made up of 28 countries primarily located in Europe. The EU operates through a group of institutions, and decisions are made through inter-governmental negotiations. The institutions within the EU include the Council of the European Union, the court of Justice of the European Union, European Parliament, the European Council, the European Central Bank, the European Commission, the European Council, and the court of Auditors. The aim of the European Union was to develop a single market in Europe and enhance a free movement of goods and services from one country to another within the Union. The European Union also plays a significant role in enacting laws regarding home affairs and justice, maintaining common trade policies, and allowing free movement of people and capital. The internal goods and services market in Europe has become an essential part of EU’s success, and it is the main catalyst for economic growth in the region. Through the European Union, most of the barriers to free movement of goods and services have been eliminated. According to the Treaty on the Functioning of the European Union (TFEU), goods and services are defined as anything that is capable of forming the subject of commercial transaction. They include anything that has economic value and can be valued in terms of money. Things such as artworks, coins no longer in circulation, electricity, natural gas, bank notes and bearer notes have economic value that can be measured in monetary terms. Therefore, they can all be classified as goods. However, donation in kind and television signals is not considered as goods. In terms of distinction between goods and services, goods are tangible while services are intangible. For example, fishes are goods while fishing rights are services. Free Movement of Goods and Services The free movement of goods and services is usually affected by barriers to trade. Article 34 of the Treaty on the Functioning of European Union (TFEU) provides guidelines on the obstacles to trade between member states. The article is used as a right of defense against measures developed on the national level to create unjustified barriers to entry or exit of goods and services to and out of member states (Woods, 2004). Activity of the state that may infringe section 34 of TFEU leads to prohibited obstacle to the free movement of goods and services. An administrative practice on the part of member states may be considered as an hindrance to free trade provided the practice is consistent and of general nature. Article 4(3) of the Treaty on European Union also provides that member states of the EU should take appropriate measures to fulfill treaty obligations which lead to the free movement of goods within the union. If a nation fails to adopt measures to deal with obstacles to free movement of goods, it is considered to have infringed the provisions of the European Union treaties. The action of private individuals may also be considered as an infringement of the state. For instance, the case C-265/95 involved action against France, holding the country responsible for the actions of national farmers who restricted the importation of agricultural goods from a neighbouring member state by intercepting a lorry carrying the goods and destroying them. Non-intervention of member states in such circumstances amounts to the infringement of section 34 of TFEU. In this case, all member states have the obligation to ensure that there is free movement of goods by taking necessary measures to prevent obstacles to free movement of goods and services. The European Union has an internal market where goods move freely from country to country. This has been enhanced by breaking barriers to trade. The European Union is a customs union whose member states have removed customs barriers and adopted a common policy of custom duties on other non-member countries. Custom duties are fee barriers that are set to limit the amount of imports. Article 30 of the Treaty on the Functioning of European Union (TFEU) has prohibited the levying of custom duties on imports from European Union member states (The European Union, 2010). Article 29 regulates that once a custom duty has been paid for goods imported from a country outside the EU, it is then allowed to move freely between member states of the European Union. The purpose of restricting custom duties is to allow for competition in the European market and remove fiscal restrictions preventing free movement of goods within the common market of the European Union. However, there is no physical custom control of imports within borders. The control happens at the traders’ premises through post-import risk analysis and audit controls. The European Union also prohibits the imposition of charges with equivalent effect to a customs duty. Charges with equivalent effect are defined by the European court of Justice as the pecuniary charge that is imposed unilaterally on foreign or domestic goods by the fact of cross-border trade, but cannot be considered as a customs duty on its stricter sense (The European Union, 2010). The difference between a customs duty and a charge having equivalent effect is that customs duty is charged with respect to the value of goods while the charge having equivalent effect are charged with respect to the quantity of goods. Taxation is also used as a way of restricting movement of goods. This happens when imported goods are charged higher taxes than domestic products. Article 110 of the TFEU prohibits member countries from charging taxes on products imported from member countries in excess of the taxes charged on similar domestic products (The European Union, 2010). Member states are also prohibited from imposing taxes on imports in order to provide indirect protection other products. The purpose of article 110 of the TFEU is to ensure that there is free movement of goods under normal conditions of competition. This can be achieved by eliminating all potential barriers to free trade including discriminatory internal taxation on products from other member states. The European Union also promotes free movement of goods by prohibiting the implementation of quotas and other quantitative restrictions by member states. A Quota is the restriction of the quantity of goods imported into a country. Quantitative restrictions are the measures that restrict the imports or imports on transit (The European Union, 2010). When a certain export or import ceiling has been reached, quantitative restrictions are always applied. Article 34 of the TFEU prohibits quantitative restrictions, and allows countries to export or import goods beyond the import and export ceiling to other member countries. The European Union also reduces barriers to trade in products, and encourages free movement of goods across member countries by prohibiting the measures of equivalent effect. The court of Justice defined measures of equivalent effect in Dassonville as trading rules enacted by member states, and can hinder intra-community trade either directly or indirectly (The European Union, 2010). These restrictions are considered as measures that have equivalent effect to quantitative restrictions. Article 34 TFEU does not only apply to discriminatory measures which discriminate against imports but also to the measures that have an equal application to domestic and imported goods but cause burden for imports (Vaughan and Robertson, 2003). This provision leads to free movement of goods and services from one member state to another. The European Union also prohibits the indirectly discriminatory rules that prevent free movement of goods across the EU member states. The indirectly discriminatory rules do not discriminate against imports in law but in fact (The European Union, 2010). In this case, the importer is given an additional work to burden the process of importing goods. The domestic products face the same rules but in reality the burden is imposed on importers. The European Union prohibits this distinction, allowing for free movement of goods between member countries. The European Union also prohibits restrictions on free movement of services from one member country to another within the union. Article 56 TFEU provides guidelines on the free movement of services. Article 57 of the TFEU defines services as intangible products provided for remuneration, but are not covered by provisions that involve the free movement of goods, capital or persons (The European Union, 2010). Freedom of movement of services in the European union are effective directly, so the member states are prohibited from using laws that conflict with EU provisions related to services. The European Union allows for free movement of goods and services between member countries by prohibiting advertising restrictions (Oliver et al, 2003). Restricting some forms of sales promotion or advertisements could indirectly affect imports by limiting their volume because it reduces marketing opportunities for the imports (Woods, 2004). Section 34 of TFEU prohibits such restrictions which limit the marketing opportunities of importers. The free movement of goods and services has several advantages to the EU. First, it enhances competitiveness of the European market. When goods and services are allowed to move freely without interventions and barriers, consumers get a wide range of products to choose from. This leads to decreased prices of products and increases their quality. This increases consumption in the European Union and stimulates the economy towards growth. Another advantage is that it increases positive relationship among member countries both economically, socially and politically. Free movement of goods and services from one country to another within the European Union enables the countries to develop strong ties and share ideas and resources to enhance economic development in the Euro zone. For example, production of wine in France may be exchanged with clothes from UK, causing a positive trade relationship between the two countries. Free movement of goods and services from one country to another within the European Union also ensures that each country gets access to goods and services which it is not able to produce at cheap prices. A country with comparative advantage in production of Good A can exchange that good with Good B from a country which has a comparative advantage of producing the second good. Therefore, all sectors of the economy in each country can access the required goods and services for development. Trade Blocks The European Union is an example of a trading block. Trading block or trading bloc is an association or group of countries that come together within a geographical region to overcome barriers to trade and enhance free trade between member countries while at the same time protecting the member countries from competition from foreign countries (European Commission, 2013). It protects members from imports of non-member countries. As a trading bloc, the European Union plays the role of creating a common market for goods and services through elimination of trade barriers. It also creates barriers against entry of competing goods and services from non-member countries. The European Union provides technical barriers to trade (TBTs) in order to protect its member countries from competition by non-member countries (European Commission, 2013). Technical requirements have a great impact in goods and services that are provided in the global market. Technical barriers to trade (TBTs) are compulsory technical regulations and voluntary standards required for products to possess, including size, label, design, shape, packaging or functioning (World Trade Organisation, 2015). In order to determine whether a product meets the required technical regulations, it should undergo product, inspection, testing and certification. Governments introduce TBTs in order to achieve a specific policy objective, e.g. protecting the environment, promoting health and safety of citizens, or protecting human health and safety. TBTs have impact on competition and trade in the international market and the world economy at large. It affects competitiveness of exporters and small and medium enterprises (SMEs) in significant ways. For instance, adjustment of goods and services and production processes in order to comply with international requirements for export markets causes an increase in production costs, and significantly affects the competitiveness of exporters in EU member countries (European Commission, 2013). Therefore, TBTs are considered as the major barriers to trade in the European Union. The European Union operates within the platform of the WTO TBT Agreement which reduces the negative impact of TBTs for small and medium enterprises and exporters (European Commission, 2013). The WTO’s Agreement on Technical Barriers to Trade ensures that TBTs do not cause discrimination or unnecessary restrictions on international trade (European Commission, 2013). It guides the application of TBTs so that they comply with some basic principles and minimize their negative effects on international trade. TBTs have gained significance in the world due to the decrease in tariffs. The TBT Agreement can be used by the European Union to minimize the technical barriers to trade and the potential problems that such problems may cause to traders, especially small and medium enterprises (European Commission, 2013). The EU as a trading bloc protects the interests and policy objectives of the European Union by pushing for international standards that minimize the impact of technical barriers to trade. Through the WTO, the EU advocates for enhanced harmonisation that can be achieved by the adoption of international standards that are applicable worldwide (European Commission, 2013). In terms of assessment for conformity and compliance of products to the international standards, the European Union pushes for more risk-oriented approach. Transparency is also required so that the trade partners are consulted when regulatory initiatives are developed. The primary aim of the European Union in the TBT Agreement is to ensure that the exports of its member states are promoted through the reduction of technical trade barriers which prevent trade in the world markets in an unnecessary manner (European Commission, 2013). The EU examines the legislations of WTO members in order to determine their compliance with the WTO Agreement, and then works towards to the elimination of trade to barriers and opening access to the world market for the EU exporters. The WTO TBT Agreement is based on five basic principles. The first principle is transparency. This principle requires that members of the WTO, including EU members, with plans to develop a technical measure that could cause an impact to trade should communicate about these plans to the WTO (European Commission, 2013). The country should then take into consideration the suggestions given by other countries concerning the intended regulations. This principle allows the European Union to examine the proposed legislation and determine the impact of this TBT on the exports of its member states, and provide suggestions that favour its member states. The second principle of the TBT Agreement is the principle of non-discrimination and national treatment. In this case, the WTO regulates that the measure proposed by a member state should not discriminate among various importing states and should apply the same standards for measuring domestic and imported goods (European Commission, 2013). This ensures that the products imported by other countries from the EU are given equal treatment as other countries in terms of technical measures and standards used. It also allows EU exporters to get entry into foreign markets because this principle leads to the reduction of TBT. The principle of proportionality suggests that all measures provided by a country should be proportional – none of the measures should offer higher trade restrictions than required in order to achieve the policy objective of the country (European Commission, 2013). This allows European Union to find markets for its exporters that are proportional in terms of their measures and legislations. The EU also targets economies without strict policy objectives, so that their measures or standards are not highly restrictive to trade. The fourth principle is the use of international standards (European Commission, 2013). In this case, countries are required to use international standards to enhance technical regulations. In this case, technical trade barriers decrease significantly because international standards are applied by all nations. Lastly, the principle of equivalence urges WTO members to accept the legislations of other countries if they are equivalent to their own. As long as the legislations are able to achieve the policy objectives of a country, then the country should accept them in order to allow for easy trade between the two countries. Technical Barriers to Trade affect SMEs in a significant way. For instance, the trade barriers cause increased production and administrative costs and cause a decline of their competitiveness (European Commission, 2015). As a result, the European Union can play a significant role in helping small and medium enterprises by providing them with information regarding any ongoing investigation about subsidised or dumped non-EU product so that they can participate in the investigation by giving their views. Importers can also participate in the investigation by requiring the EU not to place measures on these imported goods. Technical trade barriers may also result in low-priced imports which affect the competitiveness of small and medium companies in the European Union (European Commission, 2015). The EU can help small and medium enterprises (SMEs) to overcome the challenges of low-priced imports caused by dumping or subsidisation. Exporters from the EU may also be affected by anti-subsidy or anti-dumping measures in the host countries. The EU may launch a trade defence to protect the EU exporters from the technical trade barrier (European Commission, 2013). The exporters may be involved in the process in order to provide their contribution and views about the issue. The EU may also add duties and quotas to exports to another country if the anti-dumping or anti-subsidy measures of the host country are considered by the EU investigations to be necessary. There are various disadvantages of the technical trade barriers. First, it may restrict the entry of goods and services of great importance to the EU as a result of high standards required (European Commission, 2013). In this case, the EU may place high measures and standards on certain products that could contribute to high production, especially raw materials that could be used to increase production in the European Union. The second disadvantage is that it causes increased costs to small and medium enterprises. SMEs need to adjust their production in order to comply with the measures provided by the EU or other trading partners. In this case, compliance with the standards may be costly for small and medium enterprises. Conclusion It is clear that the EU plays a significant role in free movement of goods and services. Through the TFEU, the European Union lays down provisions that guide the conduct of international trade between member states and other member states as well as between member states and non-member states. In order to reduce barriers to trade among member states and create an effective internal trade, the EU has prohibited rules and regulations of member states that restrict free movement of goods and services. For instance, the EU has prohibited rules that impose custom duties and taxation on imports and exports, charges with equivalent effect, quantitative restrictions, and directly discriminative rules. The EU also plays a significant role in regulating technical barriers to trade in such a way that they favour local importers and exporters, especially small and medium enterprises. The SMEs are always the most affected by technical trade barriers because the process of compliance is costly for them. References list Barnard, C. (2010) The Substantive Law of the EU: The Four Freedoms (3rd ed.). Oxford, New York. European Commission (2013) Technical Barriers to Trade. Accessed April 4, 2015 from http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150987.pdf European Commission (2015) Small and Medium Enterprises (SMEs). Accessed April 4, 2015 from http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm. Oliver, P., Jarvis, M.A., & Oliver, P. (2003) Free movement of goods in the European Community: Under articles 28 to 30 of the EC Treaty. London: Sweet & Maxwell. The European Union (2010) Free Movement of Goods: Guide to the Application of Treaty provisions governing the free movement of goods. Luxembourg: Publications Office of the European Union. Vaughan, D. and Robertson, A. (2003) Law of the European Union. Oxford, New York: Oxford University Press. White, R.C.A. (2004) Workers, establishment, and services in the European Union. Oxford: Oxford University Press. Woods, L. (2004) Free movement of goods and services within the European Community. Aldershot, Hants, England: Ashgate. World Trade Organisation (2015). Technical Barriers to Trade. Accessed April 4, 2015 from https://www.wto.org/English/tratop_e/tbt_e/tbt_e.htm. Read More