Free Movement of Goods - Essay Example

?Introduction European Union (EU) came into existence on March 25, 1957 as a result of the treaty of EEC with the of European Economic Community(EEC) and then European Common Market. The objective of the EU through this treaty is to bring harmonious development of the economic activities. Along with this, it is formed to increase stability, balanced and continuous expansion, uplifting standard of living and creating closer and stronger relations between the states of the EU. These objectives can be achieved through a common market, which facilitates free movement of goods by eradicating the trade barriers. As a result, EU states will not impose any trade restriction on member states in relation to imports and exports of goods (Dedman 2010). Even after fifty years, the objectives of EU have not been achieved. The free movement of goods within the EU is still a complicated perspective. There are various hurdles which impede the free movement of goods in the European Union. The main hurdle among them is interpretating general provision of the technical barriers under Article 28 and 29 by the European Court of Justice (the ECJ). Another hurdle is related to the exceptions to the general provisions of Article 28 and 29 that is based on Article 30 and the mandatory requirements of Cassis de Dijon which is arising from the ECJ (Lelieveldt and Princen 2011). Furthermore, parallel import is one of the major phenomena in the international trade because on one hand, it follows market laws strictly and on the other, it is not completely controlled by the law. The dilemma is that producers want to maintain a difference in the prices of goods among different countries, whereas consumers want to pay same price. Here, parallel import can be defined as goods which are produced and sold legally and then exported. There is nothing illegal about the parallel imported goods but as native entrepreneurs sell same goods at higher price, they don’t like this completion. In order to remove this competition, intellectual property act has been developed. A product sold or imported by the third party is considered to be infringed if such sale or import falls in the range of copyrights, patent or trademark of that particular country. There are 27 member states in the European Union and all of them guarantee “EU’s four freedom” i.e. free movement of goods, services, capital and people. EU’s internal market is very favorable to increased competition, larger economies of scales and increased specialisation, hence factors of production and goods are freely moved in areas where they are highly valued. Free Movement of Goods One of the major principles of the European Union’s internal market is free movement of goods. This principle deals with removal of national barriers to the free movement of goods within EU. In various fields, such barriers have been removed through harmonisation, like medical devices, vehicles, gas appliances, pharmaceuticals, metrology, chemicals, electrical equipments, construction products, toys, textiles, pressure equipments, footwear, and cosmetics. Excluding special circumstances, harmonisation of legislation and provisions of Articles 28 and 29 of the EC treaty control the member states in relation to imposing intra-community trade barriers. These articles can exercise direct effect and applied by national courts (Pitiyasak 2010). Mutual recognition principle also leads its way through these provisions. It implies that if the sector is non-harmonised then goods which are legally marketed and accepted in another member state must be accepted by every member state. The application of this principle can only be challenged in some exceptional cases, like environmental issue, health and public safety. In such cases, even the derogatory measures are considered to control the free movement of goods (Andenas and Roth 2002). All measures along with Article 28 and Article 29 are having equivalent effect between the member states in relation to imposing quantitative restrictions on imports, exports and goods in transit. All measures in relation to such imports are having equivalent effect to quantitative restrictions whether directly or indirectly (Free movement of goods in the EU 2010). Some of the prohibitions are justified on the grounds of protection of industrial and commercial property, animals or plants, life of humans, protection of health, public policy and public security and public morality and other mandatory requirements identified by the Court of Justice hence they are not precluded by the provisions. However, these prohibitions are not treated as a disguised trade restriction and arbitrary discrimination between member states. Article 28 of the Treaty talks about the rules laying down requirements to be met by goods manufactured in other Member States and marketed hindering intra-Community trade. However, selling that apply to domestic and imported goods fall outside the scope of the treaty. European Commission Action This commission is formed to address the complaints against free movement of goods within EU. The commission is responsible for monitoring the proper application of provisions of the treaty in relation to free movement of goods in member countries. Generally, citizens and other economic operators make complaints about the national measures, like administrative actions, laws and regulations which are against the provisions of treaty. Initially, it tries to remove such trade barriers on amicable basis if it seems insufficient then it can go to European Court of justice against the member country. Exhaustion Doctrine under European Law There is no pervasive European patent system that enables the patentee with one single patent right to work in all the European Union countries and also Jurisdiction of European Court of Justice is limited in relation to patent matters. However, interference of the intellectual property rights in the free movement of goods under section 30 of Treaty of Rome provides the power to ECJ to take the cases of prevention of parallel imports within the European Union. The ECJ held the view that “It cannot be reconciled with the principles of free movement of goods under the provisions of the Treaty of Rome if a patentee exercises his rights under the legal provisions of one Member State to prevent marketing of a patented product in said state when the patented product has been brought into circulation in another Member State by the patentee or with his consent.” (Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., 6 IIC 102 (1975) – Negram III). With regards to the exhaustion doctrine, ECJ is of the view that “the substance of a patent right should basically confer the exclusive right on the inventor to the first marketing of the patented product in order to permit a remuneration for the inventive activity” (Merck & Co. Inc. V. Stephar, 13 IIC 70 (1982) – Merck.) The ECJ cannot assume exhaustion if the patentee himself or with his consent the product is marketed in the member states of the European Union where no patent was obtained. Here, a question arises in relation to marketing of invented product. It says that if the patentee gets sufficient remuneration by doing first marketing of invention under an exclusive and monopolistic right then, it is insufficient in country where everyone is free to produce and market the invention. Hence, ECJ derived a consensus that either the patentee should obtain a patent in all the member states of EU to get remuneration under an exclusive right or should not circulate the goods in these countries by himself or with his consent (Edwards and Wiessala 1991). This point of the ECJ is not accepted by many producers in EU because obtaining patent is not only expensive, but also time-consuming. In addition to this, the principles of trade-mark exhaustion also apply to the patent. In the case of trade-mark, consent of trade-mark owner needs to be obtained for function as an indication of origin, otherwise these goods can be ascribed to the another source whereas in the case of patent rationale is quite different. Under the monopolistic conditions of a patent right, a patentee gets an opportunity to cash in upon the first marketing of the products. These monopolistic conditions do not have any meaning in a country where patent has not been obtained in relation to the circulation of the product. The patentee does not have a right to object to the parallel importation if he already has sold out the patent right to someone who can market the products and thus the patentee makes money. Along with this, he has get his reward under the previously owned paten right hence he is not entitled to get any remuneration on the marketing of the goods (European Parliament Fact Sheet 2008). Need for harmonization All states do not consider the idea of permitting the parallel importation of patented goods as good; harmonisation seems most desirable in this field to solve the issue. Early on, differences in opinions have been noticed in the GATT/TRIPs negotiations in relation to this aspect. Furthermore, it has been observed that European model of patent exhaustion cannot be adopted worldwide because it can cause economic disaster to patentees. It implies that patentee gets right to produce the product at any place irrespective of whether the place has same patent system or not and then legally import the product from that place (Edwards and Wiessala 1991). If the patentee wants to enjoy reward upon the first sale under a monopolistic right then he/ she needs to apply for the patent in every country of the EU for production and marketing of the product. However, the fact that patent needs a long time for approval of application, fades the attractiveness of this solution for the patentees. In this context, decision of the Merck v. Primecrown case is also unfortunate because it does not apply at world scale in relation to model of exhaustion. In some circles of the Commission, the decision is consistent with the “Fortress Europe” idea entertained, but it is certainly inconsistent with the Community’s true function to minimise barriers world-wide, not only within Europe (Art. 110 Treaty of Rome). Patentees can advocate ban on the parallel importation but it can be a disastrous economic decision, as it hinders the free trade spirit. It has been argued that in order to respond to the price differences in different markets, patentees would want to parallel imports. Here, attention needs to be paid towards the condition of shutting off markets, which runs against the grain of a global economy, by the patentees to perpetuate the price difference. Consumers in the low price countries are subsidised by the consumers in the high price country while responding to the price difference in different countries. Again, question in relation to subsidies arise because it is controversial in most of the countries as it does not enjoy democratic legitimacy. Also, entrepreneurial dictatorship will be replaced by the market democracy in the future because entrepreneurs are only accountable to the shareholders and not to the entire public. Therefore, consumers in the industrialised countries are against of imposing surcharges on them as additional profits are only enjoyed by entrepreneurs and shareholders. There is one more question that whether the benefits are reaching to the consumers in the developing countries as consumers in the industrialised countries are paying higher prices (Heath 2008). It creates a classical theory of exhaustion which states that under the monopolistic conditions of the patent right, the patentee should be allowed to release the goods. As per this theory, parallel import would be eliminated from countries, where the patentee is operating without obtaining the patent right. In addition to this, parallel importation under the scheme of price control and compulsory license. If this theory is practiced properly then it can improve the condition of free market in two ways. Firstly, price control schemes can be ended by the government and secondly, free market forces will be prevailing in the future market (Lungescu 2006). Fortress Europe The term Fortress Europe means the impermeable border created by Europe to protect itself from outside cultural influences, economic rivalry and mass migration. Was to safeguard its economic interests rather than adaptation of global market. In addition to this, this approach is confined to common agricultural policy and France. Fortress Europe is a convincing concept as it controls immigrants to come into Europe for economic purpose. However, there is some scope left for the importers who wish to import outside Europe (Bigo and Guild 2005). Thus, on the basis of the above discussion it can be concluded that free movement is still a far off dream for the European Union due to different regulations of different country. However, EU has facilitated the concept of four freedom i.e. free movement of goods, services, people and capital by the creation of various treaties and agreements. The European Commission has been established to monitor the free movement of goods smoothly. Along with this, interpretation of ECJ and different theories are also very important in this regard. References Pitiyasak, S. 2010. Legal research: free movement of goods within EU. Available at: http://asialaw.tripod.com/articles/saravuth.html. [Accessed on: 5 Dec 2011]. Free movement of goods in the EU. 2010. Europedia. Available at: http://europedia.moussis.eu/books/Book_2/3/6/02/?all=1 [Accessed on: 5 Dec 2011]. European Parliament Fact Sheet. 2008. Free movement of goods. Available at: http://www.europarl.europa.eu/factsheets/3_2_1_en.htm [Accessed on: 5 Dec 2011]. Heath, C. 2008. Parallel imports and international trade. Available at: http://www.wipo.int/edocs/mdocs/sme/en/atrip_gva_99/atrip_gva_99_6.pdf [Accessed on: 5 Dec 2011]. Lungescu, O. 2006. The new Europe: Fortress Europe. Available at: http://www.bbc.co.uk/worldservice/theneweurope/wk22.htm [Accessed on: 5 Dec 2011]. Bigo, D. And Guild, E. 2005. Controlling frontiers: free movement into and within Europe. Ashgate Publishing, Ltd. Edwards, G. And Wiessala, G. 1991. The European Union: The Annual Review 1999/2000. John Wiley & Sons. Dedman, M. 2010. The origins and development of the European Union 1945-2008: a history of European integration. Taylor & Francis. Andenas, M. and Roth, W. 2002. Services and free movement in EU law. Oxford University Press. Lelieveldt, H. And Princen, S. 2011. The Politics of the European Union. Cambridge University Press. Read More