Free Movement of Goods - Recent Developments in the Case Law - Assignment Example

Question Two The agreement between Auto AG, Hinshi and Bravo appears to be contrary to the spirit and intent of Articles 81 and 82 of the Treaty of Rome in that it involves anti-competition practices. On the facts of the case it can be argued that the arrangements between the three companies are an attempt to abuse a dominant market position by distorting EU principles of free and open trade markets. Article 81 provides as follows: “...all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market.”1 The agreement or arrangements between the three companies encapsulate measures that restrict or distort free and open competition in the EU contrary to Article 81 of the EU Treaty. This is evidenced by the agreement to exclude export of the auto products to countries other than the host countries, to fix discriminative prices as those provided in the UK at a fifty per cent higher rate and the exclusion of third party dealers who provide products from other competitors as in Donald’s case. In fact Article 82 specifically forbids unfair or discriminative pricing practices as follows: “Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in : directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions…”2 The EU court considered the impact of Articles 81 and 82 on measures vastly similar to the measures contemplated and taken by AG Auto, Bravo and Hinshu in United Brands Co v EC Commission [1978] ECR 207.3 In the claim against United Brands it was alleged that United abused a dominant market position within the European Community by setting unfair prices and different pricing standards on banana imports.4 A dominant market position was described by the European Court as a strong economic position which permits a practice that effectively truncates fair competition in a specific market. Setting unfair prices, although not proven in the United Brands case, was determined to amount to abuse within the meaning of Article 82.5 There is no doubt that AG Auto, Bravo and Hinshu who collectively control 70 percent of the EU’s small auto market and 90 percent of the EU’s luxury auto market occupy a dominant market position in the EU. Like United, AG Auto, Bravo and Hinshu have colluded to set unfair pricing practices and standards in that the pricing in the UK is marginally higher than elsewhere and quite different from other EU markets. According to the ruling in the United Brands Case such practices are an abuse of a dominant market position within the meaning of Article 81 of the EU Treaty.6 This approach was adapted by the European court in a consistent manner and recently reiterated in Irish Sugar plc v EC Commission [2000] All ER EC 198.7 The court also ruled in United Brands that refusal to supply goods to a particular distributor within the European Community likewise amounts to an abuse pursuant to Article 82(a).8 The court however, pointed out that such conduct can be justified and therefore defendable. The defence would only be available if the party accused of abusing a dominant market position could prove that the measures were necessary to protect its economic position within the common market.9 Article 81(3) of the Treaty Establishing the European Community makes provision for the defence and will only exempt such undertakings if the collusion can be shown to be for technological advancement and provides consumers with a “fair share” of the market and does not unreasonably restrain trade.10 It is unlikely that Auto AG, Bravo and Hinshu can use this defence to their advantage since manipulating the market with respect to automobiles can hardly be said to be for technological advancements. Moreover it is difficult to imagine how conduct which sets different prices in different markets and excludes other markets can be said to provide consumers with a fair share of the market and does not unreasonably restrain trade. This defence will be construed within the principles set forth and developed from the case of Hoffman-La Roche (1979) ECR 461 which is firmly established with the EU. 11 In a typical case the courts will consider whether measures are abusive by the application of an objective test.12 The European Court of Justice ruled in Hoffman-La Roche (1979) ECR 461 that in determining whether or not there was abuse of a dominant position the focus will remain on the conduct of the “undertaking...which is such” that it effectively navigates the market “structure.” Abuse will automatically inferred when the conduct is such that it interferes with competition with the result that it is weakened. The court went on to submit that competition is weakened: “...through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.”13 In other words a weakening of competition does not have to actually occur in order for the courts to find that there was an unjustifiable abuse of a dominant market position. The arrangements made by and agreed to between AG Auto, Bravo and Hinshu are unlawful within the parameters set by EC Regulation 139/2004. By virtue of EC Regulation 139/2004 any merger or acquisition which can be construed as a “concentration” of a “community dimension” within the EU market will be unlawful and intolerable. The regulation defines “concentration” as: “(i) the merger of two or more previously independent undertakings, or (ii) the acquisition of one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.”14 The arrangements between AG Auto, Hinshu and Bravo involve several agreements/contracts that are calculated to either indirectly or directly control the auto market in the EU. There is no justifiable reason for the measures agreed to and the conduct will only operate to distort the automobile market within the UK. Since the three parties already have a controlling interest in the automobile market, their arrangement will only force other competitors out of the market contrary to Articles 81 and 82 of the Treaty of Rome. Question 3 The problems encountered by Fine Toys Plc fall within the EU’s policy on “quantitative and qualitative restrictions” on the free movement of goods within Articles 28-31. The overall aim of the EU’s policy on “quantitative and qualitative restrictions” is to promote and cultivate a free and open market among the Member States. Articles 23-31 which is headed “Free Movement of Goods” is consistent with this ideology.15 For the purpose of this part of the discussion, Article 23 which provides for the exemption of customs duties on all imports and exports throughout the Member States16 is not relevant. Article 28 forbids its Member States implementing: “Quantitative restrictions on imports and all measures having equivalent effect …between Member States.”17 Article 29 makes a vastly similar provision in respect of exports.18 Article 30, which can conceivably be invoked by Spain, Italy, France and Sweeden goes on to provide that: “…Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.”19 The provisions contained in Article 30 are relevant since Spain appears to have a safety issue with Fine Toys’ products, France likewise cites environmental concerns, Sweeden has cited public morals as a basis for rejecting imports from Fine Toys and Itlay has its own domestic policy against advertisements of this nature. The implications of restrictive measures such as those taken by France, Italy, Spain and Sweeden were fully considered by the EU court in Riseria Luigi Geddo v Ente Nazionale Risi [1973] EUECJ R-2/73. In Riseria Luigi Geddo v Ente Nazionale Risi [1973] EUECJ R-2/73 the European Court of justice took pains to explain the full meaning and intent of Article 5 of the Treaty of Rome concluding that it is relevant to the provisions in respect of quantitative restrictions as specified in Article 20(2) (which is now Article 28) of the Treaty of Rome. The court ruled that: “…in providing that Member States shall take all appropriate measures to ensure fulfillment of their obligations and that they shall abstain from any measure which could jeopardize the attainment of the objectives of the treaty, Article 5 places a general obligation on Member States the precise tenor of which is each particular case depends on the provisions of the treaty or the rules which emerge from its general framework.”20 The European Court emphasised that: “…the prohibition of all quantitative restrictions or measures having equivalent effect contained in Article 20(2) of Regulation No. 359/67 has among its objects the prevention of Member States from unilaterally adopting measures restricting export to third countries unless they are provided for in regulations, the prohibition, under Article 23, or such a measure in the internal trade of the Community is designed to ensure the free movement of goods within the community.”21 The European Court went on to add that even a partial prohibition on quantitative goods would amount to a quantitative prohibition on goods since the rule was an absolute one without exception.22 A similar position was adapted in Cassis de Dijon (1979)[ECR 1979. In this case the court emphasised that the EU’s goal as ennunciated in Article 2 of the Treaty of Rome recognized a doctrine of mutual recognition.23 Article 2 of the Treaty of Rome speaks to cooperation among Member States for the single purpose of promoting a free and open common market.24 Guided by this principle, the EU Court in Cassis de Dijon that any product lawfully manufactured and sold by one Member State was required to be accepted by other Member States within the EU.25 In a manner similar to the approach taken by officials from Spain, Italy, Sweeden and France, in Cassis de Dijon (1979)[ECR 1979 German officials attempted to reject an import of French wine on the grounds that its alcoholic content was too high and could encourage over indulgence.26 The court has since largely adapted an approach that clearly speaks against national policies that restrict the free movement of goods to and from one member state to another.27The courts are generally driven by a desire to cultivate an environment where different policies do not function to distort concepts of a common market where goods are permitted to move freely between the Member States.28If each of the Member States were permitted to implement quantitative restrictions on the import of goods on the grounds of some ill-defined or unjustified domestic policy ground, free trade among Member States would be no more than a misnomer. To this end EU Member States are under a residual duty to review domestic policies so as to cultivate cohesion within the EU.29 It appears that only in instances where there are serious health risks or security risks will domestic policies that infringe upon quantitative restrictions will be upheld. The EU court ruled in France v Commission Case C-393/01, a case involving a ban on meat contaminated by Mad Cow disease originating from Portugal that: “…from the principle laid down in the EC Treaty that a high level of human health protection must be ensured in the definition and implementation of all Community policies and activities.”30 Based on the position taken by the EU Court, Article 30 will not permit exemptions against quantitative restrictions unless those restrictions are justified on serious health and security grounds. Any other policy will have to be reviewed to bring them in cohesion with the policies of other Member States. It therefore follows that neither France, Italy, Sweeden or Spain can justify their restrictions in a manner consistent with Article 30 and are therefore infringing upon the provisions contained in Articles 28 and 29 for the free movement of goods within the EU. Bibliography Cassis de Dijon (1979)[ECR 1979 Davies, Gareth. “The Services Directive: Extending the Country of Origin Principle and Reforming Public Administration.” [2007] The European Law Review Vol. 32 No. 2, 232-245 EC Regulation No 139/2004 Elmansberger, Thomas. “How to Determine Good From Bad Competition Under Article 82 EC: In Search of Clearer and More Coherent Standards For Anti-Competitive Abuses.” (Feb. 2005) Common Market Law Review, Vol. 42, 129-177 France v Commission Case C-393/01 http://curia.europa.eu/en/actu/communiques/cp03/aff/cp0347en.htm Viewed April 23, 2008 George, Ken and Jacquemimn Alexis. “Dominant Firms and Mergers.” [1992] The Economic Journal, 102, 148-157 Hoffman-La Roche (1979) ECR 461 Irish Sugar plc v EC Commission [2000] All ER EC 198 Mortelmans K. “,”Towards convergence in the application of the rules on free movement and competition?”(June, 2001) Common Market Law Review 613-649 Oliver, Peter, Enhelmaier, Stefan. “Free Movement of Goods: Recent Developments in the Case Law.” (June 2007) Common Market Law Review, Vol. 44 Iss. 3, 649-704 Riseria Luigi Geddo v Ente Nazionale Risi [1973] EUECJ R-2/73 Treaty of Rome United Brands Co v EC Commission [1978] ECR 207 Read More