European Common Market Law - Essay Example

EU Law Ans 2: The issue that arises in this scenario is the possible restriction of competition that may arise within the common market and may therefore invoke Article 81(1) of the EC Treaty. The market share that BMC enjoys within the European Union is 30% for average sized family cars and 20% for large cars. Therefore this market share taken alone cannot be said to construe a position of dominance in the common market and it is likely that the provisions of Article 82 for dominance of an undertaking may be invoked. However, the market share of BMC through its distributor Lyon in France is 40% of the market and therefore there could be an issue of collective dominance1 of BMC and Lyon that may well arise in this case and invoke the provisions of Article 81(1) restricting competition in the internal market. Article 14(2) of the EC Treaty defines the internal market as “an area without frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this treaty.” On this basis, it may therefore be stated that any measure that has the cumulative effective of restricting the free movement of goods (in this case cars) within the internal market which is comprised of the European states including UK, France and Germany could be deemed to be violative of EU law. However EC competition law is based upon the Treaty of Rome which requires that certain objectives be taken into consideration in so far as implementing Community law is concerned, such as for example Article 6 for environmental protection, article 127 for employment or article 153.2 for consumer protection. Such factors therefore allow for a fairly flexible interpretation of competition law, as in the case of Metro SB-Großmärkte GmbH & Co. KG v Commission.2 Monti has also pointed out several other examples of goals that have been considered in implementing competition law, either directly or indirectly and identifies some of these goals as regional development, industrial policy, protection of employment, protection of the environment and market integration.3 Such exemptions may however, not always apply. For example, in the case of A BrunsteinergmbH and Autohaus Hilgert gmbH v BMW,4 the Court held that where the exemptions listed under Article 81(3) of the EC Treaty were not satisfied, then contractual terms between two undertakings that were restrictive of competition could be deemed to be liable under the provisions of Article 81(1). A major issue in this case was the application of Regulation EC No: 1400/2002 of 31st July 2002 on the application of exemptions listed under Article 81(3) to vertical agreements between concerned parties in the motor vehicle sector. Added provisions also spelt out that a rearrangement of distribution agreements would not normally be necessary, however in the event the changes brought about by the regulation were so significant in the context of the agreements, such rearrangements could be allowed to fall under the exemptions. Any agreement that restricts competition within the internal market may be deemed to violate Article 81(1) excluding exemptions under Article 81(3) or block exemptions specified by the Commission. Therefore, the current agreement that exists between Lyon and BMC contains two elements that may violate article 81(1) (a) and 81 (1) (b) and (e). The agreement between these two companies firstly, fixes the selling prices, limits and controls the entry of BMC cars into the French market and also introduced supplementary obligations such as minimum sales turnover. In effect, the result of the Lyon-BMC and Jurgen-BMC deal is that there is a clearly established case of an agreement between undertakings within the meaning of Article 81(1), which is also impacting inter-member trade and therefore, there is a breach of Article 81(1), as was also held to be the case in Consten and Grundig5. The cars are being produced in the UK, for distribution in the UK, France and Germany. However, since minimum prices are being fixed below which distributors cannot lower prices and further obligations have been introduced, such as minimum sales without which penalties must be paid, it may be noted that trade between member states is being adversely affected. For one thing, French dealers are unable to maintain the minimum sales figures and have been forced to lower their prices in response to the forces of market demand and supply conditions. Secondly, the cars that have been imported by Wolfgang into Germany enjoy better sales than those supplied by Jurgen, precisely on account of such restrictive conditions that have been laid out in the distribution agreements that these suppliers have introduced with car sales firms in these two countries. These factors indicate that a sufficient pattern has been established to demonstrate that the trade between the member countries is being affected.6 The restrictive elements that exist in the distribution agreements can be clearly shown to be anti-competitive without the need for any extensive market analysis, since sales by Wolfgang and lowering of prices by French car sellers shows that the market is responding negatively to the agreements. The car sellers will have excellent grounds to take up their case against Lyon, especially since they are being asked to pay penalties by the distributor. The purpose of the common market as envisioned in the EC Treaty is to allow free and unfettered movement and sale of goods, therefore products must be receptive to the laws of demand and supply, and any agreement that penalizes them for reducing prices to cater to market demands could be deemed anti-competitive and restrictive under Article 81(1). It may also be noted that the stated exemptions identified by Monti may also not apply in this case, since there are no overriding concerns such as dangers to environment or industrial policy, etc that will be applicable. It is likely that in this case, application of the EC regulation for the motor vehicle sector will in fact mandate changes in the current agreement between the parties, so that market integration and free movement of cars within the European Union are maintained. The question of maintaining exclusivity in the market will also not apply, as established in the precedent of Consten and Grundig. In fact, the market held by Lyons for BMC cars is already 40% and by continuing to foster such restrictive practices, it could only lead to a position of dominance in the market, which will then attract the provisions of Article 82. Therefore, both Lyon and BMC may be liable under EU law for payment of fines. Applying the same criteria to the case of the cars sold by Wolfgang, it may be noted that BMC and Jurgen do not have grounds to contest such sales that are taking place. Since the EC Treaty allows these four freedoms within the internal market – free movement of goods, persons, services and capital, therefore it allows Wolfgang to move around freely as also to take the cars around. Since his sales of cars cannot be said to be anti competitive but a mere response to the market forces of demand, while the agreements between Jurgen and BMC may be deemed restrictive of trade in the internal market, it is unlikely that the Companies will succeed in any action against Wolfgang. The requirement in this case would be for both the distributors Lyon and Jurgen, together with BMC, to respond to the forces of demand and supply that are to govern the internal market and lower the prices on their cars since any kind of minimum price fixing in agreement between suppliers would be a breach of Article 81(1) of the EC Treaty. Furthermore, fines could be levied against Lyon and BMC by the Commission in the event the dealers approach the Commission for relief from the obligations of minimum sales that have been placed upon them with penalties if such minimum sales targets are not met. Ans 3: Article 1 of the EC Treaty states that by “establishing a Common Market” the goal is to “promote “balanced and sustainable development of economic activities” and “a high degree of competitiveness.7 The EC Directive on auto emissions8 has already mandated measures to reduce emissions. Swedish exhaust emissions requirements are distinctly higher than other countries in the European Union and their requirements are also higher. Therefore, all imported cars will be placed at a disadvantage in relation to Swedish cars and will be obliged to pay higher rates, which will impede the free movement of goods and people within the European common market. In 1989, the EC adopted its directive on emissions from small cars with an engine capacity of 1.4 litres, and standards approximating higher U.S. and Swedish standards were adopted.9 However, to comply with higher Swedish emission control requirements will entail higher fees and costs for the owners and/or users of BMC luxury cars to make necessary improvements to their cars to meet the enhanced requirements and pass the test and their activity and free movement will be restricted until they are able to pass such stringent tests. Thus, they will be placed at a disadvantage as compared to Swedish cars, who will have greater freedom of movement within Swedish territory, and where purchasing decisions of customers are so affected, trade will also be affected10. As such, this would distort trade and the free movement of goods which is contrary to the goals of competition of the European Union and could be construed as illegal under community Law. Article 28 of the EC Treaty states that “quantitative restrictions on imports and all measures having equivalent effect” are to be prohibited. However Article 30 qualifies these restrictions by stating that on grounds of public health, public morality or public security, restrictions may be permissible. This was also the line of the “rule of reason” that was spelt out in the case of Cassis de Dijon11 wherein restriction on imports could be justified on certain grounds. Although Sweden is introducing such restrictions on import via higher emission tests, this could be deemed to fall within the purview of one of those exceptions in Article 30, since it directly affects the environment and the EU itself has recognized the need to maintain higher emission standards through the Directive mentioned above. Furthermore, the precedent established in the case of Commission v Denmark (Re Disposable Beer Cans)12 could also apply, since in that case involving Danish bottling regulations requiring reusable containers with licenses, the Commission held that it was a barrier to trade but the EU overruled, on the basis that a restriction on import was justified on the basis of protection of the environment. However, the same case may not apply to Sweden’s requirement that BMC cars pass further restrictive safety tests in Sweden before being allowed to be imported into the country. Under the precedent set out in the Cassis case13, the Court also included another rule – the rule of recognition whereby it stated that: “There is no reason why, provided that [goods]have been lawfully produced and marketed in one of the member states,[ they] should not be introduced into any other member State.” Therefore, since the BMC cars are being used safely and have passed safety tests within Britain, there is no reason why they cannot be safely used in Sweden as well it is likely that Sweden’s higher fees may form the basis for revision of procedures in Member States through the issue of an EC Directive, since this is a matter that involves the environment. In the matter of imports and exports within individual countries within the European Union, the provisions of the EC Treaty need to be applied with references to the relevant articles that offer guidance in the kind of legislation that is to be applied in each case14. In the Cassis case, the Court made it clear that when certain standards had been applied and found relevant in one member state, there was no reason to reject them in another State without a compelling reason. Such compelling reasons that would permit barriers to trade between member countries could only include such national legal provisions that pertained to public health protection, or the maintenance of fairness in commercial transactions or wherever the interests of the consumer were threatened. In such an instance, where a mandatory measure in existence in a particular state was deemed to be valid, the Commission deemed that it would be necessary for minimum standards to be set through the issue of an EC Directive. On this basis, therefore, the question that must be examined is whether or not enhanced safety standards will be deemed to constitute those compelling grounds. However, since the BMC cars have already passed safety tests in UK, it is unlikely that they will not be deemed to be acceptable for Sweden as well. In the case of the emission standards, there is such a compelling issue – which is the environment. Therefore, the Cassis case is significant in that it has attempted to resolve the conflicts arising out of principle of absolute harmonization between member States which was in existence before this case, in favor of creating a common set of standards that are established on the basis of “mutual recognition.” This has been deemed to be particularly relevant in such areas as environmental protection where the interests of all nations are affected and where it would be necessary for the Commission to issue Directives. But this is not the case with the safety standards. This same principle also operates in so far as the requirement of the Swedish Government that BMC vehicles should be sold only through Government regulated outlets. This will violate the freedom of movement and of goods that is allowed under Article 14(2) of the EC Treaty, which aims to promote a free and fair market. If the restriction imposed by the Swedish Government on selling at regulated outlets is enforced, then this will definitely affect trade, since BMC’s choices will be limited. It may opt to sell through other outlets which are cheaper and will provide it a better competitive edge, however when it is forced to sell only through certain outlets, its business may be affected, its sales may be reduced – as a result of which such a requirement may be deemed to be violative of the free movement permitted under the EC Treaty. It may also be noted that it is unlikely the Swedish Government will be able to furnish any compelling reason that mandates sale only through those outlets, therefore such a requirement would constitute a restriction of trade. Therefore, in conclusion, it may be stated that BMC has excellent grounds to contest the requirement for sale through certain outlets on the basis that it restricts sales in Sweden. It may contest the requirement for additional safety standards on the basis of the rule set out in the Cassis case where the fact that such standards have been met in the UK will make it feasible and permissible for the cars to be used within Sweden. However, there is a strong probability that BMC may be required to comply with the Swedish emission requirements, even if they are higher than in Britain, in the interest of the environment that is an issue affecting all member states. Bibliography Books/Articles/Websites: * Craig P and de Burca G, EU Law, Text Cases and Materials, Oxford, 3rd edition ( See the case of Cassis * “Consolidated version of the EC Treaty” [Online] Available at: http://europa.eu.int/eur-lex/en/treaties/dat/C_2002325EN.003301.html * Directive 89/458/EEC * Monti G, 2001. ”The scope of collective dominance under Article 82 EC” Common Market Law Review, February :131-157. * Monti G, 2002: "Article 81 EC and Public Policy", in Common Market Law Review, 39: 1057–1099. * Weatherill S. and Beaumont P., "EU Law", Third Edition, 1999, Penguin Books, pp. 1065-1070 Cases: * A Brunsteiner GmbH (C-376/05), Autohaus Hilgert GmbH (C-377/05) v Bayerische Motorenwerke AG (BMW) [online] available at: http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:62005J0376:EN:HTML * Case 26/76 Metro SB-Großmärkte GmbH & Co. KG v Commission [1977] ECR 1875 (Metro I). * Commission v Denmark (Re Disposable Beer Cans) (Case 302/86) [1988] ECR 4607 * Consten and Grundig (Cases 56 and 58/64) * EC CAR case - 21, ECCAR, EC Vehicle Emissions Limits [Online] Available at: http://www.american.edu/TED/eccar.htm * STM v Maschinbau Ulm (Case 56/65). Read More