What is the internal market?

By Caragh Deery - Law Student @ St Hilda's College, Oxford

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The creation of an internal market with no barriers to trade between Member States is the main economic objective of the EU. The concept of an internal market is relatively straightforward; it seeks to eradicate barriers to trade between nations by facilitating the free movement of goods, capital, services, and persons. These are collectively known as “the four freedoms”.

Two provisions of the Treaty on the Functioning of the European Union (“the TFEU”) helpfully outline some key features of the internal market:

Article 28 TFEU creates a customs union. This means that there will be no charges for trade between Member States, and the charges for trade with “third countries” (i.e. those countries not in the EU/customs union) are common. This means that the cost for third country producers to import or export goods to or from the EU will be the same, irrespective of which country the goods are going into or coming out from. Common charges for third world countries are crucial. The EU border is only as strong as its weakest link. If Member States could set charges at different rates there would be a ‘race to the bottom’. Producers would all choose to import their goods through the Member State with the cheapest charges, as once inside the EU’s customs union, the goods could be moved cross-border - to Member States with higher charges – free from charges.

Article 30 TFEU explicitly prohibits customs charges on imports and exports but also prohibits charges with an “equivalent effect” to customs charges. This is to ensure that Member States do not attempt to introduce charges through the back door. It also provides producers who have been wrongfully charged with a restitutionary claim (i.e. a right to be repaid). “Equivalent effect” has been interpreted broadly so that it effectively covers any charge, no matter how big it is or what form it takes, which is imposed on goods simply because they cross a border.

What does this look like in practice?

The core justification for market integration is that it should generate an intensification of competition, thereby causing improvements in quality of goods and services and a reduction in price. It should benefit consumers, but it also makes it easier for EU producers to expand into new markets. As a result, the Court of Justice of the European Union is often called upon by disgruntled producers to disapply national laws or regulations that have the effect of impeding trade.

Cassis de Dijon is a good illustration of how the EU polices potential obstructions to intra-EU trade. In this case, Germany had a minimum alcohol content requirement for spirits. This prevented the importation of a French alcoholic drink with an alcohol content below the minimum requirement. The regulation was found to be a measure equivalent to quantitative restriction (“MEQR”) under Article 34 TFEU, which prohibits such restrictions. MEQRs are prohibited on the basis that disparate national regulations can impede intra-EU trade. Although German producers were also subject to the restriction, out-of-state producers were considered to be particularly disadvantaged. If the out-of-state producers were based in Member States with no minimum alcohol requirement and could thus lawfully sell their weak alcohol product in that Member State, then the measure would require producers to change the composition of their product in order to be able to sell it in Germany. This would be costly, time-consuming, and might dissuade producers from entering the German market. It therefore clearly impedes trade.

Additional reading:

1. The judgment for the Cassis de Dijon case can be found here: https://www.bailii.org/eu/cases/EUECJ/1979/R12078.html

2. A more detailed overview of the internal market and the four freedoms: https://www.europarl.europa.eu/factsheets/en/sheet/33/the-internal-market-general-principles

3. An article from the Guardian which explores the internal market in light of Brexit: https://www.theguardian.com/politics/2020/sep/09/internal-market-bill-what-it-says-and-the-uk-hopes-to-achieve