Corona and EU economic law: Free movement of goods

Corona and Antitrust Law

By Wouter Devroe & Nina Colpaert

COVID-19 is not only stress-testing our competition laws but also the free movement provisions in the TFEU. Can individual Member States, without consulting other Member States or the European Commission, simply ban the export of medicines or face masks? Can they order shops to close? Can they impose maximum prices for protective medical equipment? These and many other questions relate to the free movement of goods.

In the news are several categories of national measures which raise doubts as to their compatibility with the relevant Treaty Articles (28-36 TFEU; we find no real-life application for Article 37 TFEU on monopolies yet): export bans, rationing of goods, shop closures, product and sales restrictions, and price measures.

Export bans and export restrictions

Several Member States have imposed export bans on goods related to the COVID-19 crisis, also targeting export to other EU Member States. France, Germany and the Czech Republic, for example, have introduced export bans on protective material such as face masks. The measures go against the spirit of free movement and the internal market, but do they also breach EU law? Export bans fall under Article 35 TFEU: “Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.” An outright export ban qualifies as a “quantitative restriction” while measures hindering exports or subjecting exports to a permission are also in principle prohibited as “measures having equivalent effect to a quantitative restriction”. Whereas older ECJ case law had created the impression that Article 35 only targeted discriminatory export restrictions, imposing a difference in treatment between domestic trade and export trade to the detriment of the latter (e.g. Groenveld 1979), we now know that all State measures, even if indistinctly applicable, which negatively affect export trade more than domestic trade are in principle prohibited (e.g. Gysbrechts 2008).

The French, German and Czech (or all other) export bans or restrictions can in principle be justified on grounds of “protection of health and life of humans”, one of the justification grounds explicitly mentioned in Article 36 TFEU. However, it is too often forgotten that even export bans with protect public health will under EU law only be accepted if they (a) are proportionate, i.e. no less restrictive alternative is available, and (b) do “not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States”. In our view, if a genuine, verifiable shortage for certain protective materials such as face masks arises in a Member State, that Member State can, subject to the above conditions, successfully invoke Article 36 TFEU to impose an export ban on those materials.

Similar questions might arise if a shortage of medicine or vaccine might one day occur in the framework of the fight against corona. For instance, the virus is currently affecting the manufacturing capacity and the supply of (Chinese and Indian) ingredients for medicines (which, by the way, leads to calls for less dependence on third countries and might therefore impact the EU’s future industrial policy in this area).

In any case, medicine shortages were already high on the agenda before the pandemic. Parallel trade – the trade in products which takes place outside the official distribution system set up by a particular firm – is quasi ‘holy’ in EU internal market and competition law, but it can have perverse effects when it concerns pharmaceuticals. Member States where prices are relatively low may, because of parallel trade towards Member States with higher prices, be confronted with severe shortages. States have implemented a range of tools to fight medicine shortages  ranging from duties to report shortages, over duties to keep stocks and fulfill public service obligations, to the power to fine producers and distributors in case of shortages. Export bans can constitute another tool but they are subject to the conditions set out above. The Belgian Constitutional Court, for example, has recently annulled an export ban because it was insufficiently motivated (Judgment of 17 October 2019, Case 146/2019, Tobufar and others). In the Court’s view, scientific proof of actual and sufficiently serious shortages was lacking, so that the Act of Parliament could not even be qualified as “suitable” to reach the aim of protection of human health.

Other measures: rationing of goods, shop closures, product and sales restrictions, price measures …

In France, the government has ordered that face masks will only be made available on prescription. France has also imposed a maximum price for disinfectant hand sanitizers. Another Member State could for instance impose certain product quality or even labeling requirements (e.g. a clear warning on cleaning products that bacterial disinfectants cannot kill a virus).

Which of those measures are legal under EU law, and which are not? The following reasoning should in our opinion apply:

  • First and foremost, EU harmonization measures should be applied where they exist. However counterintuitive this may feel—the TFEU ranks higher in the hierarchy of norms than secondary legislation with harmonization measures—the ECJ’s case law is well established on this point (see e.g. Teschedi 1977, Deutscher Apothekerverband 2003).
  • Then, measures that determine “how” masks or gels or other goods are sold (e.g. only in pharmacies, only on prescription …) may escape EU free movement law altogether if they fulfill the so-called Keck criteria, i.e. they are generally applicable, they do not discriminate products from other Member States in law or in fact and, therefore, do not hinder these products’ access to the market.
  • National measures forcing producers to adapt their product (by e.g. imposing specific product characteristics, specific packaging or labeling) remain unwelcome, and will only be tolerated if justified (e.g. by public health) and proportionate.
  • Finally, price measures and restrictions on use (e.g. a national measure which would allow citizens to buy face masks but not to wear them as long as they are not available for everyone) follow a similar regime, but with a special focus on whether or not they hinder access of foreign products to the market. In this regard, imposition of maximum prices is much less dangerous to the internal market (and to free competition – yet another interesting bridge between competition and internal market law, which are closely connected) than imposition of minimum or fixed prices, and will therefore be much easier for France or other Member States to justify.

Let us conclude by applying the above to the example of government measures ordering shop closure. Several Member States have ordered restaurants and pubs to close down completely, in order to contain the spreading of the virus. Others, like Italy, went further and order the complete closure of all shops except those that are most necessary for the supply of food and medicines. Still others, like Belgium, combine a total closure of restaurants and pubs with the obligation for other, non-essential shops to close only during the weekend. Are these measures legal under EU law?

We believe that they are, but on varying grounds. A measure ordering the closure of shops during the weekend, even if it were imposed on a permanent basis (quod non), reminds us of the ECJ’s ‘Sunday trading’ judgements in the run-up to the 1992 Keck judgement (Torfaen 1989) as well as similar cases after Keck and applying Keck (Punto Casa 1994; Pelckmans 2014). Since Keck, and to the extent that the Keck conditions are fulfilled (see above), such national measure would not even come under the scope of Article 34 TFEU and Member States would therefore have the freedom to impose them. As well explained here, the ECJ will not systematically refer to Keck when applying it. The ECJ may refer to ‘insignificant effects’ or to effects ‘too uncertain and indirect’ instead, or it may simply copy Keck without reference, but the outcome remains the same: Member States enjoy autonomy. On the other hand, national measures that order more general shop closures for longer periods, may end up hindering access of products from other Member States. Such measures will therefore not be excluded from the scope of Article 34 TFEU but can still be justified under Article 36, under the conditions set out above.

Wouter Devroe ​is full professor of Substantive EU law and Competition law,  as well as Chair of the Economic Law Department, at KU Leuven Law. He is also full professor of Competition law at Maastricht University, an expert member (“assessor”) at the Belgian national competition authority and an attorney at the Brussels Bar (Allen & Overy). He started his career as a law clerk at the Court of Justice of the European Union in Luxembourg and now represents public and corporate clients before the EC, CJEU and national authorities and courts.

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About

Caranina Colpaert

Caranina (Nina) Colpaert is a Ph.D. researcher at the Institute for Consumer, Competition & Market of KU Leuven Law. Her research focuses on the legal framework for medicine shortages in the EU. Caranina has completed various internships in the field of EU Economic Law (Allen & Overy, Linklaters).

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