Law of the EU: The Customs Union and

Fiscal Barriers to Trade in Goods.

Law of the EU (20 and 30 Credits).

Dr. Ricardo Pereira, Senior Lecturer in Law, Cardiff Law

& Politics School
30th - 31st January & 6th February 2020
Lecture Structure
1. Introduction to the topic.
2. Identifying fiscal as opposed to non-fiscal
barriers and EU prohibitions.
3. Creating a Customs Union and dealing with
charges.
4. Internal taxation.
5. Relationship between Article 30 and 110.
6. Applying Article 110.
7. Conclusions.
1. Recap: The Internal Market Project.
• Article 26 TFEU (ex Art 14 EC):

1. The Union shall adopt measures with the aim of

establishing or ensuring the functioning of the
internal market, in accordance with the relevant
provisions of the Treaties.

2. The internal market shall comprise an area without

internal frontiers in which the free movement of
goods, persons, services and capital is ensured in
accordance with the provisions of the Treaties.
2.1. Identifying Types of Barrier to the Free Movement
of Goods (FMOG).
1. Impose a levy on wine as 1.
it crosses the border.
2.
2. Impose a levy on all
imports of alcohol to
fund a study into
alcoholism. 3.
3. Impose a tax on all
alcohol but a higher tax
on imported wine than
domestically produced
beer.
Fiscal Barriers
Ban the import of wine from
other MSs
Impose a quota on the
quantity of wine that may be
imported into the UK
annually.
Introduce technical rules
which wine must comply
with, e.g. additives, size of
bottle, amounts of alcohol
and / or when/where/how it
may be sold, limit to its use.
Non-Fiscal Barriers
2.2. Identifying Types of Barrier to the FMOG.
1. Prohibits customs duties 1.
(Articles 28-32 TFEU)
2. Prohibits charges having
an equivalent effect to
customs duties (Articles 2.
28-32 TFEU)
3. Prohibits discriminatory
internal taxation
(Articles 110 – 113 TFEU)
3.
Fiscal Barriers – these
lectures
Prohibits quantitative
restrictions on imports
and exports (Articles
34- 36 TFEU)
Prohibits measures
having an equivalent
effect to quantitative
restrictions (Articles 34-
36 TFEU)
Ibid.
Non-Fiscal Barriers – next
topic.
3.1. Creation of a Customs Union
 Article 28 TFEU (ex Art 23 EC):

◦ ‘The Union shall be based on a customs union

which shall cover all trade in goods and which shall
involve the prohibition between Member States of
customs duties on imports and exports and of all
charges having equivalent effect, and the adoption
of a common customs tariff in their relations with
third countries’.

 Exclusive competence of the EU – Art 3 TFEU.

3.2.1. Customs Union: Article 28 TFEU.
 Key issues:

◦ Internal aspect:
 Prohibition of customs duties on imports and exports
and charges having an equivalent effect to a customs
duty (CHEE)

◦ External aspect:
 Adoption of a common customs tariff in their relations
with third countries (non-EU countries)

 Definition derived from Article 24 (8) of GATT

 Completed : 1 July 1968.
3.2.1.1 Creating a Customs Union:
External Aspect.

 Article 28 TFEU - the customs union includes the

adoption of a common customs tariff in relations with
third countries.

 Articles 31 & 32 TFEU provide for the adoption of a

common customs tariff (CCT/CET).

 EU has also developed a common commercial policy

(CCP) towards third countries (Articles 3 and 206-207
TFEU).

 See further: Barnard, The Substantive Law of the EU: The

Four Freedoms (OUP, 2016) chapter 2 pp. 38-42
 EU, An International Trading Actor

 EU: Customs
Union with
common external
tariff duties;

 Common market
underpinned by a
“Common
Commercial
Policy” (CCP)

 Common trade
policy in the
context of
External Trade
Relations

9
Source: Europa (2011)
 EU, An International Trading Actor

 WTO Member since 1 January 1995

 28 EU Member States are also WTO Members in their own right

 European Commission (EC) represents all EU Member States at almost all

WTO meetings

Source: European Commission (2011)

EU Trade Commissioner Karel De Gucht; European Trade Strategy 2020

Source: World Trade Organization, Directorate General (2011)10

Areas of exclusive /shared
competence
- Principle of conferral v implied powers

 CCP – EU exclusive competence

 Parallelism between external and internal action

ECJ Opinion 1/94

The court held that the EU could conclude the GATS and
TRIPS only together with member states (‘mixed agreements’)

Yet Art. 207 (1) TFEU reduces need for mixed agreements in
trade in services and IP rights
Forms of FTAs
 Customs union
 free trade areas

 Art. XXIV GATT – creates an exception for

PTAs
 A customs union is defined in Art. XXIV 8

(a) ‘to mean a substitution of a single

customs territory for two or more
customs territories’

12
Art. XXIV: 4
GATT 1994

 ‘The contracting parties recognize the

desirability of increasing freedom of trade by
the development, through voluntary
agreements, of closer integration between the
economies of the countries parties to such
agreements. They also recognize that the
purpose of a customs union or of a free trade
area should be to facilitate trade between the
constituent territories and not to raise barriers
to the trade of other contracting parties with
such territories.’

13
 The internal requirement

 ‘duties and other restrictive regulations of

commerce’ … ‘elimination with respect of all
trade between the constituent territories of the
union’ or at least with ‘substantially all the
trade in products originating in such
territories’

14
World Trade: Regional Integration Exceptions (Art. XXIV GATT)

15
The EU Common Commercial Policy
 Article 206 TFEU
 (ex Article 131 TEC)
 By establishing a customs union in

accordance with Articles 28 to 32, the Union

shall contribute, in the common interest, to
the harmonious development of world trade,
the progressive abolition of restrictions on
international trade and on foreign direct
investment, and the lowering of customs and
other barriers.
The legal basis for CCP
 Article 207
 (ex Article 133 TEC)
 1. The common commercial policy shall be based on

uniform principles, particularly with regard to changes in

tariff rates, the conclusion of tariff and trade agreements
relating to trade in goods and services, and the
commercial aspects of intellectual property, foreign
direct investment, the achievement of uniformity in
measures of liberalisation, export policy and measures
to protect trade such as those to be taken in the event of
dumping or subsidies. The common commercial policy
shall be conducted in the context of the principles and
objectives of the Union's external action.
Post-Lisbon implications
 Trade in services (not transport)

 Trade in commercial aspects of IP rights

 Foreign direct investment (FDI) – long-term

investments.

 FDI is an area of exclusive EU competence

Decision-making
 Article 207 (2) The European Parliament and
the Council, acting by means of regulations in
accordance with the ordinary legislative
procedure, shall adopt the measures defining
the framework for implementing the common
commercial policy.
EU Common Custom Tariff

 EU Customs Union (also includes Turkey,

Andorra, San Marino, Monaco)

 Regulation 2658/87 – autonomous rates of

duty; and conventional rates (WTO
negotiations)

 Regulation 450/2008 (customs code)

Post-Brexit EU-UK Trade: The Customs
Union Option
 Turkey is largest economy with a CU with the EU.
 Allows access to the Single Market for goods with no
tariffs and thus less checks and cost – a key consideration.
 Does not cover services, especially financial – which is
important for the UK economy.
 Does not allow free movement of persons – a red line for
the UK government.
 Restricts autonomy for UK to strike trade deals with third
States in areas covered by the CU.
 Gets around the ‘Irish border’ issue – the so called back
stop – NI stays in the CU and SM. Not politically acceptable
to UK.
 No role for CJEU – important for the UK.
 See further: Topic 9
3.2.2. Customs Union (internal aspects):
Article 28 TFEU.
• Key issues: defining goods

• “...products capable of being valued in money and which

are capable, as such, of forming the subject of commercial
transactions.”
• Case 7/68 Commission v Italy (Italian Art) [1968] ECR 423.

• Includes industrial and agricultural products subject to

Articles 39-44 TFEU - (CAP)
3.2.3. Customs Union: Article 30 TFEU.

 ‘Customs duties on imports and exports and charges

having equivalent effect shall be prohibited between
Member States.’

 Article 30 is vertically directly effective: Van Gend en Loos [1963] ECR 1.

 What is a CHEE ?
 Any pecuniary charge, however small, and whatever its
designation and mode of application, which is imposed unilaterally
on goods by reason of the fact that they cross a frontier and
which is not a customs duties in the strict sense, constitutes a
charge having equivalent effect...”

• Case 24/68, Commission v Italy (Statistical Levy) [1969] ECR 193.

3.2.3. Customs Union: Article 30 TFEU.
 Charges Having an Equivalent Effect…

 Will be a CHEE

◦ “...even if it is not imposed for the benefit of the state,

is not discriminatory or protective in effect, and if the
product in which the charge is imposed is not in
competition with any domestic product.”

◦ Cases 2&3/69 Sociaal Fonds voor de Diamantarbeiders

[1969] ECR 211.
 3.2.4. Customs Union: Article 30 TFEU
 Are CHEE ever legitimate :

 Case 18/87 Commission v Germany (Live Animals) [1988] ECR

5247 – yes, can escape classification as a CHEE if it:

a) constitutes payment for a service in fact rendered to the

economic operator of a sum in proportion to the service…OR

b) attaches to inspections carried out to fulfil obligations

imposed by Union (or international) law…OR

c) relates to a system of internal dues applied systematically and

in accordance with the same criteria to domestic products and
imported products alike.
3.2.5. Customs Union: Article 30 TFEU

a) Constitutes payment for a service in fact rendered to

the economic operator of a sum in proportion to the
service…

i. Benefit must be specific to the individual trader (and not

traders in general)

ii. Sum paid must be proportionate to the benefit received

 Case 24/68 Commission v Italy (Statistical Levy) [1969] ECR 193.

 Case 63/74 Cadsky v. ICE [1975] ECR 281.
 Case 170/88 Ford España v. Spain [1989] ECR 2305.
 Case 132/82 Commission v. Belgium [1983] ECR 1649
3.2.6. Customs Union: Article 30 TFEU.
b) attaches to inspections carried out to fulfil
obligations imposed by Union (or
international law).

i. Union law (secondary legislation)

◦ Case 46/76 Bauhuis v. Netherlands [1977] ECR 5.

 Charge must be proportionate to the cost;

 Inspections must be obligatory and uniform;
 Prescribed by EU law in the interests of the EU; and
 Promote FMG by neutralizing unilateral measures
adopted in accordance with Article 30 TFEU.
3.2.7. Customs Union: Article 30 TFEU.

b) attaches to inspections carried out to fulfil

obligations imposed by Union (or
international law).

ii. International law

 Case 89/76, Commission v. Netherlands :
 Prescribed by international law; and
 Charge is proportionate to the cost.
3.2.8. Customs Union: Article 30 TFEU.
c) if it relates to a general system of internal
dues applied systematically to categories of
products in accordance with objective criteria
irrespective of the origin of the products.

◦ If it is internal taxation - apply ART 110 TFEU.

◦ Articles 30 and 110 TFEU are mutually exclusive.

 Case 57/65 Lutticke v. HZA Saarlouis [1966] ECR 205

3.3. Customs Union: Article 30 TFEU.
• Legal Effect of an Infringement of Article 30
TFEU

• Customs duty or CHEE prohibited under Article 30

TFEU is unlawful per se

• The exceptions set out for non-fiscal barriers to

trade under Article 36 TFEU, e.g. protection of
public health do not apply to customs duties /
CHEEs.
4.1. Discriminatory Taxation.
 Article 110 (1) TFEU

◦ No Member State shall impose, directly or indirectly,

on the products of other Member States any internal
taxation of any kind in excess of that imposed
directly or indirectly on similar domestic products .

◦ Directly effective :Case 57/65 Lütticke v. HZA

Saarlouis [1966] ECR 205 (Article 110(1));

 Recall, Articles 30 and 110 TFEU are mutually exclusive.

4.2. Discriminatory Taxation.
 Article 110 (2)TFEU

◦ Furthermore, no Member State shall impose on

the products of other Member States any internal
taxation of such a nature as to afford indirect
protection to other products .

◦ Directly effective : Case 27/67 Firma Fink-Frucht

GmbH v. HZA München Landsbergerstrasse
[1968] ECR 223.
4.3. Types of Discriminatory
Taxation.
 where imports and  there is no explicit
domestic products discrimination,but
are EXPLICITLY the tax burden on
treated differently imports is greater

 Automatically
 May be objectively
unlawful and justifiable.
cannot be justified

Direct discrimation Indirect discrimination

4.3.1. Direct discrimination

 Tax burden must not differ according to the

origin of the good,
◦ e.g. rate, method/stage of collection, sanctions,
effect.

◦ Case 55/79 Commission v. Ireland [1980] ECR

481.
◦ Case 127/75 Bobie v. HZA Aachen-Nord [1976]
ECR 1079
4.3.2. Indirect discrimination
 Case 112/84 Humblot v Directeur des
Services Fiscaux [1985] ECR 1367.

 Case 433/85 Feldain v. Directeur des Services

Fiscaux [1987] ECR 3521.
4.3.3. Objective justification under Article 110
TFEU.
 Case 140/79 Chemical Farmaceutici v. DAF SpA
[1981] ECR 1.
 (Synthetic ethanol)

 Case 196/85 Commission v. France [1987] ECR

1597.
 (Sweet wines)

 Case C-132/88 Commission v. Greece [1990] ECR

I-1567.
 (Taxes on engine size)
4.4.1. Relationship between paras (1)
and (2) of Art 110 TFEU.

 Where domestic goods

 Where domestic and
and imports are imported goods are
deemed to be SIMILAR, not similar, but IN
the tax burden must be COMPETITION with one
equalized. another, the tax
burden must not
indirectly protect the
domestic product.

Article 110 (1) TFEU Article 110 (2) TFEU

4.4.2. Article 110 (1) TFEU: “similar”
goods.
 Goods in the ‘same tax classification are similar’
◦ See Case 27/67 Fink-Frucht GmbH [1968] ECR 327.

 But similar does not mean identical !

 “Similar”
goods “...have similar characteristics and meet the same needs from the point
of view of the consumer.”
◦ See Case 45/75, Rewe [1976] ECR 181.

 Commission v France (1980)

 Case 243/84, John Walker [1986] ECR 875.

◦ Said look at:
◦ Objective characteristics of the product;
◦ Alcohol content;
◦ Method of manufacture; and
◦ Consumer perception of the product.
4.4.3. Article 110 (2) TFEU: “other”
goods.
 Article 110 (2) TFEU – central issue:
◦ is there a competitive relationship
between the goods ?
 This can be actual or potential.
 Key questions:

1. Is there a degree of substitution

between the products? If so, a
competitive relationship exists.

2. Is the tax system indirectly protecting

the domestic product? If so, this
protective effect must be removed. –
unless objectively justified ?

 See Case 170/78

Commission v. UK (Beer and
Wine) [1983] ECR 2265.
 Case C-167/05 (Commission
v Sweden) (2008)
5.1. When is a tax a “genuine tax”?
A levy will fall under Article 110 TFEU if it
relates to:

◦ “... a general system of internal dues applied

systematically and in accordance with objective
criteria irrespective of the origin of the product.”

 Case 90/79 Commission v. France [1981] ECR 283.

 So how to distinguish a CHEE from a tax?

5.2. When is it a CHEE or a Tax?
 Imposed on goods as  Imposed within the MS.
they cross the frontier.  Imposed as part of the
 Specific charge on the internal taxation
imported/exported system.
good to the exclusion  Prohibited only if
of domestic goods. discriminatory.
 Unlawful per se

Article 30 TFEU Article 110 TFEU

5.3. The Relationship between Articles 30 and 110 TFEU: CHEE or Taxes?

Key questions to bear in mind:

1. Is a charge imposed at the border?

2. Is a charge imposed on an import which

the importing MS does not produce (for
example, exotic imports)?

3. Is all or part of the charge refunded to

domestic traders?
5.3.1. A charge imposed at the
border?
 Case 29/87, Dansk Denkavit [1988] ECR 2965.

 Only very exceptionally will monies taken at a border be a tax.

 Almost always will be a charge.

 Kapniki Michailidis v IKA [2000]ECR

 a charge levied at the border will be an internal tax, not CEE, only if:
 - levied on national product at the same rate;
 - at the same marketing stage;
 - and on the basis of identical chargeable event.
5.3.2. “Exotic Imports”?
 Which provision applies
where a MS imposes a tax
on an import, but there is
no domestic production of
the product?

◦ Article 110 – but why?

 Case 193/85 Cooperativa

Co-frutta SRL v.
Amministrazione delle
Finanze dello Stato [1987]
ECR 2085.
5.3.3. Selective tax refunds?
 If a partial or full refund is made to a domestic trader?

 Apply Article 30 TFEU if:

◦ the sole purpose of the refund is to finance activities which

benefit the taxed domestic product AND

◦ the product which has been taxed and the product benefiting
from the charge must be the same AND

◦ Refund of the charge imposed on the domestic product is

made in full.
6. Applying Article 110 TFEU
 Ensure it is a genuine tax rather than a CD or a CHEE. Then
ask yourself:

 Are the products in question similar?

◦ Test – objective characteristics + consumer needs
◦ If yes, the tax BURDEN must be the same

 If not, is there a competitive relationship between the

products?
◦ Is there a degree of substitutability?
◦ If so, does the tax burden indirectly protect the domestic good?
 Yes - Can it be objectively justified? If not, remove the protective effect. If
it can be justified, it is not caught.
 No, it is not caught by Article 110.
7. Conclusions.
 The
customs union is the foundation of the internal
market. A Post-Brexit EU-UK trade option?

 EU
has exclusive competence in adopting a common
commercial policy with third countries.

 Internal
aspect – Article 30 & 110 TFEU are mutually
exclusive and have direct effect.
◦ Interpreted strictly by the CJEU.

 Externalaspect – a strong “ring-fence” around the 28

MS is crucial.