Reconciling cross-border trade with member state autonomy

Date: 11/04/1996

By Ian S. Forrester QC

FREE trade is a good thing. No member state can be opposed to it. Article 7a of the EC Treaty, as amended by the Maastricht Treaty, calls for the creation of a large single market, without internal frontiers, within which goods, services and capital may move effortlessly across borders.

However, like other grand principles, this one sounds attractive but is subjective to inconvenient exceptions.

Member states are particularly nervous about losing revenue from cross-border operations.

When private companies impose contractual restrictions which hinder cross-border trade, they are liable to be severely fined for breaching competition rules. When member states try to block cross-border trade, they may say they are remedying “deflections of trade”.

When a private citizen from England goes to a Calais hypermarket and buys 100 bottles of beer, 1,000 cigarettes and sundry bottles of wine and spirits, he may import these into the UK without paying UK excise duty, his purchases corresponding

to what member state and Commission officials call “likely to be for personal use”.

So-called indicative limits have been established to discourage the public from taking these rights too seriously. It remains to be argued one day by a bibulous Brit that he should be free to bring a larger volume of excisable merchandise (alcohol and tobacco) than has been deemed appropriate for personal use.

In addition, the private importer may not resell any of the goods he brings home from Calais, and cannot even take £6 from his grandmother to buy her a bottle of gin in France. If the owner of a shop, pub or restaurant imports alcohol for subsequent resale, even though duty had been paid in France, he commits a serious criminal offence.

Why should traders enjoy fewer rights to trade across a frontier than private citizens? Because the member states will not tolerate too much encroachment on their sacred national excise revenues.

Another area where member states evince great nervousness is lotteries. In most member states there exists some form of public lottery which is licensed or operated by the public authorities. Most tickets are sold domestically, but a fair number are bought by citizens of other member states.

In the Schindler case, imports of publicity material for a German lottery were intercepted by UK Customs & Excise officials and prosecutions for conducting an illegal lottery were initiated against the Schindlers.

The lottery was supervised by the state, so there was no risk that the promoters would run off with the money. Public morality in the UK no longer objects to 'soft gambling', so the Schindlers argued that EC law permitted what UK law prohibited. Nevertheless, 11 member states felt troubled enough to intervene in Luxembourg and the European Court, despite the Commission's argument that what was really involved was not an attempt to protect the public but an attempt to protect lottery revenues, produced a notably cautious judgement, acknowledging that the member states have latitude to protect punters and maintain order in society.

Similarly, in Alpine Investments, the European Court agreed that the Dutch authorities could prohibit securities salesmen from 'cold calling' potential investors in other member states.

Even though the protection of foreign citizens was not the job of the Dutch authorities, the reputation of the financial services sector justified action.

The Sanz de Lera case concerned a thrifty individual who was discovered at a Spanish airport in possession of a suitcase full of pesetas which he planned to take to Switzerland. Spanish law prohibited the export of large sums without prior authorisation. Article 73(b) of the EC Treaty prohibited “all restrictions on the movement of capital” between member states and to third countries. Should the wealthy traveller escape prosecution? The European Court found that “member states are entitled to verify the nature and reality of the transactions”. However, it also found that the Spanish legislation was too severe, by prohibiting transfers in the absence of authorisation: a prior declaration would have been sufficient. Whether Mr Sanz de Lera got to keep his cash is not recorded.

Another tricky case involved a Mr Koestler, a German national resident in France who entered into a series of recklessly unsuccessful futures trades with a French bank. He then went home to Germany, where he was sued by the bank for the losses incurred. He invoked the German Civil Code's provisions on gaming to say that the futures deals were unenforceable, although they had been legal in France. The bank said that the debtor could not evade his liability in that way. The European Court said there was no breach of Community law when a foreign bank was treated in Germany just like a German bank.

As financial service operators become more and more international, they are increasingly falling within a steadily expanding network of EC legislation. But there will always be individuals who break national rules which are arguably too severe, and then invoke EC law as a defence.

This article reflects the personal views of the author.