Case C-171/11 Fra.bo: Horizontal Effect of Article 34 TFEU

Yesterday, the Court decided to give horizontal effect to Article 34 TFEU on the free movement of goods. In the Fra.bo case, the Oberlandesgericht Düsseldorf had asked whether a private-law association (DVGW) ought to be subject to the principle of free movement of goods. The organisation at issue operates both to draw up technical standards for products used in the drinking water supply sector and to certify products based on these standards.

As Laurens has pointed out in his post on the Advocate General’s opinion, the Court has accepted such horizontal effect for the other Treaty freedoms, but not yet for the case of the free movement of goods. Advocate General Trstenjak, however, suggested in her Opinion to extend the reasoning of cases like Bosman, Viking and Laval by analogy. Based on their horizontal effect, fundamental freedoms could thus be imposed in cases where non-public organisations held the power to draw up certain kinds of collective rules. In the present case, the German private organization DVGW possessed in her view a de facto competence to determine what fittings could be offered for sale on the market in pipes and accessories for drinking water supply in Germany (para 41). The Advocate General pointed out that horizontal effect was required by the effet utile of European Union law because (paras 46 ff.) the abolition of obstacles to trade imposed on Member States might otherwise be compromised by obstacles erected by private parties. Also, the fact that some Member States would rely on public standardisation bodies while others turn to private organisations may lead to inequalities in the application of EU law.

The Court kept its decision rather short but followed in principle the Advocate General. Two points appear particularly remarkable: first, the establishment of horizontal effect appears to closely follow the idea of delegation of legislative power. Second, the Court treats in a rather cursory manner the question of a potential justification should the provisions on the free movement of goods be found applicable to the case of a private standardisation organisation.

On the first point, the Court holds that the DVGW was a non-profit, private-law body which was not financed by Germany, nor had public bodies any decisive influence over its standardisation and certification activities (para 24). For the Court, this means that the Treaty provisions on the free movement of goods only apply ‘in the light of inter alia the legislative and regulatory context in which [the DVGW] operates’ if the latter’s activities have a restrictive effect on the free movement of goods ‘in the same manner as do measures imposed by the State’ (para 26).

The Court then lists three reasons why it considers that the Treaty provisions apply to the DVGW (paras 27-30). First, German law provides that products certified by DVGW are considered compliant with national law. Second, the DVGW is de facto the only body able to certify the copper fittings at issue in the case according to national law. An alternative procedure allows to entrust an independent expert to examine the products compliance according to recognised rules of technology and draw up a report. Yet, the administrative difficulties and additional costs incurred render this alternative in practice ‘of little or no practical use’. Third, lack of certification has a considerable practical effect. While the pertaining German law only lays down general sales conditions between water supply undertakings and customers, from which departure is possible, in reality virtually all consumers buy copper fittings certified by DVGW.

As a consequence (paras 31-32),

[...] it is clear that a body such as the DVGW, by virtue of its authority to certify the products, in reality holds the power to regulate the entry into the German market of products such as the copper fittings at issue in the main proceedings.

Accordingly, the answer to the first question is that Article 28 EC must be interpreted as meaning that it applies to standardisation and certification activities of a private-law body, where the national legislation considers the products certified by that body to be compliant with national law and that has the effect of restricting the marketing of products which are not certified by that body.

In principle, this solution seems convincing. However, the case also presents a rather clear-cut case of de facto delegation of public authority in the field of technical standards. What remains less clear is how this decision will provide guidance in cases where the delegation of power and the public-private distinction are less clear. Future cases may pose a challenge to this solution. One may wonder, for example, what degree of restrictiveness is required for a private standardisation measure to trigger horizontal effect. Would the solution have been different if a certain percentage of German consumers had ignored DVGW’s standards? If the alternative procedure for obtaining certification by an independent expert were more easily available, could this change the horizontal applicability of Article 34 TFEU? Perhaps more generally speaking, is horizontal effect a question of the degree of private rule-making power?

Unfortunately, the Court seems to neglect the second issue of the case: if Article 34 TFEU applies to private organisations in the circumstances of the DVGW, under what circumstances can they seek justification for the trade-restrictive effects of their activities? The Advocate General had been more explicit on this point, while the Court keeps it rather short. Only in some introductory words about Articles 34 and 36 TFEU as applicable to Member States, the Court states (para 23):

Similarly, the Court has held that a Member State fails to fulfil its obligations under Articles 28 EC and 30 EC when, without valid justification, it encourages economic operators wishing to market in its territory construction products lawfully manufactured and/or marketed in another Member State to obtain national marks of conformity (see, to that effect, Commission v Belgium, paragraph 69) or when it refuses to recognise the equivalence of approval certificates issued by another Member State (see, to that effect, Case C‑432/03 Commission v Portugal [2005] ECR I‑9665, paragraphs 41, 49 and 52).

In the earlier history of the case, the DVGW refused to recognise a test report drawn up by an Italian certification firm because the DVGW had not approved this firm as one of its testing laboratories (see para 10). The Court does not return to the point of justification later, ending its reasoning with the finding of horizontal effect. Still, we can probably deduce without difficulty that the same rule applies to private organisations. A private organisation is thus probably required to provide a ‘valid justification’ as to why it encourages the use of national marks of conformity or refuses to recognise the equivalence of certifications from other Member States.

It is a pity that the Court did not say more on the subject, in particular since the Advocate General had put quite some effort into building golden bridges for the Court (see, again, Laurens’ post on the opinion). The tension between private interests, such as the freedom to conduct a business under Article 16 of the Charter of Fundamental Rights of the European Union, and the interest of EU integration as enshrined in the free movement of goods could have provided quite some food for judicial thought.

2 comments

  1. Laurens Ankersmit

    Thanks Ben,
    Good points about what this will mean for future public-private endeavours of Member States.

    I’m not too sure though whether the Court did in fact acknowledge horizontal direct effect or rather interpreted the notion of state measures extensively (given, this can be a bit of a semantic discussion).

    This case does bear some similarities with two other cases (case 222/82 Apple and Pear Development Council and case 249/81 Buy Irish) and the question is whether the situation in Fra.bo is different from that in Apple and Pear Development Council, where the Court held that article 34 TFEU could be invoked against a body that represented fruit growers not formally part of government but which had certain public law privileges, and the Buy Irish case. In both instances there was a strong link between the government and the organisation. This is also arguably the case here, although I think in the old cases the link was a bit stronger, because the bodies in those cases where set up by the government which was not the case here.

    The question is if this case is in reality about extending vertical direct effect or rather constructing a sort of limited form of horizontal direct effect of article 34 TFEU. I think it is useful that the Court gives us three considerations why 34 applies: German legislation affirming the authority of the organisation, its monopoly that is the result of measures by the state, and the trade restrictive effects stemming from its activities. If all of these considerations are cumulative I would say the Court is sticking to its old position and just merely extending vertical direct effect.

    However, the Court does open the door to an effects based approach in its third and last consideration. We will have to see whether only meeting that criterion might suffice in triggering the application of article 34 TFEU and with that a truly horizontal direct effect approach.

    A different point: the second consideration reminds me a bit of an Appallate Body report of the WTO recently circulated on whether certain labelling requirement could held to be ‘mandatory’ (and therefore falling under the rigours of article 2 of the TBT). http://docsonline.wto.org/GEN_viewerwindow.asp?http://docsonline.wto.org:80/DDFDocuments/t/WT/DS/381ABR.doc
    The Appallate Body said there that when determining whether a labelling measure by a Member is mandatory it will consider ‘ whether the measure consists of a law or a regulation enacted by a WTO Member, whether it prescribes or prohibits particular conduct, whether it sets out specific requirements that constitute the sole means of addressing a particular matter, and the nature of the matter addressed by the measure.’ (para 188)

    As to your second point, it is rather strange that the Court has never really questioned the legitimacy of private actors relying on mandatory requirements. Probably this case is not very well suited for such a discussion, but in other instances, such as sports federations, I think the Court should have addressed that issue (especially if the public interest invoked is not directly related to the sporting activity).

  2. Gor Torosyan

    thanks Benedikt Pirker, very interesting case. But I think, that in this case the Court expended more vertical direct effect of article 34 TFEU, than gave horizontal effect to Article 34.

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