Direct Horizontal Effect of the Basic Freedoms of the EU Internal Market1

Direct horizontal effect of the basic freedoms of the EU internal market as they are laid down in articles 28 to 66 TFEU is not a new question of European Union law: neither for legal doctrine nor for legal practice. But it has gained new momentum in the jurisprudence of the European Court of Justice (ECJ) and in the legal scientific literature in recent time, which demands the clarification of the normative approach to this topic and of its ramifications for single issues.

produced in another Member State5; or enterprises when they refuse to buy goods from certain other Member States or when they hinder the employment of workers with the nationality of other Member States.
This question has to be distinguished from the issue of indirect horizontal effect.This term "indirect" characterises the impact of the market freedoms on the shape of national private law for which national legislation or jurisdiction is responsible and which binds individuals and/ or other private persons; e. g. national company law which restricts the acquisition of shares by investors from other Member States6; or national intellectual property law which enables private persons to enforce import bans against foreign goods7; or private conduct that is accountable to a state authority (such as the advertising campaign "Buy Irish" run by a private body which was financed by the Irish government8).In contrast to indirect horizontal effect's impact on national private law the issue of direct horizontal effect addresses private persons when they act autonomously.
In the German legal doctrine a significant body of literature has examined the matter of direct horizontal applicability in recent time.16 relevant monographs in German alone have been published in the past decade.9There is also no lack of individual texts such as articles and The topic is about an issue which has been tackled and designed in a scholarly way as early as 1987 by the doctoral dissertation of Detlef Schaefer.11The spectrum of opinion ranges from general rejections of direct horizontal applicability (e. g.Riesenhuber,12 Körber13) through to differentiated solutions14 and to general affirmative answers (e. g.Schaefer,15 Förster,16 Löwisch17).The courts encounter from time to time new questions on the issue arising in particular cases, and give answers specific to the case at hand, although of course such decisions are made within the framework of legal provisions and scholarly systems.Elaborating a coherent overall theory of direct horizontal applicability is the task of genuine legal scholarship, which forms the doctrine ("Dogmatik") in dialogue with positive law.Several recent decisions of the ECJ provide a reason to take a new look at this issueamong them in particular the judgement of July 12, 2012 involving an Italian manufacturer of copper fittings for tubes which transport drinking water (named Fra.bo) and a private standardization and certification association in Germany (Deutsche Vereinigung des Gas-und Wasserfachs e.V.), in which the ECJ held that the association was bound by the prohibition of also already Michael Jaensch, Die unmittelbare Drittwirkung der Grundfreiheiten: Untersuchung der Verpflichtung von Privatpersonen durch Art. 30, 48, 52, 59, 73b EGV (Baden-Baden: Nomos, 1997 measures which have equivalent effect to a quantitative import restriction in the sense of article 34 TFEU.18 The following observations will be divided into two parts.First, the cross-sectional issue which concerns all transnational market freedoms in the internal market has to be raised: the question of whether, and to what extent, the imposition of an obligation on private protagonists to respect the market access freedoms is conceptionally and legally compatible with the relevant provisions of primary Union law (B).And second, the issue of what legal consequences arise in the case of an affirmative answer to the first question (C).

B. The Issue of the Compatibility of Horizontal Applicability of the Market
Freedoms with Union Law.
The basic issue which concerns all transnational market freedoms provided for in primary Union law, namely the free movement of workers, self-employed persons and companies, the free movement of services, the free movement of goods and the free movement of capital and payments as laid down in the TFEU (articles 28 et sequentes, articles 45 and sequentes, articles 49 et sequentes, article 54, articles 56 et sequentes, articles 63 et sequentes), is whether the assumption of an obligation of private protagonists to comply with them is compatible with these provisions.
In this context I shall not discuss the specific German notion of "Drittwirkung" (meaning: "effect on actors other than public authorities") which evolved from the famous controversial scholarly debate in the 1950s between Hans Carl Nipperdey and Günter Dürig on the direct applicability of fundamental rights of the German constitution (Grundgesetz) to the conduct of private persons.19Although the term "Drittwirkung" has been lifted by German academic authors from the level of German constitutional law debates to the issue of direct horizontal applicability of the transnational market freedoms, this transfer is fundamentally misguided since the transnational market access freedoms on the one hand and the fundamental rights on the other hand have a different function.This remains the case despite the fact that article 15 par. 2 of the complex Charter of Fundamental Rights of the EU, in a unnecessary and conceptually misleading provision, partly repeats some transnational market access freedoms: the freedom to seek employment, to work, to exercise the right of establishment and to provide services in any Member State.
Concerning the basic question of conceptional and legal compatibility there are aspects against (I) and arguments for (II) direct horizontal applicability.

I. Arguments against Direct Horizontal Applicability (Historical and Systematic Interpretation)
In the discussion already mentioned word "Drittwirkung" transports a categorical preunderstanding ("Vorverständnis") which perceives the transnational market access freedoms as prohibitions which primarily address state authorities.This finds a textual basis in the Treaties in the area of the free movement of goods in the prohibition of customs duties on imports and exports and charges having equivalent effect (article 30 TFEU) which (by their very nature) can be levied only by public authorities (although not only by states but also by the Union itself; article 31 TFEU).The generalization of this view about which actors are addressed to all market freedoms may be supported by several aspects of the emergence of European primary law: such as the creation of the common market territory by the founding states, by the former standstill clauses which addressed the states and by the international law character of the prohibitions.It is reflected in certain formulations of the ECJ (e. g. in the decision "Vlaamse Reisebureaus"20 in which the court said that the -then -Articles 30 and 34 "concern only public measures"; or in the decision "Viking" in which the court characterized the prohibitions as provisions which "are formally addressed to the Member States"21).Additional arguments are drawn by some authors first from the State-focused content of certain explicit grounds for restrictions (such as "public morality, public policy or public security" in article 36 TFEU), second, from the existence of specific prohibitions concerning restrictions of competition which address undertakings (articles 101 and 102 TFEU) and third, from the pure quantity of restrictions applicable to state authorities in the jurisprudence of the ECJ.These are essentially arguments based on general historical and systematic aspects of EU law.

II. Arguments for Direct Horizontal Applicability
However, if the full classical canon of interpretation methods22 is brought into action then the text and purpose of the prohibitions throw doubt on the traditional view.

The Text (Grammatical Interpretation
).As already mentioned the basic primary law prohibitions of transnational market access restrictions which constitute the internal market do not address the Member States explicitly, but only (implicitly) in the very specific area of customs duties and charges having equivalent effect and on quantitative restrictions to imports or exports which can be imposed only by public authorities.All other prohibitions are expressly or indirectly directed against "restrictions between Member States" without specifying the possible sources of such restrictions.The basic provisions are well known: in the area of movement of goods the famous prohibitions of measures having equivalent effect to quantitative restrictions to imports or exports (articles 34 and 35 TFEU); in the area of the labour force article 45 TFEU which states that "freedom of movement for workers shall be secured within the Union" entailing the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment; in relation to self-employed citizens of the Union and companies formed in accordance with the law of a Member State and connected to the Union articles 49 and 54 provide that "restrictions on the freedom of establishment shall be prohibited".This is also the case for the provision of services within the Union in respect to citizens of the Union who are established in a Member State other than that of the person for whom the services are intended (article 56 TFEU).Finally Article 63 TFEU prohibits "all restrictions on the movement of capital and payments between Member States" (and in addition also between Member States and third countries).
Hence the text appears clear.Except of the area of classical public forms of protective measures (such as customs duties et al.), there is no indication in the text that the prohibitions are limited to cases where a state authority is the originator of the restriction.In respect of transnational services the ECJ drew this conclusion more than forty years ago in the decision "Walrave/UCI".23This result does not astonish when looking at the shared purpose of the prohibitions.

The Purpose (Teleological Interpretation)
. Viewed together, the mentioned prohibitions are conceptionally aimed at all restrictions of the transnational market access within the Union (article 26 par. 2 TFEU).
a.This common aim flows from the intention to merge the national economies into one common market (today: internal market) in order to, first, guarantee the free movement of all productive factors and products according to the principle of comparative costs´ advantage (Ricardo24) and, second, promote the three basic objectives of the Union: peace, values and well-being (article 3 par. 1 TEU).25 From this perspective it is not of prime interest which actor is responsible for a restriction: a national authority, an institution of the Union, a private association or a single private protagonist.Otherwise the uniform abolition of restrictions would be subject to the legal and social organization of public and private power in a Member State.
b.A recent instructive example for this can be found in the mentioned "Fra.bo"case.
According to the ECJ the facts were as follows:26 "Fra.bo," an Italian undertaking, produced and sold copper fittings.The DVGW is a non-profit association in Germany governed by private law the object of which is to promote the gas and water sector (the "association").For the water sector there are approximately 350 technical standards drawn up by the association.The technical standard W 534 was relevant in the "Fra.bo"case.It serves as the basis for certification, on a voluntary basis, of products, which come into contact with drinking water.In 1999 Fra.bo applied to the association for certification of its copper fittings and was granted a certificate for the period of five years.After complaints by third parties, the association in accordance with its rules instituted a reassessment.In 2005 it cancelled Fra.bo's certificate on the ground that it had not submitted a positive test report on the so called 3000-hours-test (exposing the copper fitting´s elastomeric waterproof joint to a temperature of 110 degrees Celsius in boiling water for 3000 hours).The association also rejected an application of Fra.bo for extension of the certificate.Fra.bo went to court in Köln and argued that the cancellation and/or the refusal to extend the certificate were contrary to (then equivalent of) article 34 TFEU (prohibition of quantitative restrictions of imports and measures having equivalent effect).The association argued that as a private body it was not bound by the mentioned article.It contended that it was not prevented from drawing up technical standards going beyond those in place in Member States other than Germany and applying them in its certification process.It also considered itself to be free, on quality-related grounds, to take account only of laboratories accredited by it.Moreover, it argued that as a standard-setting body, it did not pursue economic activities for the purpose of cartel agreements.The Köln court dismissed Fra.bo's action.Fra.bo appealed against this decision.The Düsseldorf Court of Appeals asked the ECJ whether (the then equivalent of) Article 34 TFEU must be interpreted as applying to the standardization and certification activities of a private law body, where the national legislation regards the products certified by that body to be compliant with national law and hence makes it at least considerably more difficult in practice to market products which are not certified by that body.The reasoning of the judgement of the ECJ is focused, first, on the functions and role of the private association: setting technical standards, certifying products, triggering the assumption of compliance with national legislation on the marketability of products, combined with the fact that it is the sole institution of this kind in Germany.Second, the judgement looks at the effects of the DVGW's activities (specifically the behaviour of producers, which unanimously seek certification from the association) and comes to the conclusion: "In such circumstances, 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."27Only at the very end did the ECJ draw a link to the compliance assumption in German law,28 without, however, indicating that the German public authorities were accountable neither for the conduct of the private association nor for the reaction of the market participants.
c.The result of this decision (namely to declare the association to be bound by the prohibition of measures having equivalent effect to quantitative restrictions) fits the genesis of the term and concept of the common market.This concept is rooted in the very first supranational European organisation, the European Community for Steel and Coal (ECSC).Jean Monnet ascribes the creation of the basic idea and term to a member of his circle, Pierre Uri.29 In order to construct a fundamentally new relationship between France and Germany, more was needed than the conclusion of a classical international treaty of economic relations with mutual concessions.Rather, what was embraced was the idea of a common market, with the free coordination of free preference decisions of supply and demand of the market participants.Preference is always selective, a fact which is the very core of a market and of competition.Preference decisions are at the heart of autonomous self-determination and individual responsibility.A market realises the vision of freedom for individuals and undertakings: private initiative as the first source of economic, social and transnational integration (an idea already described by Rudolf von Jhering30), although within the framework of rules in the interest of protecting public goods such as health, the environment or social solidarity.
Already Jean Monnet's original text of the proposal of the ECSC, the blueprint of the Schuman-declaration of 1950, contains the sentence: "Progressivement, se dégageront les conditions assurant spontanément la repartition la plus rationelle de la production au niveau de productivité le plus éleve."31Later in the ECSC-Treaty the wording was "von sich aus" (in Latin: "eo ipso" or "per se"; meaning: positive economic results from conditions which arise from themselves).This is the idea of a macroeconomic transnational autopoiesis (in the sense of "Selbststeuerung" or a self-steering system) based on all the individual preference decisions.In its objective it significantly differs from the original idea of fundamental rights as protections against public authorities in the 18th century.In this context Monnet talks only generally about the obstacles that have to be abolished by referring to (in translation): "area without customs barriers and discriminations."32Consequently, in order to identify a measure, which is contrary to this common market idea the prime criterion is the restricting effect33 on transnational market access of a measure or behaviour, but not its authorship.Hence, direct horizontal applicability of the prohibitions of restrictions is not only compatible, but, in principle, in line (teologically) with the basic concept of the internal market in primary Union law.

III. Remaining Systematic Objections.
Nevertheless there are still two remaining systematic objections drawn from the Treaty, which have to be considered: the explicit reasons for the justification of restrictions and the existence of competition rules for undertakings.Do they contradict the assumption of direct horizontal effect of the market freedoms?
1.It is true that the explicit reasons for the justification of restrictions address national public authorities, since they aim at promoting or protecting aspects of the public good such as public morality, public policy and public security (articles 36, 44, 52 TFEU).Non-public protagonists are, in principle, not authorized to perform self-help in order to pursue a public interest by way of restricting transnational market access.This was not fully recognized by the ECJ in several decisions, e. g. in the famous "Bosman" case in which the court examined the issue of whether "mandatory interests" could justify the restricting measure of a private association.34 Correctly viewed, they cannot.
However, the question raised by the Court of whether the freedom to associate (article 11 ECHR) of an international football association justifies its rule requiring a club to pay a transfer fee for a player35 is of some weight.Guaranteeing the freedom to associate is per se the expression of a mandatory requirement of any polity that is based on the respect for freedom, such as the Union and its Member States (article 2 TEU).Hence it is justified to assess restrictions of transnational market access by private actors in the light of their freedoms of action.And it follows from the principle of private autonomy that "objective factors" of the private decision suffice for justification.This was rightly the criterion applied by the ECJ in the "Angonese"-decision, although in later decisions the ECJ swerved back to use the term "mandatory requirements" (as in "Casteels,"36 "Laval"37 and "Olympique Lyonnais"38).
2. The second traditional systematic objection against direct horizontal effect has gradually lost support: namely the argument that only the competition rules (articles 101, 102 TFEU) bind private actors.However, these rules have a limited scope: they address only undertakings, but not all private protagonists such as trade unions or standardization associations (if they are not associations of undertakings).They are, in addition, only concerned with certain defined forms of behaviour (cartel agreements and abuse of a dominant market position).Hence direct horizontal effect of the transnational market access freedoms is, in principle, not excluded by the pure existence of competition rules.And in cases in which both sets of rules are fitting, their parallel applicability cannot be excluded.39However, when considering the justification of a restriction of a basic market freedom the specific conditions of exemption of article 101 par. 3 TFEU are to be taken in account.40

B. Legal Consequences of Binding Private Actors
Moving on to single legal consequences of the assumption that private actors are bound by the transnational market freedoms, several questions arise: among them in particular the range of the freedoms to which direct horizontal effect applies (I), the type of restrictions (II), the contents of restrictions (III), the categories of private addressees (IV) and the dogmatic borderline between the immanent restriction of a prohibition and justification (V).

I. The Freedoms Concerned.
It follows from an understanding of the prohibitions as generally applicable to private actors that none of the groups of the market freedoms is excluded from direct horizontal effect -neither factor freedoms nor product freedoms, and neither transnational market access freedoms of the citizens of the Union (articles 45, 49 and 56 TFEU) nor general transnational market access freedoms (articles 28 et sequentes, article 63 TFEU).Therefore the question of the range of the freedoms concerned is not of whether a horizontal obligation exists at all, but which variants of the prohibitions -due to their pure nature -cannot address private actors.As already mentioned, in the area of the movement of goods these are the customs duties and charges having equivalent effect and quantitative restrictions on imports and exports.Hence privately charged tolls for using private border-crossing roads do not fall within the scope of article 28 TFEU.
The jurisprudence of the ECJ has in fact already confirmed a good part of this reasoning.Here restrictions of the freedom of movement of workers have proved to be most relevant.This freedom would be broadly endangered if private collective bargaining agreements or statutes of associations were not bound by the guarantee of free movement.Hence decisions of the ECJ concerning sports associations from "Walrave"41 (cycling) and "Donà"42 (football) to "Bosman"43 (football) and "Lehtonen"44 (basketball) are clearly convincing.Moreover, discriminations on grounds of nationality in collective bargaining agreements, statutes or individual employment contracts are declared as void by secondary law (Article 7 (4) regulation (EU) 492/201145), notwithstanding that this is already the consequence of primary law.Hence the decisions of the ECJ, which concerned measures of individual private actors such as a bank in Southern Tyrol46 and a research institute,47 are compelling.
In a similar way the freedom to provide services and the right of transnational establishment proved to be endangered by private actions as shown by the trade union boycotts in the cases "Laval"48 and "Viking"49 and as also demonstrated in the cases "Walrave"50 and "Bosman."51This is also true for the movement of goods, which was already foreseen by scholarly literature52 before the decision of the ECJ in the "Fra.bo"case discussed above.Parallel cases can be imagined in the area of movement of capital and payments; e. g. cases of private defence measures against transnational take-overs of enterprises; or of assessments of rating agencies which reduce the credit standing of certain financial products and their aptitude for securing the fulfillment of obligations in cross-border leasing contracts.As soon as such cases arise the same approach must be taken by the courts to ensure the systemic rationality of the law, and hence its justice in the sense of its certainty and predictability.Individual decisions of courts have to fit into the overall normative system.

II. The Legal Type of Restrictions.
The second consequence of binding private actors concerns the legal types of restrictions subject to the prohibitions.The dichotomy between legally binding measures and non-binding measures as developed for restricting state measures fits also here.conditions of insurance contracts ("Haug-Adrion"59) or the prohibition in a rental contract to use a satellite dish for receiving a broadcast from another Member State.60 2. Factual Measures.Purely factual private measures can also fall under the prohibitions.This is mirrored by the increasing number of cases in this respect such as: acts of violence (e. g. barring the import of Spanish strawberries in Southern France61; blockading the construction site of a Latvian company in Sweden62), boycotts (e. g. of an international trade union against a Finnish shipping company63), demonstrations which hinder transports on the roads ("Schmidberger": Brennerautobahn in Tyrol64), and the imposition of conditions for applications by an enterprise ("Angonese"65).

III. The Content of Restrictions.
A third consequence is the scope of the content of restrictions.Like state restrictions, private restrictions also raise the question of whether only measures, which discriminate on the grounds of nationality or origin, are addressed or also measures which do not discriminate on these grounds.Measures.In cases of measures, which discriminate on the grounds of nationality or origin a specific problem emerges due to the regular and normal preference decisions of market participants, discussed above.In this respect the imaginable range of conflicts is unlimited.Should, e. g., a Bavarian innkeeper be prohibited from pursuing a business model based on Bavarian authenticity in which only service staff with an authentic command of the Bavarian dialect is hired?Or is a Danish trader in wine violating article 34 TFEU if he exclusively specialises in offering French red wine at the disadvantage of red wines grown in other Member States?However, there is a solution to the challenge posed by these examples.In these cases we encounter preference decisions of market participants.Such choices based on preference lie at the heart of a system based on the free coordination of free decisions.They are at the core of the constitutive norms of the market economy based on free competition in the internal market.They are inherent to the system ("systemimmanent").This reasoning applies, in the principle, independently from the role of the market participant: consumer or entrepreneur, supplier or buyer.Restrictions exist only for undertakings within the scope of applicability of the competition rules and for employers within the prohibition of "discrimination" (distinction without reasonable grounds) on grounds of nationality as a consequence of the fundamental role of this prohibition in Union law.However, if private measures which hinder the free transnational movement are not taken by market participants in an actual or potential transaction, but by third actors (such as trade unions), they cannot be considered as being genuine (and conceptually desirable) preference decisions in the course of market transactions.Measures.Hence, even private measures which do not discriminate on the mentioned grounds but are generally applicable such as, e. g. the requirement of a transfer fee for a football player, can constitute a restriction of transnational market access.As far as they do, they cannot be excluded from the prohibition.Consequently the practice of certification as pursued by the DVGW was correctly assessed by the ECJ as contradicting article 34 TFEU.66In contrast, as preference decisions of market participants are not covered by the prohibition, then this has to apply even more to decisions without such discrimination.The boundary is marked by the role of the originator of a measure.It is decisive whether he is a market participant to a transaction or a third party which actually or potentially "excludes" or "burdens" a transnational transaction of other persons.

IV. The Categories of Private Addressees.
A fourth issue concerns the categories of private addressees.
1.A traditional line of thinking argues for a limitation to private organisations, which exercise a public, semi-public or intermediary regulatory function.This idea stems from the "Walrave" case, which involved the statutes of an international cyclist association.67It is clear that the prohibitions should apply to such associations since they are capable to internally bind or influence their members in their external conduct (e. g. by rules) and can even externally and directly influence the options of market participants (e. g. by boycott).
2. Since, however, the decisive criterion for the applicability of the market freedoms is the restriction of transnational market access a limitation of direct horizontal effect to private organisations of the mentioned kind is not compelling.As seen in the cases "Angonese"68 and "Raccanelli"69 access restrictions can also be generated by the conduct of individual private protagonists.

V. Justification of Restrictions?
A fifth and last issue arising from the assumption of direct horizontal effect of the market freedoms concerns the question of whether restrictions which arise from the exertion of private autonomy are or can be justified.
1. State Obligation to Protect?Some authors want to avoid this question by favouring the so called "Schutzpflichten" -idea, in other words by denying direct horizontal effect, but by holding a Member State accountable for not protecting the transnational market freedom of individuals against privately initiated restrictions on its territory (such as, e. g., France for not protecting the importers of Spanish strawberries against street blockades put up by private gangs70).However, this solution is neither efficient in practice nor compelling in theory.In practice it amounts to a deviation of the enforcement against the originators (e. g. the rules or measure of an international association) to the public authorities of a Member State in which a statute provision becomes effective.From a theoretical perspective, it would be paradoxical to oblige a State to stop or avoid a private measure which is not prohibited.

Justification.
Hence the legal question cannot be avoided of whether the exertion of private autonomy can justify restrictions of transnational transactions.My proposal is for a threefold test.First, the question has to be answered whether a private behaviour amounts to a restriction of market access.Second, if this is the case, it can be assumed in principle that the behaviour is based on a preference decision in accordance with the basic idea of market competition as envisaged by the market freedoms and hence this restriction is not covered by the prohibition.Third, if this assumption is not valid in a concrete fact scenario (e. g. restrictions as a consequence of a rule or factual measures taken by a third actor) the private rule or behaviour can only be justified if its objective serves reasonable purposes, and if its implementation is suitable and necessary to these ends (a test which cannot allow the use of force in any case) and is proportional in relation to the restrictions of the transnational market access.In the "Fra.bo"case these interesting questions were not raised.71But they are part in the overall issue whether a concrete private behaviour is compatible with the market freedoms or contradicts them.There are many questions to be posed and to be answered in the interest of a functioning internal market and in the interest of the Union as a whole.

3
Peter-Christian Müller-Graff is Director of the Heidelberg University Institute for German and European Corporate and Economic Law and Chair for Economic Law and European Law at the Heidelberg University Law Faculty, counsellor to national, international and foreign public authorities, former judge at the Court of Appeals and representative of the Federal Republic of Germany before the European Court of Justice.Before his present appointment at the Heidelberg University he was Professor of law at the Universities of Köln (Cologne) and Trier.Professor Müller-Graff was also a visiting professor in France, Belgium, Austria, Switzerland, Poland and Hungary, in North and South America and in Japan.His main research interests are the European internal market law, the law of the European Union and of other European international organisations and private law, on which he has published and edited many books, including the editing of the ten-volume Encyclopedia on European Law.