Freddie is Spanish manufacturer of metal-grinding machines ('MGMs'), which he has supplied to manufacturers in the Spain and France for the past ten years. Freddie now plans to import his machines into Portugal.

Freddie has learned that under Portuguese legislation a licence is required for the import of MGMs. Licence applications are considered by the Portuguese authorities in January and July each year. Freddie has been told that Portugal places an annual limit on the number of MGMs that may be imported and has regulations stipulating that manufacturing machinery, including MGMs, can only be sold through government sales outlets.

Portugal also has health and safety legislation requiring all MGMs to be fitted with an external 'vacuum filtration' unit to collect particles emitted by the grinding process. This legislation has recently been introduced following the publication of a research study conducted in Portuguese heavy industry. The study suggests that, over the past six months, the number of new cases of industrial lung disease has been significantly lower amongst metal-grinding operatives working on Portuguese-manufactured machines (most of which already comply with the new legislation) than amongst operatives working on imported machines (none of which currently complies). Freddie's machines do not comply with the Portuguese legislation. They are fitted with internal 'vacuum filtration' units which, in Freddie's view, operate much more efficiently than the externally fitted filtration units required by the legislation.

Advise Freddie as to the application, if any, of EU law on the free movement of goods to all aspects of this situation.

Begin with a very brief introduction to the free movement of goods in the internal market, referring to Article 26 TFEU.

Identify the restrictions

• Requirement for an import licence, with applications being considered in January and July.
• Annual limit on the number of MGMs that may be imported.
• MGMs can be sold only through government outlets.
• MGMs must be fitted with an external 'vacuum filtration' system.

Requirement for an import licence

• The licence requirement may be a breach of Article 34 TFEU, which prohibits quantitative restrictions and all measures having equivalent effect ('MEQRs'). The measure is not a quantitative but may constitute an MEQR.
• The Dassonville formula defines MEQRs as 'all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade'. The requirement is a trading rule enacted by Portugal. It hinders trade between Member States, in Freddie's case between Spain and Portugal, in that it entails administrative time and cost for Freddie. Additionally, it potentially gives rise to lengthy delay because licence applications are only considered in January and July. All these factors slow down and increase the cost of importation. Directive 70/50 may also be applied in order to identify an MEQR. Article 2 of the Directive refers to measures that do not apply equally to the imported and domestic product and make importation more difficult or costly. As indicated above, this measure both hinders and raises the cost of importation.
• The requirement applies only to imports and so is a distinctly applicable measure.
• This point would be important if justifications were being considered. However, the facts do not suggest any justification claims by Portugal and so this is not pursued further. In any event, a licence requirement would be highly unlikely to be justifiable.
• The requirement is an MEQR and a breach of Article 34.

Annual limit on the number of MGMs that may be imported

• As noted previously, Article 34 prohibits both quantitative restrictions and MEQRs.
• The Court of Justice has defined quantitative restrictions as 'measures which amount to a total or partial restraint of . . . imports, exports or goods in transit' (Geddo).
• The Portuguese annual limit on the number of MGMs that may be imported is a partial restraint of imports, in other words an import quota.
• The measure infringes Article 34 and there is no suggested justification on the facts.

 MGMs can be sold only through government outlets

• Freddie may seek to argue that this provision constitutes an MEQR and a breach of Article 34, since its effect will be to reduce the overall volume of imports of MGMs. This would hinder trade between Member States, bringing the measure within the Dassonville definition of MEQRs and Article 2 of Directive 70/50 as an indistinctly applicable measure.
• However, in Keck the Court of Justice held that 'selling arrangements' fall outside the scope of Article 34 if they affect in the same manner, in law and in fact, the marketing of domestic products and imported products. The Court of Justice has held that restrictions on the kinds of retail outlets from which certain goods can be sold, as in this case, constitute 'selling arrangements' (Commission v Greece). There is no indication that the Portuguese provision limiting sales activity to government outlets will have a greater impact on sales of imported MGMs than on sales of those produced domestically.
• It would appear that this provision falls within Keck and therefore does not constitute a breach of Article 34.

 Requirement to fit machines with an external 'vacuum filtration' unit

• This may be an MEQR and a breach of Article 34. Applying Dassonville, the requirement is a hindrance to interstate trade because it gives rise to increased costs for the manufacturer, raising the price of the product and rendering it less competitive on the Portuguese market. This is the effect of the disparity between Portuguese rules and those applying in other Member States (Cassis, Walter Rau).
• The provision also falls within Article 3 of Directive 70/50, as it is a measure that is equally applicable to imported and domestically produced MGMs (indistinctly applicable) and deals with the 'composition' of the products.
• The requirement is an MEQR, a breach of Article 34.
• In the absence of EU harmonising measures requiring specific specifications for WGMs, it is open to Portugal to argue that the provision is justified on grounds of public health. Given this particular justification, together with the fact that the provision is indistinctly applicable, that argument could be pursued either under the Cassis rule of reason or Article 36. The principles applying under both are similar and so no distinction need be made between them.
• According to the principle of mutual recognition, there is an assumption that if goods have been lawfully produced and marketed in one Member State there is no reason why they should not be introduced into another without restriction (Cassis, Prantl, Walter Rau). Freddie has been supplying his MGMs with only internal 'vacuum filtration' units for over ten years in the UK and France and the assumption is therefore that they should be acceptable in Portugal.
• That assumption may be set aside by the health justification. However, the Portuguese Government must provide evidence of a genuine health risk (San Jose Scale), the legislation must be proportionate to its objective (Cassis, Walter Rau) and it must not constitute arbitrary discrimination or a disguised restriction on trade (Article 36).
• The evidence of the health risk is the research study in Portuguese heavy industry, but the study only 'suggests' findings on industrial lung disease and is based on only six months' data. This evidence may not be sufficient.
• Even if a genuine health risk can be established, the legislation must be proportionate to its objective of protecting public health. The proportionality requirement will not be easily satisfied if Freddie can show that the internal 'vacuum filtration' units on his MGMs are more efficient than the external units required by the Portuguese legislation.
• Finally, the facts, in particular the import quota, suggest protectionism by Portugal. If protectionism is the motive, the legislation will constitute an arbitrary discrimination and disguised restriction on trade (Turkeys).

Conclusion

On the basis of the facts supplied, it is likely that both the licence requirement and the requirement for external 'vacuum filtration' units breach Article 34 and that any justifications presented by Portugal would be rejected. The import quota is a quantitative restriction and a breach of Article 34. The limitation on sales activity to government outlets appears to fall within Keck and therefore to be compatible with EU law.