Vilija Vėlyvytė, British Academy Post-Doctoral Fellow, Somerville College, University of Oxford

Photo credit: civarmy, by wikipedia

My recently published book, ‘Judicial Authority in EU Internal Market Law: Implications for the Balance of Competences and Powers’ (Hart Publishing 2022), investigates how the Court of Justice of the European Union (CJEU) broadens the EU’s authority through its interpretation of EU internal market law.

The expansion of EU power, often referred to as ‘competence creep’, into areas where the EU lacks explicit authority, such as public health and social security, has been extensively discussed. Critics argue that the EU legislature (Commission, Council, and Parliament) fails to respect the boundaries of EU competence, while the Court neglects to enforce these limits. However, a crucial related question is often overlooked: Does the CJEU itself adhere to the limits of EU competence when interpreting internal market rules defined in the Treaties? This question forms the core of my new book, which reveals the magnitude of the EU’s competence creep and shows that the Court’s interpretation of its authority is a primary, if not the main, driver.

The boundaries of EU competence are determined by the principles of conferral, subsidiarity, and proportionality. Conferral defines the scope of EU competence, while subsidiarity and proportionality regulate its application. The book examines the CJEU’s adherence to these principles when interpreting EU free movement rules. It posits that the Court’s inconsistent observance of these principles creates constitutional strain in the EU’s relationship with Member States and upsets the institutional balance of powers between the EU legislature and judiciary.

Observance of Conferral in Free Movement Case Law

The principle of conferral (Art 5(2) TEU) dictates that the EU can act only within the competences bestowed upon it by Member States through the Treaties. The Treaties list EU competences, categorized as exclusive, shared, or supplementary (see here). In areas of supplementary competence, such as healthcare, education, and largely social policy, the EU has limited power and can only issue recommendations.

While the wording suggests a clear boundary between what the EU can and cannot do, the reality is more nuanced. The Court’s interpretation of conferral permits the EU to intervene in areas outside its competence if such intervention stems from exercising a conferred competence. For instance, the EU lacks explicit competence to legislate on public health, but can do so if it relates to the internal market’s functioning (see Tobacco Advertising II judgment on EU tobacco advertising and sponsorship directive).

Beyond EU legislation, Member States must comply with internal market rules outlined in the Treaties, irrespective of whether they fall under EU or Member State competence. For example, while Member States can regulate collective labor rights like collective bargaining and striking, they must do so without infringing upon EU economic freedoms, particularly freedom of establishment and provision of services (see Viking and Laval judgments).

The book posits that for conferral to hold meaningful weight in EU law, there must be a limit to how far EU internal market law can encroach upon areas meant to be free from binding EU interference. In interpreting free movement law, this limit lies in the conditions that trigger its application. These conditions determine whether a matter falls under the scope of free movement. For example, to benefit from EU economic freedoms, activities must be economic, not social, and the challenged national law or practice must restrict those activities.

When interpreting these conditions, the Court should adopt a systemic approach, considering the requirements of conferral. This necessitates interpreting ’economic activity’ and ‘restriction’ in a way that balances internal market objectives with the need to protect national competence and regulatory autonomy. This balancing act is essential when free movement law clashes with politically sensitive areas. Consequently, activities with economic aspects but subject to heavy national regulation for social policy and solidarity, such as public healthcare and education, would fall outside the scope of economic freedoms.

An examination of free movement case law in sensitive areas like healthcare, education, and collective labor law reveals that the Court has consistently failed to meaningfully consider competence concerns when interpreting the scope of free movement rules, creating tension with the principle of conferral.

This case law has also weakened the legislative dimension of conferral by allowing matters previously reserved for Member States to be addressed through broadly worded Treaty provisions (legal bases) related to the internal market. For example, by classifying public healthcare as an economic activity, the Court signaled to the EU legislature that healthcare, as a service, could be legislated under Art 59 or Art 114 TFEU. This enabled the adoption of the EU Directive on Patients’ Rights, regulating cross-border healthcare access, despite Art 168 TFEU excluding EU-wide harmonisation in public health.

Observance of Subsidiarity and Proportionality in Free Movement Case Law

The principles of subsidiarity (Art 5(3) TEU) and proportionality (Art 5(4) TEU) govern the exercise of EU competences. Subsidiarity, applicable to shared competences, dictates that policy decisions should be made at the Member State level unless EU action proves more effective. Proportionality, on the other hand, limits EU intervention to what is necessary to achieve the objectives.

The book illustrates that both principles aim to safeguard national regulatory autonomy in sensitive areas, albeit through different approaches. Subsidiarity focuses on protecting the scope of national regulatory autonomy, while proportionality ensures that EU intervention doesn’t excessively intrude upon the values and interests safeguarded through national regulatory autonomy.

In the context of Treaty interpretation, subsidiarity and proportionality manifest during the judicial review of national measures that restrict free movement. The extent to which restrictive measures can be justified depends on the standard of review employed by the Court. This standard, in turn, determines the leeway afforded to domestic regulatory action, impacting both the scope of national regulatory autonomy (subsidiarity) and the interests protected within its exercise (proportionality). For example, requiring trade unions to use the ’least restrictive’ means in negotiations with foreign businesses, as dictated by free movement law, can hinder their autonomy in regulating employment terms and conditions and their ability to protect workers’ interests, thereby impacting both subsidiarity and proportionality.

The Court’s application of subsidiarity and proportionality has been inconsistent across the policy areas examined.

In healthcare, education, and collective labor law, the Court applies a strict standard of review, emphasizing the necessity test. The Bressol judgment exemplifies this approach. The case involved Belgian measures restricting foreign students’ access to oversubscribed medical programs where foreign students, primarily French, constituted over 80% of enrollment. This raised concerns about potential shortages of health specialists in Belgium and the financial sustainability of its free and open higher education system. The Court ruled that to be justified, government measures had to be appropriate and proportionate. Notably, proportionality assessment required considering whether less restrictive means could have achieved the regulatory goals. The government also had to provide “an objective, detailed analysis, supported by figures, … capable of demonstrating, with solid and consistent data, that there [were] genuine risks to public health” (para 71).

Essentially, the Court’s reasoning implied that Belgian higher education policy could only be pursued through measures that didn’t restrict the free movement of students within the EU.

This contrasts with the approach in gambling case law, where governments often restrict foreign operators’ access to their gambling markets, often through monopolies, to retain gambling revenues domestically. The Court’s review of such measures is highly deferential, grounded in respect for national regulatory autonomy in gambling. The Court acknowledges Member States’ margin of appreciation, or discretion, in regulating gambling. Consequently, “it is for those authorities to consider whether, in the context of the aim pursued, it is necessary to prohibit activities of that kind, totally or partially, or only to restrict them and to lay down more or less rigorous procedures for controlling them” (see Zenatti judgment, para 33).

As a result, governments can bar foreign gambling operators as long as the restrictions align with the regulatory objectives.

The book argues that the discrepancies in the standard of judicial review applied to healthcare, education, and collective labor law, on the one hand, and gambling, on the other, are unjustified considering their comparable political and social sensitivity. These inconsistencies suggest that the Court has been arbitrarily selective in applying subsidiarity and proportionality in free movement case law.

Judicial Reasoning Reform

To address these findings and restore the balance of competences within the EU, the book proposes reinforcing the principles of subsidiarity and proportionality in EU-level judicial practice concerning areas of national policy typically reserved for Member State competence. This entails employing techniques already present in the Court’s broader case law, such as the margin of appreciation, the ‘fair balance’ approach, and exemption from the scope of EU law, to lower the standard of judicial review in these areas.

This proposed reform would ensure that the CJEU’s exercise of judicial authority, through interpreting internal market law, respects the boundaries of EU competences.