Lectures- Session 2: EU Customs Union

Customs Union and Taxation in the EU The EU official webpages

On this page see One Minute video on the right hand side

 Topic outline

  • Forms of economic integration.
  • Between EU member states: No customs duties and charges having equivalent effect
  • Between EU and third countries: Common Customs Tariff (CCT) also called External Tariff (CET).
  • Internal taxation: possible BUT with conditions.

 Forms of economic integration

In order to increase trade and economic relations states may choose to establish among themselves one or more of the following:

  • Free Trade Area
  • Customs Union
  • Common Market
  • Economic and Monetary Union

Economic integration may or may not lead to political integration.

Open Notes

Common Market is the general term used by economists and others.

In the EU context Common Market is today a historical term; it is no longer in current use; it was replaced in 1986 by the term internal market to emphasize that the markets of the member states were one, single, internal market for all the members. No national markets, at least in theory. National markets persist in a number of sectors; eg telecommunications, capital markets.

Integration of EU markets is a process. Not necessarily a finished product.

We discuss the definition of the EU internal market next.

Example of Free Trade Area

NAFTA (North America Free Trade Area) between USA, Canada, Mexico.

EFTA: European FTA between Norway, Switzerland, Iceland and Lichtenstein; created in May 1960 EFTA was favoured by the UK as an alternative to the Common Market; but soon most of its members opted to become members of the CM. Norway, Iceland and Lichtenstein are closely linked to the EU via the European Economic Area.

Example of Customs Union: EU and Turkey since 1995

Examples of Common Market

Mercosur in Latin America

COMESA (Common Market of East and Central Africa)

What economic integration for the EU?

The European Union is a customs union since 1957.

A common market since 1957.

An intensified internal market since 1986.

An Economic and Monetary Union since 1992.

In this session we will examine the rules governing the EU Customs Union.

What is a customs union?

The Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries (Article 28 TFEU).

Question: Can you identify the internal and external aspects of CU? See notes page.

Open Answer

Answer: Internal aspect of CU: No customs duties between the member states

External aspect: a common customs tariff (CCT) towards third countries that is to say towards non-members. This point will be further explained.

CU: Law-makers and implementers

The CU rules are decided collectively by the member states at the European level through the European institutions, and are implemented by the national customs authorities.

Question: What do these rules mean for national sovereignty? See notes page

Show Answer

Answer: Traditional sovereign power of member states to protect domestic products by imposing customs duties and tariffs on imported goods. HAS BEEN TRANSFERRED to the European institutions.

CU external aspects: Trade with non-CU member states (third states)

Common Commercial Policy (CCP) governs the external trade relations of the EU.

It is the most extensive transfer of powers from states to the EU.

All member-states apply the Common Customs Tariff (CCT), also called Common External Tariff (CET) to trade with the rest of the world.

CCT (CET) is a single external trade frontier.

EU is a single trade bloc, founding member of WTO with a vote alongside the member-states.

CU external aspects

So, what does the CCP and the CCT /CET mean for an importer of….let’s say, iphone6?

What does the importer pay and to whom?

Can you work it out? If not, see notes page.

Show Notes

When goods are imported from a 3rd country into a Union member-state, that is to say into the CU, these goods have to pay the CCT to the Customs authorities of the member-state; see slide 7.

Once CCT is paid in the first country of entry, the goods are in free circulation in the internal market; (Article 29 TFEU); they can be forwarded to another member-state without any other CCT to pay. The CCT payable is the same in any member-state. The CCT for each type of goods is decided by the member-states working together in the Council of Ministers.

So, iPhone 6 imported in the EU will pay the same CCT irrespectively of whether of member state.

iPhones 6 imported into the UK, pay CCT to the UK customs authorities and can be sent then to France, if the French dealers face a shortage, let’s say, without any more CCT payable.

Who receives the CCT? The EU does!!!

Member-states decided to gift revenue from CCT to the Union.

So, CCT is charged on incoming goods from third countries by national customs authorities who transfer the revenue raised to the Union budget minus expenses.

Does the EU get rich then?

No, gradual reduction of international tariffs via GATT & WTO have reduced the Union budget revenue from CCT.

CU internal aspects: trade between member states

The Treaty prohibits totally customs duties on imports and exports between Member States (see slide 5).

No exceptions.

Member states have a duty:

To abolish any existing duties.

Not to introduce any new ones.

If member states break the prohibition, the Commission may bring them before the Court of Justice.

Individuals may also do so in their national court.

Importance of CU beyond European economic integration:

ECJ applies prohibition very strictly and thus promotes European legal and political integration.

ECJ proclaimed CU the basis of the new legal order created by the Treaty.

Case: Van Gend en Loos

See The ABC of EU Law: The Legal Nature of the EU

Let us now examine the CU in more detail

Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States.

Question arising: what is a customs duty?

Treaty does not define it.

Open Answer

Answer: The Court (ECJ) has the power to interpret the Treaty and has determined that Customs duty is a levy (money) charged on goods at the point of crossing a frontier on the sole ground that the goods cross it.

Duties and charges having equivalent effect: emphasis on effect not the purpose of the duty or charge. Reason of imposing the duty or charge having equivalent effect is irrelevant. Case 24/68 Commission v Italy (Statistical Levy). Italy claimed that the charge was imposed in order to finance the collection of statistical data relating to trade patterns and that this information would benefit traders.

The ECJ stated the classic definition upheld ever since any pecuniary charge, however, small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect, even if it is not imposed for the benefit of the State and if the product on which it is imposed is not in competition with any domestic product.

It is irrelevant that there is no protectionist or discriminatory or that the charge does not benefit the State.

And what are charges having equivalent effect (CHEE)?

Treaty gives no definition of CEE Court interprets as cases arise in practice.

So, can Italy impose export duties on art works bound for another member state to prevent national treasures leaving the country?

What do you think? See notes page

Open Notes

Italian Art case (7/68) Prohibition on CHEE on exports.

Italy argued that there the aim was to protect national artistic heritage. This argument was rejected by European Court of Justice.

The charge was a pecuniary burden imposed by Italy on the goods solely on the grounds that they were being traded.

Here is another example

Social Fund of Diamond Workers: small levy imposed by Belgian law on imported diamonds.

Commission took Belgium before the Court of Justice.

Belgium argued in its defence that the levy did not intend to protect the domestic market because Belgium does not produce diamonds.

Belgium intended to use the funds collected to provide social benefits to workers.

Defence not accepted by ECJ.

When can customs authorities charge goods with CHEE?

Treaty: No Exemptions.

Court: allowed some charges on rare occasions.

Court: A member state is allowed to charge when charges are payment (consideration) for a service rendered by the member-state directly to the importer;

Charge must be proportionate to the service.

Let us see some examples in the next slide.

Can customs authorities charge?

For the storage of goods while they complete customs formalities?

For the inspection of raw cowhides in the interest of public health?

For health inspection of live animals, as required by a Union Directive?

What do you think?

See notes page for answers!

Open Notes

Commission v Belgium (Case 132/82)…not payment for storage charges in connection with completion of customs formalities; no service rendered.

Bresciani v Administrazione Italiana delle Finanze (Case 87/75)

Importation of raw cowhides: the administration by the State of a public health inspection system imposed in the general interest cannot be regarded as a service rendered to the importer and thus justify a charge. Cost must be borne by the general public which benefits.

To sum up Charges having equivalent effect to a customs duty


A very strong prohibition.

Treaty provides no exceptions.

Court has allowed very few exceptions.

A very strict limitation of national sovereignty.

Question: Why do you think member-states agreed such a strict limitation in the Treaty? (see notes page)

Open Answer

Answer- One could say that member-states deemed the national interest in securing free trade of such paramount importance that it justifies the strong prohibition of customs duties and charges having equivalent effect to customs duties.

What if customs authorities charge customs duties unlawfully? What remedies are available?

Importers or exporters can bring a case in their national courts and claim

a) Refund of money unlawfully paid.

b) Compensation: the Court of Justice established in 1990 that the state is liable for compensation, if found in breach of EU law (principle of state liability).

Question: What is the difference between a) and b)? See notespage

Open Answer

Answer- A refund is the exact money paid by unlawfully. Compensation may be awarded by the national court taking into account any damages the importer or exporter may have suffered because of the state’s unlawful behaviour.

Custom Union is not only about collecting CCT!

The European Parliament and the Council….shall take measures in order to strengthen customs cooperation between Member States…. (Article 33 TFEU)

In what situations do you think customs cooperation is needed?

Challenges to the Customs Union today

Fighting fraud & organised crime and ensuring the protection of citizens; money laundering, piracy, counterfeiting, trafficking…

Effective revenue collection.

Member states at times seek to use customs controls under pressure from domestic politics.

Example: see notes page.

Open Notes

Danish customs checks to cause ‘no delays’

VALENTINA POP 04.07.2011


The Danish Parliament passed a law approving the phased-in plan to deploy 50 customs officials along the border with Germany and Sweden. Largely seen as a sop to the anti-immigrant Danish People’s Party whose support was necessary to secure a key reform to the pensions system, the ‘permanent customs checks’ were declared insufficiently justified by the Commission.

Under EU law, Denmark can carry out customs checks as long as they are “random” and based on a risk analysis indicating that illegal goods are being smuggled on certain routes and vehicles.

Can a member state tax goods imported from other member states?

Customs duties and taxes on imported goods are not the same thing.

Customs duties are imposed at the point of crossing a national border. They are prohibited by EU law.

Taxes may be imposed after the goods have crossed the border and are in the territory of the member state.

So, internal taxation is in principle allowed by EU law.

BUT NOT If internal taxation is discriminatory against imported goods or protective of domestic goods.

Otherwise, a member state could impose internal taxation on goods from other member states at will and in effect cancel out the abolition of customs duties.

To be more precise…

Article Art.110 TFEU states

No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

This means:

No direct discrimination between goods imported from other member states and similar domestic goods.

No protectionism.

Equal treatment.

And furthermore…

No Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.

This means

No indirect discrimination between goods imported from other member states and other domestic goods.

So, a member state

May impose on goods imported from another member state internal taxation as on similar domestic goods.

BUT, this internal taxation must not be such as to protect indirectly other domestic products.

Sounds complicated!

So, what happens in practice?

How is the distinction established between internal taxation which is allowed and internal taxation which is not allowed?

With difficulty!!

Let us see some examples.

Open Notes

Article Art.110 TFEU.

No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.

Example of direct discrimination

Higher internal tax on imported dried milk than on domestic dried milk.

Here the discriminatory and protectionist nature of the internal tax is obvious.

The higher taxation was struck down.

Example of indirect discrimination

France imposed two different types of annual car tax.

1) Below 16CV the tax came to a maximum of 1100 francs.

2) Above 16 CV the tax was a flat rate of 5000 francs.

Court ruled:

Most cars above 16CV were imported from Germany; the 5000 francs flat rate was almost 5 times higher than the rate for cars under 16CV, mostly French.

This constituted indirect discrimination in favour of French cars.

Example of similar products

Are fruit wines similar to grape wines?

Court: yes, they are! Both made from fruits via natural fermentation.

So, Belgium, Netherlands and Luxembourg cannot impose a higher excise duty on French, Spanish and Italian grape wines than on their domestic fruit wines.


The customs union is a cornerstone of European integration.

In a nutshell: Absolute prohibition of customs duties and charges having equivalent effect to customs duties.

Court has allowed extremely limited exceptions.

CU has economic, legal and political aspects, as explained.

Internal taxation is different to customs duties.

States have power to impose internal taxation provided it is not discriminatory and protectionist.