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This article deals with the so-called internal situation rule,
which prevents the application of European Community law in cases
deemed to be confi ned to one Member State. Rather than focus on
possible avenues for avoiding the ‘reverse discrimination’ against the
actors of the regulating state (eg its own nationals) which arises because
of the non-application of EC law, I assess the costs and benefi ts
of the rule directly. The approach to this problem is, fi rst, to conceptualise
the internal situation rule as a specifi c, substantive requirement
of EC provisions that assume cross-border movement, and not as an
overarching, general principle of EC law. With this in mind, I go on to
claim that the rule is largely inadequate for the purpose of protecting
Member State competences. Because the rule focuses on cross-border
movement in the abstract sense, it does not clearly delineate an
‘internal’ sphere that Member States could regulate independently.
Next, I analyse how the case law of the European Court of Justice has
interpreted the internal situation rule in various areas of free movement
law, concluding that the rule is overly formalistic and that it fails
to distinguish between cases where there is a true impact on the internal
market and those where there is not. In addition, I analyse the
disparities in its application, arguing that they cannot be accounted
for by the differences between, eg the free movement of goods and the
free movement of persons. Finally, I suggest a more substantive approach
to defi ning internal situations, inspired in particular by public
procurement and competition case law. Instead of looking for factual
cross-border links, I suggest that what should be at stake is the crossborder
impact of the restriction (Member State legislation, administrative
measure, practice, etc) that is being challenged.