Minimum Alcohol Pricing and EU Law

It has been almost a year since the Minimum Alcohol Price debate began in England and it is still an issue in the news. There is speculation that the UK Govt are about to drop their plans as a result of opposition in the cabinet and the Scottish Govts plans are being challenged before the Scots courts. I thought it was an opportune moment to repost my previous musings on the legality of the the plans under EU Law that first appeared in the EUtopialaw blog.

http://eutopialaw.com/2012/03/28/minimum-alcohol-pricing-and-eu-law/

http://eutopialaw.com/2012/07/27/update-26-july-2012/

From March 2012

The announcement regarding minimum alcohol pricing on Friday 22nd March was unusual in a number of respects. The UK Govt does not usually make significant announcements on Friday, as most MPs are away from Westminster on constituency business, but it also indicated a reversal of their previous policy. Plans for the introduction of a minimum price per unit are already well advanced in Scotland but the Westminster Govt is a more recent convert. As soon as the proposal was announced it was clear the implementation of the policy was likely to come under legal challenge from the drinks industry. The Telegraph, The Guardian and the Daily Mail all indicate that the drinks industry had ‘legal advice’ that the minimum pricing would be contrary to EU Law.

But does this claim stand up to scrutiny, or is this simply the familiar use, or abuse, of EU law as a non-specific political bogeyman?

The media reporting lays the basis of these claims at the door of the EU competition rules, but the wording also suggests a health justification of the sort seen in the Treaty’s free movement provisions. I’ll consider both of those possibilities.

Free Movement of Goods

The most obvious challenge to minimum alcohol pricing would be as a Measure of Equivalent Effect to a Quantitative Restriction (MEEQR) on imports under Art 34 TFEU. Such a measure would be prohibited unless it could be objectively justified. The CJEU has considered a minimum price for spirits, in Case 82/77 Van Tiggele, to be a MEEQR. The drinks industry may take heart from para [18] of the judgment where it was set out that a minimum price could constitute a MEEQR, notwithstanding that it applied without distinction to domestic and imported products, if it was ‘capable of having an adverse effect on the marketing of the latter in so far as it prevents their lower cost price from being reflected in the retail selling price’.

At first blush this looks clear cut, but when one considers the factual context in which that judgment was delivered and legal developments since 1978 one sees that the argument would be much more difficult to sustain in 2012.

Firstly, in Van Tiggele the Dutch Royal Decree was a limited term measure adopted explicitly to support the Dutch spirits sellers who had just lost the benefit of a longstanding Retail Price Maintenance agreement and experienced a collapse in prices. The measure was designed to give them a chance to restructure before facing, for the first time, price competition from cheaper spirits imported from other Member States. In that context it was not a surprise that the measure was seen as potentially contrary to the free movement prohibitions. The UK measures would operate in a very different way, the price not being set in relation to the domestic cost of production, and would be adopted in a very different context.

Secondly, since 1978 there have been a number of very important CJEU rulings in free movement cases which have significantly altered the legal landscape; notably Case 120/78 Cassis, Cases C-267 & 268/91 Keck, and Case C-110/05 Trailers. Following that line of cases the definition of a MEEQR has shifted to exclude ‘selling arrangements’ which affect domestic products the same ‘in law and in fact’. Possibly one of the most instructive cases in this regard is Case C-405/98 Gourmet International. This case concerned a ban on the advertising of alcoholic beverages to consumers – this was seen as potentially falling outside the definition of a MEEQR as it related only to the selling of alcoholic beverages in Sweden and did not restrict, in any way, the importation of the products themselves. However, the CJEU was of the view that the rule may not have had an ‘equal burden’ on imported products as they were more likely to benefit from consumer advertising as imported products were less likely to be well known to Swedish consumers. In that way the rule would not treat domestic and imported products the same way ‘in fact’. This is similar to the reasoning expressed by AG Capotorti in Van Tiggele, where he suggested that unfamiliar imported spirits would be denied the ability to break into the Dutch spirits market by competing strongly on price.

When considering this line of reasoning in relation to the UK proposal it appears that the minimum price-per-unit would clearly be a selling arrangement, under Keck, and would fall outside Art 34 TFEU unless the courts felt that it was set at such a high level as to deny imported alcohol, with which the UK consumer was unfamiliar, the chance to gain real access to the UK market by competing on price. It is clear in both Keck and Trailers that the Court’s main concern is equal access to the market. If the 40p-per-unit level is adopted it is difficult to see how such a low level (approx £3.60 for a bottle of wine) could be seen as denying imported products proper access to the UK market

In the unlikely event that the measure was considered a MEEQR the UK Govt could still seek to justify their policy on health grounds under Art 36 TFEU. Health concerns were not the issue in Van Tiggele, but they are clearly central in this case. The ban in Gourmet International was also justified on health grounds.

In summary the UK has a very clear line of case law to indicate that the measure would not be in breach of At 34 TFEU.

Competition Law

Competition issues were also considered in Van Tiggele. The free movement provisions and the competition rules have always worked as complements to each other. Arts 34 & 35 TFEU deal with the Member States’ restrictions on trade whereas Arts 101 & 102 TFEU deal with restrictions put in place by business. The competition rules in Art 101 & 102 TFEU therefore only apply to the acts of ‘undertakings’; i.e. business entities in the EU. The competition rules do not normally apply directly to State action, but it can be used where a State measure enables or allows an undertaking to breach the rules (Case 13/77 INNO v ATAB). In Van Tiggele this was an issue as the Dutch rules effectively replaced a private RPM agreement which was clearly unlawful. The argument would have to be made that the UK rules in effect allowed or facilitated a practice by an undertaking that either amounted to an abuse of a dominant position under Art 102 TFEU or legitimated some form of anti-competitive agreement contrary to Art 101 TFEU.

I have not seen anything in the limited reporting we have seen to-date to suggest what private anti-competitive behaviour might be enabled by minimum alcohol pricing. It might be possible to speculate that a possible argument might be that the UK supermarkets, who sell the majority of alcohol, would be effectively forced into some form of reluctant price-fixing cartel, as they would not be able to fully compete on price, but the 40p-per-unit price would only impact on a small percentage of the products they sell; they would still be competing across the vast majority of product lines. Or perhaps that they would have a collectively dominant position on the market which they would be abusing by charging excessive prices in relation to formerly cheap cider.

To my mind both the these arguments seem fanciful; however, greater legal minds may be able to come up a better means of explaining how enforced minimum prices lead to private undertakings being in breach of the competition rules. It is also important to remember that both Art 101 TFEU, through Art 101(3), and Art 102 TFEU, through the concept of objective justification, allow for the possibly of non-competition goals being used to justify apparently anti-competitive behaviour. Again the health policy behind these measures would come into play.

Is per-unit minimum pricing contrary to EU law?

The short answer – probably not.

In order for a successful challenge to be brought by the drinks industry on the basis of the free movement provisions they would have to show that in some way this measure would in practice substantially limit the access of imported products to the UK and that it was not justified as being a real attempt to address health problems in the UK caused by the consumption of alcohol. Both of those will be difficult to make out with the price-per-unit set at a relatively low level. The arguments do become easier if the level were to increase substantially.

The competition arguments appear even more tenuous. It would have to be shown that the minimum price-per-unit enabled or facilitated private undertakings to commit breaches of the competition rules. It does appear that the supermarkets may be in line for a windfall if they can use their buying power to drive down their purchase prices for cheap alcohol and then make increased margins on those sales when selling at the minimum price, but it is hard to see how that would amount to a clear breach of the competition rules caused by the measure.

The introduction of a minimum price-per-unit in England, Wales and Scotland will have an impact on the market for cheap alcohol, but I doubt that EU law will play a major role. This looks very much like the challenge to the UK’s Hunting Ban under EU law (R (Countryside Alliance) v HM Attorney General): an attempt to throw as much EU law as possible at domestic legislation in the hope that some of it sticks.

From July 2012

Since the original post, on 28 March 2012, it has become clear that drinks industry organisations are likely to use litigation to challenge any attempt by to introduce minimum alcohol pricing in either Scotland or England.

While competition law is still likely to be a factor in such litigation it has also become apparent that there are specific provisions in some sectors which will probably play an important role in any proceedings. Where an individual sector or industry is subject to detailed European regulation the general Treaty provisions are less likely to be decisive.

An example of this in relation to minimum pricing was seen in Case C-197/08 Commission v France. In this case the French Government were attempting to set a minimum price for tobacco products at 95% of the average price. This was challenged, not as being contrary to the free movement or competition provisions, but as being proscribed by Art 9(1) of Directive 95/59/EC on taxes which affect the consumption of manufactured tobacco. Art 9(1) sets out that manufacturers, of tobacco products, ‘shall be free to determine the maximum retail selling price for each of their products’. The French scheme was deemed to be incompatible with Art 9(1) as it undermined the competition, on the basis of costs, which the Directive was designed to protect [37-38]. The Court made it clear that the France could seek to protect health by increasing the duty on all tobacco products [52].

It is interesting to note that there are no such provisions on freedom of pricing in the Directives regarding taxation on alcoholic beverages, Directives 92/83/EEC & 92/84/EEC. On the face it that would preclude an argument similar to that in Commission v France from a minimum price for alcohol, but other sectoral legislation may come into play.

Because of its special nature wine is regulated as an agricultural product under the CAP. This means that it is subject to regulation under the Single Common Market Organisation via Regulation 1234/2007/EC (as amended by Regulation 491/2009/EC replacing Regulation 479/2008/EC). The Single CMO also has rules designed to protect competition in agriculture, setting out, in relation to wine, in Art 113c(1) that, in order to stabilise the operation of the common market, Member States may lay down marketing rules, but they shall not, under (b), ‘allow for price fixing’. This provision appears to disallow MS measures which would fix the price of wine, but not of other types of alcoholic beverage. This provision clearly is designed to ensure that competition is maintained in the marketing of wine; especially as the marketing rules foreseen under Art 113c may originate from recognised industry bodies (set out in Arts 123 & 125o). It is clear that very similar reasoning that in Commission v France could be applied to the prohibition of price fixing, in relation to wine, under Art 113c.

There is no apparent derogation provision in the Regulation to allow for health based exception to the rule in Article 113c, but the Commission may be able to use other provisions to allow the UK some form of derogation. This would, of course, complicate the matter and take a unitary system of minimum alcohol pricing out of the Scottish or UK Governments hands.

To conclude it seems that the while the main Treaty provisions on free movement and competition my not block the adoption of alcohol minimum pricing there may be several other, more detailed and obscure, provisions which may yet become important in future litigation.

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