The Price is Not Right: Italian Troubles with Road Haulage and Tobacco Pricing
Two recent judgments handed down by the CJEU show how difficult it can be for a Member State to involve itself in fixing minimum prices for products. Given the ongoing challenge to minimum alcohol pricing in Scotland it is interesting that in both these cases the Court ruled against the fixing of prices, but for very different reasons. Neither case is directly analogous to the Scots alcohol MUP referred to the Court in Case C-333/14, but there are perhaps lessons that can be learnt.
The first of the Italian cases is the least similar to the ongoing UK dispute, but it does indicate an important aspect of the wider problem with Member States interfering in markets. Cases C-184, 187, 194, 195 & 208/13 API and Others (ECLI:EU:C:2014:2147) concern a request for a preliminary ruling regarding the Italian Ministry for Infrastructure and Transport’s measures which fix minimum operating costs for carriage of goods by road. Charges payable by road haulage customers in Italy could not be lower than the minimum operating costs, and they therefore operated as a minimum price for services. The legislative provisions delegated the setting of the minimum operating costs to the Osservatorio; a group drawn from State, industry and stakeholder representatives. Its role was to ‘ensure the protection of road safety and the proper functioning of the market in the road haulage of goods’. The question the Court addressed was whether the fixing of prices by the Osservatorio could be compatible with EU law on the ground that it ensured road safety standards.
The Court first considered the nature of the measure itself – was it a public law measure, or a private arrangement? This is central to the applicability of EU competition law to the measure in question. Art 101 TFEU, when read in conjunction with Art 4(3) TFEU, applies where a Member State ‘requires or encourages’ anti-competitive agreements, or where it ‘divests its own rules of the character of legislation by delegating to private operators responsibility for taking decisions affecting the economic sphere’ . Competition law does not apply to the legislative action of a Member State, as the Court makes clear in para :
where legislation of a Member State provides for road-haulage tariffs to be approved and brought into force by the State on the basis of proposals submitted by a committee, where that committee is composed of a majority of representatives of the public authorities and a minority of representatives of the economic operators concerned and in its proposals must observe certain public interest criteria, the fixing of those tariffs cannot be regarded as an agreement, decision or concerted practice between private economic operators.
Even if the private parties were a majority on such a committee it would not affect the public nature of a measure ‘provided that the tariffs are fixed with due regard or the public-interest criteria defined by law’ . However, on the evidence, it was clear that the Osservatorio was, in effect, a type of trade association. Eight of the ten members were industry representatives taking decisions by majority of its members; the State having no right of veto or casting vote [32-33]. The criteria upon which the Osservatorio operated were also problematic; its ‘guiding principles’ didn’t feature ‘any provision such as to prevent the representatives of the professional organisations from acting in the exclusive interest of the profession’ . As to the road safety justification, the Court noted the legislation, ‘makes vague reference to the protection of road safety and, moreover, leaves a very large margin of discretion and independence to the members of the Osservatorio’ . It therefore concluded, at para , that:
In those circumstances, the national legislation at issue in the main proceedings does not contain either procedural arrangements or substantive requirements capable of ensuring, that, when establishing minimum operating costs, the Osservatorio conducts itself like an arm of the State working in the public interest.
Having established that Art 101 TFEU applied to the measure, the Court turned to its potential for justification under Art 101(3). It rejected application of the Art 101(3) exception on the basis that while road safety may be a legitimate objective the fixing of costs was not ‘appropriate, either directly or indirectly, for ensuring that the objective is attained’ . The measures also went beyond what was necessary as they did not allow carriers to prove that, although they charged lower prices, they fully complied with safety provisions . The fixing of minimum costs could therefore not be justified.
The second case turns away from direct price fixing to a more indirect route: the taxation of tobacco products. In Case C-428/13 Yesmoke Tobacco (ECLI:EU:C:2014:2263) the Court considered the compatibility of the Italian rules setting excise duty on cigarettes. Those cigarettes with a lower retail price lower than brands in the most popular price category were charged a duty at 115% of the basic amount. This meant that the cheapest cigarettes, when compared with the most popular brands, were charged a slightly higher level of excise duty. With this higher level of duty their comparative price advantage was, at least partially, removed. It will not be a surprise to anyone that tobacco products are highly regulated in the EU, and that the protection of public health plays a significant role in that regulation. The relevant EU law is found in Directive 2011/64/EU which governs excise duty on tobacco products. The purpose of that Directive is to ensure the proper functioning of the internal market and neutral conditions of competition . This reference to ensuring ‘neutral competition’ on the tobacco market became crucial to the rest of the judgment. The Directive draws a distinction between different types of tobacco product, for instance cigars and cigarettes, but treats all cigarettes as a single category without distinction. The Court made it clear, at para , that Member States, when imposing an excise duty, should not act in way which ran ‘counter to the objectives of that directive’:
The establishment of different minimum tax thresholds according to the characteristics or price of cigarettes would lead to distortions of competition as between different cigarettes and would therefore be contrary to the objective pursued by Directive 2011/64 of ensuring the proper functioning of the internal market and neutral conditions of competition.
Italy tried to rely on the public health objective to justify the imposition of the duty. The Court noted that the Directive already takes into account public health, at recitals 2, 14, and 16, and that the framework put in place by the Directive ‘does not prevent the Member States from taking measures to combat smoking and to ensure a high level of protection for public health by levying excise duties’ . In that light the Court therefore ruled that the Directive precluded the setting of a differential rate of excise for a class of cigarettes based on their retail price.
It was clear in this case that the EU legislation took into account the health concerns in relation to tobacco and allowed the imposition of excise duty likely to discourage the consumption of tobacco; the Directive therefore did ‘not prevent’ health protection. But the Directive was also designed to ensure ‘neutral competition’ within the remaining market for tobacco products. The differential tax rate, which attempted to subvert normal price competition, was clearly then contrary to the purpose of the Directive.
Lessons for Minimum Alcohol Pricing
It is clear that the Scots MUP measure is not a disguised cartel, where the drinks industry’s attempts to set prices is given the protection by the State through legislation. But that does not mean that the API & Others is irrelevant to the ongoing SWA case. There is a clear connection between all three cases.
One of the questions raised in SWA regards the compatibility of MUP with Regulation 1308/2013 which governs, inter alia, the common market in wines. Art 167(1)(b) of the Regulation is particularly relevant as it prohibits Member States from laying down market rules which ‘allow for price-fixing’. On the face it of this could mean that the Scottish Parliament are constrained from introducing a minimum price for wine, in the same way as the Italian State was in relation to the imposition of a differential excise duty in Yesmoke. But if one considers Art 167 in context there is an argument that the apparently stark prohibition is more nuanced. The Regulations recitals make it clear that Producers Organisations and Interbranch Organisations (made up of producers and other industry stakeholders), as recognised in the Regulation, are to play a role in the organisation of the market; much as the Osservatorio did in Italian road haulage. It is not a surprise that the Regulation is clear that the rules in the common market, perhaps promulgated by way of a decision taken by an interbranch organisation (see Art 167(1)), should not relate to pricing. When read in this context it is not clear that the Regulation intends a bar on Member States adopting pricing controls unrelated to the common market organisation rules; i.e. where they are put in place for an entirely separate purpose.
Another interesting distinction between the Yesmoke and the SWA case is the fact that the tobacco Directive clearly has public health concerns at its forefront, and as the Directive had taken those concerns into account Italy was required to stay clearly within the terms of Directive. That is not the case in relation to the common market in wines. Health is mentioned in the Regulation, but only in relation of the production of foodstuffs, not in the wider public health concern that stems from the ‘hazardous and harmful’ consumption of alcohol. It would appear therefore that the Scottish Government may be able to argue that their separate concern for public health is outwith the terms of the Regulation and should be handled under the free movement provisions of the TFEU.
This blog was first posted on eutopialaw.com on 21 October 2014.