C-170/78

JUDGMENT OF 27. 2. 1980 — CASE 170/78

In Case 1 7 0 / 7 8

COMMISSION OF T H E EUROPEAN C O M M U N I T I E S , represented by its Legal Adviser, A n t h o n y McClellan, acting as Agent, with an address for service in L u x e m b o u r g at t h e office of its Legal Adviser, M a r i o Cervino, J e a n M o n n e t Building, Kirchberg, applicant,

COMMISSION v UNITED KINGDOM

supported by the

ITALIAN REPUBLIC, represented,for the purpose of the written procedure, by its Ambassadör, Adolfo Maresca, acting as Agent, assisted by Mario Fanelli, Avvocato dello Stato, and, for the purpose of the oral procedure, by Ivo Maria Braguglia, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy,

intervener,

Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT OF 27. 2. 1980 — CASE 170/78

JUDGMENT

Facts and Issues

The facts, procedure, conclusions and conformity with Article 38 (3), by a submissions and arguments of the parties decision to be taken before 1 March may be summarized as follows: 1973, to authorize that State, following a request made before 1 February 1973, to retain that duty or fiscal element provided that the State abolished it by 1 January 1976 at the latest.

COMMISSION v UNITED KINGDOM

Date Customs duty Excise duty Toul duty charged per gallon

1.1.1973 £1.6125 — £1.6125 111976 £0.025 £2.625 £2.650 7.4.1976 £0.025 £2.955 £2.980

By comparison excise duties charged on according to the Commission, was fixed beer brewed in the United Kingdom of at the following rates, the fiscal unit of an original gravity of 1 038° (the average charge being the bulk barrel of 36 density of beers consumed in the United gallons of worts: Kingdom in 1975/1976 being 1 037.71°),

Date Unit rate for worts Unit rate per degree not exceeding 1 030° in excess of 1 030° Unit rate for 1 038° Rate per gallon

1.1.1973 £10.37 £0.44 £13.89 £0.3858 7.4.1976 £15.84 £0.528 £20.064 £0.557

JUDGMENT OF 27. 2. 1980 — CASE 170/78

1 037.71° was thus £0.6084 per gallon The Court, on hearing the report of the against £3.250 per gallon for wine; in Judge-Rapporteur and the views of the relation to alcoholic strength the excise Advocate General, decided to open the duty on beer of an original gravity of oral procedure without any preparatory I 037.71° and an alcoholic strength of inquiry. It did however ask the 3 % by volume was £0.2028 per gallon Commission to reply in writing to two and per degree, in comparison with an questions; the Commission complied excise duty of £0.2955 or £0.2708 for with that request within the time pres- still light wines of 11 and 12% cribed. The Government of the United respectively; in relation to price the Kingdom submitted written observations excise duty on beer represented on on those replies. average 2 5 % and the excise duty on the most popular wines at least 3 8 % of the sale price to the consumer. III — The conclusions of the parties The Commission's opinion states that there is a competitive relationship between beer and wine such that the rate 1. The Commission claims that the of excise duty on wine protects the Court should: consumption of beer in the United — Declare that the United Kingdom, by Kingdom. In these circumstances the failing to repeal or amend the United Kingdom is failing to fulfil its disputed provisions with regard to obligations under the second paragraph excise duty on still light wine, has of Article 95 of the Treaty; it was failed to fulfil its obligations under accordingly requested to take within one Article 95 of the EEC Treaty; month the measures necessary to comply with the Commission's reasoned opinion. — Order the United Kingdom Government to pay the costs.

by local consumer preferences; however, nating it to interpretative criteria outside the tax system to which wine is subjected Community rules. The purpose of Article in the United Kingdom prevents pref- 95 is to guarantee the transparence of erences from evolving from the the Common Market and to establish the consumption of beer towards that of principle of the neutrality of taxation at wine and, in breach of Article 95 of the Community level. The fiscal sovereignty EEC Treaty, favours national production of the Member States had been sub- of beer, a product which is in ' stantially limited in the interests of competition with wine. Community trade; this limitation bears in particular on the freedom of the national legislature to have recourse to a fiscal The United Kingdom has maintained in instrument to pursue extrafiscal force fiscal provisions in respect of still objectives. A national tax structure must light wine which conflict with the rules not generate, on the activities of laid down in the second paragraph of producers and exporters in other Article 95. Since early 1974 the United Member States, secondary effects which Kingdom has consistently aggravated the are contrary to the establishment of the fiscal discrimination between wine and Common Market. beer and continued to do so even after the publication of the Commission Recommendation of 5 December 1975 to The concept of competing products the Member States concerning the within the meaning of the second taxation of wine (Official Journal 1976 paragraph of Article 95 must be No L 2, p. 13), in which the Member understood in a fairly wide sense as States were recommended to reduce embracing a series of products which, appreciably the rate of excise duties without being identical or similar, are levied by them on wine and to forego distinguished only by the degree and any planned or recently introduced breadth of the differences separating increase in the rate of such excise duties. them, which implies an appreciation of economic facts based on concrete factors. These factors may usefully be deduced from the essential characteristics (a) The interpretation of Article 95 of the of the products concerned, in particular Treaty their function and distribution, their possibilities for use and the substantial price differences between them, as well as the economic link between the The function of Article 95 is to abolish, respective sectors of production. after the elimination of customs duties and taxes having an equivalent effect, the residual obstacles to exchanges not only of imported identical products but also Habits or preferences of consumers of products which are similar to or naturally constitute a serious criterion; competitive with domestic products. The these preferences however cannot be prohibition of fiscal discrimination in generalized and may vary regionally; Article 95 suffers no exception and has they are not constant, being subject to primacy over contingent policies at the various influences. national or Community level. It has the rank of a fundamental principle complementing the customs union and permits no argument for either Account may be taken of a substitution conditional application or for subordi- relationship which is not only real

but also potential. The substitution favour of the consumption of local relationship may be real for certain products but it does not prevent an consumers and potential for others. This evolution of consumer preference situation is confirmed particularly when towards other products coming from the interpénétration of the markets is other regions. conditioned by fiscal systems which obstruct the free movement of goods; the obstruction is a major one when the The habits of consumers vary in terms of taxation is so high that the imported the opportunities open to them to get to products become luxury goods and their know and appreciate products other than consumption is thus limited to the social beer. As regards wine there has been a strata of the population which are the remarkable increase in sales in the best off. For these reasons the concept of United Kingdom, among what used to "substitution products" must be defined be called the working classes. at Community and not at regional level. Economic definitions made in the light of individual preferences limited to Wine and beer share the same charac- selected regions and appreciations teristics: not only are they alcoholic arrived at by reference to a market not drinks obtained by fermentation but they yet fully benefiting from free movement have the same uses (table-drinks and of goods are not in accordance with the thirst-quenching drinks). principles of uniformity of treatment laid down by the EEC Treaty. Wine, which has been one of the national alcoholic drinks of the United Kingdom for at least nine centuries, is (b) The relationship between wine and consumed in increasing quantities at beer home (10.58 million gallons during the year 1966/1967, 25.20 million gallons during the year 1976/1977). It has It is accepted that wine is not produced become, at home, a substitute for beer in significant quantities in the United and is in actual competition with it. Kingdom and for the present purpose may be regarded as a product of other Member States. As regards beer consumption in public houses it must be noted that consumer habits have long been conditioned by the There is a competitive relationship fact that public houses are run by tenants between wine and beer both in the or managers of the breweries and have unified Common Market and on the no interest in facilitating a change in British market. drinking habits. In spite of these ob- structions to the spontaneous equilibrium in the public house market, wine has The statement that wine is produced become, particularly in the London area, principally in the south whereas beer is a a substitute for beer and is already to drink produced essentially in northern some degree in competition with it. regions of Europe is irrelevant: the Above all the potential for more geographical distribution of production competition is considerable. of beer and wine in the various regions of the Community should facilitate and develop trade. The place of production In order to assess the situation correctly may of course exercise an influence in account must be taken of the evolution

(c) The incidence of the duty on wine As regards price, it must be noted that the excise duty on still light wine represents 3 8 % of the selling price to the Wine is clearly taxed more heavily in the consumer on 70 centilitre bottles of the United Kingdom than beer: on 1 July most popular wines in supermarkets and 1977 it bore an exicse duty of £3.250 per 3 5 % of the price of wine sold by retail gallon whereas on the same date beer of specialists, whilst, in the case of beer, it an original gravity of 1 038° bore an represents roughly 2 2 % of that price per excise duty of only £0.613 per gallon. pint bottle of the most popular beers sold in supermarkets and by retail specialists. The method of comparison based on the tax incidence on total consumer The basis of comparison proposed by the expenditure cannot be accepted: the United Kingdom between, on the one prices to be taken into account for an hand, a glass of wine of 4.5 liquid effective comparison of the tax charge ounces, or 12.75 centilitres, subject to an are influenced by too many hetero- excise duty of 8.3 pence, and on the geneous factors. other hand a pint, or 58.6 centilitres, of draught beer of average gravity, subject to an excise duty of 7.5 pence, is no more valid than the comparison based on The Government of the Italian Republic the gallon unit. In its proposals for takes the view that all the conditions directives, presented to the Council on exist for considering wine and beer as 7 March 1972, concerning harmonized being in direct competition with each excise duty on wine (Official Journal N o other or at least as mutual substitutes. C 43, p. 32) and the harmonization of excise duty on beer (Official Journal N o C 43, p. 37), the Commission provided for a rate of excise duty on both being fixed per hectolitre (22 gallons). Both (a) The United Kingdom's practice of methods show that the duty on wine levying excise duty on wine is the most exceeds that on beer. telling proof of the fact that even the United Kingdom has always in fact considered wine and beer to be competing beverages. It has always used The incidence of duty per degree of the fiscal instrument as a way of alcohol cannot be made correctly for the protecting certain nationally-produced purpose of making a comparison commodities from competition, in this between alcoholic drinks except by case beer. reference to, the same quantities. The comparison proposed by the Government of the United Kingdom between excise duties per degree of alcohol (11.5° Gay- (b) Former import duties have become Lussac) per glass of wine of 12.75 in the United Kingdom excise duties. For centilitres and excise duties per degree this change to be lawful, the excise duties of alcohol (4° G. L.) per pint of beer, must form part of a system of internal (56.8 centilitres) cannot be accepted. taxation based on a criterion of However, even in that case the incidence normality; the excise duty on wine is at of duty per degree of alcohol is least five times greater than that levied

on beer and hence considerably exceeds (e) Moreover it may be noted that the the "general limits" of the national consumption of wine increased sharply in taxation system. the United Kingdom during 1973 and 1974 when the tax on wine was reduced but that it declined considerably in sub- sequent years, coinciding with the (c) It is clear that discrimination is increases in excise duty. being practised in the United Kingdom to the detriment of wine. That discrimi- nation has been aggravated by the fact that between 1972 and 1977 the excise (f) It is thus clearly shown that the tax duty on wine has gradually risen by on wine has had and continues to have 102% whereas for beer the increase has the effect of protecting other products only been 59%. The increases in excise within the meaning of the second duty on wine have thus been imposed paragraph of Article 95 of the Treaty. purely for protectionist purposes. The That is sufficient to show that that article fact that until 1972 wine was subject has been infringed. only to customs duty and not to excise duty of any kind — since this was deemed to be meaningless in the absence The Government of the United Kingdom of any domestic wine production — is an is of the opinion that the Commission additional proof. has by no means established the failure to comply with the second paragraph of Article 95 of which it complains. In any The incidence of tax on the price of the case the Commission is not entitled to product is considerable and is in itself ask the- Court to declare that the United sufficient to discourage the consumption Kingdom must repeal or amend certain of wine and to encourage that of beer. national provisions: it is for the State in question to determine the measures required to put an end to any failure to fulfil obligations. (d) In the absence of harmonization as regards fiscal measures linked to alcohol content a comparison on that basis cannot be accepted; it is based on math- (a) The interpretation of Article 95 of the ematical averages and does not take Treaty account of the necessity to apply a weighted average taking account of all the alcoholic strengths of the types of wine and beer which are actually The second paragraph of Article 95 must consumed. Having regard to the fact that be read in accordance with the principles the cost of production of table wines of the Community as stated in Articles 2 having a low alcohol content is and 3 of the Treaty: the tax provisions manifestly less than that of wines having are complementary to the customs rules a strong content and that the tax on the and are designed to prevent their two wines is identical, it becomes clear circumvention by the imposition of that the incidence of tax on the retail discriminatory internal taxes. It does not price is even more dicriminatory in the prohibit Member States from imposing case of common table wines, in other internal taxation on imported products words on those very wines which might when there is no similar domestic appeal to the-broadest sections of the product or other domestic products population. capable of being protected.

A fiscal measure can have a protective establish the necessary relationship effect only if the products concerned are required by the second paragraph of in competition with each other and if the Article 95. difference between the tax on the two competing products is sufficiently great to influence the consumer in his choice. The fact that wine on average has an alcoholic content three times as high as that of beer is sufficient in itself to make Article 17 (3) of the Treaty specifically the two drinks fundamentally different; permits Member States to substitute for the fact that wine, because of its costs of customs duties of a fiscal nature an production, will always be more internal tax which complies with the expensive than beer (quite apart from provisions of Article 95. The latter tax) emphasizes the difference. prohibits only protective taxation and leaves Member States otherwise free to decide the level of internal taxation. To state that wine and beer are alcoholic drinks obtained by fermentation and The Commission's statement to the effect have the same uses amounts to selecting that the concept of products of sub- arbitrarily certain characteristics and stitution or competitive products must be arbitrarily ignoring others. In particular defined at Community level and not at it is not logical to ignore the degree of the regional level is inconsistent with the alcoholic content; it appears legitimate case-law of the Court of Justice. It may to distinguish between drinks with also be seen from the case-law that even markedly different alcoholic content. A if there is a domestic product in distinction should also be drawn between competition with the imported product relatively cheap and relatively expensive and a higher tax on the imported alcoholic drinks. product the contravention of the Treaty is not automatic. The first paragraph of Article 95 prohibits, for imported In the United Kingdom beer is the products, any tax which is in any way in national alcoholic drink and has excess of that imposed on the similar domestic product; the second paragraph historically always been so. This has been of Article 95 prohibits internal taxation the position as a matter of choice such as to afford indirect protection to irrespective of price and incidence of the domestic product. In this case it is taxation; it came about by reason of a therefore for the Commission to prove variety of social, historical and :hat in the United Kingdom wine has geographic but not fiscal, reasons. mposed upon it a tax which is sufficiently high to afford direct or ndirect protection to beer. In the United Kingdom wine is not regarded as being a substitute for or in competition with beer.

A comparison on the basis of duty as a proportion of consumer expenditure The fact, which is not disputed, that would undoubtedly show that wine was excise duty per gallon of wine exceeds taxed less heavily than beer for virtually that on beer is of no significance. Such a the whole of the century and that the comparison ignores the difference more lenient fiscal treatment of wine did between the strength of wine and beer not result in its being regarded as a sub- and the difference apart from tax in their stitute for beer. price. It also ignores the different manner in which they are consumed: because of the different strength, the quantities of beer consumed by an individual in the United Kingdom on a N o evidence has been produced that the single occasion are normally greater than alleged high level of taxation of wine in the quantities of wine consumed. the United Kingdom has had any effect on the consumption of beer. The statistics show a fairly regular long-term increase in beer consumption, which is by no means affected by changes in the A comparison by way of strength may relative level of the two duties. legitimately be drawn by reference to a glass of wine of 4Vi fluid ounces (12.75 centilitres) and a pint of beer (58.6 centilitres): as wine and beer are different drinks with different qualities The recent rapid increase in the the consumer buys them for their consumption of wine in the United particular qualities, and not solely for the Kingdom must be noted. That change in quantity of alcohol which they contain. consumer choice shows clearly that A comparison between the duties factors other than taxation are involved. charged on quantities normally

purchased at a bar where the two drinks The requirement that a rate of taxation are sold alongside each other is therefore should remain within the general justified. framework of the national system of taxation was laid down by the Court of Justice in cases concerning a tax on When it is borne in mind that, even goods not produced within the national without the tax element, wine is territory and not competing with, other _ considerably more costly than beer, a national products. In this case· the comparison of the rates of tax on any taxation of beer and wine in the United basis apart from the pure volume basis Kingdom forms part of the normal shows that the difference in the rate of structure of taxes on alcoholic drinks. tax is not sufficient to afford direct or Moreover, Article 95 cannot be infringed indirect protection to beer. since wine and beer are not in competition with one another and the tax on wine is not at a level, to afford As regards the effect of tax on prices, the protection to beer. Commission has based its comparison on retail selling prices in off-licences and supermarkets. Such a comparison gives quite an unrepresentative picture of the The Italian Republic has drawn a effect of duty on prices in the beer and comparison of duties on beer and wine wine market in the United Kingdom: on the basis of volume alone; that basis only about 10% of beer is sold in this of comparison is wholly inappropriate. way, whilst 3 5 % of wine is sold from The fact, which is not contested, that the other outlets. Because of the widely duty on wine bears more heavily on differing ways in which the two drinks weaker and cheaper wines does not help are sold and the resulting range of to establish that the method of imposing prices, the only valid method of duty on wine is protective of beer. comparison relates to the total consumer expenditure on beer and wine and on this basis duty represents 2 3 % of the price of beer and 24% of that for wine. The tax on wine was not reduced during This difference is insignificant. 1973 and 1974 but partially replaced by VAT. The fact that wine consumption may rise or fall without any related reaction on beer consumption confirms (d) The arguments put forward by the that there is no competition between Italian Government wine and beer consumption.

A valid comparison between the actual prices of beer and wine for the purposes The Government of the United Kingdom, of calculating the incidence of taxation in its written observations on the replies is faced with difficulties arising in by the Commission to the questions put particular from the structure of the by the Court, insists that the Commission market, differences in containers and has not shown that beer and wine are costs of distribution, packing and substitutable products or that the services. A comparison between the tax structure of United Kingdom excise duty levied on consumer expenditure on beer affords protection, actual or potential, to and that levied on consumer expenditure beer. on wine is in effect a comparison based on an "average beer" and an "average wine"; such a comparison ignores the fact that the price range for wines is The inconclusive nature of any of the manifestly much greater than that for standards suggested by the Commission beers. is clear; in particular, alcoholic content is not the only nor the principal factor governing consumer preference; taste, A comparison based on alcoholic quality and social attitudes are more strength for two different volumes also important than strength and price. The demonstrates that wine is more heavily incidence of duty per degree of alcohol taxed than beer. The calculation of the contained in the same volume of fluid is incidence of duty per degree of alcohol therefore not relevant as a means of can only be made objectively with measuring the relationship between wine reference to the same volume of wine and beer. and beer. This comparison clearly demonstrates that in the United Kingdom wine is more heavily taxed The onus is on the Commission to prove than beer. that indirect protection of beer is a potential consequence of the duty on wine and that it has in fact had this The determinative standard in effect; however, no figures relating to establishing a neutral relationship be- the effect on consumption have been

2 The Commission recalls that before its accession to the Community the United Kingdom levied a customs duty on imports of wine and beer. By Decision N o 73/189/EEC of 27 February 1973 (Official Journal N o L 197, p. 7) adopted in pursuance of Article 38 of the Act of Accesssion the Commission had authorized the United Kingdom to retain for an additional period until 1 January 1976 the fiscal element of the customs duties in question. Those duties were subsequently transformed into excise duties applicable without distinction as to the origin of the product. During that transitional stage, the rates of duty underwent changes, owing both to amendments to the tax legislation of the United Kingdom and to the accompanying introduction of value-added tax. The Commission considers that as a result of those successive amendments the rate of duty on wine is clearly higher than the level of the fiscal element authorized in 1973 and that it has moreover undergone a marked increase in comparison with the rate of duty applicable to beer. In view of the competitive relationship between those two products, the Commission considers that the tax system applied by the United Kingdom is discriminatory and that as such it is of such a nature as to afford indirect protection to national beer production.

3 Essentially, the Government of the United Kingdom does not call in question the facts put forward by the Commission, especially as regards the evolution in the rates of duty. It contests however that the application of the tax

JUDGMENT OF 27. 2. 1980 — CASE 170/78

6 In order to determine the existence of a competitive relationship under the second paragraph of Article 95, it is necessary to consider not only the present state of the market but also the possibilities for development within the context of free movement of goods at the Community level and the further potential for the substitution of products for one another which may be revealed by intensification of trade, so as fully to develop the complementary features of ^ h e economies of the Member States in accordance with the objectives laid down by Article 2 of the Treaty.

7 Where there is a competitive relationship between an imported product and national production characterized as stated above, the second paragraph of Article 95 prohibits tax practices "of such a nature as to afford indirect protection" to the production of the importing Member State.

COMMISSION v UNITED KINGDOM

s It follows from the arguments put before the Court that the parties are not fully in agreement as to the conditions for the application of that provision to this case. The Commission has above all been concerned to show the difference between the tax burden imposed on the products in question. For its part, the Government of the United Kingdom points out that in the case of the second paragraph of Article 95 it is insufficient to establish that there is a difference in taxation; the Treaty requires that the protective effect of the tax system in question must be shown actually to exist. It considers however that this has not been shown.

9 It is true that the first and second paragraphs of Article 95 lay down different conditions as regards the characteristics of the tax practices prohibited by that article. Under the first paragraph of that article, which relates to products which are similar and therefore hypothetically broadly comparable, the prohibition applies where a tax mechanism is of such a nature as to impose higher taxation on imported products than on domestic products. On the other hand, the second paragraph of Article 95, precisely in view of the difficulty of making a sufficiently precise comparison between the products in question, employs a more general criterion, in other words the indirect protection afforded by a domestic tax system.

i3 The Government of the United Kingdom contests this attitude. Without denying the common characteristics of the two beverages, it emphasizes that they are both the products of entirely different manufacturing processes. The alcoholic content of wine is three times (11° to 12°) that of beer (3° on average). The price structure of the two products is entirely different, since wine is appreciably more expensive than beer. As regards consumer habits, the Government of the United Kingdom states that in accordance with long- established tradition in the United Kingdom, beer is a popular drink consumed preferably in public-houses or in connexion with work; domestic consumption and consumption with meals is negligible. In contrast, the consumption of wine is more unusual and special from the point of view of social custom.

H The Court considers that the Comission's argument is well-founded in that it is impossible to deny that to a certain extent the two beverages in question are capable of meeting identical needs, so that it must be acknowledged that there is a certain degree of substitution for one another. For the purpose of measuring the possible degree of substitution, it is impossible to restrict oneself to consumer habits in a Member State or in a given region. In fact, those habits, which are essentially variable in time and space, cannot be considered to be a fixed rule; the tax policy of a Member State must not therefore crystallize given consumer habits so as to consolidate an advantage acquired by national industries concerned to comply with them.

i6 These differences between the two products disclose an aspect of the problem which forms the prerequisite for any legal appraisal and which has not been taken into consideration. In fact, according to the arguments which it put before the Court, the Commission seems to admit by implication that in a normal competitive relationship wine and beer should be subject to the same tax burden. This is also the concept which seems to be enshrined in a proposal for a directive on a harmonized excise duty on wine which the Commission submitted to the Council in 1972 (Journal Officiel N o C 43, p. 32). In the preamble to that proposal, the Commission found that there were "competition disturbances" owing to the absence of excise duty on wine in certain Member States. More recently, in the reply given by the Commission on 4 January 1978 (Official Journal N o C 42, p. 35) to Written Question No 756/77 by Mr Pisoni, it produced a comparative table showing that in the wine-growing countries of the Community wine production is entirely exempt from purchase tax or subject to a purely nominal excise duty, whereas it seems that in the Member States in question beer is subject to tax. The Commission did not indicate what it considers to be the appropriate tax ratio between two products which it regards as competing. However, it seems that an attitude on this preliminary question in terms enabling the effects of a decision of the Court on the treatment for tax purposes of the two products throughout the Community to be measured with sufficient certainty is a prerequisite for the solution of the proceedings brought against the United Kingdom.

i9 Of. the criteria put forward by the parties, the only factor which may enable an appropriate and somewhat objective comparison to be made consists therefore in the appraisal of the incidence of the tax burden in relation to the alcoholic strength of the beverages in question. By taking into consideration that criterion it may be ascertained that wine is at present subject in the United Kingdom to a tax which is approximately 50% higher than that on beer, assuming that the alcoholic strength of the beverages is respectively 11° to 12° and 3° to 3.7°. It therefore seems that the tax burden imposed on those two products is not equal although the disparity is, according to that criterion, smaller than it seemed from the Commission's first statements which were based on a simple comparison by volume. It is necessary to observe however that, according to the Italian Government, the difference is in fact greater since normal table wines, in other words precisely those which are likely to be in competition with beer, generally have an alcoholic strength of only 9° or 10°, which increases the margin of discrimination to approx- imately 125% or 100%.

20 In conclusion, and subject to the preceding observations on the ascer- tainment of an appropriate tax ratio between the two products, it may there- fore be stated that according to the only criterion whereby an objective,

COMMISSION v UNITED KINGDOM

although imperfect, comparison can be made between the rates of tax applied to wine and beer, it seems that wine is subject in the United Kingdom to a tax burden which is relatively heavier than that imposed on beer.

22 For its part, the Commission claims that a comparison with the volume of wine sales on other markets, especially in the Benelux countries, shows that the marketing of the same product has been curbed in the United Kingdom by the effect of the tax system in question. However, it criticizes above all from this point of view the fact that, after its accession to the Community, the United Kingdom, when transforming the former customs duties into excise duties, gradually increased the tax applicable to wine by a proportion higher than the tax imposed on beer whereas previously wine had long benefited from a certain tax advantage and the two products were approxi­ mately on a par from the point of view of taxation at the time when the United Kingdom acceded to the Community. Comparing the rates of duty on the two products on 1 January 1973 and on the date on which the application was lodged, on the basis of data supplied by the Government of the United Kingdom itself, the Commission found in the case of wine a relative increase in the rate of duty of 102%, whereas in the case of beer it was only 59%.

23 According to the Commission, this development corresponds moreover to a trend found in several other Member States. In order to curb this development the Commission issued on 5 December 1975 Recommendation No 76/2/EEC concerning the taxation of wine (Official Journal 1976, No L 2, p. 13), drawing attention žo the harmful repercussions of that development on the marketing of wines in the Community and calling upon

JUDGMENT OF 27. 2. 1980 — CASE 170/78

24 The Court considers that a comparison of the development of the two tax systems in question shows a protective trend as regards imports of wine in the United Kingdom. However, in view of the uncertainties remaining both as to the characteristics of the competitive relationship between wine and beer and as to the question of the appropriate tax ratio between the two products from the point of view of the whole of the Community, the Court considers that it is unable to give a ruling at this stage on the failure to fulfil its obligations under the Treaty for which the United Kingdom is criticized. It therefore requests the Commission and the United Kingdom to resume examination of the question at issue in the light of the foregoing considerations and to report to the Court within a prescribed period either on any solution of the dispute which they have reached or on their respective viewpoints, taking into consideration the legal factors arising from this judgment. The intervener will be able to present its observations to the Court at the appropriate time.

On those grounds,

THE COURT,

before giving judgment on the application lodged by the Commission for a declaration that the United Kingdom has failed to fulfil its obligations, hereby:

1. Orders the parties to re-examine the subject-matter of the dispute in the light of the legal considerations set out in this judgment and to report to the Court on the result of that examination before 31 December 1980. The Court will give final judgment after that date after examining the reports which have been submitted to it or in the absence of those reports.

OPINION OF M R ADVOCATE GENERAL REISCHL D E L I V E R E D O N 28 N O V E M B E R 1979 »

Mr President, a customs duty of a fiscal nature or the Members of the Court, fiscal element of any such duty by an internal tax which is in conformity with In this procedure for a declaration that a Article 95 of the EEC Treaty. Under Member State has failed to fulfil its Article 38 (3) of the Act concerning the obligations under the Treaty, the Conditions of Accession and the Commission claims that the United Adjustments to the Treaties, where the Kingdom of Great Britain and Northern Commission finds that in a new Member Ireland has infringed the second State there is serious difficulty in paragraph of Article 95 of the EEC replacing a customs duty of a fiscal Treaty by imposing a higher excise duty nature or the fiscal element of any such on wine than on beer. duty, it may authorize that State to retain the duty or fiscal element, Articles 32 and 38 of the Act concerning provided the State abolishes it by 1 the Conditions of Accession and the January 1976 at the latest. Adjustments to the Treaties provide that customs duties on imports and customs duties of a fiscal nature between the In pursuance of that provision, the Community as originally constituted and Commission, by Decision No the new Member States themselves are to 73/199/EEC of 27 February 1973 be progressively abolished between 1 (Official Journal No L 197 of 17 July April 1973 and 1 July 1977. Under 1973, p. 7) inter alia authorized the Article 38 (2) of the Act concerning the United Kingdom to retain until 1 Conditions of Accession and the January 1976 for still light wines a Adjustments to the Treaties the new protective element of up to £0.25 and a Member States retain the right to replace fiscal element of £1.4875 per gallon.