C-90/82

JUDGMENT OF 21. 6. 1983 — CASE 90/82

altering the selling price determined by regards tobacco prices, to restrict the the manufacturer or importer, allows the freedom of importation of tobacco orig- competitive relationship between im- inating in other Member States. It is ported tobacco and tobacco marketed by furthermore contrary to Article 37 the national monopoly to be adversely inasmuch as the fixing of a price other affected. than that determined by the manufac- turer or importer constitutes an extension to imported tobacco of a prerogative The exercise of that power is also typical of the national monopoly, contrary to Article 30 of the Treaty, of such a nature as adversely to affect inasmuch as it allows the public the marketing of imported tobacco authority, by a selective intervention as under normal conditions of competition.

In Case 90/82

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by its Legal Adviser, René-Christian Béraud acting as Agent, assisted by Pierre Didier of the Brussels Bar with an address for service in Luxembourg at the office of Oreste Montako, a member of the Legal Department, Jean Monnet Building, Kirchberg, applicant, v

FRENCH REPUBLIC, represented by Noël Museux, Deputy Director of Legal Affairs at the Ministry of Foreign Relations, acting as Agent, and Alain Sortais, Foreign Affairs adviser at the Ministry of Foreign Relations, acting as Deputy Agent, with an address for service in Luxembourg at the French Embassy, defendant,

APPLICATION for a declaration that the French Republic, by fixing retail selling prices of manufactured tobacco at a different level from that determined by the national manufacturers or by importers has failed to fulfil its obligations under the EEC Treaty and under Council Directive N o 72/464/EEC of 19 December 1972 on taxes other than turnover taxes which affect the consumption of manufactured tobacco [Official Journal, English Special Edition, 1972 (31 December), L 303, p. 1], and in particular Article 5 (1) thereof,

Facts

The facts of the case, the course of the la République Française, p. 189) provides procedure, the conclusions, submissions that retail selling prices of tobacco are to and arguments of the parties may be be fixed by order of the Minister for summarized as follows: Economic Affairs and Finance.

A memorandum from the Minister for Economic Affairs and Finance, published I — S u m m a r y of t h e facts in the Bulletin Officiel des Services et des Prix [Official Bulletin of Prices and Services] of 27 January 1977, stated that: Under the provisions of Article 6 of French Law No 76-448 of 24 May 1976, on the organization of the monopoly in Suppliers may introduce new products to manufactured tobacco (Journal Officiel the market three times per annum, on de la République Française, p. 3083), 1 January, 1 April and 1 October. For apart from the special provisions for the that purpose they are to submit a file to overseas departments and for Corsica, the administration and to state the retail the retail price of each product is the price which they wish to have applied; same throughout France and is fixed in accordance with conditions determined In respect of products already placed on by decree of the Conseil d'Etat [State the market, suppliers may request the Council]. application of a fresh retail price at any time; such request must be accompanied Article 10 of Decree No 76-1324, of by all relevant evidence in support. 31 December 1976, on the economic and tax arrangements applicable to manu- Under those provisions several orders factured tobacco in the departments of fixing sale prices in metropolitan France metropolitan France (Journal Officiel de for certain categories of manufactured

On 31 October 1980, the Commission By letter of 7 June 1979, the Commission delivered a reasoned opinion to the reminded the French Government that, French Republic pursuant to the first with regard to manufactured tobacco, paragraph of Article 169 of the Treaty. it was failing to apply "a method of determining prices compatible with the principle of freedom of the latter", a It pointed out therein that the obser- principle which, it stated, was embodied vations of the French Government were in Article 5 (1) of Directive No 72/464, not satisfactory: they did not guarantee the interpretation of which was con- manufacturers and importers the legal firmed by the Court of Justice in its certainty necessary for the free exercise judgment of 16 November 1977 (Case of the right to determine the retail prices 13/77, NV GB-INNO-BM v Vereniging of their products. The power of Member van de Kleinhandelaars in Tabak [1977] States to control the increase in prices of ECR 2115). The practices followed by goods and services could not affect the the French authorities were, the Com- right of manufacturers and importers

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freely to fix the retail prices of manu- I I I — C o n c l u s i o n of t h e p a r t i e s factured tobacco.

In reply to the questions put by the II — W r i t t e n p r o c e d u r e Court, the Commission specified that it considered the general exercise by the French State of the power which it had By an application lodged on 16 March reserved to itself by Law No 76-448 to 1982 the Commission, pursuant to the fix officially the retail selling prices of second paragraph of Article 169 of the both manufactured tobacco imported EEC Treaty, brought before the Court from other Member States and of of Justice the alleged failure of the national manufactured tobacco to French Republic to fulfil its obligations constitute a failure to fulfil its obligations with regard to the fixing of the retail under Community law. selling prices of certain categories of manufactured tobacco. The Government of the French Republic contends that the Court should : The written procedure followed the normal course. Dismiss the Commission's application;

Order the Commission to pay the costs. Upon hearing the report of the Judge- Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any IV — S u b m i s s i o n s and a r g u m e n t s preparatory inquiry. However, it re- of t h e p a r t i e s d u r i n g the quested the Commission to reply in written procedure writing to certain questions in order to clarify the object of its action; that request was complied with within the The Commission states that it has period allowed. For its part, the received various complaints relating to Government of the French Republic was the French system of fixing retail selling requested to reply to certain questions prices of manufactured tobacco. That during the hearing. system entails discrimination against

Community products in favour of French of cigarettes, and, on the other hand, on products either inasmuch as the prices a range of retail selling prices which fixed for the marketing of imported fairly reflect the wholesale prices, namely cigarettes in France were fixed at a level the differences between the cost of too low to guarantee profitability, or production and the cost of distribution. because they were fixed at a level very It requires that Member States should much higher than that determined by the not intervene in the determination of manufacturers or importers, in such a retail selling prices; otherwise the States way as to extend the difference in prices would be in a position to render existing between French cigarettes and nugatory fiscal neutrality or to stifle any imported cigarettes, or because the growth of genuine competition. administration, after approving the price

that determined by the manufacturers or importers is incompatible with Directive Article 5 (1) must, of necessity, be No 72/464, in the light of the general interpreted in such a way that the two spirit of the system of harmonization, of statements contained therein are com- the actual terms of Article 5 (1) of the plementary rather than contradictory. directive, of the objectives of the In the judgment in GB-INNO-BM the directive and of the provisions of the Court very clearly stated the comp- Treaty which provide the background lementary nature of the two sentences of

That expression "imposed prices" was to be harmonization is based, on the one hand, taken as meaning "prices fixed by manu- on the adoption in each Member State of facturers or importers and if appropriate identical excise duties for all categories approved by the State".

The imponderable factor in the system is concerned, it is necessary to make more the free determination by producers and flexible the means by which price importers of the selling price of their changes are effected. brands; the price ratios between each brand must be determined by the free play of market forces and by the costs of production. At that level, the power of Member States should be restricted to (c) The manufacturers' and importers' providing information and approving freedom to determine prices derives from prices freely fixed by the market; there the objectives and from the general can be no question of a system in which structure of the system established by the Member States have reserved to them Directive No 72/464, the first recital in the power directly to fix retail prices. the preamble to which states that the application of taxes on the consumption of products in the manufactured tobacco sector must not distort conditions of On condition that they do not jeopardize competition or impede their free the objectives or the operation of the movement within the Community. The system of excise duties on tobacco, final recital records that the requirements which is in the course of harmonization, of competition imply a system of freely Member States may take general formed prices for all groups of manu- measures for the "control of price levels" factured tobacco. or adopt rules relating to "the observance of imposed prices"; thus, to combat inflation, a Member State may certainly impose a price freeze whilst still complying with the requirements of The purpose of the directive also lies the Treaty. Those powers reserved to within the scope of an economic union; Member States may not however affect such a union cannot however be the right of importers freely to fix prices achieved by the harmonization of tax for their products within the general structures and rates alone. In order to framework thereby defined. attain characteristics "similar to those existing in a national market", harmon- ization of the taxable basis (that is, the duty-free price) of products of the same brand is an essential factor if not a The free determination of price at the matter of priority. time of introduction of a new product on to the market is by itself insufficient: each producer or importer must be able freely to adjust the competitive relationship between his products and According to the structure of the Treaty, competing products. such a harmonization must, as a matter of priority, derive from the competitive forces of the market, in particular as a result of the possibility of parallel imports. A spontaneous harmonization of Nor does the possibility of an annual prices between Member States would be price adjustment appear to be sufficient inconceivable if each State were to retain to ensure the free determination of sale the power to impose prices on products prices by the market: regard being had of the same brand; a complete harmon- to the fluctuations of the market forces ization of the structures, rates and

"With regard to Article 30, the Court has several times defined the procedure for giving effect to the prohibitions on the The right of a Member States to subject óf prices contained in that article. determine a single minimum sale price, applicable to all identical products is not in dispute. The intervention of public authorities in the competitive structure Thus in its judgment of 24 January. 1978 established by prices may, however, (Case 82/77, Openbaar Ministerie of the constitute a measure having equivalent Kingdom of the Netherlands v van Tiggele effect within the meaning of Article 30, [1978] ECR 25), the Court declared that both when it is applicable to imported "a minimum price fixed at a specific and to domestic products alike and when amount which, although applicable it is applicable in a differential manner to without distinction to domestic products the detriment of imported products. and imported products, is capable of having an adverse effect on the marketing of the latter in so far as it prevents their lower cost price from According to the Court in its judgment being reflected in the retail selling price" of 13 March 1979 (Case 91/78 Hansen constitutes a measure having an effect GmbH & Co. v Hauptzollamt Flensburg equivalent to a quantitative restriction. [1979] ECR 935), "Article 37 remains applicable wherever, even after the adjustment prescribed in the Treaty, the exercise by a State monopoly of its In that judgment the Court also held that exclusive rights entails a discrimination "imports may be impeded in particular or restriction prohibited by that article"; when a national authority fixes prices . . . the same judgment also declared that at such a level that imported products "Article 37 is intended to render the are placed at a disadvantage in relation sales policy of a State monopoly subject to identical domestic products to the requirements of the free because the competitive advantage movement of goods and of the equal conferred by lower cost prices is opportunities which must be accorded to cancelled out". products imported from other Member States".

opoly or its supervising authority does the whole of the products concerned, not allow the necessary equality of both national and imported; the opportunity. The monopoly or its existence of that right is not in supervising authority fixes all the prices conformity with the requirements of the including those of its competitors, in free movement of goods or the equality terms of the sales policy which it deems of opportunity which must be ensured suitable for the marketing of its own for products imported from other products; Community traders would thus Member States. be deprived not only of all opportunity to plan commercial strategy by means of prices, but also of the chance to adjust prices optimally in accordance with The Government of the French Republic market conditions. recalls the main features of the French system of retail sale prices for manu- factured tobacco; it emphasizes, in particular, that for products newly Free determination is not, it is true, the introduced on to the market the prerogative of monopolies; the restrictive administration always accepts the retail nature of the individual fixing of selling price suggested by the supplier. prices in the circumstances in question is however considerably reinforced by the

Nor are manufac- reconstructed; thus the assumption of turers or importers from other Member equality of opportunity would be States in any way obliged to use SEITA negated. as an intermediary for the importation and wholesale distribution of their products; they are free to establish their Moreover, the legislative means em- own wholesale distribution network and ployed for fixing prices form part of the to establish direct links with the public legislation peculiar to the monopoly, authority in matters of price. The fact

JUDGMENT OF 21. 6. 1983 — CASE 90/82

have only contractual relations with Since it is recognized in respect of SEITA, from which they may discharge products governed by the Common Agri- themselves if they so wish. cultural Policy and subject to common organizations of markets, the power of Member States to intervene in the establishment of prices may, a fortiori, be The complaints mentioned by the exercised in a field where the Treaty has Commission do not establish that the not affected their competence in that disputed retail selling prices were fixed at respect, subject to the provisions a level such that traders could only sell applicable to the matter in question. their products at a loss or that their competitive advantage had genuinely been cancelled out. Moreover, certain declarations of the complainants are contracdictory and certain of the (b) Directive No 72/464 has not conclusions drawn from them by the affected that power of intervention with Commission are inaccurate. regard to manufactured tobacco products.

As to the law, none of the arguments put by the Commission regarding the compatibility of the French system of The objective of the directive is "that the retail selling prices of manufactured rules for taxes affecting the consumption tobacco with the Treaty, with Directive of manufactured tobacco should be No 72/464, with the case-law of the harmonized" (third recital in the Court or with Articles 30 and 37 of the preamble), in order that "the application EEC Treaty appears to be well founded. . . . of taxes affecting the consumption of products in this sector does not distort conditions of competition" (first recital).

that price, the Community legislature did on the contrary authorizes three not thereby intend adversely to affect the different systems for fixing the retail, powers of the public authorities in that selling prices of manufactured tobacco: field, but, on the contrary, wished to preserve them by the second sentence of Article 5 (1). A system in which traders, importers or manufacturers themselves fix the maximum price which retailers may not It is impossible to accept the interpret- exceed; the latter however retain the ation of that provision put forward by opportunity of selling below that price the Commission: the expression "control (first sentence of Article 5 (1); of price levels" means not only supervision but also restraint of price levels. The power of intervention, recognized by the case-law of the Court, A system in which the power of Member would be devoid of meaning, except for States to fix retail prices directly is statistical purposes, if it allowed national reserved (first part of the second laws only to record prices determined by sentence of that article) ; traders.

A system of which the Member States The declaration annexed to the minutes may impose upon retailers the prices of the Council, referred to by the fixed by importers and manufacturers Commission, was interpreted by the (second part of the sentence of that Council, in its written observations article). submitted to the Court in the GB- INNO-BM case as meaning that "the Community legislature wished to except national legislation on imposed prices, It is of course understood that the whether they were fixed directly by a Member States must exercise the powers public authority or determined by the reserved to them within the limits importers or manufacturers and later imposed upon them by Community law. approved by the State".

is fixed at such a low level that, having relevant in this case; the determination regard to the general situation of of retail prices by the public authority imported products compared to that of does not form part of the scheme of the domestic products, dealers wishing to monopoly; such a system of rules might import the product in question into the remain in force independently of the Member State concerned can do so only existence of the monopoly. at a loss" [Case 65/75, Tasca [1976] ECR 291, at paragraph 13 of the decision]. That declaration is applicable equally to retail prices and to wholesale prices. Moreover, even supposing that Article 37 (1) were applicable, the fixing or retail selling prices by the public As to minimum prices, the Court has authority does not fall within the concept ruled that a minimum price fixed at a of "discrimination regarding the specific amount, even though it is conditions under which goods are applicable without distinction to domestic procured and marketed . . . between and imported products, is capable of nationals of Member States": there is no having an adverse effect on the differentiation of treatment on the basis marketing of the latter in so far as it of nationality, national products and prevents their lower cost price from imported products being placed on the being reflected in the retail selling price. same footing with regard to price rules.

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JUDGMENT OF 21. 6. 1983 — CASE 90/82

its power to fix retail selling prices in normal profitability for manufacturers conditions which were in conformity and traders. with Community law. The economic objective pursued is three-fold: restraint of price rises in a period of inflationary The Advocate General delivered his pressure, stability of public finances and opinion at the sitting on 27 April 1983.

Decision

1 By application lodged at the Court Registry on 16 March 1982 the Commission of the European Communities brought an action, pursuant to Article 169 of the EEC Treaty, for a declaration that the French Republic, by fixing retail selling prices of manufactured tobacco at a different level from that determined by the manufacturers or importers, had failed to fulfil its obligations under the EEC-Treaty, and, in particular, under the provisions of Council Directive N o 72/464/EEC of 19 December 1972 on taxes other than turnover taxes which affect the consumption of manufactured tobacco (Official Journal, English Special Edition, 1972 (31 December), L 303, p. 1).

T h e b a c k g r o u n d to the dispute

2 By Law N o 76-448, of 24 May 1976, on the organization of the monopoly in manufactured tobacco (Journal Officiel de la République Française, p. 3083), the French Republic adopted a series of measures designed to comply with its obligations under Article 37 of the EEC Treaty on the organization of national monopolies of a commercial character. That Law was implemented by Decree N o 76-1324, of 31 December 1976, on the economic and tax arrangements applicable to manufactured tobacco in the departments of metropolitan France (Journal Officiel de la République Française, p. 189).

Ć By letter of 16 July 1979, the French Government informed the Commission that it considered its legislation and the administrative practices developed on the basis of that legislation as being in conformity with the provisions of the directive referred to, pointing out that the principle of the free determination of prices by manufacturers and importers is limited by the effect of the second sentence of Article 5 (1), which makes a reservation as regards the application of national legislation on the control of price levels or the observance of imposed prices. In the same letter, the French Government stated that the French legislation had been adopted to allow the public auth­ orities to include the development of tobacco prices under the general objectives of economic policy, and in particular the programme for the control of increases in the price of goods and services. It emphasized that, in

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practice, the application of those legal rules was very flexible and that, in principle, requests for the fixing of prices for products which were put on the market for the first time were consistently accepted.

7 On 31 October 1980 the Commission sent the French Government a reasoned opinion, pursuant to Article 169 of the EEC Treaty, in which it expressed the view that the observations submitted by the French Government were not satisfactory, in view of the fact that they did not ensure the necessary legal certainty for manufacturers and importers in the free exercise of· the right to determine selling prices for their products.

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remain untrammelled so far as the determination of their selling price is concerned. On this point the Commission recalls the case-law of the Court relating to the control of prices, as set out in particular in the judgments of 23 January 1975 (Case 31/74, Galli, [1975] ECR 47), 26 February 1976 (Case 65/75 Tasca [1976] ECR 291 and Joined Cases 88 to 90/75 SADAM and Others v Commission [1976] ECR 323) and 24 January 1978 (Case 82/77 Openbaar Ministerie of the Netherlands v van Tiggele [1978] ECR 25) in which the court stated that any measure whose purpose was to fix prices at a level such that the marketing of imported products became either impossible or more difficult than that of national products was incompatible with the Treaty. Such an effect may derive either from the fixing of a maximum price, if it is set at a level so low that it prevents importers from marketing their products profitably, or from the determination of a minimum price, fixed at a level so high that it cancels out the competitive advantage arising from the lower cost price of the imported product.

1 3 In its defence, the French Government points out that the expression "control of price levels" in Article 5 (1) of Directive N o 72/464 does not mean only "to verify" but also, where necessary, "to curb" the level of prices. It draws attention to the fact that the provisions criticized by the Commission are merely the transposition to the field of the marketing of tobacco of the principles of Order N o 45-1483 of 30 June 1945 on prices, which allow the Government to fix prices or price-limits on production and, where necessary, at all stages of distribution, in particular by the determi- nation of the price itself or by prescribing an increase or a reduction. As those positions are not applicable to the "monopoly products", it was necessary to introduce their equivalent in the legislation relating to the organization of the tobacco monopoly.

u According to the French government, the system of fixing prices for manu- factured tobacco, which is applied with great flexibility by the adminis- tration, has three purposes, namely combating inflationary tendencies, obtaining the best returns for the public revenue and the adoption of measures against abuse of tobacco.

is The French Government in its turn refers to the judgments cited by the Commission, emphasizing that they recognize, in principle, the compatibility with Community law of national measures adopted in relation to price control.

i6 The compatibility of the French provisions relating to the fixing of the price of manufactured tobacco with Community law must be considered in relation to the provisions of Article 5 (1) of Directive N o 72/464, as they appear in the light of the system and purpose of that directive and of Articles % 30 and 37 of the Treaty.

20 Those reservations must be interpreted in such a way as to reconcile their content with the rule of the free determination of selling prices by the manu- facturer or importer inasmuch as that rule constitutes, in the area to which the directive relates, the expression of the principle of the free movement of goods under normal conditions of competition referred to in the preamble to the directive.

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2i From that point of view, the expression "control of price levels" cannot be interpreted as reserving to the Member States a discretion to fix the price of tobacco, as the exercise of such extensive power would constitute the virtual denial of any effectiveness to the principle of the free determination of price set out in the first sentence of Article 5 (1).

22 It follows from the usual meaning of the expression "control", as well as from a comparison of the different versions of the directive in the various languages and of the reference, in many of those versions, to the "level" of prices, that the expression "control of the price levels" can refer only to national legislation of a general nature intended to check the increase in prices.

23 As to the expression "observance of imposed prices", the Court has already had occasion, in its judgment of 16 November 1977 (Case 13/77, GB- INNO-BMY Vereniging van de Kleinhandelaars in Tabak, [1977] ECR 2115) to explain that, within the context of the system for taxation of tobacco,.that expression must be understood' as referring to a price which, once determined by the manufacturer or importer and approved by the public authority, is compulsory as a maximum price and must be observed as such at all stages of the distribution network, up to the sale to the consumer. The effect of that mechanism appears with particular clarity in the application of tax labels bearing the selling price, as is the practice in several Member States.

28 It thus appears that, although it remains lawful for the French Republic to limit the effect of the principle of the free determination of selling prices by the manufacturer or importer, by the application of any measures of a general nature intended to ensure control of the increase of prices, it is contrary both to Directive No 72/464 and to Articles 30 and 37 of the Treaty to extend to imported manufactured tobacco the application of provisions relating to the fixing by compulsory powers of the price of manu- factured tobacco which the French State has reserved to itself within the scope of the provisions organizing the public tobacco monopoly.

29 The arguments put forward by the French Government relating to the defence of its fiscal interests and to the need for measures against tobacco abuse cannot prevail against that conclusion. The Member States retain the freedom to determine, in conformity with the provisions of the directive, the level of taxation affecting all tobacco. The integrity of the fiscal receipts

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resulting therefrom is guaranteed under the scheme of the directive by the mechanism of the "imposed price" understood as a maximum price, whose function consists precisely of avoiding an underestimate of the selling price at the time of the payment of the duty. As to obtaining the best return for the revenue, the level of the latter is in essence a function of the rate of the tax; that objective cannot be pursued by means of an increase in price imposed on imported tobacco. The same observation applies to the adoption of measures against tobacco abuse; in so far as the increase of tobacco prices may be a means suitable for that purpose, that campaign may not, in any event, be pursued by means of an increase in price borne solely by imported tobacco.

1. Declares that the French Republic, by fixing the retail selling prices of manufactured tobacco at a different level from that determined by the manufacturers or importers has failed to fulfil its obligations under the EEC Treaty;

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2. Orders the French Republic to pay the costs.

M e r t e n s de Wilmars Pescatore O'Keeffe Everling

M a c k e n z i e Stuart Bosco Koopmans Due Bahlmann

Delivered in open court in L u x e m b o u r g on 21 J u n e 1983.