C-169/87

OPINION OF MR CRUZ VILAÇA — CASE 169/87

OPINION OF MR ADVOCATE GENERAL CRUZ VILAÇA delivered on 26 May 1988 *

COMMISSION v FRANCE

(b) the retail prices of products already 12. I now turn to consider the arguments marketed in France are to be fixed on put forward by the parties in support of the basis of scales laid down in consul­ their submissions. tation between the manufacturers and importers, on the one hand, and the French authorities on the other, and on the basis of the date on which they are 1. Infringement of Article 5 (1) of Directive to be applied, as notified to the Direc­ 72/464/EEC torate-General for Competition and Consumer Affairs by the manufacturers and importers, and are subsequently to 13. Article 5 (1) of the directive lays down be published in the Official Journal of the principle that 'manufacturers and the French Republic by order of the importers shall be free to determine the Minister for Economic Affairs, Finance maximum retail selling price for each of and the Budget. their products', without prejudice, however, to the 'implementation of the national systems of legislation regarding the control 8. The Commission considered that the of price levels or the observance of imposed wording of the notice was capable of prices'. satisfying the requirements of Community law as interpreted by the Court of Justice in its judgment of 21 June 1983, in so far as it 14. In order to assess the compatibility of seemed to follow from that notice that the the French rules with that provision, it is French authorities would approve the retail appropriate to bear in mind the necessary prices notified by the manufacturers or interconnection between its two component importers. parts and, in particular, as the Court has already stated in Case 90/82, the meaning which is to be attributed to the twofold 9. However, a number of traders reservation set out in the second part of that complained to the Commission that the provision relating to the application of competent French minister had refused to national legislation on price controls or the approve the new retail prices notified to him observance of imposed prices to the for reasons connected with a general policy wholesaler. designed to curb the rise in prices.

pointed out in paragraph 23 of its aforesaid the price to the wholesaler, which judgment that, within the context of the constitutes the consideration received by the system for taxation of tobacco, that producer or the importer is, in view of the expression 'must be understood as referring system applied in France, simply a variable to a price which, once determined by the factor which depends on the decisions manufacturer or importer and approved by adopted by the French State: on the one the public authority, is compulsory as a hand, the retail price determined pursuant maximum price and must be observed as to Law No 74-448 and Decree such at all stages of the distribution No 76-1324, and on the other, the network, up to the sale to the consumer'. distributor's margin (fixed in 1976 at 8% of the retail price) and the level of taxes (special consumption tax and value-added tax). The price to the wholesaler is thus 17. Even more explicitly, the Court stated purely and simply the difference between in its judgment of 16 November 1977 in those two figures, without producers and 6 Case 13/77 Inno v ATAB that the second wholesalers being able to determine the sentence of Article 5 (1) does not prohibit amount thereof. That difference amounts, the Member States from imposing a given according to the calculations of the selling price to the consumer of imported or Netherlands Government, to approximately home-produced tobacco products, provided 18% of the retail price (as the French that that price has been freely determined Government's experts acknowledged at the by the manufacturer or importer. hearing).

21. For its part, the French Government does not deny that it interferes in the fixing 19. Whilst acknowledging that the prices of of the retail prices of products already manufactured tobacco placed for the first marketed in France, and in the fixing of the time on the French market are fixed freely, retailer's margin and the level of taxation. the Commission maintains that, in view of However, it maintains that it does not the use made by the French authorities of interfere in the determination of the selling the notice which they published, the prices price and consequently in the fixing of the of products already marketed cannot be wholesaler-importer distribution margin. freely determined by producers or Within the selling price to retailers, the importers. According to the Commission, relative shares of the price to the wholesaler and the wholesaler-importer margin are the 6 — Case 13/77 [1977] ECR 2115, at p. 2150, paragraph 64 of the decision. result of negotiations between the parties.

COMMISSION v FRANCE

On the French market, therefore, the levels margin and taxes have been deducted from of the importer's margin and of the price to the retail price. That price is, quite simply, the wholesaler vary according to the fixed by the competent minister. importer and the nature of the agreements concluded between the parties.

27. As the French Government finally acknowledged at the hearing, the freedom 22. It must be stated that those explanations of manufacturers and importers is therefore furnished by the French Government are limited to sharing out the 'cake' and does quite inadequate. not extend, as it should, to the determi- nation of its size (the maximum retail price level).

24. That principle is particularly relevant — in a sector characterized by 29. Is that conduct justified by the significant State intervention either through application of national legislation on the substantial taxation or as a result of the 'control of price levels'? existence of manufacturing or distribution monopolies — in ensuring the operation of the common market by the removal of 'factors which are likely to hinder free 30. The French Government thinks it is, movement and distort the conditions of with the result that the transition, in the competition, whether at national level or at manufactured tobacco sector, from a system Community level' (third recital in the of imposed prices to a system in which preamble to the directive). manufacturers or importers are free to fix maximum prices cannot be accomplished abruptly without giving rise to unfavourable consequences from the point of view of 25. The French system does not satisfy controlling inflation. those requirements in full.

31. For that reason, the French authorities 26. Freedom of negotiation between manu- have implemented a programme for the facturers or importers and wholesale gradual liberalization of prices in that distributors is confined to the appor- sector, taking account of its economic tionment of a residual amount: the amount effects and the kind of competition remaining after the retailer's distribution prevailing in that sector.

OPINION OF MR CRUZ VILAÇA — CASE 169/87

38. None of those conditions is fulfilled in the case of France. 34. Meanwhile, on 1 January 1987, all price controls were abolished in every sector of the economy except for a few products and services including manufactured tobacco. 39. To begin with, the French authorities have continued even after the issue of the January 1985 notice to interfere at their 35. According to the French Government, discretion in the determination of retail the 1976 legislation merely extended to the prices since they can fix them at levels manufactured tobacco sector the general different from those selected by manufac­ principle of price controls laid down in turers or importers, notwithstanding the 1945. For its part, the application of the consultation mechanism provided for in the notice issued on 24 January 1985 was notice. By way of illustration, the designed to make it possible to catch up Commission refers to a number of cases in with changes in price trends and to correct which importers were denied, either before certain differences which had arisen in the or after the Court's judgment of 21 June past. 1983, the price increases which they had sought. The last of those cases referred to by the Commission occurred after the notice of 24 January 1985 had been published. 36. In my view, the French Government's position is untenable.

40. Secondly, it is impossible to describe such intervention as 'national legislation of a 37. The Court has already explained that general nature intended to check the the expression 'control of price levels' in the increase in prices'.

41. On the contrary, it constitutes legis­ two occasions by derogation from the lation specific to the tobacco sector, which general system of controls and without was already criticized by the Court in 1983 manufacturers or importers having been able with reference to a period in which the price to benefit from the margin released by the freeze was still in force in all sectors. abolition in July 1984 of the social security contributions which had previously been established and incorporated in the retail prices. 42. The 1985 notice did not substantially alter the situation, inasmuch as it merely permitted manufacturers and importers to determine freely the prices of new products. 45. On 1 December 1986 the general In the case of other products, as we have system of price controls was abolished in seen, those traders can only discuss the France. However, the intervention system in relative level of the price to the wholesaler force for tobacco was retained by the and the distributor's margin but they cannot French authorities who intended to abolish fix the retail prices, any changes in which, it in stages by 1989. notwithstanding the consultation provided for, are still a matter for the authorities. 46. The December 1986 deregulation occurred after the issue of the reasoned opinion which preceded the bringing of this 43. As the Commission has emphasized, action. It would not therefore need to be that control mechanism does not apply to taken into account for the purpose of imported products in general. Even before substantiating a declaration that France has its abolition on 1 December 1986, the failed to fulfil its obligations. system of general price controls applied only to the importation and marketing margins for imported products, and not to the price of the imported products themselves. That is 47. It can still be said, however, that that not the case with regard to tobacco since, innovation regarding the general system of even after the issue of the 1985 notice, the prices has brought into even better focus the system applicable to tobacco continued to infringement of Community law in the lack the degree of general applicability tobacco sector, without there being any required in order to be permissible under objective justification for the adoption in Article 5 (1) of the directive. that sector of a type of price control mechanism which had already been abandoned in other sectors.

56. In those circumstances, as the Court concluded in its judgment of 21 June 1983, 50. As for the argument concerning the 'the power reserved to the government by specific nature of the products in question, the French legislation on the fixing of prices it runs counter to the requirement that legis­ for manufactured tobacco is incompatible lation to curb the rise in prices must be with Community law to the extent to which generally applicable for its application to that power, by altering the selling price result in a legitimate restriction on the determined by the manufacturer or principle that manufacturers and importers importer, allows the competitive relationship are free to fix prices. between imported tobacco and tobacco -'distributed by the national monopoly to be adversely affected' (paragraph 26 of the decision). 51. As for the defence of the State's fiscal interests and the need to combat tobacco abuse, the Court has already held that such arguments cannot justify the conduct of the 57. As the Court stated in another French authorities (paragraph 29 of the connection, although still on the subject of judgment of 21 June 1983). the removal of barriers to intra-Community trade, 7 each Member State should implement the directives in a manner which 52. Nor can the French Government rely meets the requirements of clarity and on any conduct on the part of undertakings certainty in legal situations for the benefit of which is contrary to Article 85 of the Treaty manufacturers established in other Member in order to avoid fulfilling all the obligations States. The notice of 24 January 1985 is not, imposed upon it by Community directives. as we have seen, capable of satisfying those requirements.

60. The Court has already made it clear that even national rules on prices which (b) between February 1982 and 30 March apply without distinction to domestic and 1987, when prices to the wholesaler imported products may, in certain circum­ remained fairly stable (minus 1%), stances, constitute a barrier to imports, in production costs rose by 16 %; particular, when a national authority fixes prices or profit margins at such a level that imported products are placed at a disad­ (c) in the case of another two brands, an vantage in relation to identical domestic imported brand (Rothmans King Size) products either because they cannot and another brand manufactured by the profitably be marketed in the conditions laid French tobacco monopoly (Pall Mall), down or because the competitive advantage both sold at the same retail price, the conferred by lower cost prices is cancelled French producer received in March out. 9 In those circumstances, the sale of 1987 125% of the February 1982 price imported products may become, if not to the wholesaler, whilst the impossible, more difficult than that of 10 Netherlands producer received, at the domestic products. same date, over 99 % of the February 1982 price to the wholesaler.

61. In this case the Commission has, in my view, furnished sufficient proof that such a 63. However, prices to the wholesaler in situation exists. French francs were not in step with the retail price trend since it is clear that between 1982 and 1987 they were 10 percentage points behind notwithstanding 62. Apart from referring to cases in which the effort made since 1985 to catch up. requests for price increases submitted by

65. In my view, however, its arguments are equivalent to a quantitative restriction, even not sufficient to deny the distortion of inter­ though the hindrance is slight and even national trade resulting from the French though it is possible for imported products system of fixing tobacco prices. Moreover, to be marketed in other ways'. the source of the tables submitted by both of the parties is the same — the Netherlands Central Statistical Office — and the Netherlands Government, which is 68. In any case the figures put forward responsible for those statistics, expressly confirm the Court's finding in paragraph 17 stated when it intervened in the proceedings of its judgment of 21 June 1983 in Case that it endorsed the information given by 90/82 Commission v France, to the effect the Commission in its allegations, including that the exercise of the power reserved to the figures. the government by the French legislation on the fixing of prices for manufactured tobacco is 'contrary to Article 30 of the Treaty, inasmuch as it allows the public 66. However, the consultations between the authority, by a selective intervention as Commission and the French Government regards tobacco prices, to restrict the concerning the trend with regard to imports freedom of importation of tobacco orig­ of manufactured tobacco into France are of inating in other Member States'. little relevance. The system of fixing prices which is applied in that country undoubtedly imposes a restriction on the commercial freedom of foreign traders who, 69. The effects of that system are, in in view of the fluctuations in their addition, aggravated by the existence of a currencies and the refusal to approve the special relationship between the French prices proposed, may be compelled to State and the sole French tobacco reduce their margins or abandon sales, producer — Seita — a public company without being able to choose whether to which has, as is well known, been able for a number of years to sustain losses at least pass on the increase in their costs in the partially attributable to the inadequacy of form of higher retail prices. fixed prices.

with regard to the fixing of manufactured nor the announcement of total liberalization tobacco prices. by 1989 are, notwithstanding their undoubtedly positive character from the point of view of the objectives of 72. The publication of the notice of 24 Community law, capable of bringing the January 1985 did not bring the infringement infringement to an end forthwith since they to an end since the wording of that notice do not in themselves alter the system permitted the French Republic to apply it in whereby the authorities interfere in the a manner that was contrary to the aforesaid fixing of prices. The decisions taken by the provisions of Community law. French authorities merely make it possible to foresee an end to the delay in transposing 73. Neither the price increases authorized the directive. Compliance with the time- in the mean time by the French authorities limits set by the directive is not, however, a (which, moreover, were inadequate for the matter in which the Member States have a purpose of making up for the overall delay) discretion.

4. Conclusion

74. In the light of the foregoing considerations, I suggest that the Court uphold the Commission's application and consequently declare that the French Republic has failed to fulfil its obligations and should be ordered to pay the costs, including those of the intervener, since, although the latter did not expressly ask for them, it intervened in the case 'in support of the conclusions of the Commission', which, for its part, asked for the French Republic to be ordered to pay the costs. 1