C-189/95

T H E COURT,

composed of: G. C. Rodriguez Iglesias, President, C. Gulmann, H . Ragnemalm, M. Wathelet (Presidents of Chambers), G. F. Mancini, J. C. Moitinho de Almeida, P. J. G. Kapteyn, J. L. Murray, D . A. O. Edward, J.-P. Puissochet (Rapporteur), G. Hirsch, P. Jann and L. Sevón, Judges,

Advocate General: M. B. Elmer, Registrar: H . von Holstein, Deputy Registrar,

* Language of the case: Swedish.

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— the Commission of the European Communities, by Richard Wainwright, Principal Legal Adviser, and Jean-Francis Pasquier, a national civil servant on secondment to its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Harry Franzen, represented by Per Löfqvist, Lennart Lindström and Carl Michael von Quitzow; of the Swedish Government,

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represented by Lotty Nordling and Erik Brattgård, Assistant Under-Secretary at the Department of Foreign Trade of the Ministry of Foreign Affairs, acting as Agent; of the Finnish Government, represented by Holger Rotkirch, Ambassador, Head of the Legal Affairs Department of the Ministry of Foreign Affairs, Esa Paasivirta and Tuula Pynnä, Legal Adviser at the Ministry of Foreign Affairs, act- ing as Agents; of the Norwegian Government, represented by Didrik Tønseth; and of the Commission, represented by Knut Simonsson, of its Legal Service, acting as Agent, assisted by Jean-Francis Pasquier, at the hearing on 19 November 1996,

3 The Law on Alcohol, which entered into force on 1 January 1995, regulates pro- duction and trade in alcoholic beverages in Sweden. Its aim is to limit the con-

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sumption of alcoholic beverages, in particular those of high alcoholic strength, in order to reduce the harmful effects which their consumption has on human health.

4 For the purposes of the Law 'alcoholic beverages' means beverages having an alcoholic strength by volume exceeding 2.25%. Such beverages include 'wine' (fermented beverage based on grapes or other fruit, with an alcoholic strength by volume not exceeding 22%), 'beer' (malt-based fermented beverage, with an alco- holic strength by volume of between 2.25% and 3.5%), 'strong beer' (malt-based fermented beverage, with an alcoholic strength by volume exceeding 3.5%) and 'spirit' drinks (alcoholic beverages other than wine, beer or strong beer).

5 Under the Law, the production of alcoholic beverages is subject to the holding of a 'production licence' whilst wholesale trade in spirits, wine and strong beer is subject to the holding of a 'wholesale licence'. However, the Law allows persons holding a production licence to engage in wholesale trade in the products covered by the licence.

io An applicant must show that he has sufficient storage capacity to engage in his activity. The Alcohol Inspectorate will examine, case by case, the capacity required, having regard to the form of the applicant's activity. In particular, storage capacity is not required of traders who supply beverages directly to buyers located in national territory.

1 1 An applicant must also provide a bank guarantee to cover payment of excise duties which, as warehousekeeper or consignee of goods, he may be required to pay under Directive 92/12.

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12 Finally, each year the holder of a licence must pay a charge for the monitoring of his premises, the rates of which are set by the State. At the material time, the basic rate was between SKR 10 000 and SKR 323 750, depending on the kind of bever- ages and the quantities produced or marketed.

1 3 In reply to written questions from the Court, the Swedish Government explained that the Law on Alcohol did not require an applicant for a licence to be resident in Sweden, which was expressly indicated in a decision of 5 October 1995. It con- firmed this point at the hearing.

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licences or to holders of beverage retail licences. The retail company itself may apply for licences in order to effect wholesale sales of alcoholic beverages to hold- ers of beverage retail licences.

i9 The intentional or inadvertent sale of alcoholic beverages without a licence is sub- ject to criminal penalties.

20 Finally, the Lag med vissa bestämmelser om marknadsföring av alkoholdrycker (1978: 763) (Law enacting certain measures governing the marketing of alcoholic beverages), whilst not laying down a general prohibition of advertising of alcoholic beverages, prohibits measures encouraging their consumption, such as insistent or high-pressure promotion techniques, doorstep selling and advertising on radio and television and in newspapers and periodicals. However, the promotion of alcoholic beverages is allowed in written material made available to the public at retail points, in particular those of Systembolaget, and in means of transport with a licence to serve alcohol. N o r does that Law prohibit reference being made to alco- holic beverages in press articles, in particular in columns devoted to wine and drink appearing in daily newspapers or periodicals.

The rules governing the operation of Systembolaget

2i The agreement between Systembolaget and the Swedish State, which entered into force on 1 January 1995, provides in particular that the company is to:

— take steps to ensure that new beverages which it markets become known to consumers, whilst having regard to the restrictions laid down in the Law on Alcohol;

— set its margins according to objective criteria independent of the origin of bev- erages;

— run its business along rational lines, provide quality service and set its prices so as to cover its costs and ensure the State a reasonable return on its capital and avoid any unnecessary marking up of the prices of beverages;

— establish or close sales outlets according to management constraints, the ser- vices to be provided and alcohol policy, whilst in principle allowing each com- mune applying for one to have a sales outlet and ensuring that, in places where there is no sales outlet, alcoholic beverages can be sold by dispatch to order at the cost of Systembolaget;

— set the opening times of sales outlets in accordance with guidelines laid down by the Riksdag (Swedish Parliament).

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25 Systembolaget draws up an annual purchase plan for its products which is revised each quarter. The company invites production and wholesale licence-holders to submit offers. A preliminary selection is then made on the basis of economic or commercial criteria, such as price competitiveness and commercial history, fol- lowed by a 'blind' tasting trial. The products selected are then included in the 'basic' assortment or the 'provisional' assortment. Products not selected may, at the supplier's request, be put in the 'trial' assortment after selection on the basis of a new tasting test carried out by a panel of consumers. As a rule, beverages are kept in the 'basic' assortment only if their sales reach predetermined quantities and market shares.

26 According to the evidence submitted to the Court, Systembolaget marketed 185.2 million litres of alcoholic beverages from January to September 1995 (45.2% from Sweden and 41.8% from other Member States) and 176.9 million litres of alcoholic beverages from January to September 1996 (45.1% from Sweden and 40.6% from other Member States). During the first eight months of 1996, Systembolaget received 12 576 offers, of which 10 711 were from Member States of the Commu- nity (227 from Sweden and 10 484 from other Member States), examined 7 417 of them, of which 6 325 were from the Community (149 from Sweden and 6 176 from other Member States), and accepted 908, of which 704 were from the Com- munity (85 from Sweden and 619 from other Member States).

The facts of the case and procedure before the national court

2. Is a statutory monopoly such as that of Systembolaget contrary to Article 37 of the Treaty of Rome and, if so, must the monopoly be abolished or is an adjustment possible?

3. If a monopoly such as that of Systembolaget is to be regarded as being contrary to Article 37, is any period of adjustment available or should it have been abol- ished or an adjustment made by 1 January 1995?'

The first two questions

30 By its first two questions the national court is asking whether Articles 30 and 37 of the Treaty preclude national provisions governing a domestic monopoly on the retail of alcoholic beverages, such as those mentioned in the order for reference.

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33 The French, Finnish, Swedish and Norwegian Governments and the Commission consider that neither Article 30 nor Article 37 of the Treaty preclude national pro- visions such as those referred to by the national court in this case. They point out that Article 37 does not require the abolition of retail monopolies but simply requires that they be adjusted so that they do not involve rules which are discrimi- natory according to the origin of products or according to the nationality of trad- ers. In their view, the monopoly in question in the main proceedings meets those

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conditions. They also consider that the rules applicable to the monopoly do not hinder, directly or indirectly, intra-Community trade. Such rules Umit or prohibit certain selling arrangements and affect the marketing of domestic products and imported products in the same way.

34 As is clear from the reasoning in the order for reference and the observations sub- mitted to the Court, the questions raised by the national court concern not only the domestic provisions relating to the existence and operation of the monopoly but also, more generally, the provisions which, although not governing the opera- tion of the monopoly, nevertheless have a direct bearing upon it, as is the case with the rules relating to production and wholesale licences.

35 Having regard to the case-law of the Court, it is necessary to examine the rules relating to the existence and operation of the monopoly with reference to Article 37 of the Treaty, which is specifically applicable to the exercise, by a domestic commercial monopoly, of its exclusive rights (judgments in Case 91/75 Hauptzollamt Göttingen v Miritz [1976] ECR 217, paragraph 5; Case 120/78 REWE-Zentral AG v Bundesmonopolverwaltung für Branntwein ('Cassis de Dijon) [1979] ECR 649, paragraph 7; and Case 91/78 Hansen v Hauptzottamt Flensburg [1979] ECR 935, paragraphs 9 and 10).

37 It is clear not only from the wording of Article 37 but also from the position which it occupies in the general scheme of the Treaty that the article is designed to ensure compliance with the fundamental principle that goods should be able to move freely throughout the common market, in particular by requiring quantita- tive restrictions and measures having equivalent effect in trade between Member States to be abolished, and thereby to ensure maintenance of normal conditions of competition between the economies of Member States in the event that a given product is subject, in one or other of those States, to a national monopoly of a commercial character (judgments in Case 59/75 Pubblico Ministero v Manghera and Others [1976] ECR 91, paragraph 9; Hansen, cited above, paragraph 8; Case 78/82 Commission v Italy [1983] ECR 1955, paragraph 11; Case C-347/88 Com- mission v Greece [1990] ECR 1-4747, paragraph 42; and Case C-387/93 Banchero [1995] ECR 1-4663, paragraph 27, hereinafter 'Banchero IT).

38 However, the Court has repeatedly stated that Article 37 does not require national monopolies having a commercial character to be abolished but requires them to be adjusted in such a way as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Mem- ber States (see the judgments cited above: Manghera, paragraph 5; Hansen, para- graph 8; Commission v Italy, paragraph 11 and Banchero II, paragraph 27).

39 The purpose of Article 37 of the Treaty is to reconcile the possibility for Member States to maintain certain monopolies of a commercial character as instruments for the pursuit of public interest aims with the requirements of the establishment and functioning of the common market. It aims at the elimination of obstacles to the free movement of goods, save, however, for restrictions on trade which are inher- ent in the existence of the monopolies in question.

The product selection system

43 Mr Franzén contends that beverages are selected and maintained in the assortments of Systembolaget pursuant to criteria which are not only restrictive but also arbi- trary and not subject to any possible review.

44 It must first be pointed out in this regard that the agreement made between the State and Systembolaget requires the latter to select the products which it markets on the basis of their quality, lack of adverse effects on human health, consumer demand and business or ethical considerations, that is to say on the basis of criteria independent of the origin of the products.

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45 It must be examined next whether the criteria and methods of selection used by Systembolaget are discriminatory or likely to put imported products at a disadvan- tage.

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so Fourth, there are other ways for traders to have their products marketed by the monopoly: those whose offers are not selected by Systembolaget may ask for their products to undergo a second qualitative test before a panel of consumers and, if they pass it, for the monopoly to market them on a trial basis for a given period. Products which have not been accepted by Systembolaget and which fulfil the objective conditions laid down in clause 4 of the agreement between the State and Systembolaget may be included in the 'by order' assortment and sold at the cus- tomer's request. Finally, Systembolaget is required to import any alcoholic bever- age at the request and cost of the consumer.

si Fifth, traders are entitled to be told the reasons for decisions taken by the monopoly regarding the selection of beverages and their maintenance in the 'basic' assortment and may challenge such decisions before a board offering every guar- antee of independence.

52 So, having regard to the evidence before the Court, the criteria and selection meth- ods used by Systembolaget do not appear to be either discriminatory or apt to put imported products at a disadvantage.

The monopoly's sales network

56 Second, according to the information provided to the Court, alcoholic beverages may be ordered and supplied in the monopoly's 384 'shops', through around 550 sales outlets as well as along 56 bus routes and on 45 rural post rounds. Further- more, there is at least one 'shop' in 259 of the 288 Swedish communes and Sys- tembolaget is planning for every commune to have at least one 'shop' in 1998.

57 Finally, even if the retail network of Systembolaget is still imperfect, this circum- stance does not adversely affect the sale of alcoholic beverages from other Member States more than the sale of alcoholic beverages produced in Sweden (see, mutatis mutandis, in relation to Article 30 of the Treaty, Banchero II, cited above, para- graph 40).

The promotion of alcoholic beverages

58 Mr Franzén also contends that the system for promoting alcoholic beverages favours the marketing of beverages produced in Sweden. H e points out that the

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written material available at sales outlets. Furthermore, any alcoholic beverage may be mentioned in press articles.

62 As far as product promotion is concerned, the agreement made between the Swed- ish State and Systembolaget requires the latter to adopt marketing and advertising measures which are impartial and independent of the origin of the products and to endeavour to make known new beverages to consumers whilst taking account of the restrictions in the Law on Alcohol.

63 Although it is true that the monopoly's promotion of alcoholic beverages is mainly in the form of product presentation, it appears that this method of promotion sim- ply meets the obligations which are referred to above. It must, however, be noted that new products are systematically presented either in the monthly review dis- tributed by the monopoly or to newspaper, radio and television wine critics, or, finally, in displays in the monopoly's 'shops'.

64 Finally, it must be noted that the method of promotion used by the monopoly applies independently of products' origin and is not in itself apt to put at a disad- vantage, in fact or in law, beverages imported from other Member States in relation to those produced on national territory.

67 A s explained above, in view of the a r g u m e n t s w h i c h have b e e n exchanged before both the national court and this Court, the questions referred for a preliminary ruling must be understood as also relating to the provisions of the domestic legisla- tion which, although not, strictly speaking, regulating the functioning of the monopoly, nevertheless have a direct bearing upon it. Those provisions must be examined with reference to Article 30 of the Treaty.

68 O n this point, Mr Franzén observes that the monopoly may obtain supplies only from holders of production licences or wholesale licences whose grant is subject to restrictive conditions and that such an obligation necessarily impedes imports of products from other Member States.

69 According to the established case-law of the Court, all trading rules which are capable of hindering, directly or indirectly, actually or potentially, intra- Community trade constitute measures having an effect equivalent to quantitative restrictions (judgment in Case 8/74 Procureur du Roi v Dassonville [1974] ECR 837, paragraph 5).

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73 Domestic legislation such as that in question in the main proceedings is therefore contrary to Article 30 of the Treaty.

74 The Swedish Government has, however, invoked Article 36 of the EC Treaty. It maintains that its legislation was justified on grounds relating to the protection of human health.

75 It is indeed so that measures contrary to Article 30 may be justified on the basis of Article 36 of the Treaty. All the same, according to established case-law (Cassis de Dijon, cited above; Case C-470/93 Verein gegen Unwesen in Handel und Gewebe Köln v Mars [1995] ECR 1-1923, paragraph 15; Case C-368/95 Familiapress [1997] E C R 1-3689, paragraph 19; and Joined Cases C-34/95, C-35/95 and C-36/95 De Agostini and TV-Shop [1997] ECR 1-3843, paragraph 45), the domestic provisions in question must be proportionate to the aim pursued and not attainable by mea- sures less restrictive of intra-Community trade.

76 Although the protection of human health against the harmful effects of alcohol, on which the Swedish Government relies, is indisputably one of the grounds which may justify derogation from Article 30 of the Treaty (see, to this effect, the judg- ment in Joined Cases C-l/90 and C-l76/90 Aragonesa de Publicidad Exterior and Publivta v Departamento de Sanidad y Seguridad Social de la Generalität de Cata- luña [1991] ECR 1-4151, paragraph 13), the Swedish Government has not estab- lished that the licensing system set up by the Law on Alcohol, in particular as regards the conditions relating to storage capacity and the high fees and charges

79 In this regard, it must be reiterated that, under the division of jurisdiction provided for by Article 177 of the Treaty in preliminary ruling proceedings, it is for the national court alone to determine the subject-matter of the questions which it wishes to refer to the Court. The Court cannot, at the request of one party to the main proceedings, examine questions which have not been submitted to it by the national court. If, in view of the course of the proceedings, the national court were to consider it necessary to obtain further interpretations of Community law, it would be for it to make a fresh reference to the Court (Case 311/84 CBEM v CLT and IPB [1985] ECR 3261, paragraph 10; Case C-337/88 SAFA v Amministrazione detta Finanze detto Stato [1990] ECR I-I, paragraph 20; and Case C-196/89 Nespoli and Grippa [1990] ECR 1-3647, paragraph 23).

so The reply to be given to the first two questions must therefore be that Article 37 of the Treaty does not preclude domestic provisions relating to the existence and operation of a national monopoly on the retail of alcoholic beverages such as those

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mentioned in the order for reference. However, Articles 30 and 36 of the Treaty preclude domestic provisions allowing only traders holding a production licence or a wholesale licence to import alcoholic beverages on conditions such as those laid down by Swedish legislation.

The third question

O n those grounds,

T H E COURT,

in answer to the questions referred to it by the Landskrona Tingsrätt by judgment of 14 June 1995, hereby rules:

1. Article 37 of the EC Treaty does not preclude domestic provisions relating to the existence and operation of a national monopoly on the retail of alcoholic beverages such as those mentioned in the order for reference.

2. Articles 30 and 36 of the EC Treaty preclude domestic provisions allowing only traders holding a production licence or a wholesale licence to import alcoholic beverages on conditions such as those laid down by Swedish legis- lation.

Rodriguez Iglesias Gulmann Ragnemalm

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