C-302/00

OPINION OF MR ALBER — CASE C-302/00

OPINION OF ADVOCATE GENERAL ALBER delivered on 13 September 2001 1

I — Introduction 92/79/EEC 2lays down a minimum tax rate in this respect. Council Directive 95/59/EC 3 harmonised these excise duties.

1. In these proceedings for failure to fulfil Treaty obligations, the Commission claims that since 1998 the French Republic has, (1) Directive 95/59 firstly, imposed a minimum reference price for cigarettes instead of allowing the price to be freely determined by manufacturers, and, secondly, taxed light-tobacco ciga- rettes more heavily than dark-tobacco 3. Directive 95/59 contains the following cigarettes. provisions:

'Article 8

I I — Legal framework

(2) ... '

(3) (4) ... '

'Article 16

'Article 9 ( 1 ) ...

(1) A natural or legal person established in the Community who converts tobacco into (5) Member States may levy a minimum manufactured products prepared for retail excise duty on cigarettes and on fine-cut sale shall be deemed to be a manufacturer. tobacco for the rolling of cigarettes, pro- vided that this does not have the effect of raising the total tax to more than 90% of the total tax on the most popular price category of cigarettes or the most popular price category of fine-cut tobacco for the Manufacturers, or, where appropriate, rolling of cigarettes respectively.' their representatives or authorised agents in the Community and importers of tobacco from non-member countries shall be free to determine the maximum retail selling price for each of their products for each Member State for which the products 4. With effect from 1 January 1999, Direc- in question are to be released for consump- tive 1999/81 of 29 July 1999 amended tion. Article 16(5) to read as follows:

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The overall minimum excise duty on ciga- 5. The Commission based the application, rettes shall be determined on the basis of but not the reasoned opinion of 26 January cigarettes of the price category most in 1999, on the new version that was in force demand according to data established as at as of 1 January 1999. At the time of the 1 January of each year, beginning on letter of formal notice of 29 July 1998, the 1 January 1993.' old version was in any case still in force. As, however, the passages of the old version that are relevant here were not changed fundamentally, as to the content it is of no consequence whether the old or new ver- sion of Article 16(5) of Directive 95/59 is applied. B — French law 4 — Firstly, the new version no longer refers to fine-cut tobacco which is not the object of the present case. Secondly, the new German version no longer uses the wording 'Zigaretten der am meisten gefragten Preisklasse' but refers to 'Ziga- retten der gängigsten Preisklasse'. This appears to be merely 7. Article 37 of the Loi de Finances pour an editorial amendment, designed to bring Article 16(5) of Directive 95/59 into line with the German version of Article 2 of Directive 92/79 which already referred to the 1998 (No 97 — 1269) of 30 December 'gängigsten Preisklasse'. The French language version of 1997 (JORF of 21 December 1997, Article 16(5) of Directive 95/59, which was not amended by Directive 1999/81, already corresponded to Article 2 of p. 19261) inserted the following provisions Directive 92/79. Therefore, the revised version does not affect the contents of the provision in so far as is relevant into the Code general des impôts, with here. effect from 1 January 1998.

'The lowest rate of tax mentioned by 11. The Commission was of the opinion Article 575 is fixed at FRF 500 for that Article 572(2) of the Code general des cigarettes. Nevertheless, for dark-tobacco impôts introduced an inadmissible mini- cigarettes, that rate of tax is fixed at FRF mum reference price, and that the amend- 400, and at FRF 420 from 1 January 1999. ment of Article 575A created different tax rates for light-tobacco cigarettes and dark- tobacco cigarettes, both of which are incompatible with Directives 95/59 and 92/79, as well as Article 95 of the EC Treaty. It therefore sent the French Repub- lic a letter of formal notice on 29 July 1998 and, after the deadline set therein had expired without answer, a reasoned opinion on 26 January 1999. The French Republic answered by letters of 6 April 1999 and 22 February 2000. The Commis- Cigarettes containing a minimum of 60 per cent of natural tobaccos covered by Cus- toms tariff codes NC 2401.10.41, 5 — The common customs tariff defines this as tobacco, not stemmed/stripped, partly or wholly stripped/stemmed of the 2401.10.70, 2401.20.41 or 2401.20.70 finish fire-cured or dark air-cured.

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sion subsequently submitted the present 92/79/EEC of 19 October 1992 on the application which was lodged at the Court approximation of taxes on cigarettes of Justice on 7 August 2000. and under the first paragraph of Article 95 EC, or in the alternative the second paragraph of Article 95 EC;

12. The Commission of European Commu- nities claims that the Court should — order the French Republic to pay the costs.

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IV — Analysis the Member States to fix the prices of cigarettes. 6

A — Minimum reference price 17. The Court of Justice has held in its most recent decision that the fixing of a minimum price is also incompatible with free pricing under Article 9(1) of Directive Arguments of the parties 95/59. 7

15. The Commission refers to Article 9 of Directive 95/59 under which manufacturers 18. Competitive pricing to which France or, where appropriate, importers, are free objects is the objective of Article 9(1) of to determine the maximum retail selling Directive 95/59. The French measures aim price of cigarettes. Article 572 of the Code to protect dark-tobacco cigarettes. Such an général des impôts, however, requires that economic objective cannot justify infringe- the price for 1 000 units of a product sold ments of Community law. under the same brand may not be lower than that applied to the highest selling product of that brand. As the price of the most popular product with that brand must be used as the minimum price, the manu- facturer's freedom to fix the price if the product is presented differently, for example as to size of packaging, size or quality of the cigarettes, is restricted. 19. Directive 92/79 and Directive 95/59 accorded the Member States considerable leeway to influence the cigarette market by uniform taxation. France, however, is seek- ing to grant tax concessions for cigarettes with a low sales price.

16. Referring to the case-law of the Court 6 — The Commission refers to Case 90/82 Commission v France (1983) ECR 2011, especially paragraph 20f„ Case C-287/89 of Justice, the Commission states that Commission v Belgium [1991] ECR I-2233, and Case C-306/91 Commission v Italy [1993] ECR I-2133. neither would the reservations under 7 — Case C-216/98 Commission v Greece [2000] ECR I-8921, Article 9(1)(iii) of Directive 95/59 authorise paragraph 2 1 .

22. Article 9(l)(ii) of Directive 95/59 pro- vides that in principle it is the manufacturer or importer who fixes the final maximum retail selling price for cigarettes. Although 25. There is no discernible justification for paragraph (iii) of the provision could be the infringement of Article 9(1) of Directive understood as allowing the Member States 95/59. In so far as France refers to pricing to influence the price fixing even so, it is competition that led to a fall in the price of clear from the case-law of the Court of cigarettes, and which is undesirable on Justice that it is for the manufacturer or health policy grounds, it must be pointed importer to determine prices. 8 out that the possibility of pricing compe- tition is the logical consequence of pricing freedom and that health policy consider- 8 — Case C-216/98 (cited in footnote 7, paragraph 20 et seq. and further references therein). ations are, under Directives 95/59 and

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92/79, to be achieved primarily through the selling price. When a manufacturer or imposition of taxes. The fixing of a mini- importer offers cigarettes at a price below mum price, on the other hand, is explicitly that of the most popular price category of excluded. If France wishes to use such cigarettes, however, the minimum excise means then it must first seek amendment of duty applies. Article 9 of Directive 95/59.

29. Article 575A of the Code general des 26. In view of these finding, it is not impôts does not, however, fix this mini- necessary to decide here whether, contrary mum tax rate as the minimum taxes it to its wording, Article 572 of the Code introduces do not depend on the most général des impôts does not influence the popular price category of cigarettes. How- pricing of other products within a brand ever, in terms of their effect, these taxes depending on their size, quality or individ- correspond to a minimum excise duty, as ual characteristics. they exclude a price-proportionate tax rate that falls below a certain final retail selling price. The final retail selling price is lower for dark-tobacco cigarettes than for light- tobacco cigarettes. 27. At all events, this provision infringes Article 9(1) of Directive 95/59.

Arguments of the Parties

31. France is not disputing this argument in so far as is based on Directives 92/79 and 95/59.

34. The Commission stresses first that not- withstanding that finding of infringement of the directives, it is necessary to make an Opinion assessment on the basis of Article 95 of the EC Treaty. While the legal basis for the directives — Article 99 of the EC Treaty (now Article 93 EC) — seeks to eliminate trade restrictions through harmonised tax rules, Article 95 of the Treaty addresses discrimination and protectionist taxes. 9 32. I endorse the view shared by the parties. Article 2 of Directive 92/79 and Article 16(5) of Directive 95/59 cite only one minimum excise duty which, under Article 2, must be an overall duty. Different tax rates cannot operate Overall'. More- over the second recital in the preamble to Directive 95/59 states that excise duties 35. It has been consistently held that an levied on cigarettes in the Member States infringement of the first paragraph of may not distort conditions of competition. Article 95 of the Treaty occurs when the But that is exactly the result of Member tax on the imported product and the tax on States levying differing minimum excise the similar domestic product are calculated duties. in a different way and under different conditions so that the imported product, even if only in certain cases, is more heavily taxed. 10

33. Therefore, the revised version of 9 — The Commission refers to Case 171/78 Commission v Oenmark (taxation of spirits) [1980] ECR 447. Article 575A of the Code general des 10 — The Commission refers to Cases C-213/96 Outokumpu impôts is incompatible with Directives Oy [1998] ECR I-1777, paragraph 34 and Case C-152/89 Commission v Luxembourg [1991] ECR I-3141, 92/79 and 95159. paragraph 20.

40. Nor, finally, do the findings in the Seita/Tabacalera merger control decision 11 affect similarity. In that decision the Com- 37. The two types of cigarettes are similar mission expressly left open the question within the meaning of Article 95 (1) of the whether there is a single market for dark- Treaty. According to the case-law of the tobacco and light-tobacco cigarettes. More- Court of Justice, the similarity test is to be over, the Court of Justice recognised that interpreted widely. To this end, regard two products within the meaning of the must firstly be had to all objectively typical second paragraph of Article 95 of the characteristics, such as the raw material, Treaty can be competing without constitut- manufacturing procedure, organoleptic ing a single market. 12 properties, in particular taste, tar and nicotine content and, secondly, to the extent to which the two products serve the same needs. On this criterion there is similarity. The two types of cigarettes are interchangeable in exactly the same way as light and dark beer or white and red wine. 41. On no account does the first paragraph The two types of cigarettes are also treated of Article 95 of the Treaty require evidence equally for tax law purposes under Direc- that imports are dwindling. tive 95/59. They are furthermore catego- rised under the same heading in the com- mon customs tariff.

42. Even if dark-tobacco and light-tobacco cigarettes do not constitute similar prod-

11—Commission Decision of 3 December 1999 declaring a concentration to be compatible with the common market (Case IV/M.1735 — Seita/Tabacalera) according to Council Directive (EEC) No 4064/89, OJ 2000 C 32, p. 4. Only the English version of the text is authentic and 38. The differences in taste between light- can be obtained via the English version of CELEX, via the tobacco and dark-tobacco cigarettes alone website of the Competition Directorate General http://eu- ropa.eu.int/comm/competition/mcrgers/cases/decisions/ cannot rule out similarity, as all the afore- m1735_en.pdf or a hard copy can be obtained separately. mentioned criteria must be taken into 12 — The Commission cites Case 184/85 Commission v Italy [1987] ECR 2013, and Case 27/76 United Brands [1978] account. ECR 207.

43. The discriminatory effect of different tax rates on products from other Member States is the result of the fact that almost all 45. France first explains that Rothmans dark-tobacco cigarettes consumed in introduced the Winfield cigarette brand France are also manufactured there. The onto the French market in 1996. In packets Commission says that between 95% and of 30 units, these (light-tobacco) cigarettes 99.57% of consumption is domestically were sold significantly more cheaply than manufactured. It is indisputable that the in the usual packets of 20 units (FRF 667 French measures give preference to dark- for 1 000 units compared to FRF 850 for tobacco cigarettes, which are produced in 1 000 units). As a result, the Winfield France, over light-tobacco cigarettes, which brand quickly acquired a large share of are almost exclusively imported. the market. Since other tools of compe- tition — in particular cigarette advertis- ing — were strictly limited by law, Roth- man's competitors also considered lower- ing their prices by 15%. A drop in price levels would, however, have called into question French strategy for promoting 44. The amendment of the tax rate has also public health by combating tobacco con- affected this competition. According to the sumption, which was based chiefly on high Commission, it was merely the result of a prices. strategic decision of the manufacturers and importers not to raise the price of light- tobacco cigarettes in 1998. Before the new rules came into force manufacturers were able to fix a price of FRF 630 per 1 000 units. After they came into force, however, they had to demand a price of FRF 850 per 1 000 units. Manufacturers of dark-to- bacco cigarettes, by contrast, were able to content themselves with a price of FRF 666.50 per 1 000 units, or to take 46. Directives 92/79 and 95/59 offer no advantage of the total difference between means of countering an unusual price war of that kind. Fixing a single increased minimum excise duty simplifies the prob- lem in a manner that is impermissible, as it 13 — The Commission refers to Case 356/85 Commission v Belgium [1987] ECR 3299, paragraph 7. primarily affects dark-tobacco cigarettes.

53. The Court of Justice has in the mean- 50. Finally, the market for the two types of time further developed its case-law on cigarettes has also developed differently. discriminatory taxes. A tax rate can only Between 1990 and 2000, sales of dark- be regarded as discriminatory if it is tobacco cigarettes have more than halved capable of preventing the consumer from from 34.7 billion to 15 billion units, while acquiring the product in question from sales of light-tobacco cigarettes have 15 — Opinion in Case C-481/98 Commission v France [2001] ECR I-3369. 14 — Case 45/75 [1976] ECR 181. 16 — France refers to the case referred to in footnote 10.

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other Member States to the advantage of aim of Directive 95/59 to put a stop to domestic products. 17 There is, however, no discriminatory taxation. 18 But I do pro- evidence of such discriminatory effect in pose to consider the compatibility of two the development of the markets for light- different minimum tax rates for light and tobacco and dark-tobacco cigarettes. dark-tobacco cigarettes with Article 95 of the Treaty.

54. Finally, referring to various periods of (a) Discriminatory taxation time, the French Government observes that the price of dark-tobacco cigarettes — starting from a significantly lower level — has increased more sharply than that of light-tobacco cigarettes and that at the same time sales of darker cigarettes have 56. The Court of Justice declared recently fallen, while sales of lighter cigarettes have that 'a system of taxation may be con- increased. sidered compatible with Article 95 of the EC Treaty only if it is such as to exclude any possibility [emphasis added] of imported products being taxed more heavily than similar domestic products'. 19

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although it does not make a formal dis- and dark-tobacco cigarette are similar. tinction based on the origin of the goods, Neither the abovementioned directives on most domestic products fall in the lowest taxation nor the common customs tariff tax category, whereas almost all imported distinguish between dark-tobacco and products are subject to the highest tax light-tobacco cigarettes. But closer examin- rate. 20 ation shows that little weight may be given to that evidence.

58. Were light-tobacco cigarettes and dark- tobacco cigarettes to be similar products within the meaning of the first paragraph of Article 95 of the Treaty, a situation 61. Classification under a common cus- involving such a degree of discrimination in toms tariff heading may constitute evidence practice could not be justified as a system that products are similar, 2 but it does not of taxation based on objective distinguish- necessarily mean that they are. 23 ing criteria. Not even the fact that dif- ferences in tax rates are based on objective criteria can justify discrimination.21

62. More important than classification in 59. The question remains, however, as to the customs tariff, however, is assessment the two types of cigarette are to be con- under the Directives discussed above. The sidered similar products. recitals in the preamble to and Article 4 of Directive 95/59 suggest that the Commu- nity legislature assumes all types of ciga- rettes to belong to the same group of tobacco products and to be in competition with each other. However, this point of (b) The similarity of light-tobacco ciga- view is qualified by legislative practice. In rettes and dark-tobacco cigarettes principle, specifications and definitions of products subject to excise duty in harmon- ising provisions based on Article 99 of the EC Treaty follow the customs tariff clas- sifications. 24

64. Specific consideration must therefore be given to whether light-tobacco cigarettes and dark-tobacco cigarettes are to be con- sidered to be similar. Since the judgement Hansen and Balle, the Court of Justice has stressed that similar products do not need to be 'identical' in the strict sense, but are to be determined on the basis of the 66. Until now the Court of Justice has, in criterion of similar and comparable use. 27 determining similarity, examined whether the respective products have the same characteristics and serve the same needs in the eyes of the consumer. 30 On the other hand, the tax policies of a Member State may not serve to reinforce consumption habits in order to guarantee an acquired advantage for a domestic industry that is 65. The case-law of the Court of Justice concerned with the satisfaction of such contains examples of how far the similarity habits. 31 No decisive significance can thus of products can extend. In Case 168/78, the be attached to the subjective factor of Court of Justice declared that '[there] is in consumer assessment as compared to objec- tive factors. It therefore seems more appro- priate objectively to examine, as has been 25 — Case C-481/98 Commission v France [2001] ECR I-3369, done in the more recent cases, whether paragraph 29. 26 — See the judgments cited in footnote 12 in Case C-184/85 (paragraph 12), and United Brands (paragraph 22 et seq.), according to which although there is for competition 28 — Cited in footnote 23, paragraph 12. purposes a stand-alone market for bananas, bananas can nevertheless be similar to other fruit. 29 — Cited in footnote 27, paragraph 13 et seq. 27 —Case 148/77 [1978] ECR 1787, paragraph 19, Case 30 — Rewe-Zentrale (cited in footnote 14, paragraph 12); see 168/78, cited in footnote 23, paragraph 5; Case 216/81 also Case 277/83 (cited in footnote 21, paragraph 13). Cogis [1982] ECR 2701, paragraph 7, and Case 106/84 31—Case C-170/78 Commission v United Kingdom [1980] Commission v Denmark (fruit wine) [1986] ECR 833, ECR 417, paragraph 14, Case C-230/89 Commission v paragraph 12. Greece [1991] ECR I-1909, paragraph 15.

68. This impression is confirmed when one considers how the tobaccos are processed. The customs tariff headings cited for the definition of dark-tobacco cigarettes cover 70. Arguing against similarity, France unprocessed, not stemmed/stripped and invokes differences in taste. However, the partly or wholly stemmed/stripped tobacco that is dried over fire ('fire-cured') or under a roof and is subjected to fermentation 33 — Cf. Article 2 of Council Regulation (EEC) No 2075/92 of 30 June 1992 on the common organisation of the market in raw tobacco (OJ 1992 L 215, p. 70) as most recently amended by Council Regulation (EEC) No 2075/92 on the 32 — Case C-265/99 (cited in footnote 19, paragraph 42 — see common organisation of the market in raw tobacco the French version of the judgment in Case C-106/84 (cited (OJ 2000 L154, p. 2). in footnote 27, paragraph 15). 34 — Cf. definition in Article 4 of Directive 59/95.

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to determine whether the differences in the fore not proven that the different tax rates tax rates are such as to have a protectionist protect domestic products. This the Com- effect, to the advantage of domestic prod- mission would have needed to prove in ucts. 38 Statistical data reveal factors rel- order to succeed. evant to that assessment. Although the Commission in principle has the burden of proving Treaty infringements, 39 the Court of Justice has held that the Commis- sion is not as a rule bound to provide statistical information. 40 (d) Conclusion regarding Article 95 of the Treaty

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the costs. Since the French Republic has Republic to be ordered to pay the costs, the been unsuccessful in its submissions, and French Republic is to be ordered to pay the the Commission has applied for the French costs.

VI — Conclusion

79. I therefore propose that the Court of Justice rule as follows:

(1) By maintaining in force a system imposing a minimum reference price on all cigarettes, the French Republic has failed to fulfil its obligations under Article 9(1) of Council Directive 95/59/EC of 27 November 1995 on taxes other than turnover taxes which affect the consumption of manufactured tobacco.