28/08/2016. State Monopolies. Obligation to adjust. Lecture: State Monopolies Alcohol & Public Health

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1 Lecture: State Monopolies Alcohol & Public Health Jörgen Hettne 1 State Monopolies Article 37 TFEU provides: 1. Member States shall adjust any State monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States. Article 37 TFEU applies only to goods Does not cover the free movements of services Does not cover capital movements (See 155/73, Sacchi) Service monopolies are covered by the general provisions on the free movement of services and establishment Obligation to adjust The term adjust does not mean that all monopolies have to be lifted However: Exclusive rights to import must be abolished Exclusive rights to export must probably be abolished 1

2 C-59/75, Manghera State monopoly for tobacco products Monopolies must be adjusted in such a way as to ensure that discrimination cease to exist The obligation laid down in Article 37.1 aims to ensure compliance with the fundamental rule of the free movement of goods throughout the common market The exclusive rights to import constitutes discrimination prohibited by Article 37.1 Article 37.1 constitutes an obligation with a very precise objective. It has direct effect. The specific business of the monopoly? Article 37 concerns activities intrinsically connected with the specific business of the monopoly Irrelevant to national provisions which have no connection with the specific business of the monopoly (8/78, Grand Distilleries) These national provisions are instead covered by other provisions in the Treaty (i.a. Article 34 TFEU) The Swedish initial position monopolies on alcohol The current system of state monopolies for the import, wholesale and retail sale of alcoholic beverages does not contain any elements discriminatory of foreign manufacturers or wholesalers. On the Swedish market domestic and imported goods compete on equal terms. The monopolies are thus not discriminatory in the sense of the Treaty of Rome. (Government bill regarding the EEA Agreement) 2

3 Swedish Accession Negotiations During the negotiations regarding membership of the EU, [...] an exchange of letters took place between the Commission and the Swedish Government. In this correspondence the Commission claimed that import, export, wholesale trade and manufacturing monopolies are incompatible with the EC treaty. As regards the retail monopoly, the Commission considers that if all elements that are discriminatory between domestic products and those imported from other member countries are removed, there is no reason for the Commission to take measures, on its own initiative, against this monopoly. (Prop. 1994/95:19, see annex 12). Elements necessary to ensure nondiscrimination Objective rules regarding the purchase and sales of alcoholic beverages which were applied equally to every Union citizen and Union product and which were transparent. Obligation to function in a non-discriminatory manner. Swedish adaptions in order to ensure non-discrimination Introduction of a objective product plan for the beverages provided by Systembolaget. New conditions: Beverages should be selected in accordance with predetermined and objective criteria. Suppliers who were not allowed to sell their products to Systembolaget should be informed about the reasons for this and be entitled to challenge such decisions before an independent board (Alkoholsortimentsnämnden). 3

4 The Franzén Case C-189/95, Franzén Criminal proceedings against Harry Franzén Infringement of the Law on alcohol The monopoly of alcohol distribution (the retail monopoly, Systembolaget) Intentionally selling alcohol without a license Existence and operation of the monopoly Rules relating to the existence and operation of the monopoly» Article 37 TFEU Other provisions of the domestic legislation which are separable from the operation of the monopoly although they have a bearing upon it» Article 34 TFEU Public interest aim 39 The purpose of Article 37 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 inherent in the existence of the monopolies in question. [41. in aiming to protect public health against the harm caused by alcohol, a domestic monopoly on retail of alcoholic beverages, such as conferred on Systembolaget, pusues a public interest aim.] 4

5 Non discrimination 40 Thus, Article 37 requires that the organization and operation of the monopoly be arranged so as to exclude any discrimination between nationals of Member States as regards conditions of supply and outlets, so that trade in goods from other Member States is not put at a disadvantage, in law or in fact, in relation to that in domestic goods and that competition between the economies of the Member States is not distorted Administrative assessment Structural guarantees of non discrimination Offers are selected by Systembolaget on the basis of purely commercial criteria There are alternative ways for traders to have their products marketed by the monopoly (point 50) Traders are entitled to be told the reasons for decisions taken by the monopoly regarding the selection of beverages Traders may challenge such decisions before a board offering every guarantee of independence (Alkoholsortimentsnämnden) Proportionality? Provisions separable from the operation of the monopoly However, the Swedish Government did not established that the licensing system, in particular as regards the conditions relating to storage capacity and the high fees and charges which licence-holders were required to pay, was proportionate to the public health aim pursued or that this aim could not be attained by measures less restrictive of intra- Community trade. 5

6 The Hanner Case C-438/02, Hanner Criminal proceedings against Krister Hanner Infringement of the Law on medicinal preparation The monopoly of distribution of pharmaceuticals (the retail monopoly, Apoteket) Intentionally selling pharmaceuticals in breach of Swedish law reserving distribution of pharmaceuticals to Apoteket Systembolaget in comparison with Apoteket Systembolaget (Alcohol) Apoteket (Pharmacies) Objective Protection of public health Safe and efficient pharmaceuticals Criteria Quality Business Demand Harmful effects Ethics Very general criteria Safe and efficient pharmaceuticals Lowest possible prize Great assortment Motivation Obligation to state reasons Not regulatedin relation to Apoteket Legal challenge Challenge possible before the Assortement Board (Alkoholsortimentsnämnden) Not regulated Franzén contested by the Advocate General C-438/02, Hanner AG Léger Franzén judgement bad law More economic approach Overall examination as to the cumulative effect of the monopoly Less restrictive interpretation of the concept of discrimination in Article 37 TFEU Article 37 TFEU does not require a Member State to demonstrate that that monopoly pursues a public interest aim Exceptions to the principle laid down by Article 37 TFEU can only be based on the derogating provisions in Article 106(2) TFEU -SGEI 6

7 Franzén confirmed by the CJEU Requirement of adjustment (34) Article 37 aims at the elimination of obstacles to the free movement of goods, save for restrictions on trade which are inherent in the existence of the monopolies in question (35) Sales monopolies are not allowed if they are arranged in such a way as to put at a disadvantage, in law or in fact, trade in goods from other Member States as compared with trade in domestic goods (36) Administrative conditions confirmed The selection system of a sales monopoly must be based on criteria that are independent from the origin of the products and must be transparent by providing both for an obligation to state reasons for decisions and for an independent monitoring procedure. The retail network of such a monopoly must be organised in such a way that the number of sales outlets is not limited to the point of compromising consumers' procurement of supplies. Such a monopoly's marketing and advertising measures must be impartial and independent of the origin of the products and must endeavour to make known new products to consumers. (39-41) Administrative conditions not fulfilled It is clear that the Swedish system does not include a purchasing plan or a system of calls for tenders' within the framework of which producers whose products are not selected would be entitled to be apprised of the reasons for the selection decision. Nor does it provide for any opportunity to contest such decisions before an independent supervisory authority. On the contrary, Apoteket appears, in principle, to be entirely free to select a product range of its choice. (42) The Swedish system does not ensure that all discrimination is ruled out. (43) Legal basis for administrative conditions? 7

8 C-170/04, Rosengren Swedish ban on private importation of alcoholic beverages Rosengren ordered Spanish wine from a Danish website. The wine was imported into Sweden by a private carrier The wine was confiscated at the border on the ground that it had been unlawfully imported The questions from the national court 1. Can it be held that the ban on [direct] imports [on the orders of private individuals] constitutes part of the retail monopoly s manner of operation and that on that basis it is not precluded by Article [34] and is to be examined only in the light of Article [37]? 2. If the answer to Question 1 is yes, is that ban in such a case compatible with the conditions laid down for State monopolies of a commercial character in Article [37]? 3. If the answer to Question 1 is no, is Article [34] to be interpreted as meaning that it in principle precludes [that] ban on imports despite the obligation of the Systembolaget to obtain, upon request, alcoholic beverages which it does not hold in stock? 4. If the answer to Question 3 is yes, can such a ban be considered justified and proportionate in order to protect health and life of humans? Conclusion by the Advocat General Mengozzi 47. The rule governing the transfer of orders for alcoholic beverages to Systembolaget (Paragraph 5 of Chapter 5 of the Law on alcohol) and the rule on the prohibition of private importation of such beverages by individuals (Chapter 4 of the Law on alcohol) are complementary and indivisible: both of them are designed to channel demand for alcohol on the part of Swedish consumers into the exclusive system of retail sales of alcohol controlled by Systembolaget. 8

9 The Court reluctant no more exceptions for Systembolaget 21. While, by regulating the importation of alcoholic beverages into the Kingdom of Sweden, the measure at issue in the main proceedings affects the free movement of goods within the European Community, it does not, as such, govern that monopoly s exercise of its exclusive right of retail sale of alcoholic beverages on Swedish territory. 22.That measure, which does not, therefore, concern the monopoly s exercise of its specific function, accordingly cannot be considered to relate to the very existence of that monopoly. Consequence: Article 37 does not apply. Instead, Articles 34 and 37 TEUF are applicable (discrimination + proportionality test). Discrimination? 42. there is nothing before the Court to suggest that the public health grounds on which the Swedish authorities rely in the circumstances set out in paragraphs 44 and 48 of the present judgment have been diverted from their purpose and used in such a way as to discriminate against goods originating in other Member States or indirectly to protect certain national products. Proportionality and health 47. in the light of the alleged objective, that is to say, limiting generally the consumption of alcohol in the interest of protecting the health and life of humans, that prohibition, because of the rather marginal nature of its effects in that regard, must be considered unsuitable for achievement of that objective. No quantitative limits on private imports or other health orientated conditions. 9

10 Proportionality and age control The ban applied to everyone, irrespective of age. According to the Court it went therefore manifestly beyond what is necessary. The purpose of ban, that alcohol should only be sold to persons of more than 20 years, was not fulfilled. It was not disputed that Systembolaget accepted that age checks had to be made by a great number of agents when alcoholic beverages were supplied, outside the monopoly s shops, for example in food shops or service stations. According to the ECJ: In that context, it does not appear that there is, in all circumstances, an irreproachable level of effectiveness with respect to the checking of the age of private individuals to whom those beverages are delivered and the objective pursued by the present system is met only in part. Less restrictive means? Are there other methods less restrictive of the principle of free movement of goods and capable of replacing the method at issue? Age check could be carried out by way of a declaration in which the purchaser of the imported beverages certifies, on a form accompanying the goods when they are imported, that he is more than 20 years of age. Not established that the ban is proportionate for the purposes of attaining the objective of protecting young persons against the harmful effects of alcohol consumption. Tough/reasonable judgement? The proportionality test was not entrusted to the national Court (Cf. Gourmet, Gambelli and C-198/14, Visnapuu similar question in Finland)! The ECJ assessed the Swedish alcohol policy and rejected it as ineffective! Law or politics? Heavily criticised by some Swedish politicians 10