Bottle for a contest

The Scottish Government’s proposals for alcohol pricing have attracted much comment, particularly following Advocate General Kokott’s recent opinion concerning the pricing of tobacco products (Joined cases 197/08, 198/08 and 221/08 (Commission v (respectively) France, Austria, and Ireland).

The two main proposals in this respect concern:

• banning promotions where the price per item of multiple alcohol items (of the same or different kinds and whether or not packaged along with non-alcohol items) is less than the price of the alcohol item sold singly; and
• minimum retail pricing, by imposing a minimum price per “unit” as a mandatory condition of premises licences and occasional licences. Both sets of proposals raise issues under European Union law. The first set also raises a devolution issue under the Scotland Act 1998, separate from the issue of competence that automatically arises alongside any EU issue.

Devolved or reserved?

The areas reserved to the Westminster Parliament under the Scotland Act include consumer law and competition law (sched 5, heads C3 and C7). The imposition by law of a minimum price does affect competition, but it aims to alter the conduct of end purchasers, not of vendors. It addresses price viewed as purchase price available to end purchaser, not as sale price set by vendor. It is not a competition law measure; nor does it relate to the protection of consumers from vendors.

The original proposals in “Changing Scotland’s Relationship with Alcohol: a Framework for Action”, included a ban on loss leading (selling below cost), which would clearly have been a competition law measure. The published bill does not attempt to tackle loss leading. Nonetheless, a law which restricts specific types of promotion to consumers is a law aimed at the conduct of vendors. As such, it would appear to have more to do with consumer protection and competition than with health, and to be likely to be regarded as within the areas reserved to Westminster.

So far as EU law is concerned, it is necessary to ignore any devolution issues. They are entirely an internal United Kingdom matter.

Fag packet approach?

The main focus of media comment has been on the compatibility or otherwise of the Scottish Government’s proposals with the obligations of the United Kingdom under the Alcohol Duty Directive (92/83/EEC), and under what are now (since the entry into force of the Treaty of Lisbon) articles 34 and 36 of the Treaty on the Functioning of the European Union (formerly articles 28 and 30 of the Treaty Establishing the European Community, and originally articles 30 and 36 of the Treaty of Rome). The text appears in the panel.

The Scottish Government contends that both of its sets of proposals are compatible with EU law. Others contend the contrary.

Minimum prices and bans on loss leading have featured in many cases before the Court of Justice, including Case 82/77 van Tiggele, Case 287/89 Commission v Belgium, Joined cases C-267/91 and C-268/91 Keck and Mithouard, Joined cases C-401/92 and C-402/92 Tankstation ‘t Heukske vof and J B E Boermans, and Case 216/98 Commission v Greece, in addition to the tobacco cases mentioned above.

In the tobacco cases, Advocate General Kokott observed: “The decisive question is whether the measures at issue are necessary to achieve [the protection of public health] or whether there are equally suitable, but less restrictive, alternatives”; and “it must be recognised that the member state can determine the level at which it would like to protect public health and how that level is to be achieved. In that respect member states enjoy considerable discretion”. She nonetheless concluded that the court should decide that:

• “by maintaining in force a system of minimum prices for cigarettes... and a prohibition on selling tobacco products at a promotional price which is contrary to public health objectives, the French Republic has failed to fulfil its obligations under [the Tobacco Duties Directive]”;
• “by enacting and retaining legal provisions under which minimum selling prices for cigarettes and for fine-cut tobacco for the rolling of cigarettes are set by the state, the Republic of Austria has failed to fulfil its obligations under [the Tobacco Duties Directive]”; and
• “by imposing minimum retail prices for cigarettes, Ireland has failed to fulfil its obligations under [the Tobacco Duties Directive]”.

The opinion is about the Tobacco Duty Directive 95/59/EC. The structure for duty on tobacco is significantly different from that for alcoholic beverages under the Alcohol Duty Directive 92/83/EEC. Tobacco duty is a function of the maximum retail price of tobacco, a maximum which the directive requires the manufacturers to be free to set. Alcohol duty is based on volume of alcohol, not price. Interference with pricing of alcohol may not be as destabilising for the duty regime as in the case of tobacco. It should not be assumed that observations about the effect of harmonisation of the structure of tobacco duty are entirely transferable to the harmonisation of the structure of alcohol duty. It is, however, true that in relation to alcohol, as to tobacco, the legal issues concern not only free movement but also compatibility with the duty directives.

Case law issues

The earlier case law seemed to suggest that, as a matter of free movement, a ban on loss leading was not a measure falling under article 34 and so did not need to be justified under article 36. The AG’s opinion can be read as compatible with that view and as condemning the bans only because of their alleged interference with the structure of tobacco duty. Whether the court will agree that harmonisation of duty structures necessarily renders an article 36 defence irrelevant remains to be seen. The free movement cases have not been as tolerant of minimum pricing as of restrictions on promotion, but we should be wary of treating past applications of a principle as though they amounted to a self-standing rule of law.

The issues that emerge from the relevant case law on free movement are most easily expressed as a set of layered questions, each applied to each of the proposals:

• is it a “measure having equivalent effect” to a “quantitative restriction on imports”;
• if so, is it capable of being “justified on grounds of public... policy or public security; the protection of health and life of humans”, while not constituting “a means of arbitrary discrimination or a disguised restriction on trade between Member States”;
• if so, does it operate as a restriction only to an extent that is proportionate to the legitimate objective pursued (put differently, is it really impossible to achieve the objective in a way that causes less disruption or disadvantage to trade in imported products)?

Basically, one would expect an EU law challenge to amount essentially to a “Yes” to the first question, followed by “No” and “No, anyway”. Conversely the expected defence for promotion restrictions might amount to responding “No” to the first question, on the grounds that they are “national provisions restricting or prohibiting certain selling arrangements” that “apply to all relevant traders operating within the national territory and... affect in the same manner, in law and in fact, the marketing of domestic products and of those from other member states”. For minimum pricing the defence response might be “Maybe” or “Yes”, followed by “Yes” and “Yes” to the other questions.

Battle lines

The challenge to minimum pricing would be likely to be argued along the following lines:

• that minimum pricing reduces the price advantage of non-premium products over premium products;
• that this is a “measure having equivalent effect” to a “quantitative restriction on imports”;
• that the effect of deterring consumption by increasing the cost of alcoholic drink could be achieved with less or no impediment to imports simply by increasing duty across the board (the European Commission’s view);
• that even if minimum pricing were acceptable, it should be fixed by reference to volume rather than the British “unit”;
• that the reservation to Westminster of the fixing of duty rates is an internal UK matter and consequently not pleadable at EU level as a justification for not having taken that course; and
• that the minimum pricing therefore fails the “proportionality” test and is consequently not saved by article 36.

The rejoinder might need to be to the following effect:

• admitted that the proposed minimum pricing legislation may well be a measure having equivalent effect;
• the health and public order issue is not simply “people drink too much alcohol”, but “there is credible evidence that certain identified health and public order problems are attributable (to a significant extent) to certain identified patterns of purchase of alcohol”;
• the proposed minimum pricing legislation is a fine-tuned measure that precisely targets those patterns and there is credible evidence that it will disrupt them and thereby diminish the incidence of the identified health and public order problems; it treats equally all types of alcoholic drink, beers, wines, spirits and “tonic wines”;
• the “unit” (expected to be defined in the pricing order as 10 millilitres of ethyl alcohol) is a simple volume measure with an objective scientific basis, being (in that case) the amount that the human body can break down in one hour;
• in all the circumstances the proposed minimum pricing legislation is, if anything, a less disproportionate response to the identified problem than would be an across-the-board increase in duty.

This would be a novel health and economic analysis to present to the Court of Justice and would take it into uncharted waters.

The assembling of evidence of harm attributable to misuse of alcohol is not the end but only the beginning of the task that lies ahead for the Scottish Government. The bill takes the form of an enabling Act. This will gives interested parties adequate opportunity, if they wish, to take legal action to try to prevent the making of the enabled orders.

James McLean, Burness LLPs

EU-compatible?

The crucial articles of the current EU Treaty are:

“Article 34

Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.”

“Article 36

The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.”