OPINION OF MR VERLOREN VAN THEMAAT — CASE 170/78

limits of that discretion are naturally the taxation arrangements of the United Kingdom. Furthermore, in relation both to wine and to beer there is not always a fixed ratio between the alcoholic content of those beverages and their price.

In view of the fact that beer and wine are only partly interchangeable and of the considerable differences described between those two beverages, it therefore seems to me in this case that it has still not been proved that those limits have been exceeded. There is in my view support for the opposite opinion above all, in the fact that, both according to the criterion for comparison used by the Commission and on the basis of other methods of comparison, substantial grounds emerge which are still capable of justifying tax arrangements of that kind and that the Commission has not succeeded in proving that the tax arrangements in question lead with a certain degree of probability to indirect protection of British beer production against wine imported from other Member States.

O P I N I O N OF MR ADVOCATE GENERAL VERLOREN VAN THEMAAT DELIVERED O N 10 MAY 1983 '

Commission correctly concluded in its application of 7 August 1978 that the excise duty on still light wine levied by the United Kingdom at that time conflicted with the second paragraph of Article 95 of the EEC Treaty. At that time the excise duty was UKL 3.250 per gallon, compared with UKL 0.6084 per gallon of beer of standard quality.

Mr President, Members of the Court,

1 — Translated from the Dutch.

2300

COMMISSION v UNITED KINGDOM

The relevant situation, according to the judgment of the Court in inter alia Case 7/61 (Commission v Italy [1961] ECR 317, paragraphs 1 to 7, relating to pigs) and the commentaries thereon, is the situation at the time at which the application is lodged (see H.G. Schermers, Judicial Protection in the European Communities, Second Edition, p. 227, and H. A. H. Audretsch, Supervision in European Community Law, pp. 29, 36, 38 and 40 to 46). That judgment shows that even if the Member State concerned has fulfilled its obligations during the procedure the Commission may have an interest "in obtaining a decision on the issue whether the failure occurred."

Secondly, the reference to the earlier case-law of the Court is important in this case because the Commission clearly takes the view that even since its application was lodged the infringement of the Treaty which it set out has still not been wholly brought to an end. On that ground alone the Commission retains a specific and obvious interest in a decision of the Court of Justice which states sufficiently clearly the measures to be taken by the United Kingdom under Article 171 of the Treaty in order to put an end to the alleged infringement of the Treaty.

Mr Advocate General Lagrange, at page 334 of his Opinion in Case 7/61, cited above, reached the same conclusion as the Commission, inter alia on the basis of the text of Article 171 of the Treaty, namely that the Court must decide "whether the failure to fulfil obligations under the Treaty has occurred, without taking into account what has happened since" and that the Commission may still have an interest in a decision even after the infringement has ended, if only because the Member State concerned would otherwise be free "to carry on with its improper conduct in the absence of any judgment finding that it was in breach of its obligations."

In its reasoned opinion of 8 November 1977, the Commission stated that the excise duty on still light wine had been increased with effect from 1 January 1977 from UKL 2.955 per gallon to UKL 3.250 per gallon, whilst the excise duty on the relevant beer was UKL 0.6084 per gallon. Per degree of alcohol, an excise duty of UKL 0.2955 and UKL 0.2708 per gallon was levied on still light wines of 11° and 12° respectively, in comparison with UKL 0.2028 per gallon of beer. In relation to price, the excise duty on beer represented on average 25% and the excise duty on wine at least 38% of the sale price to the consumer.

In paragraph 6 the Court stated that, in order to determine whether there was a competitive relationship within the meaning of the second paragraph of Article 95, it was necessary to look not only at the present state of the market but also at possible developments within the context of free movement of goods within the Community and at further possibilities for the substitution of products for one another which might be revealed by intensification of trade, so as fully to develop the complementary features of the economies of the Member States in accordance with the objectives laid down by Article 2 of the Treaty.

There was a competitive relationship between beer and wine so that the differential taxation described afforded indirect protection to the production of beer, such as is prohibited by the second paragraph of Article 95 of the EEC Treaty.

In paragraph 10 of the judgment, the Court emphasized that the second paragraph of Article 95 (in relation to determining whether there was a protective effect) was linked to the "nature" of the tax system in question so that it was not possible to require in each case that the protective effect should be shown statistically. The Court stated: "It is sufficient for the purposes of the application of the second paragraph of Article 95 for it to be shown that a given tax mechanism is likely, in view of its inherent characteristics, to bring about the protective effect referred to by the Treaty."

In its interlocutory judgment of 27 February 1980, [1980] ECR 417, the Court stated first that the United Kingdom had essentially admitted (had not called in question) the facts put forward by the Commission, especially as regards the evolution in the rates of excise duty. The United Kingdom did deny the existence of a competitive relationship between wine and beer, with the result that there was no possibility of substitution, which was the condition for the application of the second paragraph of Article 95.

2302

COMMISSION v UNITED KINGDOM

In his first Opinion Mr Advocate General Reischl further confirmed that the products were interchangeable by stating at page 442 that, from the point of view of consumers, beer and wine were put to the same use and had the same characteristics. Both were produced by fermentation and differed from the other thirst-quenching beverages listed in Chapter 22 of the Common Customs Tariff in that they contained alcohol.

According to his Opinion, the relatively small alcoholic content also distinguished both drinks from spirits covered by tariff heading 22.09 C of the Common Customs Tariff and obtained by distillation. I regard paragraph 14 of the judgment, as amplified by Mr Advocate General Reischl in his first Opinion on this case, as an important starting-point for my own Opinion.

In paragraph 20 the Court stated in conclusion and subject to the observations made in paragraph 16 on the need first to determine an appropriate tax ratio between wine and beer that, according to the only criterion whereby an objective, although imperfect, comparison could be made between the rates of tax applied to wine and beer, it seemed that wine was subject in the United Kingdom to a tax burden which was heavier than that imposed on beer.

I shall take paragraphs 18 to 20 inclusive in relation to the criteria to be used for comparison as the second starting-point for my own analysis. In that regard, I infer from the words which I have italicized on the one hand that the Court considers alcoholic strength to be an appropriate, although imperfect, criterion for comparison. On the other hand, I infer that the Court did not intend also to exclude the supplementary use of the criteria of volume and price. At least in relation to the supplementary importance of the criterion of price, that seems to be the logical inference to be drawn from the questions put to the parties in the Court's subsequent order thereof 15 July 1982.

There is virtually no importation of beer in that group of countries, whilst in the first-mentioned group of countries there is in fact significant importation of wine. The Commission added that, as appears from the judgments of the Court in Case 127/75 Bobie v Hauptzollamt Aachen-Nord [1976] ECR 1079, Case 148/77 Hansen v Hauptzollamt Flensburg [1978] ECR 1787, Case 21/79 Commission v Italy [1980] ECR 1, and Case 46/80 Vinal v Orbat [1981] ECR 77, a Member State may lay down differing tax arrangements even for identical products on the basis of objective criteria provided that such arrangements pursue objectives of economic policy which are themselves compatible with Community law and that they are not discriminatory or protective in nature.

The establishment of a reciprocal relationship between the rates for beer and wine, like the harmonization of the rates of taxation, constitutes an essential aim only in the context of the harmonization of legislation and cannot be achieved by means of the application of Article 95.

For a summary of the supplementary observations of the parties on the basis of the Court's interlocutory judgment, I will at this stage simply refer to the second Report for the Hearing. With reference to those supplementary observations, the Court in the letter of summons to the re-opened oral procedure expressly asked the Commission to explain at the hearing its views concerning the appropriate tax ratio between wine and beer and also for an explanation of the influence of the manufacturing processes for wine and beer on their price structures. At the sitting on 19 May 1982, the Commission confirmed that in its view a ceiling should be established by the Community for the taxation of wine but there should be no fixed reciprocal relationship between rates of taxation applicable to wine and beer.

That point of view, to which I shall return in my analysis, is based on the twofold consideration that there are Member States which produce beer exclusively or almost exclusively but that in the remaining Member States both beer and wine are produced without its appearing that the heavier taxation of beer in those countries affects the healthy development of breweries.

2.2. The interchangeability of wine and beer;

There is virtually no importation of beer in that group of countries, whilst in the first-mentioned group of countries there is in fact significant importation of wine. The Commission added that, as appears from the judgments of the Court in Case 127/75 Bobie v Hauptzollamt Aachen-Nord [1976] ECR 1079, Case 148/77 Hansen v Hauptzollamt Flensburg [1978] ECR 1787, Case 21/79 Commission v Italy [1980] ECR 1, and Case 46/80 Vinal v Orbat [1981] ECR 77, a Member State may lay down differing tax arrangements even for identical products on the basis of objective criteria provided that such arrangements pursue objectives of economic policy which are themselves compatible with Community law and that they are not discriminatory or protective in nature.

The establishment of a reciprocal relationship between the rates for beer and wine, like the harmonization of the rates of taxation, constitutes an essential aim only in the context of the harmonization of legislation and cannot be achieved by means of the application of Article 95.

For a summary of the supplementary observations of the parties on the basis of the Court's interlocutory judgment, I will at this stage simply refer to the second Report for the Hearing. With reference to those supplementary observations, the Court in the letter of summons to the re-opened oral procedure expressly asked the Commission to explain at the hearing its views concerning the appropriate tax ratio between wine and beer and also for an explanation of the influence of the manufacturing processes for wine and beer on their price structures. At the sitting on 19 May 1982, the Commission confirmed that in its view a ceiling should be established by the Community for the taxation of wine but there should be no fixed reciprocal relationship between rates of taxation applicable to wine and beer.

That point of view, to which I shall return in my analysis, is based on the twofold consideration that there are Member States which produce beer exclusively or almost exclusively but that in the remaining Member States both beer and wine are produced without its appearing that the heavier taxation of beer in those countries affects the healthy development of breweries.

2.5. The question of the proper tax ratio

2308

2.4. Conclusions based on the application of the various criteria for comparison

I agree with the Commission that a proper tax ratio between wine and beer can be established only by means of harmonization of legislation on excise duty under Articles 99 and 100 of the Treaty. It will then be possible, if the harmonizing directive is also based on Article 43 of the Treaty, also to take account of considerations relating to the common agricultural policy.

In short, it is clear from an analysis of the documents received after the Court's decision of 15 June 1982 that the tax burden on the wines most relevant from the point of view of competition, was at the material time for the purpose of determining a possible infringement of the Treaty, at least 70 to 100% higher than that on beer on the basis of all the defensible criteria. I, like Mr Advocate General Reisçhl (who did not possess sufficient information on this point at the time when he delivered his Further Opinion), consider that the criterion of the influence on prices is the most relevant criterion from the point of view of competition. However, I have at the same time pointed out that under the common organization of the market in wine there is a direct relationship between wine prices and alcoholic strength, which also confirms the relevance of the criterion of alcoholic strength, for which the Court expressed a preference in its interlocutory judgment.

A difference of 70 to 100% in the tax burden is in my opinion, without prejudice to the question of the proper tax ratio to be discussed next, itself a clear indication that the excise duty levied by the United Kingdom on wine ipso facto means that there is indirect protection of the competing product, beer, within the meaning of the second paragraph of Article 95.

2309

comparison of the tax burden different from that reached above.

Although the question is of course not an issue in these proceedings and therefore cannot be answered definitively, I understand, however, that the Court is also concerned that its judgment in this case may establish a precedent in the determination of tax ratios in Member States which produce both wine and beer. I agree with Mr Advocate General Reischl that the Commission's arguments in favour of allowing taxation on beer to be higher than that on wine in those countries are strong, partly in the light of the case-law of the Court of Justice cited by the Commission.

From the point of view of the competition in prices, which as I have stated earlier I consider essential for the application of the second paragraph of Article 95, I would add that wine production is not in my opinion afforded indirect protection by higher taxation on beer provided that the price of beer including tax is no higher than the price of the competing wines. Once the price of beer becomes appreciably higher than the price of comparable wines as a result of the taxation levied upon it, I would not ab initio exclude the possibility that there is an infringement of the second paragraph of Article 95.

However, I consider that for reaching a final decision the development of the volume of domestic beer production and beer importation in the countries concerned should also play a part. The legal uncertainty naturally increases the desirability of determining once and for all the tax ratio between wine and beer for all Member States by means of harmonization of legislation.

Especially by use of price as the relevant criterion, it seems to me in principle that the symmetrical application of the second paragraph of Article 95 with regard to countries producing mainly beer and those producing mainly wine does not, on the grounds given, lead to consequences which are unacceptable for the Community. I therefore consider that the problem of the proper tax ratio between wine and beer does not call for a conclusion on the basis of a provision of the Treaty.

2310

COMMISSION v UNITED KINGDOM

increase in excise duty in 1975 was coupled with a fall in the consumption of wine per head of the population. The connection between a rise in the excise duty and consumption per head of the population is, however, even more clearly demonstrated by the information on developments after 1978. In 1980 the tax ratio between beer and wine fell to 1 :4.9 and in 1981 to the 1974 level of 1 :4.2. At the same time the consumption of wine per head of the population rose substantially (from 5.41 litres per head in 1977 to 7.8 litres per head in 1981), while the consumption of beer fell between 1979 and 1981 for the first time since 1972, from 122.1 litres to 111.5 litres per head of the population. The United Kingdom confirms those developments by means of its own figures. It also recognizes the relationship which exists between the tax burden and consumption and in its report of 1 December 1981 and during the most recent sitting of the Court in this case it concluded from the developments after 1978 that the protective trend identified in the Court's interlocutory judgment had now been wholly eliminated.

Apart from the fact that that conclusion is incorrect in comparison with the tax ratio on 1 January 1974, I have already observed that in these proceedings the developments between 1973 and 1978 alone are relevant for the purpose of determining a protective trend. In relation to that period, the existence of a protective trend is also confirmed by the said report of the United Kingdom.

2311

OPINION OF MR VERLOREN VAN THEMAAT — CASE 170/78

In relation to the cheap types of wine which are relevant from the point of view of competition, I agree with the Commission and Mr Advocate General Reischl that differences in the manufacturing structures of wine and beer are ultimately of no great importance. First, differences in production costs will, as stated above, be expressed in differences in price, so that in the use of the criterion of price they are automatically taken into account in the comparison of the tax burden. Secondly, the most relevant cheap wines and beer are both usually produced by large-scale production processes, as the Commission and Mr Advocate General Reischl have already observed.

To those remarks I would further add that the establishment of a protective trend over a material period of time may indeed constitute important evidence in relation to an infringement of the second paragraph of Article 95, but none the less such evidence cannot in itself be decisive for purposes of the application of that provision. Instead it is ultimately a question of deciding whether, at the material time for the purpose of determining an infringement of the Treaty, the tax burden on imported products is so much higher than the tax burden on domestic substitute products that it must be assumed that domestic production of the substitute products is indirectly protected by the taxation on the imported products.

2312

COMMISSION v UNITED KINGDOM

From the objective of the second paragraph of Article 95 together with the general scheme of the Treaty it in fact follows that proof of a clear restriction of competition with regard to imported products which separately or collectively have an appreciable share of the market in those products is of itself sufficient to establish an infringement of that provision. Such an appreciable share of the market is, as appears from the information provided by the United Kingdom itself, already constituted by the fact that wine is sold in supermarkets and by other retailers who sell wine and beer, whereas the market share of the relevant cheap wines in the total supply of wine may, as appears from the information provided by the two parties during the proceedings and by the Italian Government, be assessed at at least 20%. A market share of only 5 to 10% would, as has already been stated, in my view have been sufficient.

2313