Protecting Health, or Protecting Trade? A fine balance in the Scotch Whisky Association judgment

Angus MacCulloch, Lancaster University Law School 

The Court of Justice has now delivered its judgment in Case C-333/14 in relation to the lawfulness of the Scottish measure to introduce minimum alcohol pricing, or MUP for short. Both the Scottish Government and the Scotch Whisky Association, which brought the legal challenge, have “welcomed the ruling,” although I think that the SWA are probably a little happier than the Scottish Government as the case returns to the Inner House of the Court of Session, which had referred it to the CJEU. I’ve previously written about the AG’s Opinion and the Court has adopted a very similar approach, but in many ways the judgment leaves as many questions as it answers. It does appear to give quite a strong steer to the Court of Session that the CJEU would prefer the adoption of the “less restrictive” increase in general excise duties instead of the MUP, but it leaves the final decision on the proportionality of MUP to the Scottish court.

Is MUP caught by Art 34 TFEU?

Both parties to the dispute had accepted that MUP pricing was caught by Art 34 TFEU (the ban on measures with an equivalent effect to quantitative restrictions on imports), but there was little clarity as to how such a measure breached the prohibition. That at least has been clarified today. The Court followed the AG’s elegant solution of evading the complications of categorising a MUP as a “selling arrangement” and dealing with the matter under the Gourmet International style analysis, but rather preferring to use the Trailers “market access” test. A minimum pricing measure restricts access to the UK market as it prevents lower cost products from other Member States from exploiting that cost advantage in lower retail prices [32]. As the removal of the benefits of the cost advantage triggers the market access test there is no need to discuss whether there is any discrimination inherent within the scheme. This is another example of the Court preferring the flexibility of the new test to the more traditional Cassis and Keck line of decisions.

The Tricky Balancing Act in Proportionality

The majority of the ruling deals with the much more difficult question of the potential justification of the measure on health grounds and whether the restriction is proportionate. At first instance the Outer House of the Court of Session accepted that the measure was proportionate as it targeted ‘harmful and hazardous’ drinkers who tended to consume low price high alcohol products which were most effected by MUP, but in the CJEU ruling there is a different view taken as to the purpose of the measure. On the evidence presented to it the CJEU takes the view that MUP has a “twofold objective” [34], both targeting these “harmful and hazardous” drinkers, while also reducing general alcohol consumption in the wider population “albeit only secondarily”. It is this “ambiguity”, as the AG put it, which I think is at the heart of the problem in the Ruling. If one cannot clearly define what a measure is designed to achieve it is incredibly hard to come to a firm conclusion as to whether it is proportionate. The Court did accept, at [38], that the measure was a real attempt by the Scottish Government to address health problems within Scotland, but set out that it cannot go beyond what is necessary in order to protect health. The choice before the CJEU was between the Scottish Government’s preference for MUP, and the argument that the same health benefit could be obtained through an increase in the general excise duties applied to all alcohol products, as preferred by the SWA and the European Commission. The Court argued that increased taxation could be an effective heath protection measure, as it is in relation to tobacco, and that an increase in taxation:

“is liable to be less restrictive of trade in those products within the European Union than a measure imposing an MPU. The reason is … that the latter measure, unlike increased taxation of those products, significantly restricts the freedom of economic operators to determine their retail selling prices and, consequently, constitutes a serious obstacle to access to the United Kingdom market of alcoholic drinks lawfully marketed in Member States other than the United Kingdom and to the operation of fair competition in that market.”

The contention that an increase in taxation would be less restrictive of trade, in comparison to MUP, is one of which I have never been convinced. Taxation affects all products, and MUP would only affect a limited number; on that simple basis I contend that MUP is arguably less restrictive in terms of the volume of trade impacted by the measure. Volume of trade affected has been seen as important in other Art 34 cases, see for example the Sunday Trading litigation of the 80s, but here the Court refers to this issue much more explicitly than before. It is not concerned with reducing the volume of trade impacted, but is much more concerned that the measure does not impact “fair competition” within the market; even if a greater number of products are affected. The Court refers to an argument made by the Lord Advocate questioning the relevance of the Court’s previous cases that dealing with minimum pricing in tobacco markets. The Court rejects that position, at [45], but I am nervous about simply reading across from those cases. Those cases centred on the Tobacco Harmonisation Directives, which were explicitly designed to enhance the single market integration by using price competition as a driver of integration. The direct protection of retail price competition is not usually seen so explicitly under Art 34 TFEU. It appears that the Court is now reading the protection of price competition into the prohibition. There is also, to my mind, another important distinction between the health problems associated with tobacco consumption and the health problems associated with alcohol - different problems will require different solutions. 

The final issue in the proportionality discussion relates to the vexed question of choosing the least restrictive of the two measures, and the intrinsically connected question of the balance between restrictiveness of a measure and its effectiveness at achieving its aim. Here we return to the “ambiguity” of the purpose of MUP. The Courts states, at [47]:

“the fact that increased taxation of alcoholic drinks entails a generalised increase in the prices of those drinks, affecting both drinkers whose consumption of alcohol is moderate and those whose consumption is hazardous or harmful, does not appear, in the light of the twofold objective pursued by the national legislation at issue in the main proceedings … to lead to the conclusion that such increased taxation is less effective than the measure chosen”.

The Court appears to suggest that as taxation can achieve both the general and the specific aim it is as effective. I find that difficult to follow. One of the main reasons that MUP was adopted was it was targeted, in that it only impacted on cheap and strong products and would not have a wider impact on moderate drinkers or on-sales, which would generally be above the MUP floor. The Court is expressing a preference for the secondary aim of the measure and effectively side-lining its primary purpose. It describes this generalised impact as “additional benefits” [48], but I would argue this is not additional in any valuable sense if it removes the primary benefit, targeting, from the measure. The Court goes on to the usual statement that the final decision is, of course, for the referring court, once it has heard all the evidence and argument, but it is pretty clear where its preference lies. This preference for one aim over another does not sit well with the settled position, repeated at [35], that the Member State can decide on the degree of protection it requires.

On the Article 36 TFEU Derogation

The previous discussion was in relation to the ‘rule of reason’ within the Art 34 TFEU prohibition, but as health protection is one of the grounds for derogation in Art 36 TFEU it is also possible to justify MUP on that basis. The Court discusses Art 36 separately and while the questions are similar the Court appears to adopt a slightly more relaxed tone. It stresses the same proportionality test as above, and that it is the Member State’s responsibility to prevent the appropriate evidence, but also that:

“that burden of proof cannot extend to creating the requirement that, where the competent national authorities adopt national legislation imposing a measure such as the MPU, they must prove, positively, that no other conceivable measure could enable the legitimate objective pursued to be attained under the same conditions”.

This appears to give some succour to the Scottish Government that the ball is now in their court, and that they must present the best evidence they can to convince the Court of Session. The alcohol policy evidence, including the Nuffield Report published yesterday, tends to suggest that there is a good case to be made for MUP. In that sense there is a still a lot for both sides to play for when the Court of Session comes back to this issue in 2016.

Conclusions

It is unfortunate that the Court has followed the reasoning of the AG and the weaknesses that it exhibited. We now have confirmation that price competition receives protection under Article 34 TFEU, and any attempt by Member States to interfere with the free setting of prices is likely to be scrutinised as a matter of EU law. The most disappointing aspect of the ruling is the lack of clarity in the Court’s discussion of proportionality, it has been described as “Delphic” by some commentators. I have explained some of my concerns, but the most troubling aspect is the Court’s apparent willingness to suggest that the Scottish Parliament picked the “wrong” health aim, and use proportionality analysis to “correct” that mistake. The Inner House of the Court of Session still has a lot of work to do in unpicking the Court’s Ruling.

Barnard & Peers: chapter 12

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Minimum Alcohol Pricing: the AG balances public health, trade and competition

Angus MacCulloch, Lancaster University Law School

Background to the Opinion

Advocate-General (AG) Bot delivered his Opinion in Case C-333/14, ECLI:EU:C:2015:527, on 3 September regarding plans by the Scottish Government to introduce a Minimum Unit Pricing (MUP) for retail sales in Scotland set at £0.50 per unit. Before it could be introduced the measure was challenged by the Scotch Whisky Association. At first instance the Scottish Government successfully defended their proposal, in The Scotch Whisky Association & Ors, Re Judicial Review [2013] CSOH 70, but on appeal the Inner House referred several questions to the CJEU: Scotch Whisky Association & Ors v The Lord Advocate [2014] CSIH_38. The questions referred address the compatibility of MUP with both the single Common Market Organisation (CMO) and the free movement provisions in the TFEU. The AG’s Opinion has been hailed as a victory by both sides in the dispute, and on less partisan examination it does give insight into the importance of price competition to EU law.

The Compatibility of MUP with the single CMO

Article 167(1)(b) of the ‘single CMO’ Regulation, Reg 1308/2013, sets out that Member States must not allow price fixing for wine. But the AG notes that the provision is set out in the specific context of Art 167 which governs the laying down of ‘marketing rules’ to regulate supply [33], particularly where the rules are promulgated by stakeholder ‘interbranch organisations’. He therefore found there was no direct prohibition of retail price fixing in the CMO, and Member States retained their shared competence on this issue.

He then turned to the potential for indirect prohibition through the Member States’ obligation not to jeopardise the objectives of the CMO through Art 4(3) TFEU. The Commission argued that regulating retail prices would be contrary to the principle of the free setting of prices, by denying low cost producers the pricing advantages encouraged by the CMO. At [36] the AG set out that: ‘the free formation of prices is the expression … of the principle of free movement of goods in conditions of effective competition.’ Minimum retail pricing in a Member State would undermine low cost competitive advantage and distort competition, and is therefore incompatible with the single CMO [38 & 39]. Notwithstanding this, the existence of the CMO did not prevent Member States from adopting measures which pursue ‘legitimate objectives’ such as the protection of public health [40]. However, when pursuing such an objective, ‘the principle of proportionality requires that the national measure must actually meet the objective … and must not go beyond what is necessary in order to attain that objective’ [44]. The proportionality analysis should be the same as used under Art 36 TFEU, concerning possible Treaty-based limitations on the free movement of goods.

The Compatibility of MUP with Art 34 TFEU

The first notable aspect of the AG’s Opinion in relation to Art 34 (the ban on quantitative restrictions or measures of equivalent effect – or MEEQRs – on the free movement of goods) is that he undertakes an analysis of whether MUP is a MEEQR, even though both parties to the dispute had accepted it was. Reconciliation of the CJEU’s approaches in its previous judgments in van Tieggle, Keck, and Trailers is not easy. Can, after Keck, MUP be characterised as a ‘selling arrangement’ and fall outside Art 34 TFEU in principle, effectively rendering the finding in van Tieggle otiose? The AG avoids the problem by, at [58], adopting a hybrid approach which takes elements from all the judgments, including the ‘market access’ test in Trailers, thus: ‘a national measure may constitute an obstacle not only when, as a selling arrangement, it is discriminatory, in law or in fact, but also when, irrespective of its nature, it impedes access to the market of the Member State concerned’. If the measure hinders access there is therefore no need to consider if it is discriminatory, because it will fall within the scope of Article 34 in any event. He goes on to make clear that the loss of the ability to exploit low cost competitive advantage is in itself a hindrance to market access and brings MUP within the scope of Art 34 TFEU; effectively contemporising van Tieggle reasoning through the Trailers ‘market access’ test [60]. This is perhaps one of the most interesting suggestions in the Opinion. It gives price competition special protection as a driver of free movement within the internal market. The AG, for completeness, goes on to also discuss whether MUP might be a dynamic selling arrangement (like an advertising restriction), but his arguments [66-67], particularly those about domestic wine production, are not very convincing.

Moving on to consider the potential justification of a MEEQR under Art 36 TFEU, the AG first discusses the discretion available to Member States when deciding on the level of protection for a legitimate objective. He argues that the Member States must be allowed discretion as range of policy choices could be taken in these complex areas, but that Member States must adduce evidence to show that they have made a suitable and proportionate choice [87]. The explanation of how the analysis of proportionality should be undertaken, at [91]-[93], is, however, not particularly clear. Para [93] is the most troubling, suggesting that the national court should balance the ‘degree of impediment’ to trade against ‘the importance of the objectives pursued and the expected gains’. Should a domestic court be required to balance the benefits of trade against a public health benefit?

When the AG moves onto more direct consideration of MUP he examines a vital question in the first instance judgment, which I have previously addressed elsewhere: the identification of the particular aim of the measure. He suggests, at [116]-[117], that there is an ‘ambiguity’ whether MUP’s aim is to tackle, ‘harmful’ and/or ‘hazardous’ drinking, or protect the health of all drinkers; it is, however, acknowledged that the national court will have to take the final decision on this matter. The AG does accept that in relation to harmful and hazardous drinking, notwithstanding the complexities involved, it ‘does not seem unreasonable’ that a Member State might consider MUP an ‘appropriate means’ of attaining the objective [127]. He was also convinced by evidence presented by the Lord Advocate regarding the particular impact of MUP alongside other polices in relation to harmful and hazardous drinkers, particularly amongst the young [135]. At this point you might think that the Lord Advocate has won over AG Bot, but there is sting in the tail of the Opinion.

When it comes to the necessity of the measure the AG is less convinced, especially when MUP is compared with the alternate policy of a general increase in alcohol duty. At first instance the Outer House of the Court of Session rejected a general increase in duty because it did not effectively target the measure at harmful and hazardous drinkers, as it would also have an impact on moderate drinkers, and less problematic on-sales consumption. The AG is not convinced by the argument that the measure is more targeted [147]. The key passage comes in para [149]: ‘on the assumption that the objective of the rules … is genuinely confined to combating the hazardous and harmful consumption of alcoholic beverages … I consider that it is for the those responsible for the drafting of those rules to show that increased taxation is not capable of meeting that targeted objective.’ In itself that is not a controversial statement; the burden of proof in such an instance is well established. But he goes on to add another element: he argues the Lord Advocate would have to ‘adduce evidence’ that a general increase would have a ‘disproportionate impact’ on moderate drinkers, and that it could also have a benefit in addressing harmful or hazardous consumption in higher income groups who are less likely to be effected by MUP. He also adds that a general increase might also have another ‘additional advantage’: a contribution to general health objectives. This might ‘constitute a decisive factor that would justify the choice of that measure rather than the MUP measure’ [150].

To my mind this is a false step at the end of the Opinion. Increases in general excise duties have been the preferred measure in many of the Tobacco cases referred to in the Opinion, but the problems of tobacco and alcohol consumption are very different and suit different solutions. All tobacco consumption is bad, and all consumption is essentially the same. That is not true of alcohol, even in Scotland. Consumption in bars and restaurants poses very different problems when compared to alcohol purchased for consumption at the home or on the streets. Patterns of consumption of different types of product are also very different. I am far more convinced that the targeting of the measure serves a useful purpose. I am also still confused as to why a general increase in duty, which by definition will impact on all consumers and all trade in alcohol, as opposed to the limited impact of MUP, is seen as being less restrictive on trade. A general increase in duty must affect a higher volume of trade if nothing else. I suggest the push towards general duty increases is not really about trade at all. Again we see a policy choice designed to protect price competition in the market. The Tobacco Directives make their competition goal explicit, but it appears that the AG is using Art 34 & 36 TFEU to achieve the same result in the free movement sphere.

Barnard & Peers: chapter 12