CJEC, October 12, 1978, No 13-78

THE COURT

1 By order of 18 january 1978 which was received at the court registry on 9 february 1978 the verwaltungsgericht of the Freie Hansestadt Bremen referred to the court, pursuant to article 177 of the eec treaty, three questions on the interpretation of articles 30, 31 and 36 (the first two questions), 86 (b) and 90 (1) (the third question) of the said treaty.

2 Those questions have been raised in an action brought by a german manufacturer of spirits against the competent authority of the city of bremen relating to the former ' s right to use the designations ' ' qualitatsbranntwein ' ' and ' ' weinbrand ' ' in connexion with its products made from wine distillates imported from another member state.

The replies to the questions referred are intended to enable the national court to decide whether the whole or part of article 40 of the federal law of 14 july 1971 on wine, liqueur wine, sparkling wine, wine-based beverages and spirits made from wine (bundesgesetzblatt i 1971, p. 893) and hereinafter referred to as the weingesetz is compatible with community law and in particular with the provisions cited by the national court.

Preliminary considerations

3 For the purpose of answering the questions referred to the court attention should be drawn to some of the matters of law and fact with reference to which the national court has raised them.

4 According to article 35 of the weingesetz ' ' spirits made from wine are the liquid derived from wine distillate which has an alcoholic strength of at least 38* and may be drunk as such or simply diluted with water (preparation) ' '.

Article 36 of that law provides that wine distillate is the liquid obtained by heating either wine or wine fortified for distillation (brennwein), that is to say, according to the explanations given to the court, wine to which a distillate has been added and having an alcoholic strength of about 24*, or again by heating ' ' crude distillate ' ' (rohbrand aus wein oder aus brennwein), that is to say, again according to the explanations given to the court, a wine, whether fortified for distillation or not, which has undergone an initial distillation, or finally by heating a blend of the above-mentioned products until a distilled product is manufactured having an alcoholic strength of at least 52* and not more than 86*; no other substance may be added to or extracted from the distilled liquid obtained in this way.

5 According to the plaintiff in the main action, if the initial distillation, which yields the ' ' rohbrand ' ', is carried out by the still distillation process, it produces spirits distilled from wine having an alcoholic strength of between 24 and 25* which must in fact be distilled a second time in order to fulfil the requirements of articles 35 and 36 relating to alcoholic strength.

However, if the initial distillation is carried out using the column apparatus it produces - again according to the plaintiff in the main action - a distillate with an alcoholic strength of 70*, which makes a second distillation unnecessary.

6 On the other hand, according to the government of the federal republic of germany, the product derived from the initial distillation - whatever its alcoholic strength - is a product which has not been purified and is for this reason called crude distillate which, before it can be used for the manufacture of spirits, must undergo a second distillation which transforms it into a ready-prepared distillate (fertiges destillat).

7 The weingesetz draws a distinction in section ii of part 2 (articles 35 to 44) between spirits made from wine which are home-produced on the national territory (inlandische branntweine aus wein) and are dealt with in articles 36 to 41, and those which are manufactured abroad (auslandische branntweine aus wein) and are dealt with in articles 42 to 44.

That distinction is arrived at by applying different criteria and its effects differ depending on whether the spirits in question are ordinary spirits or those for which the designations ' ' qualitatsbranntwein aus wein ' ' and ' ' weinbrand ' ' are claimed.

8 As for ordinary spirits, article 39 (1) provides that those produced on the national territory must be marked ' ' branntwein aus wein ' ', whereas in the case of spirits of foreign origin - and especially those from another member state - the name of the producing country or the adjective derived from that name must, according to article 44 of the weingesetz, be added to that marking.

Within the meaning of those provisions and by virtue of article 38 of the weingesetz ordinary spirits are deemed to be manufactured on the national territory where the blending of the distillates or their coupage or the addition of certain products listed in the said article 38 is carried out on the national territory, irrespective of the origin - whether domestic or foreign - of the wines, fortified wines, crude distillate or even ready-prepared distillates, from which the spirits are manufactured.

9 On the other hand, spirits which are intended to carry the designations ' ' qualitatsbranntwein aus wein ' ' and ' ' weinbrand ' ' are considered to have been produced on the national territory only if they fulfil the requirements set out in article 40 of the weingesetz and in particular the two conditions that:

(a) At least 85% of the alcoholic content is derived from wine distillate obtained as a result of distillation carried out on the national territory;

(b) The whole of the wine distillate used for the manufacture of spirits, that is to say both the distillate obtained on the national territory and any that may have been purchased - up to a maximum of 15% of the whole of the said distillate - abroad, has been kept for at least six months in oaken casks at the same factory (betrieb) where the distillate produced on the national territory was manufactured.

Under article 44 of the weingesetz the designation ' ' qualitatsbranntwein aus wein ' ' together with the name of the producing country or the adjective derived from that name may also be used in the case of foreign spirits in respect of which the document which has to accompany them when they are imported into the federal republic of germany has certified that they comply with conditions which are almost the same as those laid down in article 40 for home-produced high quality spirits, and in particular with the two conditions that at least 85% of the alcoholic content of the distillate is derived from distillate obtained in the producing country (subparagraph 2 of article 44 (1)) and that the whole of the wine distillate used has been kept for at least six months in oaken casks at the factory abroad where that 85% was distilled (subparagraph 3 of article 44 (1)).

10 Although the 1971 version of the said article 44 allowed only the designation ' ' qualitatsbranntwein aus wein ' ' to be used for high quality spirits from abroad, while reserving the better known designation ' ' weinbrand ' ' for high quality spirits produced in germany, it is clear from the judgment of the court of justice of 20 february 1975 (case 12-74, commission of the european communities v federal republic of germany (1975) ecr 181) that high quality spirits from the other member states which fulfil the conditions laid down in article 44 of the weingesetz must also be permitted to benefit in germany from the use of the designation ' ' weinbrand ' ', because otherwise there would be an infringement of article 30 of the treaty.

11 However, the plaintiff in the main action asserts that - even if the above- mentioned infringement of article 30 of the treaty is eliminated - there is another measure having an effect equivalent to a quantitative restriction to be found in articles 40 and 44 of the weingesetz which is concerned with imports into the federal republic of germany of ready-prepared distillates (fertiges destillat). This restriction is to be found in the fact that high quality spirits manufactured in the federal republic of germany must necessarily be manufactured from wine, wine fortified for distillation or crude distillate which, to the extent of at least 85% of the alcoholic content of the distillate used, has undergone distillation, or at least final distillation, on the territory of the federal republic of germany, transforming it into ' ' fertiges destillat ' ' and that this ready-prepared distillate must, moreover, have been kept for at least six months in oaken casks at the factory in germany which carried out such distillation or final distillation.

12 That provision, to which article 44 (1) of the weingesetz corresponds in so far as high quality spirits from the other member states are concerned, prevents manufacturers of german spirits from buying distillates in other member states with a view to using them directly, that is to say without any further distillation on german territory, for the preparation of high quality spirits from wine, whereas those distillates, in particular those coming from france and italy, are of the alcoholic strength required by article 36 of the weingesetz (at least 52* and not more than 86*) and offer the same guarantees from the point of view of public health and quality as ready- prepared distillates (fertiges destillat) manufactured in germany.

Accordingly that provision is said to be a restriction on trade which is prohibited by article 30 of the treaty and cannot fall within the scope of article 36 thereof, since, according to the plaintiff in the main action, its real objective is to protect german distillers by reserving, in the case of spirits manufactured in the federal republic, the designations ' ' qualitatsbranntwein aus wein ' ' and ' ' weinbrand ' ' for those spirits in respect of which the final distillation at least has been carried out in the federal republic of germany.

Furthermore, that measure forces manufacturers of german spirits made from wine, who are not distillers, to buy the distillates with which they make spirits exclusively from german distillers, who are moreover their competitors, otherwise they would be unable to use the above-mentioned designations in connexion with their products, and this is a form of discrimination between those manufacturers of spirits who are distillers and those who are not which is forbidden by the treaty.

13 The government of the federal republic of germany submits that the provision at issue is not in any respect a measure having an effect equivalent to a quantitative restriction.

The weingesetz, by making it obligatory that at the very least the final distillation and the six months ' storage in oaken casks should take place in the same factory (betrieb), aims at guaranteeing the quality of the spirits in question, which justifies the designations reserved for them because of that quality.

That guarantee of quality can be achieved only if there is ' ' undivided responsibility ' ', that is to say if at the very least the final distillation and storage are undertaken in the same factory, since such ' ' undivided responsibility ' ' offers ' ' the best possible guarantee that quality will be maintained and at the same time ensures effective supervision ' ' and thus permits ' ' the quality and individuality of the product ' ' to be secured; (statement of reasons for the law, bundestagsdrucksache v-1636, p. 61).

That supervision is said to be essential for the information of consumers, since weinbrand manufactured in the federal republic has a special character and taste derived in particular from the way in which it is distilled, the restrictions on refining and the treatment of the constituent parts of the distillates, especially as german weinbrand is distilled until the alcoholic strength is 85* and without any yeast, and primarily from wine fortified for distillation and crude distillate, whereas foreign products are directly distilled from basic wine (grundwein).

14 From all these considerations it must be recognized that the right to use the designation of quality for home-produced spirits must depend upon the fact that the distillation, which is the determinative process, is actually carried out mainly within the country.

That requirement does not contravene the prohibition on measures having an effect equivalent to quantitative restrictions, in particular because by virtue of the rule laid down in article 44 of the weingesetz and following the judgment of the court of 20 february 1975 the federal government places no restriction on the use not only of the designation ' ' qualitatsbranntwein aus wein ' ' but also of the designation ' ' weinbrand ' ' for spirits from other member states which meet the requirements of the principle of ' ' undivided responsibility ' ' enshrined in article 44 for spirits coming from other member states, in a way similar to that adopted by article 40 for home-produced spirits.

15 Furthermore, it should be pointed out that it is an established fact that german spirits are manufactured not from grapes or wines produced on the territory of the federal republic of germany but from foreign wines imported mainly in the form of wines fortified for distillation (brennweine) or of crude distillates (rohbrande).

16 Finally, it should also be noted that the designations ' ' qualitatsbranntwein aus wein ' ' and ' ' weinbrand ' ' are not, either within the meaning of the domestic laws of the member states or that of article 2 (3) (s) of commission directive n°70-50-eec of 22 december 1969 (official journal, english special edition 1970 (i), p. 17), indicative of origin or source but must be regarded as designations of quality formulated by the legislation of a member state.

Moreover, in the beforementioned judgment of 20 february 1975 the court held that the designation ' ' weinbrand ' ' was not an indication of origin (herkunftsangabe) and the federal republic of germany, drawing the relevant conclusions from that judgment, states that the designation ' ' weinbrand ' ', together with the addition of the name of the member state of origin or an adjective derived from that name, may be used in marketing spirits made from wine coming from other member states which satisfy the conditions prescribed by article 44 of the weingesetz in order to take advantage of the designations reserved for high quality spirits.

17 It is after taking into account the various factors to which attention has been drawn above that the questions referred to the court are to be answered.

The questions referred to the court

18 The first question asks whether articles 30 and 31 of the eec treaty as well as the prohibition of discrimination under community law are to be interpreted as meaning that the rules laid down in subparagraphs 1 and 4 of article 40 (1) of the weingesetz of 14 july 1971 (bundesgesetzblatt: part i, page 893 et seq. At 908) according to which home-produced spirits from wine may be designated as ' ' qualitatsbranntwein aus wein ' ' (high quality spirits made from wine) or as ' ' weinbrand ' ' (brandy), only if:

- at least 85% of the alcoholic content is derived from wine distillate home-produced (im inland) by distillation;

- the whole of the wine distillate used has been kept for at least six months in oaken casks at the factory in germany where the home- produced wine distillate was extracted by distillation,

Are incompatible with the prohibition of measures having an effect equivalent to quantitative restrictions and also with the prohibition of discrimination.

19 Although the court has no jurisdiction within the framework of the application of article 177 of the treaty to decide upon the compatibility of a national provision with community law, it may nevertheless extract from the wording of the question formulated by the national court, having regard to the facts stated by the latter, those elements which come within the interpretation of community law.

20 The first question amounts in substance to ascertaining whether the prohibition of measures having an effect equivalent to a quantitative restriction (article 30 of the treaty) and the general prohibition of discrimination are aimed at measures adopted by a member state which make the use of a designation of quality for a home-produced finished product and, in particular, for an alcoholic product manufactured from raw materials which come either from the member state concerned or from other member states, subject to the condition that the whole or part of the manufacturing process prior to the final stage of the latter takes place in the member state where the final stage of production is carried out and where, therefore, the product is regarded as originating.

21 If the answer to that question is in the affirmative the next question is whether a measure of that kind is not justified by article 36 of the treaty.

22 It is appropriate to answer both those questions together and to do this in the first instance with reference to the interpretation of articles 30 and 36 of the treaty.

23 As for the prohibition of measures having an effect equivalent to quantitative restrictions, article 30 of the treaty prohibits all such measures in trade between member states.

For the purpose of this prohibition it is sufficient that the measures in question are likely to hinder, directly or indirectly, actually or potentially, imports between member states.

According to the sixth recital of the preamble to commission directive n°70-50-eec of 22 december 1969 on the abolition of measures which have an effect equivalent to quantitative restrictions, measures ' ' which, at any marketing stage, grant to domestic products a preference, other than an aid, to which conditions may or may not be attached, and where such measures totally or partially preclude the disposal of imported products ' ', must be considered to be included among such measures and are consequently prohibited.

Having regard to these considerations article 2 (3) (s) of the directive rightly classifies measures which ' ' confine names which are not indicative of origin or source to domestic products only ' ' as measures having an effect equivalent to quantitative restrictions and therefore prohibited.

24 In order to be effective the prohibition on the reserving of certain designations (other than those indicative of origin or source), and in particular designations of quality, for domestic products only must extend to measures which distinguish between domestic products according to whether or not the raw materials or the semi-finished products from which they are manufactured have been produced or treated on national territory and which reserve for goods derived from semi-finished products, treated on national territory, special designations such as to give them an advantage in the opinion of the traders or consumers concerned.

In fact in a market which, as far as possible, must present the features of a single market, entitlement to a designation of quality for a product can - except in the case of the rules applicable to registered designations of origin and indications of origin - only depend upon the intrinsic objective characteristics governing the quality of the product compared with a similar product of inferior quality, and not on the geographical locality where a particular production stage took place.

25 However desirable may be the introduction of a policy on quality by a member state, such a policy can only be developed within the community by means which are in accordance with the fundamental principles of the treaty.

Consequently, the member states are empowered to lay down quality standards for products marketed on their territory and may make the use of designations of quality subject to compliance with such standards, but only on the condition that such standards and designations - unlike the position in the case of registered desginations of origin and indications of origin - are not linked to a requirement that the production process for the products in question be carried on within the country but are dependent solely on the existence of the intrinsic objective characteristics which give the products the quality required by law.

A presumption of quality which is linked to a requirement that the whole or part of the production process should take place on national territory, thereby restricting or treating unfavourably a process some or all of the phases whereof are carried out in other member states is, always excepting the rules relating to registered designations of origin and indications of origin, incompatible with the common market.

This is more particularly the case where the requirement that the whole or part of the production process should take place on national territory is, in substance, justified only by a rule which, by introducing the principle of ' ' undivided responsibility ' ', is intended to facilitate quality controls whereas such controls may be carried out just as effectively by means which are less restrictive of trade between member states.

26 It follows from all the foregoing considerations that a national measure which makes the right to use a designation of quality for a domestic product subject to the condition that the semi-finished product from which it was manufactured was either produced or treated on national territory, and refuses to allow the use of that designation simply because the semi-finished product was imported from another member state, is a measure having an effect equivalent to a quantitative restriction.

The fact that the use of that designation of quality is optional does not mean that it ceases to be an unjustified obstacle to trade if the use of that designation promotes or is likely to promote the marketing of the product concerned as compared with products which do not benefit from its use.

27 It is true that, according to article 2 (1), commission directive n°70-50-eec relates solely to ' ' measures, other than those applicable equally to domestic or imported products ' ' and that, according to the federal republic of germany, a comparison of articles 40 and 44 of the weingesetz shows that home-produced spirits and those coming from the other member states are subject, in so far as entitlement to the designations of quality ' ' qualitatsbranntwein aus wein ' ' and ' ' weinbrand ' ' is concerned, to conditions which are substantially the same.

In fact, if spirits coming from the other member states are to benefit from the use of those designations together with the addition of the name of the member state of origin or the adjective derived therefrom, they too must be manufactured from a distillate or at the very least from a ready-prepared distillate which has been produced and stored in a single factory in the state concerned.

28 Although it is not necessary in this case to answer the question whether a national measure which is applicable equally to home-produced products and those coming from the other member states may nevertheless be a measure having an effect equivalent to a quantitative restriction, it is appropriate to record that equal treatment of the product when it is ready for delivery to the consumer is no justification for unequal treatment of the semi-finished products from which the finished product is made, in that in each member state the domestic producer of the finished product is obliged or strongly encouraged to use home-produced semi-finished products wholly or in part.

The extension of that restriction both to finished products coming from the other member states and to those from the member state concerned, far from excusing the restriction on trade in semi-finished products, merely consolidates the partitioning of the markets.

29 However, it should further be considered whether measures such as those which have given rise to the questions referred to the court are not permissible by virtue of article 36 of the treaty, even though they are measures having an effect equivalent to quantitative restrictions.

30 Article 36 is an exception to the fundamental principle of the free movement of goods and must, therefore, be interpreted in such a way that its scope is not extended any further than is necessary for the protection of those interests which it is intended to secure.

31 Article 36 of the treaty does not cover a restriction imposed on trade which is linked to the right to use a national designation of quality, even where it is optional, which distinguishes a particular home-produced alcohol from similar home-produced alcohols, which may, even if they do not fulfil the condition on which the right to the designation of quality depends, and which restricts intra-community trade, nevertheless be marketed on the territory of the member state concerned without any restriction and in particular without any risk to the health of consumers.

32 Therefore the answer to the first two questions must be that measures adopted by a member state which make the use in connexion with a home- produced product of a designation of quality - even where such designation is optional - which is indicative neither of origin nor of source within the meaning of article 2 (3) (s) of commission directive n°70-50-eec of 22 december 1969 subject to the requirement that one or more stages of the production process prior to the preparation of the finished product have been carried out on national territory are measures having an effect equivalent to a quantitative restriction which are prohibited by article 30 of the treaty and not justified by article 36 thereof.

33 In view of the reply given above regarding the interpretation of articles 30 and 36 of the treaty the remainder of the first question and the third question need not be answered.

Costs

34 The costs incurred by the government of the federal republic of germany and by the commission of the european communities, which have submitted observations to the court, are not recoverable.

As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision as to costs is a matter for that court.

On those grounds,

The court

In answer to the questions submitted to it by the verwaltungsgericht of the free hanseatic city of bremen by order of 18 january 1978, hereby rules: