CJEC, June 7, 1983, No 78-82

THE COURT

1 By an application lodged at the court registry on 24 february 1982, the Commission of the European Communities brought an action under article 169 of the eec treaty seeking a declaration that, by continuing to fix uniform trading margins for the retail distribution of manufactured tobacco, the Italian Republic had failed to fulfil its obligations under article 37 of the eec treaty.

2 In Italy, manufactured tobacco products are subject to a state monopoly which affects both production and distribution thereof. As far as the retail trade, in particular, is concerned, the monopoly consists in restricting it to tobacconists approved by the fiscal authorities and numbering about 80 000. Tobacconists are required to sell tobacco products at public resale prices indicated by a scale of charges fixed by law.

3 That scale of charges comprises a wide range of retail prices, each of which is made up of three parts, namely the remuneration of the manufacturer and the wholesale distributor, the share taken by the exchequer and the margin taken by the retailer. That margin amounts to 8 % of the public resale price. The authorities administering the monopoly in their capacity as manufacturer, and the importers, are free to choose for each of their products one of the public resale prices shown in the scale, or even a price not shown which is then incorporated into it.

4 On 13 november 1980, pursuant to the first paragraph of article 169 of the eec treaty, the commission delivered to the republic of Italy a reasoned opinion in which it claimed that the latter had failed to fulfil its obligation to adjust its monpoly on sales of manufactured tobacco products to comply with article 37 of the treaty, namely by maintaining certain procedures under that monopoly. Amongst the contested procedures, the fixing of uniform trading margins was cited. Further to that reasoned opinion, the italian government and the commission agreed on a series of adjustments to the monopoly. However, the italian government refused to abandon the system of uniform margins for retail sales.

5 The commission thereupon brought the present proceedings, the scope of which is limited to the single question concerning the maintenance of such uniform trading margins, seeking a declaration that the system is contrary to article 37 of the treaty.

6 Article 37 (1) of the treaty provides that ' ' member states shall progressively adjust any state monopolies of a commercial character so as to ensure that when the transitional period has ended no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of member states ' '.

7 The commission claims that the fixing by the state, whose monpoly also includes the production of the goods in question, of uniform trading margins for the retail trade is a discriminatory measure. On the one hand, the state is necessarily induced to prefer the products of its domestic manufacture to those of foreign competitors, and to fix the margin at a level which favours the marketing of its own products. On the other hand, discrimination arises from the fact that the italian monopoly, when exporting to other member states, may freely choose its sales promotion policy whereas foreign manufacturers selling to Italy are obliged to comply with the uniform trading margin fixed by the state.

8 The commission further claims that the uniform trading margin is liable to distort competition and to place imports from other member states at a disadvantage. The uniform margin is intrinsically hostile to competition in its effects, inasmuch as it makes it impossible for the manufacturers of foreign products to grant marketing premiums, and compels them to adopt the same marketing methods as the italian monopoly on production.

9 The italian government takes the view that the system of uniform trading margins entails no discrimination. The measure in question is one which applies without distinction to all products, domestic and foreign alike, and which is designed to prevent tobacconists from subjecting customers and producers to discrimination. The margin of 8 % affords a fair and sufficient remuneration for tobacconists and was not fixed as part of a sales policy designed to favour domestic products. In the absence of a common organization of the market, every member state may adopt special provisions, which may differ from those in force in other member states.

10 The italian government further argues that alleged distortions of competition do not fall to be examined in the light of article 37 of the treaty. It also denies the existence of a restriction on competition and emphasizes that the measure in dispute constitutes, in substance, an intervention in the shaping of retail prices which is accepted in the case-law of the court. In the alternative, the italian government argues that article 90 (2) of the treaty permits a derogation from the treaty provisions because the italian monopoly on the retail trade in manufactured tobacco has the character of a revenue-producing monopoly and because the abolition of the uniform trading margins would obstruct the particular aims of the monopoly. The margin ' s invariability ensures the transparency of prices, precludes a price-cutting war and helps to restrict smuggling.

11 In the first place it should be recalled, as the court has held, in particular, in its judgments of 3 february 1976 (case 59-75 pubblico ministero v manghera (1976) ecr 91) and of 13 march 1979 (case 91-78 hansen v hauptzollamt flensburg (1979) ecr 935), that article 37 of the treaty does not demand the total abolition of national monopolies having a commercial character but requires them to be adjusted in such a way as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of member states. It is clear not only from the wording of article 37 but also from its position in the general scheme of the treaty that the article is designed to ensure compliance with the fundamental rule of the free movement of goods throughout the common market, in particular by the abolition of quantitative restrictions and measures having equivalent effect in trade between member states, and thereby to maintain normal conditions of competition between the economies of member states should a given product, in one or other of those states, be subject to a national monopoly of a commercial character.

12 Since the rules at issue apply without distinction to domestic and imported products, it is appropriate to consider whether they are none the less liable to have a discriminatory effect or to distort competition by restricting imports of tobacco products, thereby impeding trade within the community.

13 The commission maintains that, in view of the general ban on advertising introduced by italian legislation, foreign producers are at a disadvantage in marketing imported products because they are unable to allow retailers higher trading margins in order to encourage them to sell their products.

14 That objection, however, cannot be accepted. The impossibility of granting marketing premiums exists as much for the italian tobacco-producing monopoly as for foreign producers. Moreover, the commission has not demonstrated that granting marketing premiums constitutes the only commercial tactic which would enable foreign products to establish themselves on the market, especially as competition in retail prices remains possible. The figures submitted by the commission on the development of tobacco imports into Italy and the market share of imported products there as compared with other member states, as well as the figures submitted by the italian government which the commission has not challenged even though it has disputed their interpretation, do not in any case support the thesis that imported products, unlike domestic ones, cannot compete effectively on the market except by means of marketing premiums for retailers.

15 It should further be stressed that the trading margin fixed by law has for years remained unchanged at 8 % of the retail price. No power of decision and no margin of discretion in the matter are conferred on the authorities, who play no role in fixing the trading margin. There is nothing to support the claim that the margin takes account of special needs of products subject to the italian monopoly in the light of the market situation. The commission has thus failed to establish in what way the fixing of the margin could, in such circumstances, favour the marketing of domestic products alone.

16 As to whether the disputed rules restrict imports of foreign products, it should be recalled that, as the court has repeatedly observed (see the judgments of: 26 february 1976, case 65-75 tasca (1976) ecr 291; 24 january 1978, case 82-77 openbaar ministerie v van tiggele (1978) ecr 25; and 6 november 1979, joined cases 16 to 20-79 openbaar ministerie v danis (1979) ecr 3327), national measures regulating the fixing of prices, which apply without distinction to domestic and to imported products, do not in themselves constitute a measure having an equivalent effect to a quantitative restriction, but they may have such an effect when, on account of the price level fixed, they place imported products at a disadvantage, in particular because their competitive advantage due to lower production costs is neutralized or else because a maximum price is fixed at so low a level that - given the general standing of imported products as compared with national products - traders wishing to import the products in question into the member state concerned could do so only at a loss.

17 In the present case, the rules in dispute do not affect the freedom of producers to fix the retail prices of their products. Competition may be freely pursued in the essential field of retail prices. Foreign producers of tobacco products are free either to take advantage of more competitive production costs or to pass on higher production costs in their entirety. It is not contested that the uniform margin represents an adequate remuneration to tobacconists for the retailing of tobacco products, whether they be imported or domestic products.

18 Admittedly, the provisions in dispute have the effect of committing foreign producers to the observance of a uniform trading margin on the italian market whereas there is no analogous obligation on foreign markets in respect of products from the italian monopoly. That situation, however, does not amount to discrimination within the meaning of article 37 of the treaty. It is merely the consequence of the existence of a monopoly having a commercial character and entailing the regulation of trading margins, whereas no such monopoly and no such regulation exist in other member states. If the disparities between national laws on trading margins for the retail trade in tobacco products were to have adverse effects on competition in the common market, it would be the duty of the competent community institutions to eliminate such effects by harmonizing the provisions laid down in member states by law, regulation or administrative action.

19 It is clear from the foregoing that the commission has failed to demonstrate that the provisions in dispute constitute discrimination in respect of imported products and prejudice the free movement of goods under normal conditions of competition. The application must therefore be dismissed as unfounded.

Costs

20 Under article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party ' s pleading. Since the commission has failed in its arguments, it should be ordered to pay the costs.

On those grounds,

The court

Hereby:

1. Dismisses the application;

2. Orders the commission to pay the costs.