“Boncacao” is a large company, making chocolate and chocolate-based products, based in York, UK. It has just started taking advantage of the wider market offered by the EU, but has hit a number of problems.
Advise Boncacao of the legality of each of the following situations under EC law:
(1) Boncacao is keen to export its Dark and Deadly chocolate bars (which are made up of 95% cocoa solids) to Germany, where they believe there is a gap in the market. However, they discover that, under German law, they are required to charge a minimum of 3 Euros per 100g for any chocolate over 70% cocoa solids. This legislation is intended to prevent children from becoming addicted to chocolate.
It is submitted that this measure is likely to be found incompatible with Treaty provisions on the free movement of goods. It would be pertinent to ascertain whether any domestically produced chocolate exceeds the 70 per cent threshold in Germany, and if so what percentage of domestic production is affected. If it is proved that the market in high-cocoa content chocolate is largely populated by imported products, then this legislation will likely be considered a measure having equivalent effect to a quantitative restriction (MEQR) in that it discriminates against goods from other Member States.
Article 28 EC quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.
In Procureur du Roi v Dassonville the term ‘measures having equivalent effect to a quantitative restriction’ was found to include ‘all trading rules enacted by a Member State which are capable of hindering, directly or indirectly, actually or potentially, intracommunity trade.’ From a common sense perspective it seems unlikely that Germany could defend this MEQR by means of derogation under Article 30 EC.
Article 30 EC
The provisions of Articles 28 and 29 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.
In keeping with the Court’s teleological interpretative policy, these exemptions are narrowly construed and awarded only in clear cut cases of justification. The only viable option in this context would be to try to raise the protection of health argument, but this would seem doomed to failure because chocolate with a high-cocoa content is quite bitter to taste, especially and increasingly so above the 70 per cent margin. Children, it is submitted, typically prefer the sweeter taste of lower cocoa content, higher sugar content chocolate products. Indeed, across Europe, high cocoa content chocolate is marketed to target an adult, connoisseur market in today’s world. It is unlikely that children need to be dissuaded from purchasing a product which in its nature is not particularly attractive to them by being priced out of the market. Moreover, the bitterness of high cocoa chocolate prevents heavy consumption. It is much more likely that children will become addicted to high sugar products that can be consumed enjoyably in much higher quantities.
If it is established that imported chocolate from other Member States is discriminated against, that is to say disproportionately affected by this measure, it is therefore likely that the measure will not be deemed justified and deemed incompatible with the Treaty. Accordingly it is suggested that Boncacao will be permitted to market their product at a price determined by production costs, demand and other normal competitive considerations rather than artificial rules.
By way of aside, note that prohibition of discrimination based on nationality is also specifically set out in Article 12 of the Treaty as a general principle of law to be taken into account by the Court of Justice in all instances. General treaty principles are invoked by the Court to reinforce its contextual and purposive interpretative policies in all areas of application of the Treaty and such could only serve to buttress Boncacao’s case in this scenario.
Article 12 EC
Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.
Fundamental principles of the Treaty are employed to flesh out the more specific Treaty provisions. Where there is ambiguity in the interpretation and application of a specific rule in a specific context the Court may draw on the basic principles for guidance. As a consequence, grey areas are typically decided in favour of the tone and the tenor of those early rules.
(2) Under the Danish taxation scheme, any chocolate is taxed at twice the level of other types of sweets (such as boiled sweets, mints, etc.) this, according to the Danish government, is because chocolate is higher in fat than other types of sweets, is thus more dangerous to health, and the extra taxation is used as a contribution to the Danish Health Service. The Danish Chocolate Manufacturers Association, which represents the interests of the large Danish chocolate industry is currently involved in lobbying for a change in the rules, as chocolate is regarded in Denmark as a “luxury product” because of the impact of the tax regime.
The European Court of Justice defined the concept of genuine tax in Commission v France (Re Levy on Reprographic Machines) as a measure relating to a system of internal dues applied systematically to categories of products in accordance with objective criteria irrespective of the origin of the products. Such taxes fall under the regulatory ambit of Article 90 EC which provides:
Article 90 ECNo Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.
Here it seems that all chocolate, regardless of its production origin, is taxed the same. It appears, on the facts presented, that chocolate is being discriminated against under the Danish tax in a way that offers indirect protection and a direct competitive advantage to non-chocolate sweet products that occupy the same, broad, sweet-snack market.
The question is whether chocolate would be considered sufficiently similar to other items of confectionery subject to the more benevolent taxation regime. The European Court has held that the concept of similarity must be widely interpreted in cases such as John Walker and Commission v United Kingdom (Re Excise Duties on Wine).
As to whether, in the particular context of this scenario, chocolate would be deemed sufficiently similar to other confectionery for the purposes of Article 90, further and better particulars would be needed to reach a conclusion. It is however, legitimate to tax similar products differently where the difference is based on an objective criterion to achieve a stated aim. For example in Commission v France traditional natural sweet wines were taxed at a lower rate than ordinary wine and this was accepted as justified by the European Court given that the object of the differential was to offer economic assistance to rural, wine producing areas.
In this case the public health argument appears specious. Although chocolate may indeed be higher in fat than certain other sweet products, fat per se is not inherently healthy. Indeed, it is an essential element of a balanced, healthy diet. Moreover, candy-style sweets may typically have higher levels of additives, preservatives and artificial colourings etc than chocolate, and very high sugar levels which may be more damaging to, for example, dental health than chocolate. If nothing else it is argued that the fundamental principle of proportionality would be offended by such a measure in its given context. It therefore seems likely that the logic of the Danish Government is not well founded in this respect.
It is submitted that there is a possibility, perhaps even a likelihood, that this measure will be deemed to contravene the Treaty provisions guaranteeing a fair and equitable taxation regime in the Single Market.
(3) The Italian Government has passed a law forcing all shops that sell chocolate or sweets to be open for a limited time only (4 hours a day) over the season of Lent, when many of the large Roman Catholic population are abstaining from sweet things. this in fact has the effect that many non-specialist shops stop selling chocolate or sweets over the season of Lent, so that they do not have to shut. Boncacao’s market is therefore much reduced over this period.
This scenario brings to mind the controversy over the application of Article 28 in relation to the Sunday trading laws of the United Kingdom. In Torfaen Borough Council v B&Q plc a large do-it-yourself and gardening store challenged the UK Shops Act 1950, which banned the sale of a list of items on Sundays. This had a dramatic impact on B&Q’s sales and the company argued that the Shops Act contravened Article 28, or Article 30 as it then was, because its trade in imported goods was consequently reduced in volume. The company relied on the Dassonville formula, as discussed and cited above at note 1, in an effort to defeat the Sunday trading prosecution laid against it. Welsh magistrates referred the matter to the European Court under the Article 177 (now Article 234) reference procedure.
The Court found that the rules established in the Shops Act applied to all goods, regardless of origin. Marketing imports was deemed to be no more difficult than the marketing of domestic goods under the UK Sunday trading regime. A two stage test was proposed by the Court for the application of what is now Article 28. First it was deemed necessary to ascertain whether the aim of the rule under review was justified under Community law. In this context the Court conceded that the matter was one for the Member States given that regulations on shop opening hours:
‘…reflect certain political and economic choices in so far as their purpose is to ensure that working and non-working hours are so arranged as to accord with national or regional socio-cultural characteristics.’
The second component of the test asked the national court to assess whether the effects of the regulations under review surpass those measures necessary to achieve the desired object.
The Court held that such measures comprise a lawful and compatible part of social and economic policy intended to accord with national or regional socio-cultural characteristics and that they do not contravene Article 28 (ex 30) provided their restrictive effect does not exceed the effects intrinsic to rules of that kind.
Therefore, in Torfaen, the Court ruled that Sunday trading measures are legitimate provided that the measures adhere to the underlying EU principle of proportionality. The influence of proportionality as a concept has been recognised in many cases, including, in the context of bans on Sunday employment, Criminal Proceedings v Marchandise and Union Departmentale des Syndicats CGT v Sdef Conforama, in Belgium and France.
In Stoke-on-Trent and Norwich City Councils v B&Q the European Court adopted an even more proactive approach, deciding itself that the Shops Act was compatible with EC law instead of leaving the matter in the hands of the national court. Finding that the restrictive effects on trade stemming from national rules in shop opening hours were not disproportionate to those rules based on socio-cultural characteristics, the ECJ stated that:
‘Article 30 [now 28] is to be interpreted as meaning that the prohibition it lays down does not apply to national legislation prohibiting retailers from opening t their premises on Sundays.’
It is also true that Article 28 has had its wings clipped by the European Court after concerns that it was being invoked too frequently. In Keck and Mithouard the Court set down a marker on the limits of Article 28’s scope.
In the aftermath of Keck, the legal position is clearly that Member States have the freedom to establish their own domestic selling arrangements where there is no effect on imports and no discrimination.
In light of this pattern of decided case law it seems likely that the Italian measure under review would not be deemed offensive to EU law, and in particular the law on free movement of goods, given its general application to all confectionery regardless of its foreign or domestic provenance.
(4) Boncacao wishes to start exporting to Belgium. the Belgian Government is protective of the Belgian reputation for fine chocolate. It has instituted a rule whereby all new products coming from outside of Belgium must undergo a “tasting test”, carried out by specialist Belgian tasters, to ensure that the product is of a sufficiently high quality. In the past two years, all products which have been submitted to the tasting test have been allowed to pass. The Belgian Government will organise the tasting test, at a charge of 50 Euro per product line.
It is confidently submitted that the Belgian tasting test is laughable: it would not survive even the most casual scrutiny of the European Commission or the Court of Justice.
As stated above, the Dassonville formula derived from Procureur du Roi v Dassonville establishes that measures having equivalent effect to a quantitative restriction include ‘all trading rules enacted by a Member State which are capable of hindering, directly or indirectly, actually or potentially, intracommunity trade.’
This is clearly not a quota system because no numerical limits are imposed. However, specious border inspections, in particular where charges – even those set at a nominal level – are imposed, qualify as measures having equivalent effect to a quantitative restriction. There is no doubt that the imposition of such frivolous administrative burdens is in principle in breach of Article 28 in view of the restrictive effect on trade.
It is submitted that there is no realistic possibility of justification under Article 30 (ex Article 36) – in simple terms, no one takes chocolate quite that seriously! The text of Article 30 is reproduced at page 2 of this work.
Quality inspections such as this are doomed to failure. In Bouhelier watches for export were subject to a quality inspection, and even in this case the Court found an infringement – this time of Article 34. Inspections on importation are even less likely to be sanctioned for obvious reasons. In Commission v United Kingdom, a case that involved import restrictions on UHT milk, the Court ruled:
‘Article 30 [now Art 28] precludes the application to intra-Community trade of national provisions which require, even as a pure formality, import licences or any other similar procedure.’
The fact that all products submitted to the test have thus far been allowed to pass is irrelevant. It is the existence of this additional administrative hurdle, not the height of the hurdle, that is relevant. The very operation of an exemption procedure, despite its apparent benevolence in this case, both frustrates and impairs the fundamental axiom of free movement and violates Article 28 as a consequence. The subjective nature of the taste test would also be considered highly dubious, indeed it would serve only to irritate an ECJ hopeful that such activities are a thing of the past. The 50 Euro charge is merely icing on the cake of illegality.
It is submitted that this measure is not permitted under the free movement of goods legislation. That said however, the author is very keen to apply for a job as taster, should one become available.
(5) France is particularly proud of its fine tradition in chocolate making. All French chocolate bears the words “Made in France” in big letters. The French Association of Chocolate Makers regularly run lavish advertisements on TV extolling the virtues of French chocolate. Chocolate coming from other Member States must indicate on the packaging that it is a product of the EU.
It is submitted that this scenario involves practices incompatible with the Treaty provisions on free movement of goods and possibly the very strict rules on state aid if the French Association of Chocolate Makers (FACM) can be deemed an emanation of the French State. The nature of FACM will be studied for evidence of government participation and support.
In the Commission v Ireland the ECJ ruled that a government sponsored “Buy Irish” campaign constituted a measure having equivalent effect to a quantitative restriction on imports contrary to Article 30 (now Article 28). The three year campaign was coordinated by the Irish Goods Council (IGC) and in addition to the advertising a “Guaranteed Irish” product symbol was established.
Irish Government raised three arguments in defence. First it was argued that the campaign lacked the necessary binding force to qualify as a measure. This was rejected by the Court, which made the point that state-sponsored campaigns would invariably qualify as measures.
Second, it was argued that private commercial contributions to the campaign and the membership and governance of the IGC – the body behind it – meant that the Article 30 (now 28) would not be triggered. Again, this was dismissed on evidence of the state’s involvement with the IGC. Third the fact that the campaign was a failure was held to be irrelevant: its manifestly discriminatory object was sufficient to trigger prohibition.
Similarly in Apple and Pear Development Council v K.J. Lewis Ltd a domestic campaign to increase the market share of English apples and pears at the expense of domestic imports was at issue. Because the Development Council was part-funded by the state the advertising campaign was deemed incompatible with EU law. It was ruled unacceptable for a state funded body to encourage consumers to buy domestic products solely by reason of their national origin.
It seems likely that the FACM in the scenario under review will be closely scrutinised for state involvement and funding. If a significant Government connection is established then it is submitted the campaign will be prohibited as contrary to the scheme of the Single Market.
(6) The Dutch Government have recently pass a law that all chocolate sold on its territory must be made from organic ingredients. Only one of Boncacao’s products will match up to this standard, and the others will have to be withdrawn. Traditionally, all Dutch chocolate has been made from organic ingredients.
It is submitted that this measure is likely to be found incompatible with Treaty provisions on the free movement of goods. Given that all Dutch chocolate is made from organic ingredients, a rule that purports to ban non-organic ingredients effectively discriminates against products made using other forms of ingredients elsewhere in the Single Market and favours, to the point of protectionism, domestic production.
The scenario brings to mind the celebrated Commission v Germany, which concerned the ancient and highly venerated German beer purity laws known as the Rheinheitsgebot. These are designed to protect traditional German brewing methods by stipulating that drink products marketed as beer should only be produced by using four ingredients and four alone: barley, hops, yeast and water.
Like the rules in the scenario under analysis, the German beer purity laws did not discriminate against foreign-produced beers, making no reference to nationality or origin whatsoever. Sometimes this type of regulation is classified as an indistinctly applicable measure. Rules of this species are deemed to partition markets indirectly by reference to a product’s characteristics rather than its origin. Such rules are redolent of the leading case Cassis de Dijon (Rewe-Zentrale v Bundesmonopolverwaltung fur Branntwein)
Therefore it seems likely that the fictional Danish laws on chocolate will fall the same way as the staunchly defended German beer purity laws. In the Rheinheitsgebot case the German Government sought to defend its legislation on the basis of two arguments founded on public health and consumer protection.
The case law on this issue is voluminous and conclusive. Again contextual and purposive interpretative policy is brought to bear. Objective justification is available where there is discrimination in favour of home-produced goods, but it is rare that such will prove successful. If the Danes attempt to argue the measure is aimed at protecting public health the Court will dismiss the claim on the grounds that the excluded chocolate is lawfully marketed in other parts of the Union with no restrictions or established health concerns: Eyssen, among many, provides effective authority.
Arguments based on consumer protection are also likely to fail. The court endorses a predictably strict line in this regard. It is submitted the court will find that consumer choice will be extended by its prohibition of the measure, and that labelling could adequately meet the needs of those consumers interested in distinguishing traditionally produced chocolate from its alternatives. Gilli v Andres offers interesting and persuasive comment on the use of labelling. The case involved German apple vinegar marketed in Italy where regulation stipulated that vinegar could not be marketed as such unless derived from wine. The Court held that a note on the bottle would be quite sufficient to safeguard the consumer. Moreover, both Cassis de Dijon and the Rheinheitsgebot case stand as effective authority in this regard.
WORD COUNT 4000 (inclusive of footnotes)
This is the sole, original work of the author.
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Calling Time on the Guest Beer Provision, Spink and Milne, European Competition Law Review Vol. 18 Issue 2, March 1997.
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