COMMISSION RECOMMENDATION of 22 December 1969 to the Italian Republic on the adjustment of the State monopoly of a commercial character in lighter flints (Only the Italian text is authentic) (70/123/EEC)

I

1. The Italian Government, by letter of 24 March 1959, informed the Commission of the European Economic Community that lighter flints are in Italy subject to a State monopoly of a commercial character within the meaning of Article 37 of the EEC Treaty.

Under that provision Member States are required progressively to adjust 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.

2. Royal Decree No 281 of 2 February 1922 had, inter alia, reserved to the State the right to import and sell lighter flints on Italian territory. Royal Decree No 105 of 26 February 1930, which reserved to the Consorzio Industrie Fiammiferi (CIF) the right to import and sell in Italy mechanical lighters, components and spare parts therefor, maintained the exclusive right of the State to import and sell, as well as to manufacture, lighter flints (Article 3). The State (Ministry of Finance) may directly exercise such exclusive rights to manufacture, import or sell, or may authorize bodies or individuals to exercise them. Italian consumption (approximately 3 metric tons a year) is at present entirely covered by imports from one Member State.

Sales of lighter flints must be made through the distribution network of the Amministrazione autonoma dei monopoli di Stato (AAMS) (Article 6 of Decree No 105).

3. Since 1958 the Italian Government has taken certain measures with a view to the adjustment of that monopoly : by Law No 1085 of 19 December 1958 and by Law No 825 of 13 July 1965 the principle of specifying the retail price components was adopted for lighter flints as for other products subject to a revenue-producing monopoly : for each price charged by the supplier of such products, the amount of the consumer tax and the amounts allowed to the AAMS for distribution costs and to retailers by way of rebate are fixed by law and published ; the total is the sale price to the public. Suppliers, by asking a particular delivery price, can thus determine the end-price at which their products will be sold.

4. The Commission is of the opinion that these measures are insufficient to attain the objective of Article 37.

Since the end of the transitional period is approaching, measures should now be adopted to bring to an end all discrimination between nationals of Member States regarding the conditions under which goods are procured and marketed.

Article 37, which comes under the Title relating to the free movement of goods and, more particularly, under the Chapter concerning the elimination of quantitative restrictions between Member States, aims at achieving by the end of the transitional period in respect of products subject to a State monopoly of a commercial character (or a like system), the same result as that achieved for other products by the application of Articles 30 to 34, that is to say the free movement of goods.

However, a different procedure was provided in order to achieve that result in the sectors covered by State monopolies. Their progressive adjustment was provided for partly in order to take account of the fact that in the view of the Member States concerned the products subject to a monopoly presented special problems and partly so that the elimination of quantitative restrictions and of measures having an equivalent effect in those sectors should not be without practical result. There were indeed grounds for fearing that the liberalization of trade in respect of the products subject to a monopoly would not take place if the monopolies, by virtue of their exclusive rights to import, export and market certain products, were to remain free to decide to what extent and under what conditions products from other Member States could be allowed on the domestic market (or conversely, to what extent domestic products could be exported to other Member States).

It is for that reason that Article 37 contains the provision designed "to ensure that when the transitional period has ended no discrimination regarding the conditions under which goods are procured and marketed exists between the nationals of Member States".

It should be stressed that the ending of discrimination resulting directly from provisions applicable to products subject to a monopoly is not the only requirement laid down in Article 37 ; that objective could be attained, in the absence of an Article governing State monopolies, by means of other provisions of the Treaty, in particular those prohibiting charges having an equivalent effect to customs duties and measures having an equivalent effect to quantitative restrictions. It follows from what has been said above in relation to the special characteristics of State monopolies and of the restrictions to which they can give rise that the objective of the "adjustment", i.e. of ensuring that "no discrimination exists", is to eliminate the possibility that the particular powers vested in the monopolies in respect of the importing and domestic marketing, or the exporting, of certain products might at the end of the transitional period still give rise to discrimination.

Since these are the objectives laid down in Article 37, it is incumbent upon Italy to adjust the monopoly in lighter flints before the end of the transitional period in order that the objectives may be attained. On the other hand, it is for the Commission, in addition to its general duty to see that the Treaty is implemented, to make recommendations, in accordance with Article 37 (6), as to the manner in which the adjustment provided for in that Article shall be carried out.

It may well be in this particular case - in view of the special characteristics of the product - that discrimination resulting from the exclusive importing and marketing rights of the AAMS may have only a minor effect, since lighter flints are accessory products, of very little value, consumption of which, even should there be a considerable development of the market for the main product, i.e. mechanical lighters, would remain very limited. It follows, in these circumstances, that there could be little advantage in setting up a production business and, as is the case in Italy, that it would be preferable by far to obtain the goods from foreign suppliers. For the same reasons, it is possible that suppliers would in any case prefer to avoid the expense of setting up a distribution network for the product in question and would find it convenient to make use of the AAMS network. One must, however, recognize that the choice should be left open to the suppliers concerned. In view of the foregoing the Commission considers that the best solution for attaining the objective laid down in Article 37, because there is no doubt it will be effective, is to abolish the exclusive rights of the AAMS to import and market lighter flints, in so far as those rights concern trade between Member States.

5. The monopoly in lighter flints has the character of a revenue-producing monopoly. Pursuant to Article 90 (2) of the EEC Treaty, undertakings having the character of a revenue-producing monopoly are subject to the rules contained in the Treaty, in particular the rules of competition, in so far as the application of such rules does not obstruct the performance of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.

The Commission is of the opinion that the revenue function of this monopoly does not justify the maintenance of quantitative restrictions on import and of restrictions in respect of marketing. Through the adoption in 1958 of a system of detailing the bases of retail prices, thereby establishing a direct and constant relationship between each selling price and each delivery price, the Italian Government had already taken away much of the significance of the monopoly's revenue function : since the amount of tax corresponding to a particular selling price is fixed in advance, the ability of the tax authorities to derive the maximum tax revenue from the sale of each product which is the main taxation objective has been correspondingly reduced. In the circumstances, it seems that the revenue function of the monopoly could be fulfilled simply be means of a consumer tax.

II

On these grounds the Commission of the European Communities recommends the Italian Republic to take the following measures, in accordance with Article 37 of the EEC Treaty: 1. To allow lighter flints to be imported from the Member States without any restriction. To that end, all formalities necessary for the introduction of these products on to the Italian market must be such as can be carried out directly by the buyers or persons appointed by them, so that the latter may immediately dispose of the products without the intervention of the AAMS.

2. To allow all operations necessary for the marketing of lighter flints from other Member States to be freely carried out on the Italian market. To that end, in particular: - to allow suppliers from other Member States to set up their own wholesale trade network in Italy and to hold stocks there;

- to allow prices for products from the other Member States to be freely agreed between sellers and buyers at the different stages of marketing;

- to allow suppliers from other Member States to advertise their products freely:

- to take all measures necessary to ensure that retailers are commercially independent of the public authorities.

Done at Brussels, 22 December 1969.

For the Commission

The President

Jean REY