COMMISSION RECOMMENDATION of 22 December 1969 to the French Republic on the adjustment of the State monopoly of a commercial character in matches (Only the French text is authentic) (70/120/EEC)

I

1. The French Government, by letter of 14 February 1959, informed the Commission of the European Economic Community that matches are in France 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. The match monopoly was set up by the Law of 2 August 1872 which reserved to the State the right to purchase, manufacture and sell matches. Direct State management was adopted by the Decree of 30 December 1889. Subsequently, the Decree-Law of 21 September 1935 entrusted the management of that monopoly to the Caisse autonome d'amortissement. Following the Ordinance of 7 January 1959 the monopoly has been under the direct management of the Service d'exploitation industrielle des tabacs et allumettes (SEITA), which has exclusive production and import rights.

With regard to imports, SEITA has the power to grant permits to individuals. Sales are effected by retail tobacconists and by all traders applying to do so and who are supplied by wholesalers approved by SEITA.

Retail selling prices and trade discounts on the sale of matches are fixed by Order of the Minister of Finance.

3. For several years the needs of the French market have been entirely covered by domestic production. No imports are effected by SEITA, neither does it make use of its right to grant special import permits to individuals.

The Commission considered that this situation gave rise to discrimination against suppliers in other Member States in respect of marketing conditions and, on 11 April 1962, recommended the French Republic in pursuance of Article 37 (6): - to allow the importation and marketing of matches from other Member States either by permitting suppliers of these products to supply the distribution network of SEITA or by adopting any other suitable means to that end, within the limit, for the year 1962, of a quantity equal to 5 % of the domestic production for 1960, and to increase that quantity by at least 15 % yearly;

- to fix selling prices to consumers so that, apart from customs duty, the same margin between the delivery price and the selling price is applied to goods imported from other Member States as to domestic goods with the same delivery price;

- to permit advertising of matches from other Member States under the same conditions as those permitted in respect of domestic products.

The French Government has not taken any measures to give effect to that Recommendation. By letter of 12 March 1963 the French Government expressed its readiness to make import openings available in accordance with the terms of the Recommendation, on condition that there should be a temporary and decreasing protection to spread over a period of time the unavoidable consequences of the disparity between French and foreign prices - the main cause of that disparity being the heavy incidence of wage and social security costs on the prime cost of SEITA matches - and on condition also that there should be an investigation into the state of the market in matches in the six Member States to establish whether or not the adjustment of State monopolies might lead to the formation of a private dominant position throughout the common market.

4. The Commission is well aware of the existence of the problems referred to by the French Government. It stresses, however, that the aim of the transitional period was precisely to enable the Member States to effect the necessary adjustments with a view to the operation of a truly common market. It is for that reason that, at the end of the transitional period, protective measures such as those provided for by Article 226 may no longer be applied. However, the Commission is of course still prepared to examine, at the request of the French Government, whether certain degressive measures might be adopted for a limited period on the basis in particular of Articles 92 and 93, in order to facilitate the rationalization or conversion of the sector in question.

The Commission furthermore stresses that in so far as a problem might arise for France from the failure to adjust the monopoly in matches in the Federal Republic of Germany (a failure arising from application of Article 37 (5) under which the obligations on Member States are binding only in so far as they are compatible with existing international agreements), it would be prepared to discuss that problem with the French authorities. It points out in this connection that under the second paragraph of Article 37 (3) it may, where a product is subject to a State monopoly of a commercial character in only one or some Member States, authorize the other Member States to apply protective measures until the adjustment provided for in paragraph 1 of that Article has been effected ; the conditions and details of such measures would be determined by the Commission.

Performance of the obligation to effect the adjustment laid down in Article 37 cannot, however, be made conditional on the solution of the questions referred to above. 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 right 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 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 France to adjust the monopoly in matches 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.

5. As explained in paragraph 3, the restriction of the French market to domestic products constitutes discrimination against suppliers from other Member States. It should be stressed in this connection that the introduction on the French market of a given quantity of matches from other Member States and the gradual increase of that quantity will not be sufficient to attain the objective of Article 37 so long as SEITA, being the sole agent authorized to import matches, is free to decide to what extent and in respect of which qualities the needs of the French market may be met by suppliers in other Member States.

For these reasons, it seems to the Commission that the best solution for attaining the objective laid down in Article 37, because there is no doubt that it will be effective, is to abolish the exclusive right of SEITA to import matches in so far as that right concerns trade between Member States.

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

In France matches are subject to a special tax which is collected by the Direction Générale des Impôts in accordance with the rules applying to indirect taxation. It is true that SEITA performs a revenue function through the levying of the fixed prior charge ("prélèvement précipataire et forfaitaire") on the selling price of matches and its obligation to pay over the net proceeds of management. However, there is no necessary and direct link between the tax and the exclusive right of SEITA to import matches. Consequently, the Commission is of the opinion that the application of the abovementioned measures concerning liberalization of the importation and marketing of matches should not be detrimental to the collection of tax revenue.

II

On these grounds the Commission of the European Communities recommends the French Republic to take the following measures, in accordance with Article 37 of the EEC Treaty: 1. To allow matches to be imported from Member States without any restriction. To that end, all formalities necessary for the introduction of these products on to the French 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 SEITA.

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

- to allow prices for products from 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.

Done at Brussels, 22 December 1969.

For the Commission

The President

Jean REY