COMMISSION RECOMMENDATION of 22 December 1969 to the Federal Republic of Germany on the adjustment of the State monopoly of a commercial character in alcohol (Only the German text is authentic) (70/126/EEC)

I

1. The Government of the Federal Republic of Germany, by letter of 29 January 1959, informed the Commission of the European Economic Community that ethyl alcohol, spirits and spirituous beverages, with the exception of rum, arrack, cognac and liqueurs are in the Federal Republic of Germany subject to a State monopoly of a commercial character within the meaning of Article 37 of the EEC Treaty.

In pursuance of Council Regulation No 7a 1 of 18 December 1959, ethyl alcohol derived from agricultural products, excluding spirits and spirituous beverages, was added to Annex II to the Treaty. Articles 38 et seq of the Treaty are therefore applicable to ethyl alcohol derived from agricultural products.

Under Article 37 (1) of the EEC Treaty 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. Since the entry into force of the EEC Treaty the Government of the Federal Republic of Germany has to an increasing extent granted import permits in respect of spirits and spirituous beverages from other Member States. Such measures are not, however, sufficient to ensure the free movement of spirits and spirituous beverages within the Community by the end of the transitional period. For that reason, on 26 November 1963, the Commission recommended the Federal Republic of Germany to grant all requests for import permits within certain quotas and to increase these quotas by 15 % each year. The Federal Republic of Germany has complied with that Recommendation.

In order to achieve the final abolition of those quantitative restrictions by progressive steps by the end of 1969, the Commission by letter of 27 June 1969, recommended a greater increase in import quotas, referring in this connection to Article 37 (3) in conjunction with Article 33 (3) of the EEC Treaty. The Government of the Federal Republic of Germany has not yet taken the measures proposed.

The Federal Republic of Germany has progressively reduced the differential treatment of German and imported spirits with regard to the deferment of tax payments (Monopolausgleich and Branntweinaufschlag). Certain differences however still remain : deferred payment is allowed on the whole of the Branntweinaufschlag, levied on domestic products, but deferment of the Monopolausgleich is allowed only for an amount corresponding to the duty on the alcohol.

Apart from these measures the Federal Republic of Germany has so far taken no steps to harmonize the Monopolausgleich on imported spirits with the Branntweinaufschlag on corresponding German products.

3. As in the case of ethyl alcohol derived from agricultural products, ethyl alcohol not derived from agricultural products may be imported, as before, only by the monopoly. Trade in such products is also reserved exclusively to the monopoly.

Since the two kinds of ethyl alcohol cannot be distinguished in the pure form, and since, in Germany, there is a national organization of the market in ethyl alcohol derived from agricultural products, the effectiveness of which depends on regulations concerning the production and importation of, and trade in, ethyl alcohol not derived from agricultural products, the Commission has refrained until now from recommending the Federal Republic of Germany to take certain measures with regard to the latter product. Moreover, consideration is being given to the substitution of a common organization of the market in ethyl alcohol derived from agricultural products for the national organization of that market.

4. Although the steps taken so far by the Government of the Federal Republic of Germany concerning spirits and 1OJ No 7, 30.1.1961, p. 71/61.

spirituous beverages are in accordance with the requirement progressively to adjust the monopoly, they are not sufficient to ensure that, as laid down in Article 37 of the EEC Treaty, no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States.

Since the end of the transitional period provided for by the EEC Treaty is approaching, all measures must be taken, not only in respect of spirits and spirituous beverages but also in respect of ethyl alcohol not derived from agricultural products, to ensure that by 31 December 1969 at the latest no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States.

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 coming 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 the provisions applicable to products subject to a monopoly is not the only requirement laid down in Article 37 ; that objective could be achieved, 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 may 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 the Federal Republic of Germany to adjust the alcohol monopoly before the end of the transitional period in order that the objectives may be at tained. 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.

The Commission considers that the objective of Article 37 of the EEC Treaty will not be attained so long as the German alcohol monopoly is in a position to decide whether, to what extent and in respect of what quantities products from other Member States may be imported and marketed and so long as taxation differences remain between imported and domestic products. The Commission considers that, apart from the abolition of such discrimination in taxation, 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 rights to import, export and market which the German monopoly in respect of alcohol still has, in so far as these rights concern trade between Member States.

5. The Commission considers, however, that, since there is no common organization of the market in ethyl alcohol derived from agricultural products, since there is an interdependence between such alcohol and ethyl alcohol not derived from agricultural products, and since spirits may often be a substitute for ethyl alcohol, thus adversely affecting its saleability, it might prove necessary to take special measures until the entry into force of a common organization of the market.

Under Article 37 (4) of the EEC Treaty, if a State monopoly of a commercial character has rules which are designed to make it easier to dispose of agricultural products or obtain for them the best return, steps should be taken in applying the rules contained in Article 37 to ensure equivalent safeguards for the employment and standard of living of the producers concerned, account being taken of the adjustments that will be possible and the specialization that will be needed with the passage of time. That provision is applicable to the German alcohol monopoly.

The German alcohol monopoly does in fact constitute a national market organization. It influences the production of ethyl alcohol, in particular by means of quotas and the fixing of purchase prices and thereby ensures that the producers concerned receive an adequate income. Moreover, the production of spirits is guided, as to both quantity and price, so as to favour the production and sale of ethyl alcohol derived from agricultural products and in this way account is taken of the interests of producers of certain agricultural raw materials. The unrestricted opening of the German market to products from other Member States before the entry into force of a common organization of the market could thus adversely affect the sale of German ethyl alcohol derived from agricultural products as well as the competitive position of German spirits and, in consequence, the employment and standard of living of producers of certain agricultural raw materials.

The Commission considers that these facts set out above must be taken into account in connection with the adjustment of the German alcohol monopoly.

II

On these grounds the Commission recommends the German Federal Republic to take the following measures, in accordance with Article 37 of the EEC Treaty: 1. As regards spirits and spirituous beverages: (a) - from 1 January 1970 at the latest, to grant import permits applied for in respect of spirits and spirituous beverages from other Member States with out restriction and without delay;

- to impose on spirits and spirituous beverages from other Member States a duty to that levied on corresponding domestic products;

to allow the payment of the duty to be deferred for the same period as in the case of corresponding domestic products.

(b) The Commission considers that, until the entry into force of regulations establishing a common organization of the market in ethyl alcohol derived from agricultural products, the interests of German producers of agricultural raw materials processed into alcohol and spirits could be adequately protected by the following measures: - in principle to regard imported spirits, so far as taxation is concerned, as having been manufactured in distilleries producing 10 000 hectolitres of pure alcohol per annum;

to maintain the basic obligation to bottle spirits before importation;

- where necessary, and until Community provisions are adopted, to apply non-discriminatory quality standards, in particular in respect of rum, corn spirit, molasses, and sugar cane, and to adopt non-discriminatory provisions regarding the alcoholic strength of spirits;

- to levy a special charge on spirituous beverages imported from another Member State, provided that the selling price of ethyl alcohol derived from agricultural products which is intended for the manufacture in Germany of spirituous beverages is higher than the lowest price at which producers of spirituous beverages in the exporting Member State may obtain ethyl alcohol, whether on their own market or on the market of another Member State. The amount of the charge may in no circumstances exceed the difference between those prices. Where the spirituous beverage has come from a Member State other than the exporting Member State it may be treated as if it had been imported directly from the Member State whence it comes.

2. With regard to ethyl alcohol not derived from agricultural products: (a) - it should allow nationals of all Member States freely and directly to import from other Member States ethyl alcohol not derived from agricultural products;

- it should allow suppliers from all Member States to set up their own distribution network in the Federal Republic of Germany, to hold stocks there and to fix their selling price freely;

- it should allow suppliers from all Member States to supply German consumers freely and directly;

- it should allow direct exports to the other Member States without restriction.

(b) Until the entry into force of regulations establishing a common organization of the market in ethyl alcohol derived from agricultural products, the Federal Republic of Germany may, in order to safeguard the market for ethyl alcohol derived from agricultural products, decide: - that ethyl alcohol not derived from agricultural products may be used only in certain sectors of industry, no distinction being permitted however between German products and those from other Member States;

- that a special charge, equal to the difference between the purchase price for German ethyl alcohol not derived from agricultural products and the price at which the German monopoly sells to the industry concerned, may, where necessary, be levied on imports from other Member States of ethyl alcohol not derived from agricultural products.

Done at Brussels, 22 December 1969.

For the Commission

The President

Jean REY