COMMISSION RECOMMENDATION of 22 December 1969 to the French Republic on the adjustment of the State monopoly of a commercial character in alcohol (Only the French text is authentic) (70/125/EEC)

I

1. The Government of the French Republic, by letter of 14 February 1959, informed the Commission of the European Economic Community that ethyl alcohol, spirits and spirituous beverages are in France 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 EEC 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. In France a special prior authorization for the importation of spirits and spirituous beverages from other Member States is no longer required. Imported products are, however, subject to an import surcharge which is higher than the excise duty applied to corresponding domestic products.

For that reason the Commission of the European Economic Community recommended the French Republic on 26 November 1963, in accordance with Article 37 (6) of the EEC Treaty, to amend the taxation on alcohol before the end of the second stage so that:

the compensatory surcharge on imports is applied to spirits and spirituous beverages from other Member States only where a duty is applied to the corresponding domestic product:

the compensatory surcharge does not exceed the duty on the corresponding domestic product.

By letter of 5 August 1964, the French Government did not deny that the taxation of domestic products and imported products differed ; it pointed out however that the tax provisions in force cannot be considered apart from the general economic provisions relating to alcohol in France which taken together constitute an organization of the domestic market aimed at ensuring a balance not only of resources and requirements for alcohol but also from a financial point of view. Accordingly the French Government considers that: - with regard to ethyl alcohol in the strict sense, it is necessary to take measures to restrict imports:

- with regard to spirits and spirituous beverages: - it is necessary to apply a duty on the domestic market to discourage the use of "free" alcohol for purposes normally served by alcohol which the State is obliged to acquire and market under the policy of rationalization of production and agricultural markets. This duty is in the nature of a payment in return for the use of such "free" alcohol, seeing that certain producers are obliged to deliver their alcohol to the monopoly and that all users are normally obliged to obtain their supplies from the monopoly;

- in the case of imports it is necessary to levy a surcharge on spirits, liqueurs, wine-based aperitifs, gins and whiskies which are imported in derogation from the prohibition on importation by private individuals. This aims at protecting the use of home-produced spirits, having regard to the obligations imposed by regulations concerning the quality of products and the conditions under which producers are required to surrender to the monopoly products which do not satisfy the criteria laid down.

Moreover, as regards advertising, Law No 57-725 of 27 June 1957 and Orders No 59-107 of 7 January 1959 and No 60-1253 of 29 November 1960 make a distinction between wine-based aperitifs, rum, tafia and alcohol derived from the distillation of wine, cider, perry or fruit, as well as liqueurs, on the one hand, and other spirits and spirituous beverages, for example geneva, korn or grappa, on the other. The advertising of products in the second group is prohibited in any form ; this prohibition (1)OJ No 7, 30.1.1961, p. 71/61.

being in particular prejudicial to certain products traditionally considered as products of the other Member States.

Because of the existence in France of a national market organization for ethyl alcohol derived from agricultural products and in view of the interdependence of alcohol of that kind and ethyl alcohol not derived from agricultural products, the Commission has until now refrained from recommending France to take measures of adjustment with regard to the latter product.

3. The Commission considers that, since the end of the transitional period is approaching, measures should now be adopted to ensure that, as laid down in Article 37 of the EEC Treaty, no discrimination in 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 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 attained. in the absence of an Article governing State monopolies, by means of other provisions of the EEC 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 restriction 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 France to adjust the alcohol monopoly 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 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 will not be attained so long as the French alcohol monopoly is in a position to limit imports of spirits and spirituous beverages by means of an import surcharge on products from other Members States which is higher than that on corresponding French products and, as regards ethyl alcohol not derived from agricultural products, to decide whether, to what extent, and in respect of what quantities the requirements of the French market may be covered by the products of suppliers in other Member States. It therefore seems to the Commission that, apart from the abolition of the abovementioned tax discrimination, 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 which the monopoly still has in particular in importing and marketing, in so far as those rights concern trade between Member States.

4. The Commission considers, however, that a derogation from the provisions of Article 37 (1) of the EEC Treaty may be justified under paragraph 4 of that Article whereby, 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.

The French alcohol monopoly does in fact constitute a national market organization which taken as a whole comes within the scope of Article 37 (4) of the EEC Treaty. In order to protect the market for ethyl alcohol derived from agricultural products, the competitiveness of spirits and spirituous beverages is controlled by means of duties, and the production, use, sale and importation of ethyl alcohol not derived from agricultural products are regulated.

Moreover, having regard to the interdependence of ethyl alcohol derived from agricultural products and ethyl alcohol not so derived, to the fact that certain spirits may be substituted for ethyl alcohol and that the French alcohol monopoly is still under the obligation - wherein lies its agricultural function - to purchase ethyl alcohol and to market it in such a way as to ensure for producers a certain standard of living, the Commission considers it impossible to dissociate the definitive adjustment of the monopoly from the establishment of the common organization envisaged for ethyl alcohol derived from agricultural products. The Commission considers that fully to open the French market to the products of other Member States might adversely affect both the marketing of French ethyl alcohol derived from agricultural products and also, in consequence, the employment and standard of living of producers of the agricultural raw materials used in its manufacture.

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. As regards spirits and spirituous beverages: (a) - it should take the measures recommended by the Commission on 26 November 1963, as referred to above;

- it should allow suppliers from other Member States to engage in advertising under the same conditions as apply to advertising for French products, and should end the discrimination against certain spirits and spirituous beverages traditionally considered as products of other Member States;

(b) however, until the entry into force of a regulation establishing a common organization of the market in ethyl alcohol derived from agricultural products and in so far as spirits and spirituous beverages from other Member States are prejudicial to the marketing of French ethyl alcohol derived from agricultural products, the Commission notes that under Article 37 (4) of the EEC Treaty the French Republic may maintain or take the following measures: - levy a special charge on spirituous beverages imported from another Member State provided that the selling price of ethyl alcohol intended for the manufacture in France 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;

- lay down rules as to the designations "spirits", "spirituous beverages" and "concentrated extracts", which are not discriminatory in regard to intra Community trade, and at the same time establish a distinction between the concept of "spirits" and that of "ethyl alcohol derived from agricultural products".

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 France, to hold stocks there and to fix their selling price freely;

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

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

(b) however, until the entry into force of regulations establishing a common organization of the market in ethyl alcohol from agricultural products and to the extent that ethyl alcohol not so derived coming from other Member States is prejudicial to the marketing of French ethyl alcohol derived from agricultural products, the Commission notes that under Article 37 (4) of the EEC Treaty the French Republic may maintain or take the following measures: - determine the use of ethyl alcohol not derived from agricultural products while allowing French consumers to choose freely between domestic products and those from other Member States;

- introduce rules applicable to ethyl alcohol not derived from agricultural products, whether manufactured in France or coming from other Member States, to ensure that such alcohol is not substituted for French alcohol derived from agricultural products manufactured within the quotas and allocated in accordance with the regulations in force.

Done at Brussels, 22 December 1969.

For the Commission

The President

Jean REY