OPINION OF ADVOCATE GENERAL

SHARPSTON

delivered on 7 October 2010 ( )

Case C‑400/08

European Commission

v

Kingdom of Spain

(Freedom of establishment – Restrictions on setting up large retail establishments)

1. In this case, the European Commission asks the Court to declare that, by imposing certain restrictions on the establishment of retail areas in the Autonomous Community of Catalonia, the Kingdom of Spain has failed to fulfil its obligations under Article 43 EC (now Article 49 TFEU). Those restrictions, it submits, benefit the smaller structures traditional in Catalonia – and, therefore, local retailers – as against the larger establishments favoured by operators from other Member States.

2. Spain denies that the restrictions discriminate in any way between operators, submits that they are, in any event, justified by overriding requirements relating to the general interest and asks the Court to dismiss the application.

Legal context

Treaty provisions

3. Article 43 EC provides:

‘Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48 [now Article 54 TFEU], under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.’

4. Article 46(1) EC (now Article 52(1) TFEU) states:

‘The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health.’

National provisions

5. The Commission cites in its application a number of provisions of Spanish national legislation and of Catalan regional legislation: at national level, Law 7/1996 ( ) and, in Catalonia, Law 18/2005 ( ) and Decrees 378/2006 ( ) and 379/2006. ( )

Law 7/1996

6. Article 2 defines retail establishments essentially as permanent premises or facilities intended for regular retail activities. The definition of ‘large retail establishments’ is left to each autonomous community within Spain, but includes in any event all those with a public display and sales area exceeding 2 500 m².

7. Under Article 6(1), the opening of a large retail establishment requires a licence from the relevant autonomous community, which is without prejudice to other administrative authorisations linked to retail activity. Under Article 6(2), the grant or refusal of such a licence is to be decided taking account of (a) the adequacy of existing retail facilities in the local area concerned and (b) the effect which the new establishment would have on the structure of such facilities; a report by the Tribunal de Defensa de la Competencia (Competition Court) is required, though its findings are not binding.

8. As regards (a), an area is considered to have adequate facilities if the existing (or medium-term forecast) population enjoys a level of supply which, in terms of quality, variety, service, price and opening hours, meets both the requirements of the current situation and developing trends in modern retail trade (Article 6(3)). As regards (b), the positive effects on competition and the negative effects on existing small traders must both be taken into account (Article 6(4)).

9. Article 6(5) authorises the autonomous communities to set up committees to report on the opening of large establishments, in accordance with any rules which those communities may lay down.

10. The final provision of Law 7/1996 specifies the constitutional status of the various articles. It lists, inter alia, Article 6(1) and (2) as being enacted pursuant to the State’s exclusive competence under Article 149(1)(13) of the Constitution, but the remainder of the article falls within the residual category which ‘may be applicable in the absence of specific legislation enacted by the autonomous communities’.

Law 18/2005

11. Article 3(1) and (2) defines ‘large’ and ‘medium-sized’ retail establishments according to the population of the municipality in which they are situated. The definitions may be summarised in a table:

Population of municipality Large establishments (sales area of X m² or more) Medium-sized establishments (sales area of X m² or more) Over 240 000 2 500 1 000 25 001 to 240 000 2 000 800 10 001 to 25 000 1 300 600 Up to 10 000 800 500

12. Article 3(3) specifies that the sales area limitations in the PTSEC ( ) are to apply to medium-sized food sector establishments and all establishments over 1 000 m² selling home electrical or electronic goods, sports or personal equipment, leisure or cultural items, regardless of their categorisation according to the criteria in paragraphs 1 and 2.

13. Under Article 4, large retail establishments may be opened only in consolidated urban areas of municipalities which are either the administrative centre of a district (comarca) or which have a population exceeding 25 000 (including seasonal tourist visitors) (Article 4(1)). Subject to a possibility of derogation, the same limitation applies to establishments with a sales area of over 1 000 m², if they are given over essentially to home electrical or electronic goods, sports items and accessories, personal equipment, leisure or cultural items (Article 4(2)). When determining whether an area is a consolidated urban area, account must be taken of population centres, areas of continuous apartment housing, and retail outlets integrated into residential areas (Article 4(3)). Certain other types of business, however, in particular those given over essentially to sales of boats or vehicles, machinery, building and sanitation materials, furniture and do-it-yourself supplies, together with garden centres, factory outlets and sales areas in high-speed train stations and some ports and airports, together with shops in some border municipalities, are exempt from the limitation (Article 4(8)).

14. Under Article 6, a municipal retail licence is required in order to open, enlarge or transfer a medium-sized establishment, or to change its activity. Under Article 7, as regards large retail establishments, the same operations require a retail licence from the Generalitat (Government of Catalonia), granted or refused on the basis of a report by the municipal authorities. If that report is unfavourable, or is not issued within three months of being requested, no retail licence can be granted. Under both articles, if the licence is not granted within a certain period (six months for licences from the Generalitat), it is deemed to have been refused (the ‘negative silence’ rule).

15. For both medium-sized and large retail establishments, Article 8 requires in addition a report assessing the share of the relevant market enjoyed by the undertaking or group in question (Article 8(1) and (3)). Again, if the report is unfavourable, no retail licence can be granted (Article 8(4)). However, small and medium-sized enterprises ( ) are exempted from the requirement (Article 8(2)).

16. Article 10 lists aspects to be assessed when the Generalitat or municipal authority decides on an application for a retail licence: conformity with the PTSEC; compliance with town planning rules; ‘conditions which determine the safety of the project and the integration of the establishment in the urban environment’; the ‘mobility generated by the project’, in particular its effects on the road network and on the use of public and private transport; the number of parking places available, measured by ratios laid down by regulation in each case; the location of the establishment within the ‘consolidated urban area’ and compliance with any municipal plan for retail services; the ‘right of consumers to a broad and varied supply in terms of product quality, quantity, price and characteristics’; the applicant undertaking’s relevant market share.

17. Article 11 sets up an advisory committee (of the type referred to in Article 6(5) of Law 7/1996), the ‘Comisión de Equipamientos Comerciales’ (Retail Facilities Committee) to report on, in particular, issues relating to the decision whether a licence is to be granted by the Generalitat and planning matters relating to the designation of areas where retail establishments may be opened, including drawing up proposals for amending the PTSEC.

18. Article 12 provides for fees to be charged for processing applications for licences from the Generalitat and for market share reports. ( ) It also allows municipalities to charge fees for processing applications for municipal licences and providing municipal reports to the Generalitat concerning applications for a licence from the latter.

Decree 378/2006

19. Article 3 defines hypermarkets as self-service outlets with a sales area of at least 2 500 m² ( ) selling a wide range of staple and non-staple goods, and with a large parking area.

20. Article 14 lays down the procedure for applying for a retail licence from the Generalitat. It lists a number of documents to be produced, including (Article 14.1(b), fourth document required), a market survey analysing the viability of the project in the light of existing supply and potential demand within the catchment area, the market share attracted and the impact on current supply.

21. Articles 26 and 27 concern the advisory committee set up by Article 11 of Law 18/2005. Article 26.1 regulates its composition: seven members (including the president and vice-president) represent departments of the Generalitat; six represent the municipalities; seven represent the trade sector (two from chambers of commerce and industry, five from the most representative traders’ organisations); two more are experts chosen by the Generalitat’s department of trade; and a secretary is designated by the president. Article 27 requires the committee to be consulted on the matters referred to in Article 11 of Law 18/2005 and also on the delimitation of ‘consolidated urban areas of municipalities’.

22. Articles 28 to 34 concern the market share report under Article 8 of Law 18/2005. Article 28.2 provides that, for large retailers, the report must cover all outlets trading under their name, whether under direct or indirect control. Under Article 31.4, a maximum market share is determined annually for each retail sector, both for the whole of Catalonia and for subordinate areas (the Commission states, without being contradicted by the Spanish Government, that no such annual determinations have yet taken place, so that the maximum market share – of the group to which the retailer belongs – is that laid down in the previous legislation: 25% of the sales area in Catalonia, or 35% within the catchment area of the proposed establishment). Under Article 33.2, the market share report must be negative if that maximum share is exceeded. Article 33.5 lays down a maximum period of six months within which the report must be issued (failing which, it is deemed to be favourable) and Article 33.7 provides that the report is to be valid for six months.

Decree 379/2006

23. Article 7 provides that large retail establishments, together with medium-sized retail establishments in the food sector and all establishments with a sales area of over 1 000 m² given over essentially to home electrical or electronic goods, sports items and accessories, personal equipment, leisure or cultural items, are to be subject to sales area limitations laid down (for each district and municipality) in the PTSEC.

24. Article 10.2 provides that size limits on new hypermarkets and hypermarket extensions apply for each district. Where excess supply is forecast for 2009, there is to be no hypermarket development; in other districts hypermarket developments must not account for more than 9% of estimated staple supplies in 2009 and 7% of estimated non-staple supplies.

25. The PTSEC itself is appended as Annex 1 to the decree. It lays down in particular the maximum areas for which retail licences could be granted in the period from 2006 to 2009 for (1) supermarkets, (2) hypermarkets, (3) specialist establishments and (4) shopping centres and department stores in each territorial unit.

Procedure

26. Following a complaint from several large retail undertakings, the Commission doubted whether the rules governing the opening of large retail establishments in Catalonia were compatible with Article 43 EC. It sent a letter of formal notice to Spain on 9 July 2004. In its reply of 13 October 2004, the Spanish Government contended that the Commission’s comments were not justified.

27. On 27 December 2005, Law 18/2005 was adopted in Catalonia. In the Commission’s view, it did not eliminate the previous incompatibility with Article 43 EC; indeed, it introduced new restrictions on freedom of establishment. The Commission therefore sent Spain a supplementary letter of formal notice on 4 July 2006. In its reply of 6 October 2006, Spain denied that the legislation was restrictive, discriminatory or disproportionate.

28. Still unsatisfied, the Commission issued a reasoned opinion on 23 December 2007, calling on Spain to amend its legislation within two months in order to end the alleged violation. In its response of 3 January 2008, Spain confirmed its intention to amend the contested legislation but stated that the changes would be made in the course of implementing the Services Directive. ( ) As no measures had been adopted by the expiry of the two-month period laid down in the reasoned opinion, the Commission brought the present action.

29. The Commission asks the Court to declare that, ‘by imposing restrictions on the establishment of retail areas, deriving from Law 7/1996 regulating retail trade and the legislation of the Autonomous Community of Catalonia governing the same subject-matter (Law 18/2005 on retail trading facilities, Decree 378/2006 implementing Law 18/2005, and Decree 379/2006 approving the sectoral territorial plan for retail facilities), the Kingdom of Spain has failed to fulfil its obligations under Article 43 EC’, and to order the Kingdom of Spain to pay the costs.

30. The Kingdom of Spain contends that the Court should dismiss the application and order the Commission to pay the costs.

31. The Kingdom of Denmark, intervening in support of the Kingdom of Spain, considers that the type of legislation in issue is not contrary to Article 43 EC.

32. At the hearing on 6 May 2010, the Commission and the Kingdom of Spain submitted oral argument.

Assessment

Preliminary remark

33. At the hearing, the Commission informed the Court that both the regional and the national legislation in issue had been amended (in December 2009 and January 2010, respectively) since the close of the written procedure in the case. It had, however, not been able to reach a firm view on whether the amended legislation was compatible with Union law. In order to do so, it hoped that the Court would rule clearly on the compatibility of the previous, contested, legislation.

34. Such a hope, it seems to me, can be justified only if the Commission has itself presented a clear case to the Court. In this instance, I think it has not been particularly clear. I should like to remind the Commission of its duty to state its case in a manner sufficiently clear and precise to enable the defendant to prepare its defence and the Court to rule, indicating the essential points of law and fact coherently, intelligibly and unambiguously. ( ) It may be added that the Court’s task might also have been facilitated by a more focused approach on the part of the Spanish Government.

Outline of the analysis

35. It is settled case-law that any national measure which, albeit applicable without discrimination on grounds of nationality, is liable to hinder or render less attractive the exercise by EU nationals of the freedom of establishment guaranteed by the Treaty constitutes a restriction within the meaning of Article 43 EC. ( )

36. None the less, where a restriction results from a measure which does discriminate on grounds of nationality, Article 46(1) EC allows it to be justified on grounds of public policy, public security or public health. Where there is no such discrimination, the restriction may also be justified by overriding requirements relating to the general interest, provided that the restrictions are appropriate for securing attainment of the objective pursued and do not go beyond what is necessary for attaining that objective. ( ) The reasons invoked by a Member State in order to justify a derogation from the principle of freedom of establishment must be accompanied by an analysis of the appropriateness and proportionality of the restrictive measure adopted by that Member State, and by precise evidence enabling its arguments to be substantiated. ( )

37. Consequently, the burden of proof lies on the Commission to establish the existence and, where applicable, the discriminatory nature of any alleged restriction, but thereafter on the Member State to establish any justification for the restriction.

38. The Commission’s main submission is that the measures which it identifies give rise to restrictions of an indirectly discriminatory nature, and are not justified on any of the grounds set out in Article 46(1) EC. Spain accepts that the measures restrict freedom of establishment to some extent, but argues that they do not discriminate, even indirectly, on grounds of nationality; they are, however, justified by various requirements relating to the general interest – consumer protection, environmental protection and town and country planning – and are both appropriate and proportionate to meet those requirements. The Commission does not accept those justifications, even on the hypothesis that the measures are not discriminatory.

39. Denmark, on the other hand, submits that the measures in issue, if they are not discriminatory, should not be regarded as constituting a prohibited restriction on freedom of establishment unless they directly affect market access by foreign operators. Spain adopts that argument.

40. I shall therefore examine whether the contested measures are (indirectly) discriminatory. If they are discriminatory, I shall then examine whether any justification can be invoked under Article 46(1) EC; or, if they are not discriminatory, whether they can be regarded as falling outwith Article 43 EC because they do not have a sufficient effect on market access. If the measures are not discriminatory but are none the less caught by Article 43 EC, I shall consider whether any of the justifications under the Court’s case-law are present.

41. First, however, it is necessary to identify the restrictions in respect of which the Commission seeks a declaration that Spain has failed to fulfil its Treaty obligations.

Scope of the declaration sought

42. The Commission asks the Court to declare that Spain has failed to fulfil its obligations ‘by imposing restrictions on the establishment of retail areas, deriving from’ four legislative measures the texts of which, as produced to the Court, run to over 200 pages. Clearly, something more precise is needed to enable the Court to decide whether, and to what extent, such a declaration should be made. A declaration worded in the terms used by the Commission would hardly meet the requirements of legal certainty – and would do little to provide the clarity which the Commission itself hopes to obtain from the Court.

43. Greater precision is not easy to extract from the Commission’s application. However, it did provide a list of specific restrictions in its reply. Reading that list in conjunction with its cross-references to the application, it is possible to identify the following restrictions which the Commission considers to flow from the Catalan legislation:

(1) the prohibition on setting up large retail establishments outside consolidated urban areas of a limited number of municipalities (Article 4(1) of Law 18/2005);

(2) the sales area limitations for each district and municipality (Article 7 of Decree 379/2006, together with the PTSEC in Annex 1 thereto); specifically, the Commission submits that:

(a) the limitation is particularly severe for hypermarkets – no new hypermarkets can be authorised in 37 of 41 districts (PTSEC, Annex 1.2 to Decree 379/2006);

(b) in the remaining four districts, only hypermarkets accounting for no more than 9% of staple and 7% of non-staple goods can be authorised (Article 10.2 of Decree 379/2006);

(c) in those four districts, only 23 667 m² are available in six municipalities (PTSEC, Annex 1.2 to Decree 379/2006);

(3) the need for a market share report which is binding if unfavourable and which must be unfavourable if the market share exceeds a certain value (Article 8 of Law 18/2005 and Article 31.4 and 33.2 of Decree 378/2006);

(4) the lack of clear definition of the criteria applied (Article 10 of Law 18/2005); ( )

(5) certain procedural aspects:

(a) the ‘negative silence’ rule (Articles 6 and 7 of Law 18/2005);

(b) the need to obtain the opinion of an advisory committee comprising applicants’ competitors (Article 11 of Law 18/2005 and Article 26 of Decree 378/2006);

(c) the charging of fees which are unrelated to the cost of the procedure (Article 12 of Law 18/2005);

(d) the excessive length of the procedure (Article 33 of Decree 378/2006, concerning time-limits for the issuance and validity of the market share report).

44. At the hearing, questioned by the Court, the agent for the Commission confirmed that that was a complete list of the aspects of the Catalan legislation of which the Commission complains, and that the alleged restrictions were objected to both because they affected large retail establishments and not medium-sized retail establishments – a limitation which seems necessary if the Commission’s allegation of discrimination, based on the premiss that small and medium-sized establishments are favoured by Spanish operators, whereas operators from other Member States favour large establishments, is to be upheld ­– and because they were not justified.

45. As regards the national legislation (Law 7/1996), it appears to be common ground that the Commission takes issue with those provisions of Article 6 of that law which (a) indicate criteria to be applied when deciding whether a licence is to be issued, in so far as those criteria protect existing retail facilities (Article 6(1) to (4)), (b) require the Competition Court to be consulted on applications (Article 6(2)) and (c) provide for committees to report on the opening of large retail establishments (Article 6(5)).

46. It may be noted, however, that the Spanish Government disputes the applicability of Article 6(3) to (5) in Catalonia.

Is there indirect discrimination on grounds of nationality?

47. The Commission does not, and clearly could not, seek to argue that the contested provisions discriminate directly in that they prescribe different treatment for Spanish operators and for those from other Member States. Its contention is rather that, although the provisions are apparently neutral, they in fact place operators from other Member States at a significant disadvantage compared with Spanish operators.

48. That argument is based on two premisses: first, there is a difference in treatment between large retail establishments and other (small and medium-sized) establishments; second, that difference in treatment operates to the benefit of Spanish (in particular Catalan) operators, who favour smaller establishments, and to the detriment of operators from other Member States, who favour large establishments.

49. The first premiss appears to be valid only for a small number of the measures to which the Commission objects; the second does not appear to be backed up by any adequate evidence.

Difference in treatment between large establishments and other establishments

50. First, as regards the alleged inadequate definition of the criteria and the ‘negative silence’ rule identified under (4) and (5)(a) in point 43, it is clear from their terms that the provisions referred to (on the one hand, Article 10 and, on the other hand, Articles 6 and 7 of Law 18/2005) apply both to licences from the Generalitat and to municipal licences, and thus to both large and medium-sized retail establishments.

51. Second, as regards the allegation identified at (5)(c) in point 43, that fees are unrelated to the cost of the procedure, Article 12 of Law 18/2005 requires licence fees to be charged by the Generalitat (for large retail establishments) and authorises the charging of fees by the municipalities (for medium-sized retail establishments). The Commission’s allegations relate only to the fees charged by the Generalitat, but it has provided no indication concerning the charging of fees at municipal level, from which any comparison could be drawn.

52. Third, the requirement of a market share report and the procedural delays allegedly entailed thereby, identified respectively at (3) and (5)(d) in point 43, apply to both large and medium-sized retail establishments. However, small and medium-sized enterprises are exempt from the requirement. Consequently the requirement, and its possible attendant delays, will apply to large enterprises wishing to open large or medium-sized retail establishments, but not to other enterprises, whatever the size of the establishment they wish to open (and it must be borne in mind that the definition of ‘large’ or ‘medium-sized’ depends on the population of the municipality concerned).

53. None of the above measures, therefore, is relevant to the Commission’s claim that the restrictions are discriminatory.

54. By contrast, the specific complaints in (2)(a), (b) and (c) in point 43 concern only hypermarkets (which are a type of large retail establishment) and not any other category. ( ) The remaining restrictions alleged to flow from the Catalan legislation – the prohibition on setting up large retail establishments outside consolidated urban areas of a limited number of municipalities and the need to obtain the opinion of an advisory committee comprising applicants’ competitors, identified respectively at (1) and (5)(b) in point 43 – apply to all kinds of large retail establishment and only to such establishments, as do the restrictions alleged to flow from Article 6 of Law 7/1996 (the national legislation).

55. Consequently, only those aspects are relevant to the Commission’s argument.

Difference in preference between Spanish operators and those from other Member States

56. Unless it is true that Spanish (in particular Catalan) operators favour smaller retail establishments while operators from other Member States favour large establishments, the measures in issue cannot discriminate against the latter, whatever the extent to which they may restrict the opening of large retail establishments over and above that of other establishments.

57. The sole evidence put to the Court from which it might be ascertained whether that proposition is indeed true consists of two sets of figures (one from the Commission, the other from the Spanish Government) breaking down control of retail sales areas in Catalonia between Spanish and non-Spanish operators for retail establishments of (a) over and (b) under 2 500 m². The two sets of figures relate to different years and were apparently collected from different sources. Unsurprisingly, therefore, they present rather different pictures, although they both show that foreign operators controlled a majority (between 53% and 68%) of sales area in the larger establishments and Spanish operators a majority (between 72% and 92%) of sales area in the smaller establishments. ( ) They also show that the total sales area for establishments with less than 2 500 m² greatly exceeds, by a factor of between 4.5 and 10, ( ) the area for larger establishments.

58. Such figures are undoubtedly consistent with the Commission’s assertion that operators from other Member States prefer larger, and Spanish operators smaller, retail establishments. In my view, however, they do not provide any kind of proof of the truth of that assertion. They display, at most, a broad statistical correlation – which, moreover, loses much of its relevance in the context of the Commission’s case when one considers that, of the municipalities listed in the PTSEC, only one (outside Barcelona) appears to have a population of over 240 000 and more than half a population of less than 10 000, so that the category of ‘large retail establishments’ affected by the provisions of which the Commission complains includes an undetermined number of establishments with a sales area of between 800 m² and 2 500 m², ( ) a range for which the Court has been given no indication either of the number of establishments concerned or of the breakdown between Spanish and non-Spanish control. ( ) Any tentative conclusion which might be drawn from the figures given would therefore need to be backed up by firm evidence of a different kind in order to establish a basis for the Commission’s case, and would be likely to apply principally to hypermarkets, not to all large retail establishments affected by the contested provisions.

59. No such other evidence has been forthcoming. The nearest the Commission has come to explaining the supposed causal relationship underlying the statistical correlation was its suggestion – at the hearing, in response to a question from the Court – that foreign operators would naturally prefer to set up larger establishments in order to achieve the economies of scale necessary to optimise their chances of successful penetration in a new territory. But such reasoning – plausible though it may be – relates to entry into a new market at a distance from the home base, rather than to the operator’s nationality, ( ) and thus provides only partial support for the Commission’s basic premiss.

60. It is true that the Spanish Government has not mounted any robust attack on that premiss, although it claims, with some evidence, that several non-Spanish operators have always favoured, or are beginning to favour, smaller outlets. In any event, it is for the Commission to prove its case and I consider that, in this very basic matter, it is far from having done so.

61. Consequently, in so far as the Commission’s complaint is based on the allegation that the contested measures discriminate on grounds of nationality, it must fail.

62. None the less, even non-discriminatory measures may be prohibited by Article 43 EC, and I turn now to examine whether the measures are caught by that article.

Are the contested provisions caught by Article 43 EC?

63. Article 43 EC prohibits any national measure which, albeit applicable without discrimination on grounds of nationality, is liable to hinder or render less attractive the exercise by EU nationals of the freedom of establishment guaranteed by the Treaty. ( ) The Court has never qualified that prohibition by enunciating a de minimis criterion – a threshold of effect below which a measure is not caught.

64. However, the Danish Government (whose own rules, it states, may have points of similarity with the Spanish provisions in issue) submits that national legislation (such as planning law) which regulates market conditions for all undertakings and applies to all operators without distinction regardless of nationality comes within Article 43 EC only if it directly affects market access by foreign operators. A requirement of prior authorisation for large retail establishments should not automatically be regarded as having that effect. The Danish Government puts forward four arguments, with which the Spanish Government agrees.

65. First, the case-law emphasises that market access restrictions should be significant in order to fall within Article 43 EC. In CaixaBank France, ( ) the Court spoke of a ‘serious’ obstacle to ‘competing more effectively’ or adopting ‘one of the most effective methods’ of competition. In Commission v Italy, ( ) it spoke of a ‘substantial interference’ with freedom to contract, of ‘significant additional costs’, and of a requirement to ‘re-think’ business policy and strategy by ‘considerably expanding’ the range of services offered, involving ‘changes and costs on such a scale’ as to affect market access. It is true that some other judgments do not appear as strict, ( ) but that can be explained by their individual circumstances. Moreover, in earlier case-law, the Court took the view that measures of general market regulation did not fall within Article 43 EC (then Article 52 of the EEC Treaty). ( )

66. Second, national measures which have too uncertain and indirect an effect on a fundamental freedom do not generally fall within the Treaty prohibitions. ( )

67. Third, from a logical and teleological point of view, there must be a threshold below which a national measure is not a restriction on freedom of establishment. ( ) Otherwise, even the most minor regulation would fall under Article 43 EC.

68. Fourth, such an approach to Article 43 EC would correspond to the Court’s approach with regard to free movement of goods, in particular as regards ‘certain selling arrangements’. ( ) A similar approach has been taken with regard to the use of products. ( ) If Member States’ general regulation of market conditions falls within Article 28 EC (now Article 34 TFEU) only where it has a direct effect on market access, a broader approach should not be taken with Article 43 EC.

69. Whilst I can appreciate the force of at least some of those arguments, I am not convinced that they can lead, in the present case, to excluding the measures in issue from consideration under Article 43 EC.

70. As the Commission points out, any system of prior authorisation for the opening of retail establishments has, by definition, a direct effect on operators’ freedom of establishment, and that applies to each and every hurdle that forms part of the authorisation process. It follows that, were a de minimis rule to be applied to Article 43 EC so as to exclude measures such as those in issue in the present proceedings, it could not be formulated in the terms proposed by the Danish Government.

71. As to whether the conditions and limitations in the present case are real and substantial, and whether their effect on operators can be described as uncertain or negligible, it is true that those conditions and limitations cannot all be placed on the same level.

72. Those listed under (1) to (3) in point 43 above – which restrict the localities available for new establishments and impose limits on the sales areas which can be licensed and a maximum market share for applicants – are clearly real, substantial and in no way uncertain.

73. Those listed under (4) and (5) are perhaps less easy to categorise, but it seems to me that they are all likely to have an appreciable negative effect on the number of licence applications made and/or granted:

– the use of criteria which are not defined clearly enough to allow it to be objectively ascertained whether they are met ( ) is likely to discourage applications, to lead to unpredictable results and to make it more difficult to bring a legal challenge against a refusal, all of which are real obstacles to setting up new establishments;

– a ‘negative silence’ rule ( ) necessarily leads to more applications being rejected than would a ‘positive silence’ rule (under which a failure to respond to an application within a specified period would amount to an implicit approval);

– the involvement of an advisory committee whose members include traders already established in the area and which is consulted not only on licence applications but also on the designation of available localities ( ) is inherently likely to reduce the setting-up of new establishments;

– the charging of fees unrelated to the cost of the application procedure and the excessive length of that procedure ( ) are both factors materially likely to dissuade operators from seeking to set up new establishments.

74. In the national legislation, the requirement of a licence and the establishment of an advisory committee duplicate those of the Catalan legislation, as do also, to a large extent, the criteria to be applied. ( ) Those criteria, in addition to a lack of objective precision, are geared towards allowing new establishments only where existing demand is not catered for and there will be no effect on existing small traders, which is in both cases likely to restrict appreciably the opening of new large or medium-sized retail establishments.

75. Thus, whilst I can sympathise with the view that Article 43 EC should not be concerned with trifling regulatory effects, and that it might be desirable for the Court to adopt an explicitly coherent approach, following its Keck and Mithouard line of case-law, with regard to all the fundamental freedoms guaranteed by the Treaty, I do not believe that such considerations can affect the relevance of Article 43 EC in the present case.

76. As for the argument that the Court has, in certain judgments, stressed the seriousness of a particular interference with freedom of establishment, that fact does not mean that it has made the existence of a serious interference a condition for the applicability of Article 43 EC, particularly when it has not stressed that aspect systematically; nor can any such conclusion be drawn from the wording of the judgments cited. Moreover, it seems to me from the Commission’s pleadings that the alleged interference with that freedom is, prima facie, capable of being serious.

77. Consequently, I consider it necessary to examine whether the measures in issue (as set out in points 43 and 45 above) can be justified, as Spain submits, within the ambit of the Court’s case-law on non-discriminatory restrictions on freedom of establishment.

Can the contested provisions be justified?

78. According to settled case-law, a measure restricting one of the fundamental freedoms guaranteed by the Treaty may be accepted only if it is justified by overriding requirements relating to the general interest, if its application is such as to ensure achievement of the aim pursued and if it does not go beyond what is necessary for that purpose. ( ) I shall consider, first, whether the aims on which Spain relies are legitimate in that light and, second, whether the contested measures are appropriate and proportionate.

Are the aims which the measures in question seek to achieve ‘overriding requirements relating to the general interest’?

79. The Spanish Government states that the measures pursue the aims of (a) environmental protection and coherent town and country planning and (b) consumer protection, both of which are aims acknowledged to relate to the general interest. The Commission, on the other hand, citing Article 6 of Law 7/1996, insists that the real aim is to protect small traders, an economic aim which cannot justify a restriction on freedom of establishment.

80. The types of aim cited by the Spanish Government have indeed been accepted by the Court as capable of justifying restrictions on fundamental freedoms; ( ) purely economic aims have not. ( ) Consequently, any of the restrictions which pursue only such economic aims will automatically be prohibited by Article 43 EC.

81. Of the restrictions of which the Commission complains, it seems to me that only the maximum market share and the criteria to be applied when assessing licence applications, to the extent that those criteria relate to the impact on existing local traders, can be categorised as having a purely economic aim.

82. While the market share restriction derives only from the Catalan legislation, the other criteria in question are to be found most explicitly in Article 6(4) of Law 7/1996, ( ) where it is specifically provided that any negative impact on existing small retailers must be weighed in the balance. Spain, however, objects that, for constitutional and legislative reasons, Article 6(3) to (5) of that law is not applicable in Catalonia and that the infringement proceedings are confined to the legislation applicable in that autonomous community. That objection has given rise to a rather involved debate between the parties as to the inclusion of the provisions in question within the ambit of the proceedings.

83. I do not think it possible to resolve that particular debate involving, as it does, matters of Spanish constitutional law on which the Court is not competent to decide. However, the need to take account of the impact on existing retail facilities is laid down, in more general yet still unequivocal terms, in both Article 6(2) of Law 7/1996 (whose applicability in Catalonia is not disputed) and Article 14.1(b) of Catalan Decree 378/2006. ( )

84. On the substance, Spain argues that the market share limit and the conditions relating to the effect on existing small retailers are aimed at protecting consumers by ensuring more effective competition in terms of pricing, quality and choice.

85. However, conditions relating to market share and impact on existing trade are – unlike certain of the other conditions relating explicitly to consumer choice – concerned with market structure rather than consumer protection. And, as the Commission has pointed out, competition policy is a matter regulated at EU level, and the Court has specifically held that objectives such as ‘strengthening the competitive structure of the market concerned or modernising and increasing the efficiency of means of production … cannot constitute a valid justification for restrictions on the fundamental freedom concerned’. ( )

86. Consequently, I take the view that Article 6(2) of Law 7/1996, Article 8 of Law 18/2005 and Article 14.1(b) of Decree 378/2006 infringe Article 43 EC in so far as those provisions require the application of a market share threshold and a threshold of impact on existing retail trade, beyond which new large and/or medium-sized retail establishments may not be set up. Having a purely economic aim, they cannot be justified under the Court’s case-law.

87. The remaining measures, however, all seem to me capable of pursuing – at least in part – one of the legitimate aims advanced by the Spanish Government, and must therefore be examined as to their appropriateness and proportionality.

Are the measures such as to ensure achievement of the aim pursued without going further than is necessary for that purpose?

88. The remaining contested measures may be divided into: the restrictions on location and size of new establishments; the consultation of (a) the Competition Court and (b) the advisory committee; the criteria applied in so far as they lack precision; the ‘negative silence rule’; the charging of fees unrelated to costs; and the length of the procedure.

89. Whilst it is true that a Member State seeking to justify a restriction on a fundamental Treaty freedom must establish both its appropriateness and its proportionality, that cannot mean, as regards appropriateness, that the Member State must establish that the restriction is the most appropriate of all possible measures to ensure achievement of the aim pursued, but simply that it is not inappropriate for that purpose. As regards proportionality, however, it is necessary to establish that no other measures could have been equally effective but less restrictive of the freedom in question.

– Restrictions on location and size of new establishments

90. Spain argues that, by limiting the locations of large retail establishments to (urban) population centres, where the demand is greatest, and by limiting the size of establishments in less populous areas, the Catalan legislation seeks to avoid polluting car journeys, to counter urban decay, to preserve an environmentally integrated urban model, to avoid new road building and to ensure access by public transport. Modelling shows, it claims, that CO 2 emissions fall drastically when retail outlets open in city centres rather than out-of-town areas. Moreover, if such considerations are to be taken into account, it must necessarily be in the context of a prior authorisation procedure and not by means of subsequent checks and controls.

91. Such general reasoning – and in particular the emphasis laid on a need for preventive, and thus prior, measures in the context of environmental protection – appears convincing to me and has not in any way been refuted by the Commission in its written pleadings. At the hearing, it said nothing beyond a statement that the measures were not appropriate to achieve the environmental-protection aims described. I fully accept, therefore, that restrictions on the location and size of establishments are appropriate means of achieving the particular environmental-protection aims advanced by Spain.

92. However, it is clear that the specific limitations imposed by the contested measures are indeed severe and have a significant effect on opportunities for opening new large retail establishments, in particular hypermarkets, in Catalonia. It is not enough for Spain to establish that limitations of such a nature are appropriate to ensure the achievement of environmental-protection aims. It must also establish that the actual restrictions imposed do not go beyond what is necessary – for example, by outlining alternative (less restrictive) measures and explaining why they would not satisfactorily attain the objective. I do not find any evidence or argument (as opposed to simple affirmations) to that effect in the Spanish Government’s pleadings, nor did it submit any such evidence or argument at the hearing.

93. It is therefore impossible, in my view, for the Court to make a finding as to the proportionality or otherwise of the restrictions on size and location in the provisions cited by the Commission. Since the existence of the restriction is established and since, according to the case-law, ( ) it is for the Member State relying on a derogation to establish that a restriction on a Treaty freedom is not only appropriate but proportionate for the purpose of achieving a legitimate aim, I must conclude that the Commission is entitled to the declaration it seeks in this particular regard.

– Consultation of the Competition Court and the advisory committee

94. As regards the Competition Court, the Commission objects to the requirement that it be consulted, contained in the second subparagraph of Article 6(2) of Law 7/1996.

95. It has not put forward any argument to justify its claim that such a requirement restricts freedom of establishment, beyond the general claim that any prior authorisation procedure necessarily constitutes a restriction. Nor has Spain put forward any specific argument to justify that possible restriction.

96. In those circumstances, and since it appears to me that a non-binding report is not a particularly restrictive measure but, coming from a body dealing with competition matters and providing as it does a means of prior control rather than subsequent enforcement, is prima facie likely to be both appropriate and proportionate to consumer-protection requirements, I take the view that this aspect of the Commission’s case should be dismissed.

97. As regards the advisory committee, the Commission objects to: Article 6(5) of Law 7/1996, which authorises the autonomous communities to set up committees to report on the setting-up of large retail establishments; Article 11 of Law 18/2005, which sets up such a committee in Catalonia to report on, inter alia, the issuing of licences for large retail establishments; and Article 26 of Decree 378/2006, which regulates the membership of the committee. The Commission’s particular complaint is that the committee includes representatives of existing traders, a factor likely to bias it against new entrants wishing to set up new establishments.

98. The applicability of Article 6(5) of Law 7/1996 in Catalonia is denied by Spain. ( ) However, it seems to me clear that, when an autonomous community has in fact set up a committee, the existence of the provision enabling it to do so cannot but be relevant. The only other interpretation would be that the enabling provision was, from the outset, entirely devoid of purpose and effect. ( )

99. Are the advisory committee and the requirement that it report on licence applications appropriate means to ensure the environmental, planning and/or consumer-protection aims advanced by Spain?

100. The advisory committee reports not only on issues relating to the granting of licences by the Generalitat but also on planning matters relating to the designation of areas where retail establishments may be opened, including drawing up proposals for amending the PTSEC, and on the delimitation of ‘consolidated urban areas of municipalities’.

101. Certain of the areas in which it is consulted, therefore, fall clearly within the realm of town and country planning, some of whose aims may be environmental. On the other hand, it is not clear from the legislation that the consultations involve consumer-protection matters in any way. Environmental, and town and country planning, considerations may also be relevant when considering the granting of a particular licence. The existence of an advisory committee comprising representatives of local and regional bodies and interests, to report on these various matters before any decision is taken, does not, therefore, seem inappropriate.

102. Nor do the existence and functions of the committee appear in any way disproportionate. As the Spanish Government has pointed out, its role is purely advisory, and it is difficult to conceive of a less restrictive means of providing scrutiny of the various issues concerned.

103. However, is the committee as actually set up appropriate for that purpose?

104. The Commission’s main argument is that the committee includes existing local traders, whose interest is likely to involve maintaining the status quo and limiting the availability of new possibilities for new operators. That appears a plausible argument, and it is one which has been accepted by the Court in analogous circumstances in the past. ( )

105. Spain insists that only a minority (just under a third) of the members of the committee represent local traders, but that does not appear to me to be the relevant point. Even if the majority represent local and regional authorities, and should be presumed to assume their responsibilities impartially, the only sectoral interest represented (and that to a significant extent) is existing local trade.

106. A body composed in that manner, with no representation from environmental or consumer interests, does not seem to me an appropriate instrument for pursuing environmental, planning or consumer-protection aims. Its views are likely to be consistently biased in favour of existing trade interests, if only because of the absence of any input from the other interests whose aims the committee is stated to be furthering.

107. I am therefore of the view that the existence of the advisory committee set up (pursuant to Article 6(5) of Law 7/1996) by Article 11 of Law 18/2005 and its functions as set out in the latter article and in Article 27 of Decree 378/2006 may be justified in so far as they seek to meet overriding requirements relating to the general interest, but that its composition as provided for in Article 26 of the latter decree is not appropriate to achieve the aims concerned and therefore constitutes an infringement of Article 43 EC.

– Lack of precision of criteria

108. The Commission argues that the criteria set out in Article 10 of Law 18/2005 are imprecise, referring specifically (and exhaustively) to ‘conditions which determine the safety of the project and the integration of the establishment in the urban environment’, the ‘mobility generated by the project’ and the ‘right of consumers to a broad and varied supply in terms of product quality, quantity, price and characteristics’.

109. I note that, in this regard, the Commission is not objecting to the nature of the criteria but to their lack of precision, which, it submits, prevents applicants from evaluating accurately their chances of obtaining a licence and confers too broad a discretion on the licensing authorities.

110. Spain, while accepting that the ‘right of consumers to a broad and varied supply in terms of product quality, quantity, price and characteristics’ might be said to lack precision, submits that the other two contested criteria are sufficiently defined.

111. As regards the first, I cannot agree. Spain has merely asserted that the integration of the establishment in the urban environment has an impact on the location of the project within the ‘consolidated urban area’ (a criterion to which the Commission does not appear to object). That, however, does not seem to me to make the criterion any more precise or definite.

112. As regards the second, Spain points out that the ‘mobility generated by the project’ is to be assessed explicitly in accordance with the provisions of Catalan Law 9/2003. ( ) Having consulted that law, I find that, although it sets out, in some detail, the principles and aims which are to guide developments involving personal mobility and transport of goods, and the factors to be taken into account in any assessment, it does not give any indication as to what precise criteria or thresholds will determine whether a retail licence is to be granted or not. There still, therefore, appears to remain the lack of definition of which the Commission complains.

113. However, Spain also argues that the criteria are not rendered inappropriate for the achievement of the aims of environmental and consumer protection simply because they lack precise definition. It submits that EU legislation also makes use of the same technique, of indicating criteria to be applied without specifying thresholds from which it can be accurately determined in advance whether an application will be approved or not.

114. Although Spain has not cited any specific example of such EU legislation, it is correct in its assertion. A cursory search reveals a number of instances, of which perhaps a good example is Directive 98/8/EC. ( )

115. As regards proportionality, the Commission cites the Court’s judgment in Analir and Others: ( ) ‘… if a prior administrative authorisation scheme is to be justified even though it derogates from a fundamental freedom, it must, in any event, be based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned, in such a way as to circumscribe the exercise of the national authorities’ discretion, so that it is not used arbitrarily. Accordingly, the nature and the scope of the public service obligations to be imposed by means of a prior administrative authorisation scheme must be specified in advance to the undertakings concerned.’

116. Specifying the nature and scope of public service obligations in the provision of island cabotage seems a reasonable requirement. In the present case, however (as in the EU legislation which I have cited above), it seems to me that the types of criteria in question do not lend themselves to such specification. If integration into the urban environment, the effect on road and transport use and the range of choice available to consumers are legitimate criteria when deciding whether a retail establishment should be authorised – and the Commission does not object to their nature, only to their lack of precision – it does not seem possible to specify precise thresholds in advance without introducing a degree of rigidity likely to be even more restrictive of freedom of establishment.

117. I am therefore of the view that the criteria identified by the Commission in Article 10 of Law 18/2005 are not so imprecise as to render them inappropriate to achieve the environmental, planning and consumer-protection aims on which Spain relies, or disproportionate for that purpose.

– ‘Negative silence’ rule

118. The ‘negative silence’ rule appears neutral in terms of appropriateness. If a licensing authority does not take an explicit decision within the prescribed period, an implicit decision will provide legal certainty. Whether the implicit decision is positive or negative does not seem to me to make it any more or less appropriate for the purpose of achieving any of the aims on which Spain relies.

119. As regards proportionality, the Commission submits that a ‘positive silence’ rule (with the application deemed to be granted if no decision refusing it is taken within a specified period) would be just as effective but less restrictive of freedom of establishment. It also submits that a deemed negative decision does not allow applicants to know the grounds on which the refusal was based or, consequently, to challenge those grounds of refusal.

120. On the first point, it seems to me that the Commission is necessarily correct, and the Spanish Government has put forward no argument in refutation. Indeed, I note that Article 33.5 of Decree 378/2006 (to which the Commission objects on other grounds ( )) contains a ‘positive silence’ rule with regard to the issuance of the market share report, thus demonstrating that it is a perfectly feasible approach.

121. On the second point, however, Spain has submitted, without being contradicted, that the ‘negative silence’ rule does not exonerate authorities from providing reasons but does provide a certain date from which a challenge may be brought. I note, moreover, that, in the European Union’s own internal legal order, Articles 90 and 91 of the Staff Regulations apply the same principle of ‘negative silence’ to requests and complaints made by officials, without depriving those officials of a right of appeal to the EU judicature.

122. I would therefore accept that the Commission has made its case in this regard, but only to the extent that a ‘positive silence’ rule would be just as effective but less restrictive than a ‘negative silence’ rule.

– Fees

123. The charging of fees for processing licence applications seems a perfectly appropriate means of ensuring that applications are seriously thought through and that the necessary checks of compliance with the relevant environmental, planning and consumer-protection aims do not impose an undue burden on the taxpayer.

124. The Commission, however, submits that the fees charged are unrelated to the cost of the procedure, and therefore disproportionate. It cites case-law to the effect that, in order not to infringe a fundamental Treaty freedom, the costs involved in a prior authorisation procedure must not deter operators from pursuing their business plans; ( ) that registration requirements must not give rise to disproportionate administrative expenses; ( ) and that a charge for a service at a level totally unconnected with the cost of that service or calculated on the basis not of that specific cost but of all the running and capital costs of the department responsible for the service would constitute a tax. ( )

125. Spain, on the other hand, submits that the fees in question are set at a certain amount per square metre of the planned sales area.( ) The amount was originally calculated by dividing the processing costs incurred in 1994 and 1995 by the number of square metres concerned during those years, and has since been updated in line with inflation. That allows operators to calculate the amount of the fees with certainty in advance. The Spanish Government adds that the fees are levied by instalments, so that an applicant withdrawing a project will not have to pay the full fees, and that the fees normally amount, on average, to some 0.1% of the total cost of the project.

126. I am broadly convinced by Spain’s submissions in this regard. The Commission has not refuted Spain’s explanation of the method of calculation, and it seems to me that such a method, although it may not produce a result which reflects actual costs with total accuracy in each case, will none the less reflect overall costs reasonably accurately and is likely to deviate little from actual costs in individual cases. I agree that a fee per square metre is an objective criterion, which has the advantage of allowing the cost of the procedure to be foreseen in complete transparency. Nor does it seem to me probable that operators will be deterred from their business plans by a fee which amounts on average to some 0.1% of the cost of the project, even if that 0.1% may amount to an appreciable sum in absolute terms.

127. I therefore consider that Spain has adequately established that the fees of which the Commission complains are justified.

– Length of the procedure

128. The Commission submits that the two six-month periods provided for in Article 33.5 and 33.7 of Decree 378/2006 allow the authorities up to one year to issue a licence for large retail establishments, an excessive period in the light of any objective sought, and likely to discourage applicants, even if that period is simply the maximum possible. Spain states that in reality applications are processed in an average of 1.9 months, excluding additional formalities and suspensions to allow submission of missing documents, but that, if the total period allowed were too short, the ‘negative silence’ rule would operate more frequently and more applications would be rejected.

129. The six-month periods in question concern in fact the issuance and validity of the market share report, rather than the licensing procedure as such.

130. The first period embodies a ‘positive silence’ rule: if a negative market share report is not issued within six months, the report is deemed to be positive. It seems to me contradictory, on the part of the Commission, to allege that a ‘positive silence’ rule is a disproportionate restriction on freedom of establishment when it has argued even more forcefully that a ‘negative silence’ rule constitutes just such a restriction when applied to the municipal retail licence or municipal report. There is nothing inappropriate in prescribing a time-limit for issuing a report (which must necessarily take a certain amount of time but cannot be allowed to extend indefinitely), nor is there any evidence that a six-month period cannot readily be incorporated into the scheduling of a major project.

131. The second period places a limit on the validity of the market share report. If such a limit can dissuade potential applicants, it seems to me more likely to do so when it is too short than when it is too long.

132. I am consequently of the view that the six-month period set in Article 33.5 of Decree 378/2006 is appropriate and proportionate to ensure the processing of applications, and that the six-month period set in Article 33.7 of the same decree is not such as to restrict freedom of establishment by its length. However, since I have already reached the view that the requirement of the market share report, with which those periods are concerned, is a restriction which cannot be justified because it pursues an economic aim, those conclusions do not affect the final outcome of these proceedings.

Costs

133. In accordance with Article 69(3) of the Rules of Procedure, when each party succeeds on some and fails on other heads, the Court may order that the parties bear their own costs. In the light of the conclusions which I have reached above, I consider it appropriate to apply that provision in the present case. Under Article 69(4) of the same rules, Member States which intervene in proceedings are to bear their own costs.

Conclusion

134. In view of all the foregoing considerations, I am of the opinion that the Court should:

– declare that the Kingdom of Spain has failed to fulfil its obligations under Article 43 EC by adopting and/or maintaining in force the following provisions:

– Article 4(1) of Catalan Law 18/2005, in so far as it prohibits setting up large retail establishments outside consolidated urban areas of a limited number of municipalities;

– Articles 7 and 10.2 of Catalan Decree 379/2006, together with Annex 1 to that decree, in so far as those provisions limit the authorisation of new hypermarkets and require such new hypermarkets to account for no more than 9% of staple and 7% of non-staple goods;

– Article 6(2) of State Law 7/1996, Article 8 of Catalan Law 18/2005 and Article 14.1(b) of Catalan Decree 378/2006, in so far as those provisions require the application of a market share threshold and a threshold of impact on existing retail trade, beyond which new large and/or medium-sized retail establishments may not be set up;

– Articles 6 and 7 of Law 18/2005, in so far as they provide that a licence application is implicitly rejected if it has not been explicitly approved within a certain period and thus restrict freedom of establishment more than would a rule that an application is implicitly approved if it has not been explicitly rejected within that period;

– Article 26 of Decree 378/2006, in so far as it regulates the composition of the Comisión de Equipamientos Comerciales in such a way as to give a significant voice to existing retail trade interests and to exclude environmental and consumer-protection interest groups;

– dismiss the remainder of the application; and

– order the European Commission, the Kingdom of Spain and the Kingdom of Denmark to bear their own costs.