OPINION OF MR ADVOCATE-GENERAL WARNER

DELIVERED ON 13 JANUARY 1976

My Lords,

This case arises from the circumstance that there exists in Italy a State tobacco monopoly. That monopoly is in the hands of a body called the ‘Amministrazione Autonoma dei Monopoli di Stato’ (or ‘AAMS’). The statute creating the monopoly, Statute No 907 of 17 July 1942, conferred on the AAMS exclusive rights to manufacture, prepare, import and sell tobacco in Italy. The main question for Your Lordships' decision is as to the extent to which the AAMS's exclusive right to import is now compatible with Community law.

The case comes to the Court by way of a reference for a preliminary ruling by the Giudice Istruttore of the Tribunale Civile e Penale di Como. The facts are simple. The defendants before the Tribunale, Signora Flavia Manghera and Others, are accused of having in August 1973, smuggled cigarettes into Italy in evasion of the duties payable upon importation and in infringement of the AAMS's monopoly. It appears that the penalties to which the defendants may be liable under Italian law for infringement of the monopoly are greater than those to which they may be liable for the mere evasion of duty, and that those penalties would not fall to be computed on the same basis. Penalties for evasion of duty are determined by reference to the amount of duty evaded whereas those for infringement of the monopoly are determined by reference to the weight of the goods imported. The reason why Community law is relevant is that some of the cigarettes in question were produced in other Member States. The Order for Reference does not say which, though this may be material.

The questions referred to the Court by that Order relate to the interpretation of Article 37 (1) of the EEC Treaty and also to the effect of a Resolution of the Council of 21 April 1970‘on national monopolies of a commercial character in manufactured tobacco’ — a Resolution which was passed by the Council on the same day as it adopted, among other measures, Regulation (EEC) No 727/70 establishing the common organization of the market in raw tobacco.

Article 37 (1) is, so far as material, in the following terms:

‘Member States shall progressively adjust any 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.

The provisions of this Article shall apply to any body through which a Member State, in law or in fact, either directly or indirectly supervises, determines or appreciably influences imports or exports between Member States.’

Article 44 (1) of the Act annexed to the Treaty of Accession provides:

‘The new Member States shall progressively adjust State monopolies of a commercial character within the meaning of Article 37 (1) of the EEC Treaty so as to ensure that by 31 December 1977 no discrimination regarding the condition conditions under which goods are procured and marketed exists between nationals of Member States.

The original Member States shall have equivalent obligations in rleation to the new Member States.’

Thus, as between the original Member States, the requisite adjustments to State monopolies were to have been completed by the end of the transitional period, that is by 31 December 1969, whereas, as between those States and the new Member States, such adjustments do not have to be completed until 31 December 1977. This is why I say that the identity of the Member States from which the defendants are alleged to have imported cigarettes of Community origin may be material. If, and this of course is the main question, Article 37 (1) of the EEC Treaty required Italy to abolish the AAMS's exclusive right to import tobacco from other Member States, that obligation did not extend to imports from Denmark, Ireland or the United Kingdom effected in 1973.

The Council Resolution referred to in the Order for Reference, which, Your Lordships remember, was expressed by its heading to be applicable to ‘national monopolies of a commercial character in manufactured tobacco’, was in the following terms:

‘The Council of the European Communities has agreed as follows:

1. The French and Italian Governments undertake to take all necessary measures for the abolition of discrimination arising out of national monopolies of a commercial nature.

2. The abolition of exclusive rights relating to importation and wholesale marketing must be achieved by 1 January 1976 at the latest.' (OJ C 50 of 28. 4. 1970)’

The Court was informed, at the hearing, by Counsel for the Italian Government, and this was confirmed by Counsel for the Commission, that there was then pending before the Italian Parliament a Bill to give effect to Italy's commitment under paragraph 2 of that Resolution. Presumably, having regard to the date mentioned in the Resolution, that Bill has now passed into law.

The actual questions on which the Court is asked to rule by the Order for Reference are four.

The first is that which I have described as the main question in the case, namely whether Article 37 (1) of the Treaty is to be interpreted as meaning that, as from 31 December 1969, a State monopoly of a commercial character should have been adjusted so as to eliminate any exclusive right to import from other Member States.

The second question is whether Article 37 (1) has direct effect in the Member States so as to confer on individuals rights enforceable in national Courts.

The third question, which anticipates affirmative answers to the first two, is whether ‘in consequence’ private persons were, as from 1 January 1970, free, subject to payment of the proper duties, to import from other Member States products until then subject to the monopoly.

Lastly, the fourth question, briefly stated, is whether the Council Resolution of 21 April 1970 could alter the effect of Article 37 (1) of the Treaty.

It will, I think, be convenient if I begin by dealing with the second and fourth questions, neither of which presents, to my mind, any difficulty.

As to the second question, I have no doubt that Article 37 (1) has had, since the end of the transitional period, direct effect in the original Member States. My reasons for holding this view are the same as those expressed by Mr Advocate-General Roemer in Case 82/71 the SAIL case (Rec. 1972 (1) at p. 154) and by Mr Advocate-General Reischl in Case 45/75 Rewe-Zentrale v Hauptzollamt Landau (in which Your Lordships have not yet delivered Judgment). It was long ago established, by the decision of the Court in Case 6/64 Costa v ENEL [1964] ECR 597-598 (Rec. 1964, pp. 1163-1165), that Article 37 (2), providing that ‘Member States shall refrain from introducing any new measure which is contrary to the principles laid down in paragraph 1’, had and has direct effect. It must follow that, since the end of the transitional period, paragraph 1 has had similar effect, for, since then, that paragraph can have meant nothing other than that Member States are precluded from maintaining in force any measure that is contrary to the principles therein laid down. It is indeed noteworthy that no-one who has submitted observations to the Court in this case has contended otherwise.

I should perhaps add that I have not overlooked the special point made by Mr Advocate-General Reischl in the Rewe-Zentrale case, based on Article 37 (4). That point does not, however, arise here, if only because there is no suggestion that the Italian tobacco monopoly exists, or has ever existed, to any extent for the benefit of Italian tobacco farmers. Moreover, there has, since 1970, been, as Your Lordships know, a common organization of the market in raw tobacco.

The answer to the fourth question asked in the Order for Reference is even clearer. Manifestly a mere Resolution of the Council cannot alter the Treaty. Action by the Council can only lead to such a result if taken in accordance with Article 235 or Article 236 of the Treaty. Here, and again no-one has contended otherwise, the Resolution of the Council was essentially a political act, the background to which was that, at the time, it was generally regarded as uncertain whether Article 37 (1) required the abolition of exclusive rights of importation held by State monopolies. This is still an unsettled question and it is of course the main question with which the Court is confronted in the present case.

Before I turn to it, I must note a submission put forward on behalf of the Italian Government that the Italian tobacco monopoly is not really a monopoly of a commercial character at all but a revenue-producing monopoly to which Article 90 (2) of the Treaty applies. As I understand it, this submission is based on the assumption that there is a distinction between a commercial monopoly, to which Article 37 applies, and a revenue-producing monopoly, to which Article 90 (2) applies and Article 37 does not. The former kind of monopoly is, according to this view, an instrument of economic policy, the latter an instrument of fiscal policy.

I very much doubt, my Lords, whether there can be, in reality, such a strict distinction and whether the authors of the Treaty ever thought that there was. It is not difficult to imagine a monopoly with twin purposes, or a monopoly with a main and a secondary purpose. Moreover it seems to me that Article 90 (2) is a provision of very limited scope. It merely exempts the undertakings to which it applies — and revenue-producing monopolies are only one category of these — from the rules contained in the Treaty, in particular the rules on competition, ‘in so far as the application of such rules’ would ‘obstruct the performance, in law or in fact, of the particular tasks assigned to them’.

There has been much discussion of this topic in learned periodicals, not least by Italian writers. In that discussion one finds disagreement, not only on the question whether there is such a distinction as I have mentioned, but also on the question whether, if there is, the Italian tobacco monopoly falls on one side of the line or on the other. For my part, I wonder whether, regardless of the merits of the various arguments that have been advanced, Italy is not estopped, by its concurrence in the Council Resolution of 21 April 1970, from alleging that its tobacco monopoly is other than ‘of a commercial character’.

At all events it is clear, as Counsel for the Italian Government very fairly accepted, that the Giudice Istruttore of the Tribunale of Como has not referred to this Court any question about Article 90 (2) of the Treaty. For that conclusive reason I will say no more about it.

So I come to the main question.

This has been the subject of controversy almost ever since the EEC Treaty was signed. It has also, it seems, been the subject of an evolution in the thinking of the Commission.

One view, and this is of course the view put forward on behalf of the Italian Government in this case, is based upon the fact that, according to the actual words of Article 37 (1), that provision only requires State monopolies to be‘adjusted’. It does not require them to be abolished. So, according to this view, no ‘adjustment’ to a State monopoly can be called for under Article 37 (1) that would so emasculate that monopoly as to render it no longer a monopoly. Therefore, the argument runs, Article 37 (1) cannot be interpreted as requiring that a State monopoly should be deprived of its exclusive right to import.

In my opinion that argument contains a non-sequitur. True Article 37 (1) does not in terms require State monopolies to be abolished. But nor does it, in terms, require them to be preserved. It requires that they should be ‘adjusted’ so as to exclude, as between ‘nationals of Member States’, any ‘discrimination regarding the conditions under which goods are procured and marketed’. It must follow, in my opinion, that a State monopoly of which the sole purpose and effect were to secure such discrimination (if there was one) must, by virtue of Article 37 (1), have been ‘adjusted’ out of existence by the end of the transitional period. Conversely, a State monopoly that involved no such discrimination at all (if ever there was one) required no ‘adjustment’ whatever. Thus, in every case the only relevant question can be whether the possession by a State monopoly of an exclusive right to import involves a discrimination as between nationals of Member States regarding the conditions under which goods are procured and marketed.

I would add that, in the case of a body, such as the one here in question, that has a manufacturing monopoly, the proposition that to deprive it of an exclusive right to import would be to ‘adjust’ it out of existence seems to me clearly wrong.

To the question that I have described as the only relevant one, the Italian Government submits that the answer must here be ‘No’, because the monopoly does not treat nationals of other Member States differently from Italian nationals.

This, I think, misses the point. Article 37 is not concerned with discrimination between nationals of Member States as persons. It is to be found in the Chapter of the Treaty dealing with the elimination of quantitative restrictions on the free movement of goods between Member States. That being so, the discrimination with which it is concerned must be discrimination against goods produced or marketed by nationals of other Member States. This is, I think, underlined by the second subparagraph of Article 37 (1), which refers to the capacity of a Member State, through the monopoly, to supervise, determine or influence ‘imports or exports between Member States’.

On that footing, I agree with the Commission that there is discrimination of the relevant kind if a body that has the exclusive right to manufacture in one Member State is free to sell in other Member States but has an exclusive right to import into its own.

That is enough to dispose of this case, but I think I must mention another argument that has been put forward and which would in my opinion lead to the same conclusion, even in a case where the monopoly was not a producer.

This is the argument to the effect that Article 37 is concerned not only with actual discrimination but also with potential discrimination. The argument finds its echo in the way in which the Giudice Istruttore of the Tribunale of Como actually framed the first question in his Order for Reference. He asks whether the State monopoly should have been adjusted ‘in such a way as to eliminate the very possibility of any discrimination being practised against Community exporters, with consequential extinction, with effect from 1 January 1970, of exclusive rights of importation vis-à-vis the other Member States’.

As the Commission forecefully explains in its Observations, a State monopoly that retains an exclusive right to import is in practice in a position to discriminate against goods from other countries, not only in obvious ways, but also in day to day decisions about pricing, advertising, deliveries and so forth. Such discrimination is difficult to detect or prevent and the Commission's experience over many years of seeking to secure observance of the provisions of Article 37 has led it to the conclusion that this cannot satisfactorily be obtained short of the abolition of exclusive rights of importation.

In Case 20/64 SARL Albatros v Sopeco [(1975] 1 ECR 43 (Rec. XI-3, p. 18) Mr Advocate-General Gand showed how Article 37 completes the preceding Articles dealing with the elimination of quantitative restrictions on the movement of goods between Member States. In Case 8/74 Procureur du Roi v Dassonville [1974] ECR 852, the Court laid down the general principle that:

‘All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.’

It would, I think, be odd if, whilst Articles 30 to 36 precluded potential restrictions on trade between Member States, Article 37 did not. That indeed it does is, I think, confirmed by the use in Article 37 (1) of the word ‘ensure’‘soit assurée’ in the French text). The abolition of something is not ‘ensured’ if the possibility of its occurrence remains. So, on this point too, my view coincides with that expressed by Mr Advocate-General Roemer in the SAIL case (Rec. 1972 (1) at p. 146).

The Court itself, in that case, did not find it necessary to deal with the point. But it did hold that an exclusive right of sale (which is but a concomitant of an exclusive right to import) was incompatible with Article 40 (3) of the Treaty in so far as that provision forbids ‘any discrimination between producers or consumers within the Community’.

In the result I am of the opinion that the questions referred to the Court by the Giudice Istruttore should be answered as follows:

(1) Article 37 (1) of the EEC Treaty is to be interpreted as meaning that, by 31 December 1969, any State monopoly of a commercial character should have been adjusted so as to eliminate any exclusive right to import from the other original Member States.

(2) Article 37 (1) has direct effect in the original Member States so as to confer on private persons rights that are directly enforceable in the national Courts.

(3) Private persons in those States were consequently free, as from 1 January 1970, to import from any other of those States, subject to the payment of the proper duties, products until then subject to the monopoly.