IV —

As the German Government and the Commission have done in their respective submissions I think that it is appropriate to take and consider together the first two questions relating to the measure having an effect equivalent to quantitative restrictions resulting from the ‘indirect indication of origin’ established by the German law. Distilled wine produced in the Member States may be imported into the Federal Republic without any quantitative restriction. But, apart from a percentage of 15 % of the alcoholic strength, foreign distilled wine may only be used directly for the production of foreign spirits; ordinary ‘Weinbrand’ can only be produced, up to an amount of 85 % of alcoholic strength, from ‘nationalized’ distilled wine. Imports of distillate from other Member States will not develop in the same way according to whether these rules apply or do not apply. Home-produced quality spirits or Weinbrand sell at a higher price than foreign spirits with the exception of course of designations such as cognac and armagnac, and the price is ‘made’ by the producers of these home-produced spirits, whereas, if the foreign distillates could be ‘processed’ without having to satisfy any other special conditions, the spirits produced directly from these distillates would be in a position to compete with quality home-produced spirits and the demand for these foreign distillates would for that reason be increased. Moreover the German Government does not seriously dispute the fan that, even if the rules in question do not affect the total volume of imports of foreign distillates into the Federal Republic, they affect the ‘pattern’ of these imports. The real problem is whether the restrictive effen inherent in such national rules is absolutely necessary for attainment of the objenives — in themselves lawful — aimed at by these rules or whether this effen is out of all proportion to the aim pursued. I have frequently had occasion to sute that such an investigation can only be brought impartially and completely to a successful conclusion by the Commission subject to review by this Court. In the case in point the Court's judgment of 20 February 1975 in Case 12/74 and the Commission's observations provide important presumptions that such a procedure works well. The German Government submits that reserving the appellation ‘Weinbrand’ for high quality products is in keeping with the aim of improving this quality in so far as the consumer is inclined to regard an alcohol with such a designation as a finer product than an ordinary brandy. The differentiation thus established is absolutely necessary for attainment of such an obiective. The effen of concentrating the distilling and storage process at a single establishment — which is a decisive factor (it being possible for the subsequent treatment and produnion to be carried out at another establishment — is to allow the official departments which are responsible to check these operadons. We must bear in mind that Article 36 does not strictly speaking envisage promotion of the quality of products. However since in the German Government's view such promotion of quality is associated with protection of the health of humans we will take up a position within the confines of this provision. (1) The German Government attaches considerable importance to the fan that in its recommendation of 11 December 1969 concerning the ‘draft German law on wines’ the Commission ‘approved at the time the principle of carrying out the entire production at the same undertaking’. The fan that the Commission stated that it accepted this principle does not seem to me to emerge from this recommendation at all. It points out that the position which it took up related only to ‘beverages based on wine’. In the case of ‘Weinbrand’ — unlike the ordinary product ‘spirits made from wine’ (Article 38 (1)) — the Commission was and still is of the opinion that the requirement under German law of production of the primary product, that is the distilling and the maturing of the distillate on national territory and at the same national undertaking (subparagraphs 1 and 4 of Article 40 (1)) is not justified. On the other hand it would not object to the requirement that ‘the treatment of the distillate and the subsequent operations for the production of spirits as well as the treatment designed to make the product fit for consumption have been carried out at the same establishment’ (subparagraph 2 of Article 40 (1)). It merely contends that there should not be any restriction of the free movement of the primary products at the stage where the distillate is used for the purpose of producing spirits. In any case as from 12 December 1968 the provisions of the German law have been modified in many respects and the fact that the Commission only made a specific reservation in connexion with Article 8 of the draft law (which forbade the production, preservation, decanting or bottling of foreign wines on the same premises as those where German wines are produced) does not preclude it from reconsidering its assessment ten years later taking into account the development of Community law and case-law. (2) The Federal Government goes on to assert that the restrictive effect on imports of distilled wines stems from the disparity between the national laws on guaranteed designation of origin (appellation contrôlée) or the protection of consumers and that the only way of removing this restriction lies in the approximation of the said laws as provided for in Article 100 of the Treaty and in establishing a ‘Community system of quality spirits’. It is true that there is no Community definition of what must be understood by ‘spirits made from wine’. A common designation will possibly be found only within the framework of a common organization of the market in alcohol excluding all discrimination between producers and consumen of the Community (Article 40 (3)). I say ‘possible’, because Regulation (EEC) No 7a of the Council of 18 December 1959 (Official Journal, English Special Edition 1959-62, p. 68) specifically removed from the sphere of the Common Agricultural Policy ‘liqueurs and other spirituous beverages and compound alcoholic preparations (known as “concentrated extracts”) for the manufacture of beverages’, and the Treaty does not appear to have provided the necessary powers to lay down a definition of spirits within the framework of the common organization of the markets in ethyl alcohol of agricultural origin. (3) The crucial issue is whether the protection of producers against unfair competition and of consumers against confusion and deception which may have a bearing on public health entitles Member States to organize as they think best a system of designations of spirits made from wine and the protection of such designations, and whether the absence of a ‘Community quality mark’ justifies the introduction of a ‘national designation of quality’, notwithstanding the ostensible restrictions on trade between Member States which such protection entails. Unlike French law under which cognac and armagnac are protected on the same basis as well known wines German law does not aim at promoting products well known by reason of their origin, because the Federal Republic does not produce spirits having the same repute and coming within specific geographical definitions. The term ‘Weinbrand’ was invented at the beginning of the century in order to replace the designation ‘cognac’, which was the everyday word for spirits of this kind but reserved by Article 275 of the Treaty of Versailles, and to designate spirits intended for consumption and prepared in Germany by the same method as that used for cognac. Like the term ‘Weinbrand’, the designation ‘quality spirits made from wine’ simply indicates a specific category of spirits and does not comprise any indication of the area where it was prepared or of the geographical origin of the primary materials used: it is a ‘generic’ designation or simply an indication of ‘their nature’. Professor Roben Plaisant who had given the German Government an opinion in Case 12/74 had already stated (Le droit des appellations d'origine, l'appellation ‘cognac’, 1974 p. 148 et seq.) that designations and other indications relating to spirits made from wine of foreign origin referred to in Article 44 of the German law are not registered designations of origin or indications of origin. The fact that a product is manufactured in a particular Member Sute is no justification for providing this product with a specific designation different from the one adopted in other Member States for the same products, save in the case of a registered designation of origin or of an indication of geographical origin. This is what the Court held with regard to ‘Sekt’ in Case 12/74. Such differential treatment is likely to lower the value of the quality spirits produced in the other Member States in the mind of the consumer. The designation ‘Qualitätsbranntwein aus Wein’ with the added indication of the country of origin in fact gives the impression that the product thus designated is not the same as ‘Weinbrand’; the fact that the designation ‘quality spirits made from wine’ may also cover the home-produced product and the fact that the designation ‘Weinbrand’ cannot be used in relation to foreign products are incommensurable. The objection cannot be raised that German consumers think that the term ‘Weinbrand’ relates to a product manufactured in Germany. In fact the earlier rules authorized the use of the designation ‘Weinbrand’ for foreign spirits, the present rules themselves allow an exception in favour of those producing countries ‘throughout which German is the official language’. it cannot either be maintained that the properties which determine the quality known as ‘Weinbrand’ are primarily dependent on the processing and, in particular, on the place where the same distilling process, maturing or coupage has taken place. The German Government submits that ‘when the second distillation, called refined distillation (Feinbrand) is carried out, the expert distinguishes the head, the heart and the uil of the alcoholic distillate … Only the heart of the spirits — the part which is called the “heart” — is used in the case of quality products for the production of Weinbrand’. That is what is said to give these spirits their special ‘aroma’. I must confess that I do not have this expert knowledge and I think it would be advisable to ‘have a drink’ before accepting what is said. But it is impossible to assert that ‘retreatment’ of imponed distillates gives to spirits ‘made up’ in this way the organoleptic qualities prized by consumers; although even under German law up to 15 % of the ‘alcoholic richness’ of the spirits nationalized in this way may be diluted with foreign distillates ‘as such’, it must be presumed that the latter do not give rise to any objection from the point of view of quality or public health. There is an existing provision which could provide the protection sought by the law: according to Article 42 (1) foreign spirits may only be imported if they conform to the standards in force in the producing country and if they are accompanied by a movement certificate issued by the official fraud investigation department of that country. The fact that the spirits have undergone a preparation making them fit for consumption outside the producing country or that they have been stored in oaken casks without being decanted does not, under this provision, preclude their importation into national territory. (4) The Federal Government states that there is no discrimination between spirits whether they be home-produced or foreign, since the same requirement of ‘distillation and storage on site at the same establishment’ is applied without distinction to domestic and imported products. However, according to your case-law (mon recently in the judgment of 24 January 1978 in Case 82/77, Openbaar Ministerie of the Kingdom of the Netherlands v Jacobus Philippus van Tiggele [1978] ECR 25, at p. 39) measures applicable without distinction to domestic products and products imported into a Member Sute may be measures having an effect equivalent to quantitative restrictions within the meaning of Article 30 et seq. if they have as their effect the reduction of imports coming from other Member States. Although giving the imported distillate its final finish, that is to say diluting, colouring and flavouring it so as to render it fit for consumption is allowed at the establishment of a domestic distiller, and therefore outside the country where the distillate is produced, there does not appear to be any risk of deterioration if the same finishing is carried out at an establishment such as the applicant's. As the German Government asserts, there would only in practice be no discrimination if in the Federal Republic quality home-produced spirits could not be prepared by a German producer from distillates coming from other German distilleries and if, again so far as the Federal Republic only is concerned, distillate could not be stored either by distillers other than the producer. Now both these possibilities exist. The prohibition of coupage and ‘treatment’ only applies to products imponed from Member Sutes whereas a German distillery is free to dilute or treat distillates from its branches situate in different parts of Germany. Consequently, as the German Government itself concedes, the principle of the ‘concentration of production at the same establishment’ admits of exceptions ‘by reason of special demands having regard to the average traditional structure of the establishments’. To sum up on this point I think that measures such as the ones in this case which are ostensibly applicable without distinction to home-produced and imported products ‘lower the value of an imported product in particular by causing a reduction in its intrinsic value, or increase its costs’; they hinder the purchase by private individuals of imported products only or encourage, force, or give preference to the purchase of domestic products only"; ‘they confine names which are not indicative of origin or source to domestic products only’ within the meaning of subparagraphs (f), (k) and (s) of Article 2 (3) of Commission Directive of 22 December 1969 based on the provisions of Article 33 (7) (Official Journal, English Special Edition 1970 (I), p. 17). Even though such measures are an integral pan of a national organization of the market which has not yet been replaced by a common organization they have, since the end of the transitional period, been incompatible with Article 30 et seq. of the Treaty if they are only ostensibly applicable without distinction to home-produced and imponed products. The objective sought to be attained by protecting health (Article 36) and by the ‘institution of a system ensuring that competition in the common market is not distorted’ (Article 3 (f)) or by ‘… concerted action in order to guarantee … fair competition’ (preamble to the Treaty) cannot justify the introduction of a system which is designed to ensure the success of national designations at home and abroad and is ‘capable of hindering, directly or indirectly, actually or potentially, intra-Community trade’; consequently such a system ‘is to be considered as a measure having an effect equivalent to quantitative restrictions’ within the meaning of the Court's judgment of 11 July 1974 in Case 8/74 Procureur du Roi v Benoît and Gustave Dassonville [1974] 1 ECR 837.