WRITTEN QUESTION P-1762/98

by Werner Langen (PPE) to the Commission

(29 May 1998)

Subject: Price agreement between the French cigarette industry and the French Government

In November 1997 an additional 2,5 % duty on tobacco was supposed to be introduced in France on financial and health policy grounds. However, the government agreed with the French cigarette manufacturers on a minimum consumption duty to be levied per unit of 1 000 cigarettes, thus removing the price advantage of multipacks. This agreement was reached without consulting, for example, the Hamburg firm of Reemtsma, which, like some of its competitors, sells various products on the French market.

The price declaration submitted by Reemtsma in relation to imports of two of its products (West and West Light, in packs of 25) was rejected by the French Ministry for Economic Affairs and Finance by reference to the agreement reached with the domestic industry. Approval would be granted only if the price was substantially raised.The two products were not included in the "arreté d'homologation" (official approval) issued at the end of 1997. There was no response to a further price declaration submitted on 28 January 1998. In a conversation early in March, Reemtsma was quoted a price which would secure approval, but the company rejected that option on market strategy grounds. Further conversations did not produce any progress.

Article 85 of the EC Treaty prohibits "agreements between undertakings (...) which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices (...)"

In view of the foregoing:

1. Does the Commission regard this direct fixing of a minimum price by the French cigarette industry, by agreement with the French Ministry for Economic Affairs and Finance, as an infringement of the competition laws deriving from Article 3(g) of the EC Treaty in conjunction with Article 85? If so, what steps will it take to remedy the situation?

2. Does the Commission know the grounds on which the French Government permits and justifies this form of horizontal cartel, by means of which the price or minimum price is directly fixed?

Supplementary answer

given by Mr Monti on behalf of the Commission

(11 February 1999)

1. At the end of 1997, the Commission received a complaint regarding the 1998 Loi des finances which the French government was about to adopt. On 1 January 1998, French legislation brought into force a cigarette tax whose effects included preventing the price per thousand of a particular category of cigarettes sold under a particular make from falling below the price of the best-selling product of the same make (minimum reference price) and introducing a minimum excise duty for dark-tobacco ("brune") cigarettes 20 % below that for light-tobacco ("blonde") cigarettes (400F per thousand as opposed to 500F per thousand).

The Commission's conclusions included the finding that the new legislation failed to comply with Article 9(1) of Council Directive 95/59/EC of 27 November 1995 on taxes other than turnover taxes which affect the consumption of manufactured tobacco(1), which stipulates that the industry should be free to determine the retail selling price for each of its products. The new obligation to set a price per thousand amounts to imposing a minimum reference price. The Commission also considered that in having two minimum rates (500F per thousand for all cigarette categories except dark-tobacco cigarettes, which would be taxed at 400F per thousand), the new French legislation violated Community law (Council Directive 92/79/EEC of 19 October 1992 on the approximation of taxes on cigarettes(2), plus Directive 95/59/EC), which provided that an identical minimum rate of excise duty should be applied to all makes and varieties of cigarette.

In addition, because most dark-tobacco cigarettes were made in France (the opposite is the case with light-tobacco cigarettes), the new legislation failed to comply with the ban on tax discrimination and protection contained in Article 95 of the EC Treaty.

The Commission consequently initiated infringement proceedings against France under Article 169 of the EC Treaty. In that connection, it decided in December 1998 to forward a reasoned opinion.

2. The Article 169 infringement proceedings for failure to comply with Community law allow for an exchange of views between the Commission and the Member State involved. In this case, France did not react to the notice which the Commission had sent.

(1) OJ L 291, 6.12.1995.

(2) OJ L 316, 31.10.1992.