Price-fixing by the State: a minimum unit price for alcohol

For a number of years concerns have been expressed over excessive levels of alcohol consumption and the effect this has on both public health and public order. There is a clear relationship between the price of alcohol and the amount of alcohol consumed. On 3 May 2013, the Court of Session ruled that a 50 pence per unit minimum alcohol price which had been imposed by the Scottish Parliament was compatible with EU law. In this blog I argue that, in reaching his conclusion, Lord Doherty misapplied the proportionality test.

The Alcohol (Minimum Pricing) (Scotland) Act 2012, which introduced the minimum price, was challenged in judicial review proceedings by the Scotch Whisky Association. In consequence of the challenge, the Act has not yet been brought into force, although in light of Lord Doherty’s decision the road is now open for the Act to be implemented.

It has been clear since Cullet that state legislative action cannot be challenged by use of the competition rules. Instead, such measures fall to be assessed under the Treaty’s rules on free movement. In line with this approach, the Scotch Whisky Association claimed that the minimum unit price was incompatible with Article 34 TFEU and could not be, or was not, justified under Article 36.

It was common ground that the minimum unit price constituted a quantitative restriction contrary to Article 34 TFEU. A minimum price prevents a producer with greater efficiency from reflecting that efficiency in its price—the competitive advantage is neutralised. The prohibited distortion is the removal of a cost advantage imported alcoholic beverages might have by virtue of their lower cost of production [33 and 64].

The question was therefore whether the Scottish legislation could be justified under Article 36 TFEU, which permits a breach of Article 34 inter alia when such a breach is necessary to protect or promote the health and life of humans. The Scotch Whisky Association, drawing an analogy between price-fixing by undertakings and price-fixing under the rules on free movement, argued that a per se prohibition existed so the values recognised under Article 36 TFEU could not be protected by price-fixing [paras. 32 and 41]. The problem with this argument is that even price-fixing by undertakings is not subject to a per se prohibition. Further, in Cullet the Court of Justice was prepared to consider whether price-fixing was in fact justified under Article 36 (see paras. 23-33 of that case). Lord Doherty therefore concluded that a minimum unit price set by the State was capable of justification under Article 36 if the relevant conditions are met.

One of the relevant conditions is, obviously, proportionality. Lord Doherty accepted that health would be protected or promoted by measures aimed at reducing overall alcohol consumption, but targeted at hazardous and harmful drinkers [36 and 53]. He then assessed whether “alternative measures would be just as effective as minimum pricing in achieving the legitimate aims being pursued” [64]. He found the minimum unit price was more effective than alternative means of achieving the aim [67-81]. On Lord Doherty’s reading of the law:

“If the alternative measures would not be just as effective as minimum pricing in achieving the legitimate aims, minimum pricing would be necessary and proportionate.” (emphasis in original, [66]).

However, Lord Doherty’s view of the requirements of proportionality is in conflict with the position set out by Advocate General Van Gerven in SPUC v Grogan, that EU law requires that:

“even if the national rule is useful and indispensable in order to achieve the aim sought, the Member State must nevertheless drop the rule, or replace it by a less onerous one, if the restrictions caused to intra-Community trade by the rule are disproportionate, that is to say if the restrictions caused are out of proportion to the aim sought by or the result brought about by the national rule.”

The idea is that the effectiveness of a national measure in achieving its aim should be balanced against the affect the measure will have on the free movement of goods. This is clearly stated by the Court of Justice in Danish bottles:

“If a Member State has a choice between various measures for achieving the same aim, it should choose the means which least restricts the free movement of goods.”

The respondents never contested, and Lord Doherty accepted, that alternative measures would have a lesser impact on intra-Community trade than the minimum unit price [65]. However, Lord Doherty’s enquiry starts from the position that a Member State is entitled to adopt measures that most effectively achieve national aims, but without taking into account the different affect each measure will have on the free movement of goods. What is missing from Lord Doherty’s analysis is consideration of how the different measures impact on the free movement of goods.  It is clear on the face of the record [65] that this assessment was not carried out.

6 Comments

Filed under Abuse, Agreements, Free movement

6 responses to “Price-fixing by the State: a minimum unit price for alcohol

  1. May I ask two innocent questions (as someone with a background in policy, not law)?
    1. A key tenet in public policy research is that policies have unintended consequences; they often undermine each other, partly because no government has the ability to pay attention to all of the other policies for which they are responsible (the joined up government problem). Is this problem reflected in the production of a complex legal framework in which some laws appear to contradict others? If so, how would one decide to focus, in this case, on competition law/ rules as opposed to others? Is there a clear hierarchy?
    2. Would judges consider the so called ‘purpose test’ (often used to decide if the relevant law is a Scottish/ UK government responsibility) in these proceedings, alongside a consideration of other factors (such as proportionality)? Or, is this a test largely pursued informally in intergovernmental relations outside the courts?

  2. I am not quite sure I follow your analysis here.

    You seem to be suggesting that if there are alternative measures which are less restrictive of trade, but are also less likely to achieve the state’s aim, then the more restrictive measures should automatically be regarded as disproportionate.

    On this basis, for instance, the availability of a an alternative measure such as public education programme on alcohol awareness, which would undoubtedly be less restrictive of trade than minimum unit pricing but is unlikely to be as effective in reducing alcohol consumption, would suggest that adoption of the more restrictive (but less effective) measure was disproportionate.

    This seems to go considerably further than I understand the case law of the ECJ actually requires.

    • Okeoghene Odudu

      I’m not sure if that is what I am suggesting. So I am sorry if it comes across as if I am. What I am suggesting is that in order to carry out the proportionality exercise you need information about the different impact each measure will have on inter-state trade. This information is absent. And it is admitted to be absent. But the judgment says the information is not required when the measures under consideration are not equally effective at achieving their aim. I am saying that this approach is wrong in law.

      We can take as an example a measure that is more effective at achieving the national aim than a minimum unit price–a total ban on alcohol consumption and sales. If you take the approach set out in the judgment, this total ban would be compatible with EU law on the basis that it has greater effectiveness than any of the alternative measures. Yet I doubt that this is correct. Instead, what the law requires is for the impact the alternative measures have on inter-State trade be compared.

      • Isn’t the hypothesis you are suggesting a bit artificial as it is detached from the public health goal?

        If we take the protection of children as the goal, for instance, then (I would have thought) only a total ban on sales to under-agers would be seen as effective in achieving that goal.

        In the situation with which the court was concerned in this case, the goal was quite different, hence the selection of a different form of regulatory response.

        Given the court’s finding that the alternative proposed by the applicants (increased taxation) would have been less effective than minimum unit pricing in achieving the relevant public health goal, what purpose would be served by analysing relative impacts on trade?

        Sent from my iPhone

  3. Pingback: Competition round-up: Summer 2013 | Competition Bulletin

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