SOUPS YOU SIR Ltd is an English company that manufactures a range of soups. Their Managing Director, Tom Ato, has been looking for opportunities to expand the business and has recently concluded that the time is right to export to the rest of Europe. However, things have not been straightforward.
The Latvian authorities have informed Tom that he will be unable to sell soup in Latvia unless changes are made to the way in which the products are packaged. SOUPS YOU SIR Ltd have always sold their products in cartons and have invested heavily in packaging processes, with the upmarket cartons being a key element in the branding of the range. However, the Latvian authorities insist that if SOUPS YOU SIR Ltd products are to be sold in Latvia, they must be sold in jars.
Recent Belgian legislation aimed at tackling a rise in the obesity figures, bans television advertising of all food products. Tom fears that the legislation may prevent SOUPS YOU SIR Ltd’s products breaking into the Belgian market.
The German authorities have informed Tom that all soup imported into Germany is subject to a €3 fee. When Tom queried this, he was informed that the fee is levied ‘for the compilation of data deemed beneficial to importers’.
Finally, Polish taxation policy taxes soups in cartons at 15 per cent whilst soups in tins are taxed at 1.5 per cent. Poland does not produce soups in cartons and Polish officials insist that the measure is justified as tins are easier and cheaper to recycle than cartons.
Advise Tom as to the impact of relevant EU law in relation to the free movement of goods.
The free movement of goods is a cornerstone of the fundamental freedoms of the Union and central to the coherence of an internal market. This internal market is defined in Article 26(2) TFEU as ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’.
In pursuance of securing an internal market, EU law prohibits national rules that hinder cross-border trade. The instant case concerns a number of such barriers to trade, each of which will be considered in turn.
The Latvian packaging requirements take the form of a non-tariff barrier to trade in the form of a measure having equivalent effect to a quantitative restriction (MEQR). The Court of Justice in Dassonville defined MEQRs as “trading rules capable of hindering, directly or indirectly, actually or potentially, interstate trade”. In the instant case, the packaging requirement meets this wide definition in that unless complied with, SYS cannot sell in Latvia. Furthermore, if SYS were to modify their packaging so as to comply, this would inevitably raise the cost of production affecting either the products’ profitability or its competitiveness. Such barriers to trade are prohibited by Article 34 TFEU.
Directive 70/50 drew a distinction, between those measures other than those applicable equally to domestic or imported products (distinctly applicable measures) and those measures which are equally applicable to domestic and imported products (indistinctly applicable measures). It should be noted that whilst Directive 70/50 was a transitional measure and is not therefore formally applicable, it does indicate the Commission’s view of MEQRs. With reference to the instant case, the information provided is a little unclear as to whether it applies equally to domestic or imported products, the importance of which affects the potential justifications that Latvia may propose. The most likely justification to be advanced is that of environmental concerns on the basis that jars are easier or cheaper to recycle than cartons. However, whilst environmental concerns have been added to the non-exhaustible list of justifications set out in the case of Cassis de Dijon, Cassis can only be relied upon where an indistinctly applicable MEQR is in question. If the measure did not apply equally to domestic and imported products, Latvia would only be able to seek to justify the measure under Article 36 TFEU but this considered to be an exhaustive list and does not include environmental concerns.
In any event, the principle of mutual recognition would also need to be considered. This principle states that where goods have been successfully sold and marketed in one Member State, there is no reason why they should not similarly be sold and marketed in another Member State (Prantl). This principle works as a rebuttable presumption and can be rebutted with reference to the justifications above. Whilst clearly expressed in Cassis, it must surely be the case that the presumption applies equally to Article 36 TFEU. Applying this to the instant case, it can be seen that SYS soups have been sold and marketed successfully in the UK and as such, the presumption is that they should also be able to be sold and marketed in Latvia.
Article 36 TFEU also states that such justifications shall not “…constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States”. Whilst not explicit in the Court of Justice’s judgment in Cassis, it is argued that it is implicit within it as otherwise, any such restriction would not be ‘necessary’ as required. In application to the instant case, it may be useful to investigate the comparative recyclability of jars and cartons. It may also be important to analyse the market to determine whether the Latvian requirements are replicated elsewhere or indeed, whether the requirements are a proportionate response to the issue identified (Walter Rau). If not, the suspicion of ‘arbitrary discrimination or a disguised restriction on trade’ is somewhat greater.
The next issue raised in the instant case concerns the Belgian restrictions on advertising. As with the packaging requirement discussed above, this would appear to be an MEQR as applying Dassonville, it is a rule which is capable of hindering trade by reason of the fact that if SYS cannot advertise, they are likely to find it difficult to access a new market. From the information provided, it is clear that the measure is indistinctly applicable as it refers to the banning of television advertising of all food products. The measure could be argued to be an equal burden rule in that it would appear to apply to all goods and does not have an obvious protectionist effect.
The judgement of the Court of Justice in Keck concerned equal burden rules in an attempt to bring consistency to this area of law. In this case, the Court said that certain selling arrangements do not fall within the Dassonville formula “...provided that those provisions apply to all affected traders operating within the national territory and provided they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States…”
The difficulty exposed in subsequent cases has been in identifying what is or is not a selling arrangement, but broadly, they can be defined as rules relating to the market circumstances in which the goods are sold. However, such ‘selling arrangements’ cannot be discriminatory in effect (De Agostini). In De Agostini and Gourmet International, the Court of Justice recognised that restrictions upon advertising, despite amounting to selling arrangements, may have less impact on domestic products. In the instant case, the restriction upon advertising would hinder market access in a way not applicable to domestic products and as such, the restriction would not fall outside of Article 34 TFEU. This restriction would then be subject to potential justification as above under either Article 36 TFEU or Cassis. In considering this, whilst public health is an obvious ground (assuming there is a real risk), clear problems present themselves when assessing the proportionality of such a measure (would labelling or legislation on calorie/fat content not prove a more effective solution?) Furthermore, the arbitrary discrimination or disguised restriction on trade issue would also be considered. It is submitted that insufficient information is available to determine this.
The German requirement making importation of soup subject to a 3EUR fee amounts to a tariff barrier to trade. The charge is levied for the compilation of data and as such, is not a customs duty in the strict sense, but the effect is the same and as such it could be argued to be a charge having equivalent effect (CEE) with application of the Diamonds case. A pecuniary charge (the fee of 3EUR) must be paid by reason of the fact that the goods enter another Member State. Such measures are prohibited by Article 30 TFEU.
From the information provided, it is submitted that the German authorities may seek to argue that the fee is a charge for a service rendered and as such, escapes Article 30 TFEU. However, it is clear from Statistical Levy that in order to sustain such an argument, it must be shown to be a benefit to the goods or traders and the fee must be proportionate to the cost of the service. In respect of the first requirement, it could be argued that any benefit argued is at best vague and difficult to assess (Statistical Levy). In respect of the second requirement, whilst more information would be required, it appears to be a substantial fee being levied and if such data were proven to be beneficial, it is difficult to argue that this would be commensurate to the service provided. In any event, case law of the Court of Justice has interpreted such justifications narrowly and the argument rarely succeeds.
The final issue raised by the instant case is the Polish taxation policy. Clearly this is a matter of internal taxation as defined in Reprographic Machines as “a general system of internal dues applied systematically to categories of product in accordance with objective criteria irrespective of the origin of the products.” Article 110 (1) TFEU provides that no Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. In application to the instant case, it is clear that there is a discrepancy between the rate charged for soups in cartons and soups in tins. Whilst this is not directly discriminatory as it doesn’t directly discriminate against imported goods, it does so indirectly as domestic products do not attract the higher rate of tax as Poland doesn’t produce soup in cartons.
Consideration is needed as to whether the goods are similar within Article 110(1) TFEU. In determining similarity, various factors are taken into account by the Court including the composition, physical characteristics and method of production of the product and also whether the same consumer needs are met (John Walker). It is submitted that in the instant case, the similarity of the products is assumed as both are defined as soup and therefore no further consideration is necessary. As such, levels of tax should be equalized.
However, the Court has recognised the potential for indirectly discriminatory taxation to be objectively justified (Chemical Farmaceutici). From the information provided, the Polish authorities may argue that the objective justification is that of environmental concern. Indeed, such an objective justification was accepted in Commission v Greece. The opposing argument would draw attention to the significant difference in taxation rate (Humblot) which suggests that it is discriminatory because it would discourage consumers from buying imported products and encourage them to buy domestic products instead. Of course, this argument is weakened somewhat if there are several other Member States selling soup in tins in Poland. It should be noted that the mere fact that all products in the higher tax rate are imported does not in itself establish a breach of Article 110(1) as EU law does not prohibit the use of taxation policy to attain social ends.