Member State obligations to observe the fairness of the European market when allowing for competition, were crystallised in this taxation matter surrounding the importation and domestic production of alcoholic drinks.
The terms of article 95 EC (in particular paragraph 1) were constructed to allow and support the freedom of competition between Member States when selling comparable products including alcoholic beverages in their various forms; however, during a period between 1973 and 1981, the United Kingdom deliberately increased the taxation rates for bottled wines over that of bottled beers, thus the margin between the two remained disproportionate for a considerable period and significantly hampered the sale of affordable imported wines in lieu of an over-proliferation of domestic low-volume beers.
When addressed by the European Commission under the inference that such disparity amounted to a breach of paragraph 2 of article 95 EC, it was suggested that while running contrary to the harmonisation of Community law, the Member State was, under article 169 EC now required to submit its own observations in defence of its failure to follow the terms prescribed.
In response, the United Kingdom contested the findings with little supporting evidence, thereby prompting the Commission to apply to the European Court of Justice on the strength of the breach, while citing that by way of reparation, the United Kingdom was to pay the costs of the action.
Shortly afterwards, the Court also allowed Italy to intervene in support of the Commission under article 37 of the Protocol on the Statute of the Court of Justice, whereupon the Court instructed the three parties to reexamine their arguments and submit relevant chronological sales data, before reconvening for judgment.
Having established that the manufacturing processes for beer and wine were comparable, it was then revealed that due to the complex structure of the British market, it was only possible to compare prices through the taxation rates applicable to the volume (strength) of the alcohol in hand.
It was this contradistinction that showed clear support for the suggestion that protective measures had been implemented in order to deprive the import of affordable wines from other Member Sates, despite the measures laid down under article 95 and the United Kingdom’s obligation to follow them.
Citing numerous and unsustainable arguments for the heavy taxation of wines (including manufacturing costs (as previously ruled out) and alleged ‘social’ reasons) the Court held that a serious breach of article 95 EC had been in existence not only for a considerable period, but that recent attempts to narrow the margin were indicative of reasons beyond that expected from a Member State when observing their duty to encourage and support the free movement of goods and equality of competition between states, before reminding those responsible that:
“[A] Member State may lay down differing tax arrangements even for identical products on the basis of objective criteria provided that such arrangements pursue objectives of economic policy which are themselves compatible with Community law and that they are not discriminatory or protective in nature.”