Heard the one about EU law and Irish minimum alcohol prices?

European Court of Justice ruling in Scottish case has implications for Ireland

The only way minimum price rules can be saved is if member states can demonstrate that in a given case minimum pricing is somehow more effective than taxation. Photograph: PA

The only way minimum price rules can be saved is if member states can demonstrate that in a given case minimum pricing is somehow more effective than taxation. Photograph: PA

 

Last December, a certain grey-haired gentleman clothed in red and resident in a magical-seeming faraway land dropped a gift - carefully crafted by himself and his little band of helpers - down the chimney of Minister for Health Leo Varadkar.

Too bad for Leo Varadkar that the grey-haired gentleman on this occasion happened to be the Cypriot Judge Constantinos Lycourgos - and his helpers the Second Chamber of the European Court of Justice in Luxembourg.

Their Christmas offering - doubtless about as welcome to the Minister as a lump of coal in his Christmas stocking - was the December 23rd ruling Scotch Whisky Association v Lord Advocate that legislation on the lines of Scotland’s draft minimum unit pricing for alcohol is illegal under EU law.

Varadkar had very little reason to be pleased with this judgment. Ireland’s own Public Health (Alcohol) Bill 2015, approved by the Government as late as December 8th, proposed pretty much the same approach as the Scots deployed for combating excessive alcohol consumption. (Indeed, mindful of this, the Government in Dublin actually intervened before the Court of Justice in this case to support the Scottish measures, but to no avail.)

The legally binding Court of Justice ruling should not have come as too much of a surprise to the Government: it had been flagged last September by the advisory opinion of Advocate General Yves Bot.

For that matter, the court had already held a full 37 years ago in its van Tiggele ruling that minimum pricing rules were illegal because they violated requirements on the free movement of goods.

In this latest case - a challenge to the draft Scottish rules brought by various groups representing alcohol producers - the court has now held fast to its view that EU member states are barred from imposing minimum pricing rules when options ‘less restrictive of trade’, such as increasing excise duties or taxes, can be used.

Intervention

But why does the court intervene in seemingly domestic matters like national rules on alcohol sales in the first place? And, when it does, what reason does the Court have for disliking minimum pricing rules so much?

The answer is that this all goes back to the reasons for which the EU was originally founded.

A core reason for the EU’s existence has been the creation of a Single European Market - in other words, constructing one giant European market instead of 28 individual ones, with the aim of benefitting producers and consumers alike. In pursuit of this objective, the Court of Justice has attacked all kinds of national rules that hinder the basic aim of free trade based on fair competition.

Minimum pricing rules are regarded as particularly bad obstacles to trade. But why is this so? The answer is that such rules prevent the lower cost prices of imports from being reflected in selling prices to consumers.

Minimum pricing rules round up the price of all low-cost alcohol upwards, at the same time levelling it. The result is that low cost producers elsewhere in the EU lose their competitive advantage. Nobody ever gets to see that they offer their wares for lower prices: that fact is hidden behind a uniform minimum price.

Who wins by such rules? Answer: normally, domestic producers. Who loses? Answer: normally foreign producers - but also the single market as a whole, and ultimately all European consumers. The court’s hostility to minimum price rules is thus understandable.

But if the court’s tough approach to minimum price rules in the interests of protecting the European Single Market is understandable, shouldn’t it nevertheless show equal respect for the vital national objective of stopping alcohol abuse?

Restrictions

The answer is that EU Single Market law is not in fact absolutist. Restrictions on free trade are allowed on certain grounds - and most importantly, for health protection reasons.

The court, however - ever vigilant for encroachments on the single market disguised as health rules - insists such restrictions must remain proportionate.

Member states may combat excess alcohol consumption - but the court insists the norm is to use taxation, not minimum prices. (Taxation, one must remember, raises the price of all products - therefore leaving the relative price profile of all products undamaged. Lower priced imports remain lower priced. Higher priced domestic products remain higher priced.)

The only way minimum price rules can be saved is if member states can demonstrate that in a given case minimum pricing is somehow more effective than taxation. Judging by his December all-guns-blazing reaction to the Court’s ruling, Leo Varadkar has clung to the hope of doing this in order to save the draft Irish minimum pricing arrangements. He has claimed that taxation cannot be used in Ireland because retailers here sell alcohol for prices lower than excise and VAT rates (apparently thus demonstrating immunity to all efforts to control them using tax law). Such reasoning seems most unlikely to be accepted by the Court of Justice. If retailers really are selling alcohol at prices lower than the tax rates charged by the Government, then that problem can be sorted out by enforcing below-cost selling rules against them. Thus taxation remains an option. There is no need to get into minimum pricing rules at all.

What next?

So what happens next? With elections now coming, the fate of the Public Health (Alcohol) Bill 2015 will lie with the 32nd Dáil and 25th Seanad.

Varadkar may or may not be the Minister for Health in Ireland’s new Government. But it seems clear that whoever next takes charge of the Department of Health should pay careful attention to the court’s slap on the wrists for Scotland.

A system based on taxation, not minimum pricing, is the legally safer one for Ireland to deploy in combating alcohol abuse. Such an approach will also avoid wasting time and money defending the courtroom battles now likely to be waged by the alcohol industry against minimum pricing - battles Ireland’s next Minister for Health has precious little chance of winning anyway.

Gavin Barrett is Jean Monnet Professor of European Constitutional and Economic Law at the Sutherland School of Law, UCD.

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