The Court of Session’s ruling on minimum pricing of alcohol in Scotland has upheld that the policy is an appropriate and proportionate restriction on the free movement of goods, writes Arianna Andreangeli. Analysing the judgement, she argues that it marks a significant development in reaffirming that, in certain cases, public health objectives can trump Single Market principles.
Striking an appropriate balance between the internal market and public interest goals, whose assessment and pursuit are ‘best left’ to the Member States, has been an ongoing challenge in the development of European Union law. This has been particularly so in how we interpret and apply the rules on the free movement of goods.
The litigation on whether Scottish legislation setting floor prices for the sale of alcoholic beverages, passed in 2012, conforms with these principles is a very poignant example of the underlying tension between the Member States’ concern for safeguarding the ‘health of their nations’ on the one hand, and the commitment to guaranteeing the good functioning of the Single Market on the other.
History of Minimum Pricing Litigation
The Alcohol (Minimum Pricing) (Scotland) Act 2012 was passed in order to tackle what is considered a typical Scottish malaise, namely the hazardous consumption of alcohol, especially among the more disadvantaged strata of the population.
By making it compulsory to sell alcoholic beverages at a price above a statutory minimum, calculated on the basis of alcohol content, the Scottish Government claimed that cheaper, stronger options would have been de facto priced out of the market. The result would be to prevent ‘harmful drinkers’ from consuming such products in the event of a price increase affecting their drink of choice.
The Act was, however, almost immediately challenged before the courts upon a petition made by the Scotch Whisky Association (SWA). It was alleged that the legislation was incompatible with Article 34 of the Treaty on the Functioning of the European Union (TFEU) on the ground that, by setting floor prices affecting the trade of alcoholic drinks, including imported ones, it did not allow foreign producers to ‘price their goods as low as possible’ and thereby compete in Scotland on the same conditions as if they were trading in their home jurisdictions.
Nor could, in the petitioners’ view, the legislation be justified on public policy grounds in light of Article 36 of the Treaty, to the extent that other mechanisms, such as the introduction of higher indirect taxation rates, would constitute a less restrictive alternative to minimum prices for securing the same public health benefits.
Following an initial victory for the Scottish Government in 2013 and a detour to Luxembourg in 2015, this week’s decision sees this very complex story come to a resolution – although it by no means excludes the possibility that the petitioners will appeal to the UK Supreme Court.
The Court of Session’s Decision
In his judgement, Lord Carloway for the Inner House of the Court of Session held that the 2012 Act, while prima facie infringing Article 34 TFEU, can nonetheless be justified as an ‘appropriate’ and ‘proportionate’ restriction on the free movement of goods aimed at securing high levels of public health in Scotland.
His decision, which largely confirms the original 2013 ruling, which was under appeal, provides a careful and accurate analysis of the Outer House judgement. In that sense, the appellate court was able to rely on extensive evidence on the nature and effectiveness of minimum pricing vis-à-vis other price- and demand-related policy options as a means of reducing alcohol consumption, which had been submitted before the appellate court, in light of the preliminary ruling from the Court of Justice of the EU (CJEU).
In many ways, the Inner House’s decision makes ‘no great shakes’. Lord Carloway accepted that minimum pricing rules of the kind at issue in the SWA case infringed Article 34 TFEU, on account of having ‘an effect equivalent to a quantitative restriction on the importation of goods’, especially by ‘limit[ing] the competitiveness of alcohol that has low production costs’.
His judgement, therefore, centred on the question of whether these rules could nevertheless be allowed to stand on the ground of constituting a ‘justifiable’ restriction on freedom of movement, in accordance with Article 36 TFEU.
In other words, is the 2012 Act ‘appropriate’ to achieving the policy objectives being pursued by the Scottish Government – reducing health-related, social and economic harm arising from ‘hazardous’ alcohol consumption, which is largely driven by the ready availability of ‘cheap booze’, especially on the off-licence trade? And is it proportionate to reaching these beneficial outcomes, in the sense that these outcomes cannot be attained through a less restrictive measure on trade?
Appropriateness of Minimum Pricing
In respect of the ‘appropriateness’ element, Lord Carloway confirmed that it was for the competent national authorities to ‘determine the level of [public health] protection and the way in which it is to be achieved’ (Paragraph 169). In other words, just as the CJEU had held in Para 36 of its preliminary ruling, it is up to the Member States ‘within the limits imposed by the Treaty, to decide what degree of protection they wish to assure’ for the health and life of individuals.
So long as the measure at issue ‘genuinely reflected a concern to attain’ its objective ‘in a consistent and systematic manner’, it should be regarded as providing an ‘appropriate’ response to the public policy demands it seeks to address (Para 168). Importantly, Lord Carloway emphasised that it fell within the powers of the Member States to decide ‘the level of protection of health and life’, albeit within the constraints posed by internal market rules and that, in doing so, national authorities enjoy a margin of discretion (see Para 177).
On that basis, the judgement moved to conducting an analysis of the suitability of the 2012 Act to achieving its public policy objectives. Lord Carloway agreed with the Outer House that the extent of the ‘Scottish alcohol malaise’ was, to put it mildly, ‘difficult to over-estimate’. He acknowledged that this problem was most acute among the more disadvantaged strata of the Scottish population, as was confirmed, inter alia, by the data on alcohol-related hospital discharges – which tend to be 7.5 times higher among poorer communities (Para 178-179).
The judgement also highlighted that, the more affordable alcohol was, the more available it had become, especially through the off-licence trade. Accordingly, it was held that, since minimum pricing rules would ‘target cheap alcohol (…)’ it would consequently reduce consumption among consumers of these low-cost options, namely ‘harmful and hazardous drinkers’.
It was reasoned that, to the extent that these consumers would not be able to ‘trade down to products that are cheaper’ compared with their ‘tipple of choice’, they will be de facto ‘priced out’ of the market (Para 181). In this context, Lord Carloway also dismissed the argument that the 2012 Act would have unduly targeted ‘moderate drinkers’.
In his view, the Scottish Government, in the exercise of the ‘margin of discretion’ that the TFEU itself accords to national authorities for public interest, and especially health protection, matters, was entitled to take action aimed at reducing consumption among individuals belonging to the lowest income section of the population.
In his own words, ‘the fact that minimum pricing may not, to the same extent, affect those who are more affluent, is of peripheral significance’, on the ground that ‘richer persons tend not to suffer to the same extent as harmful and hazardous drinkers (…) whose health and life is at greatest risk’ (Para 181).
Necessity of Minimum Pricing
Having dealt with the ‘appropriateness’ question, the judgement moved on to the other just as, if not more, complex issue of whether minimum pricing rules are also a ‘necessary’ measure for attaining these policy objectives. In particular, could a generalised tax increase achieve the same objectives, as alleged by the petitioners?
Lord Carloway prefaced his analysis of this question with several important remarks as to the nature of the scrutiny that domestic courts should conduct in light of Article 36. In his view, the courts should not ‘balance the benefits of a measure such as minimum pricing with the impact of intra-EU trade’, for this would be more appropriately decided by a ‘democratically elected government’. Nor, he said, should it carry out a ‘cost-benefit analysis’ of floor prices vis-à-vis the imposition of a generalised tax hike.
What the court can and should do, instead, is ‘compare the effectiveness of minimum unit pricing in achieving the targeted objective with other measures’ that can also attain the same goal and which would conceivably restrict the free flow of interstate trade less than floor prices.
If the court, upon an objective assessment of the evidence before it, and without going as far as to demand that the government prove its case with absolute certainty, was satisfied that minimum alcohol pricing was ‘the more effective way of achieving this objective’, then it would be entitled to conclude that both requirements enshrined in Article 36 had been met (Para 188-189).
In light of this, Lord Carloway assessed the ‘proportionality’ of the 2012 Act and noted first of all that, while public health policy had been devolved to Scotland, it lacked the power to adopt fiscal measures, even when this could be shown to pursue a public health objective. In his view, this state of affairs had resulted in a ‘curious anomaly in the context of a legal argument’, to the extent that, while in principle a tax hike could have constituted a ‘viable alternative’, in practice it was not attainable (Para 192).
Nonetheless, his judgement delved into considerable depth in the comparative analysis of the effectiveness of minimum prices vis-à-vis the usage of the ‘fiscal lever’. It observed that, while in principle both tools had an impact on prices, an increase in tax did not ‘produce a minimum price’. Sellers could simply choose not to pass on the projected price increase to consumers through retail prices – what is now regarded as ‘cheap alcohol’ would remain ‘cheap’ regardless of the tax increase (Para 196).
Lord Carloway observed that, while correcting this anomaly would have been possible, in principle, it would have resulted, in practice, in a highly complex tax mechanism which, unlike a straightforward minimum price, would have been very difficult to enforce (Para 197).
The judgement contrasted the use of taxation with the minimum volumetric pricing rules enshrined in the 2012 Act. It was observed that, to the extent that they targeted harmful drinkers (ie those most likely to purchase ‘cheap booze’), minimum prices would produce a far greater drop in demand than across-the-board price hikes, such as those linked to an increase in indirect taxation. In fact, unlike with minimum pricing, reliance on the fiscal lever did not prevent consumers ‘trading down’ to cheaper options (Para 199-200).
On this basis, Lord Carloway concluded that, unlike what had been argued on appeal, there was strong evidence to show that tax increases would not yield the same benefits as minimum pricing, especially when it came to addressing health and social harm amongst the poorest in Scottish society (Para 200).
In his view, the government had been ‘entitled to found upon this as grounding a valid Article 36 justification’ (Para 200). On this point, it was added that any reduction in demand among moderate drinkers resulting from the price increases linked to the 2012 Act would not have represented ‘a significant problem in societal terms’ (Para 201).
Finally, the Inner House considered, albeit briefly, the allied question of whether the legislation could have a discernible impact on the pattern of trade among Member States. It was observed that Scotland is a ‘relatively small part of the UK market, even in alcohol’ and that, as a result, any impact on intra-EU trade would be ‘minor’ (Para 203). In its view, while some imported beverages would probably be affected, the impact would be likely felt predominantly among ‘home-brewed’ beverages.
Balancing Public Policy and the Internal Market
The importance of the Court of Session’s judgement on Scottish minimum alcohol pricing legislation is very difficult to overstate. As Lord Carloway himself acknowledged at the beginning of his opinion for the Court, this case presents a not ‘uncommon dilemma’ – namely, the prima facie conflict between ‘a measure, which a government deems to be one which will serve to improve the nation’s health, with the commercial interests of the producers and sellers of alcohol, whose ability to trade [freely] across the EU is protected by Article 34’ TFEU.
In answering this overarching question, however, the judgement addresses a number of other central issues which underscore the evolution in the interpretation of internal market rules – mainly, to what extent can the Member States exercise their legitimate regulatory powers in the public interest? If they do so, how can they articulate a ‘public policy justification’ that meets the requirements enshrined in Article 36? And should the assessment linked to such a justification be influenced by the nature of the measure and, in particular, be more ‘intensive’ if the freedom to compete on grounds of price is at stake?
The judgement must certainly be welcomed to the extent that it forcefully reaffirms that, in matters of public health protection, the Treaty itself recognises the power of the Member States to assess what is ‘appropriate’ to the needs of their population and, on that basis, to design public policy measures which are best-suited to address those demands.
In so doing, it is clear that the Court of Session falls directly in line with other CJEU judgments, such as the Watts and Geraets-Smits decisions, as well as being consistent with Article 168 TFEU. It is, however, the analysis of the ‘proportionality’ of the minimum pricing legislation vis-à-vis attaining its stated objectives that is to be welcomed.
Lord Carloway’s opinion acknowledges openly the limits of the Court’s review powers on the 2012 Act. Nonetheless, this did not prevent him from engaging in a scrupulous comparative analysis of the minimum pricing rules and the introduction of higher excise duties. This is a significant development, since it clearly acknowledges that imposing minimum prices can, in appropriate circumstances and as part of a ‘systematic and coherent’ response to public policy needs, meet the ‘necessity’ condition enshrined in Article 36.
Perhaps more importantly, the opinion recognises that, whenever the attainment of internal market goals ‘intersects’ with other, non-economic objectives, in respect of which the Member States have a (sometimes significant) say, the appraisal of the ‘proportionality’ of national measures requires the drawing of a ‘balance’ in relation to the impact of these measures on traders, as well as on the pattern of trade within the EU, compared with the benefits that can accrue to public policy objectives from restraining the freedom of movement of the affected goods (see eg Para 204).
While the demands of a well-functioning internal market cannot be overlooked, other general principles, such as conferral, allow the Member States to decide ‘what is best’ for the health of their nations. On that basis, albeit within the constraints posed by internal market principles, they are justified in determining which measures would provide the best levels of public health.
To this end, it is even conceivable, within these restrictions, to constrain price competition, limiting the reach of what has consistently been regarded as the principal tool for furthering European market integration.
University of Edinburgh
Dr Arianna Andreangeli is Senior Lecturer in Competition Law at the University of Edinburgh. Her research interests include EU competition law, national competition law, markets, innovation, merger control and business regulation.
Please note that this article represents the view of the author(s) alone and not European Futures, the Edinburgh Europa Institute or the University of Edinburgh.
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