Scotland politics

Minimum alcohol pricing: Position of Poland

Opinions of European Union member states on Scottish government plans for minimum alcohol pricing have been released to BBC Scotland.

Position of Poland on Notification 2012/0394/UK on the draft Alcohol (minimum price per unit) (Scotland) Order

The Union of Employers in the Brewing Industry - Browary Polskie [Polish Brewers] (ZPPP) - a member of The Brewers of Europe, wishes to request that the European Commission take a negative position with regard to the application in notification TRIS 2012/394/UK.

The ZPPP perceives that the introduction of minimum prices for alcohol will create barriers to trade, will place Scottish-made products in a privileged position, will restrict the mechanisms of free competition and will promote the development of illegal production and sale of cheaper alcohol.

The introduction by Scotland of a fixed minimum price for each unit of alcohol at a level of GBP 0.5 for all alcoholic drinks in Scotland is contained in Notification RIS/2012/394/UK.

In practice this means that, for example, a 500 ml can of beer could not cost less than GBP 1.25 (about EUR 1.6).

The introduction of this measure would not only constitute a threat to alcohol exported to Scotland, but above all it would constitute a legal precedent sanctioning a barrier to trade as proportional and justified.

Based on a thorough legal opinion, regulations barring retail sale below a minimum alcohol unit price, or MUP, would not be compliant with the EU Treaty, as this instrument is in breach of:

- Art. 34 TFEU, and cannot be justified on the basis of Art. 36 TFEU, and

- Art. 4 TEU in conjunction with Art. 101 TFEU.

Violation of Art. 34 TFEU

The content of Art. 34 TFEU is as follows: "Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States".

Art. 34 TFEU is subject to the derogation envisaged in Art. 36 TFEU. This derogation allows prohibitions or restrictions on imports where they are justified with a view to public order, public policy and public security or the protection of human health and life.

Member States which apply import restrictions must demonstrate public policy or protection of health to this end. In this instance the Scottish government, in proposing a case relating to the question of the harmful effects of alcohol consumption, did not put forward an appropriate justification for the proposed measure.

All measures must also be proportional to the subject in question. This means that measures must be effective and in proportion to the objective to be realised, "which could not be achieved through the use of measures that are less restrictive from the Community trade point of view".

It is not very likely that this measure will be effective, but it will increase social and economic poverty, and furthermore it is not effectively directed at the low-income minority who drink to excess and irresponsibly.

The measure, which suppresses price competition on the import market, and which will deprive importers of the benefits of the principle of free pricing, will also constitute a barrier to the free flow of goods, which is in breach of Art. 34 TFEU.

The measure protects national brands and constitutes a barrier to the free flow of goods.

This policy creates a barrier to entry for new imported brands of, for example, beer which are attempting to enter the market, and would therefore be sold at below the minimum price in order to entice supermarkets to include such beers among the goods they offer, and to entice consumers to try them.

In contrast to a previous statement by the Scottish government, that this measure only applies to certain products, an evaluation of the effects of the regulation indicates that 73% of the alcoholic drinks market and 77% of the retail beer market will have to raise its prices.

The evaluation shows that as much as 70% of premium beer will be directly affected by the MUP.

This will clearly also affect products from other Member States.

National products above the MUP are thus protected and may expect benefits from increased sales, to the cost of products, including imported products, which are currently sold at below the MUP.

According to an evaluation of the consequences of the regulation, the price of 63% of table wines, the majority of which are imported, will also rise, as will the price of 92% of vodkas, a significant proportion of which will be imported.

In the event that current prices are significantly lower than the proposed minimum price, it is at least doubtful whether such products will be able to be sold at all under the new system, because they will simply be being sold at a price that is much higher than that accepted by the market. Many of these products are currently imported.

It should also be borne in mind that importers must have the potential to exist in a competitive market.

Price competitiveness is a fundamental element of a competitive market, while this measure limits the capacity of a supplier to make use of productivity to set lower prices for measure limits the capacity of a supplier to make use of productivity to set lower prices for consumers and to increase sales. This is of particular importance for importers of existing or new products who have to achieve a corresponding scale in their import operations quickly.

The proposal now on the table discriminates against imported products by depriving them of their competitive advantage based on a lower cost base compared to similar national products with a higher cost base.

Suppression of a competitive market is in itself an obstacle to the free flow of goods.

Unjustified from the health point of view

As regards the proposed justification of the measure on the basis of Article 36 TFEU, the burden of proof that a restrictive measure relating to trade is necessary to protect health rests with the Member State.

The European Court of Justice, however, has already in specific instances rejected health objectives as a justification for a minimum price, commenting that Member States have at their disposal other measures that are less restrictive to trade, including raising the price of goods, which maintain the principle of free pricing.

Doubts also arise over some of the data used to justify the measure. For example, the Scottish government rejects the WHO figure (11.9l of pure alcohol) for Scottish consumption per head of population, in favour of a higher number (14.2l), but then compares it with WHO data from other countries in order to "place Scotland among the top 5 European countries with the highest per head consumption level" instead of in 21st place out of the 33 countries on the WHO list.

This measure is not proportional and is unlikely to be effective

This measure will penalise those who drink responsibly for the behaviour of those who consume to excess.

Clearly this measure affects all consumers, including everyone who drinks in moderation, who are more numerous than those who drink to excess and irresponsibly and who do not have the problems at which the measure should be targeted.

There is still a lot to do where combatting the damage caused by alcohol in Scotland is concerned, and data from the Scottish Health Survey 2010 (SHS 2010) unambiguously identify the key target groups, such as individuals who drink to excess, as aged 16-24 for women and 25-34 for men. Data from the National Health Service for Scotland representing patients with an alcohol problem also confirm that some parts of Scotland are much more affected by this problem than others.

Minimum prices, though, will hit all consumers, of any age, both genders and throughout the country, regardless and independently of whether they consume alcohol irresponsibly or not.

This measure therefore "fails to match up to what is needed for the intended objective to be attained", which is reaching those who "drink irresponsibly".

On the basis of data from the RIA (Regulatory Impact Assessment), and also from research institutions generally, it is very doubtful that this measure will effectively impact alcohol consumption and restrict its harmful consequences.

The target of these provisions is individuals who drink to excess and irresponsibly, and the measure assumes a significant specific price elasticity for alcoholic drinks as such. In reality, the RIA suggests that the demand for these products "will probably be inelastic".

If demand is inelastic, a rise in prices will not reduce demand or consumption, and the measure will simply be ineffective.

The RIA gives selective quotes from the literature. Oxford Economics, which carried out a review of the Rand Europe report that is in question, says that scientific evidence is united in indicating that demand among alcohol abusers is very insensitive to price, especially in comparison with other consumers.

The statement made in the RIA that individuals who drink to excess and irresponsibly are more sensitive to changes in price than individuals who drink in moderation is counter to practical experience, and because it relates to the most demanding social groups, this may only be at the cost of subjecting this group's domestic budget to extreme cuts.

This regressive measure is aimed simply at subjecting the domestic budget to additional strain, and especially the budget of families with the lowest incomes, while at the same time exposing the brewery sector in the European economy to diminution (employment, agriculture, transport, gastronomy).

Oxford Economics also cites evidence that alcohol demand among young people is less sensitive to price than among older people. So any form of policy based on price will not be concentrating on the issue it is supposed to be targeting.

The RIA also refers to the risk of internet sales violating this measure, saying that if alcohol is not sent out of Scotland, the minimum price will not be applicable. Making the comparison with trans-border purchases, it says that internet purchases are currently the domain of fine wines.

The RIA perceives, however, that internet purchases may be subject to "diversification and increase", without any attempt being made to estimate the likelihood of this.

Legislation on a minimum price will have an extreme impact on market functioning and will very markedly increase the prices of many products. This may interfere with the structure of commercial exchange, and in particular it may increase internet purchases from England.

A lack of supervision of this trade is probable. It would not be difficult for supermarket chains and other businesses to evade the law totally by establishing altered supply models and encouraging customers to purchase from existing websites, which would consolidate their position in a few years.

Just the potential use of the Internet is enough to make the measure ineffective.

More effective and less restrictive measures are available

The Scottish government's own data indicate that in recent years hospitalisation and mortality as a result of alcohol consumption have fallen, along with the incidence of cirrhosis of the liver.

SHS 2010 states that between 2003 and 2010:

- The mean weekly alcohol consumption rate among adults aged 16+ fell from 14.1 to 11.6 units;

- The percentage of adult individuals drinking over the recommended weekly amounts fell from 28% to 22%;

- Excessive alcohol consumption fell from 29% to 26% for men and from 19% to 16% for women.

The Scottish government's Action Framework defines a specific national indicator for excessive alcohol consumption, namely a limitation of alcohol-related hospitalisations in 2011, and, in the words of the Scottish government, "the target has been achieved".

These data indicate that the Scottish government has now successfully introduced a broad range of alternative, less restrictive but effective measures which are less discriminatory than a minimum price.

These include awareness campaigns, the introduction of legal regulations on the age at which purchase is allowed, actions aimed at target groups (e.g. pregnant women), information initiatives for consumers, the introduction of sanctions for driving while under the influence of alcohol and many others.

Suspension of price competition is non-compliant with Art. 4 TEU in conjunction with Art. 101 TFEU

The measure would also not be compliant with Art. 101 TFEU and Art. 4 TEU, because it would require suspension of price competition in a significant part of the market.

The RIA states that three-quarters of the off-trade market would be directly affected by a suspension of price competition.

Article 101 TFEU prohibits agreements between undertakings relating to practices of price-fixing by commercial undertakings. It is fairly obvious that an agreement between retailers to apply a minimum price would constitute a very serious breach of competition law.

Article 4 (3) of the Treaty on European Union stipulates that Member States "shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives".

Maintaining competitive markets is both a task of the Union and a state which should not be threatened by the adoption of a specific measure by a given Member State.

Adopting a minimum price per unit of alcohol suspends price competition among threatened products.

The higher the minimum price, the greater the segment of the market which will be affected by it, and the more price competition is suspended. In this instance this will have a direct impact on the size of the market, but also on the rest of the market.

Member States may not establish measures suspending price competition, not counting exceptional cases, such as setting the prices of medicines intended for treatment under the aegis of national health care systems.

There appears not to have been an instance where a Member State would have received permission to impose such absolute restrictions on price competition in respect of sales of consumer goods.

Non-compliance with GATT

In the case of a dispute initiated by a country that is not a member of the EU, the European Commission is responsible for defending the given policy, taking as a basis the assumption that it is compliant with the GATT Agreement. A minimum price is also prohibited by Art. III.4 GATT of 1994.

Because the effect of a minimum price policy would be to raise the price of imported goods in retail sale, these goods would be less competitive compared to goods made in the home country, the retail price of which would be maintained at the minimum price level or above, whereby a protective effect on the home market would appear to be inevitable.

The Commission and Member States should take action to resist minimum prices

Independently of the legal evaluation, it is clear that the negative consequences and threats arising out of a minimum price significantly outweigh the benefits and effects.

The Commission should therefore tell the British government that a minimum price for alcoholic drinks based on alcohol content is at variance with the United Kingdom's duties under the Treaty.