Nafcafe Ltd - look at there failing marketing problem

Internal taxation originates from Article 90 EC. Article 90 prohibits internal taxation being imposed directly or indirectly of goods from member states, on similar products. The article effectively prevents a member state from imposing a tax on products which discriminate against imported products or inadvertently protect domestic products.

To establish whether or not there is discrimination, which is contrary to Article 90, it will depend not only on the rate of charge but also the comparison between the products involved. Article 90 will account for an internal tax to be imposed, providing it is the equivalent of an internal tax and is not discriminatory in its application. In Denkavit v France it was held that, the tax to which an imported product is subject must be imposed at the same rate on the same product. This is clearly not the case here.

Article 90 sets a double test. Article 90 (1) EC states that there must be equality of fiscal treatment between similar imported and domestic products. And also states that internal taxation must avoid indirect protection to other competing products.

The term similar has been interpreted widely and was defined in the case law, as those which meet the same needs, from the point of view of consumers and are broadly in competition with each other. It can be argued that ground coffee and instant coffee are similar products because they are both forms of coffee but are produced differently. In Commission v Denmark (Re: taxation of wine) the ECJ held that fruit wine and grape wine

were similar products, the former was domestically produced whereas the latter was imported. A tax was discriminated between these products therefore was contrary to Article 90.  

Examining the market analysis given, instant and ground coffee are in competition with each other because the proportion which is sold is extremely similar. However, because instant coffee is taxed higher it is put an unfair advantage, this is why sales of it are not as high as ground coffee. It is not necessary to show a protective effect statistically, but only that the tax mechanism is likely through inherent characteristics to bring about a protective effect.

The ECJ has permitted higher taxation on products even where the categories of products are largely imported, if the differential can be objectively justified, provided the economic course of actions are compatible with the requirements of EC law and there are exhaustive rules to prevent discrimination and protection.

The Dutch government’s justification cannot be objectively justified on the grounds that they are imposing a higher rate of sales tax specifically applicable to imported goods, in order to support coffee plantations. This is discriminatory and contrary to EC law. However, they are encouraging companies to follow suit by offering them tax incentives if they do support the coffee plantation.    

SWEDEN

Sweden’s introduction of a law requiring manufacturers to use biodegradable packaging could constitute a breach of Article 28 EC. This is because it has the power to restrict the number of imports coming into the country. Article 28 EC is designed to eliminate barriers such as pecuniary and non pecuniary restrictions.

The Swedish government’s requirement amounts to a measure having equivalent effect to a quantative restriction (MEEQR). This is justified because although it is not restricting the amount of goods into the country, it is trying to make it more difficult for Nefcafe to import its products into Sweden.

Sweden’s restriction represents a selling arrangement under Article 28 EC. This is because it requires the packaging of the product to conform to their regime rather than altering the features of the coffee itself. However, the ECJ in the case of ‘Keck’ excluded selling arrangements from the ambit of Article 28, provided, they affected both domestic and imported products, in law and in fact, in exactly the same manner. This is true to the scenario because all manufacturers are affected.

The concept of a MEEQR has been given wide interpretation by the ECJ. It has been divided into measures which are distinctly applicable and those which are indistinctly applicable.

Distinctly applicable measures apply to imported goods whereas indistinctly applicable measures are applicable to both domestic and imported goods.

Directive 70/50 gives us non binding guidelines to the interpretation of Article 28. Article 3 of the directive deals with indistinctly applicable measures and the Swedish government requires all manufacturers to use biodegradable packing, therefore, considered to be an indistinctly applicable measure. Such measures as contrary to Article 28 EC if they do not satisfy the principles of proportionality i.e. if the same aim cannot be attained by other measures which are less of an obstacle to trade.

The ECJ introduced its own definition of a MEEQR in the case of Procureur du Roi v Dassonville. This is referred to as the ‘Dassonville formula’, the formula stipulates that all trading rules enacted by member states which are capable of hindering, directly or indirectly, actually or potentially, intra community trade are to be considered as MEEQR. Thus, it is not necessary to show an actual affect on trade between member states as long as they have the potential of such affects.

In Cassis de Dijon, the Dassonville formula was extended. Under the ‘1st Cassis principle’ which states that certain measures within the Dassonville formula will not breach Article 28, if they are necessary to satisfy the mandatory requirements of public interest. This is referred to as the ‘rule of reason’. Mandatory requirements under Cassis are non – exhaustive unlike

those under Article 30, and include the protection of public health, consumer protection and via case law, the environment.

Here, Sweden may argue that the requirements of biodegradable packaging are necessary on the grounds of a mandatory requirement of benefiting the environment. A similar occurrence arose in case law. Here Danish legislation required drinks to be sold in returnable containers to help reduce litter. It was held that national legislation designed to protect the environment may be regarded as justifying intra – EC trade restrictions. Although, in this case, the measures were justifiable, in principle, certain details of the scheme were unnecessarily restrictive and could not therefore be justified.

However, Sweden’s mandatory requirement must not only be justified by an objective public interest taking precedence over the free movement of goods, but is also subject to a further requirement. That they must be justified and proportionate i.e. necessary to achieve the result. Also, that there are no common system of rules and they must neither be arbitrary discrimination nor a disguised restriction on trade.

Moreover, this requirement is not proportionate, although Nefcafe’s packaging is not biodegradable; they believe it is recyclable, which is environmental friendly. If Sweden’s sole purpose of introducing the law on environmental grounds is to maintain the environment, then they should accept Nefcafe’s packing to be adequate to satisfy their requirement.

Another reason why Sweden’s requirement is disproportionate is because it means that, Nefcafe will incur considerable expenditure because they need to alter their products packaging. This could prove to be a barrier to the free movement of goods and impede imported goods coming into Sweden, thus, breaching EC law.

Sweden also has no scientific evidence to prove that Nefcafe’s packing is not environmentally friendly. In the absence of scientific knowledge a member state can implement its own provision with regards to certain products. However, these provisions should not hinder the free movement of goods or services.  

The basic rule in Article 28 is referred to here. Article 28 states that all products which have been produced and commercialised in one member state, in accordance with the legal provisions of that state must be admitted into all other member states, each one recognising the legal provisions of the first member state. This is referred to as the concept of ‘mutual recognition’. The principle of mutual recognition was reiterated in Cassis and is referred to as ‘the second Cassis principle’.

GERMANY

In relation Nefcafe being informed that they must establish a warehouse of distribution, to sell their goods in Germany, constitutes a MEEQR. This requires analysis as above, regarding Sweden. This is because the requirement is a barrier to trade. It also entails a discussion of the freedom to provide services.

Article 49 EC deals with the right to provide services. The provision states that if a company is ‘established’ in one member state and is providing services of an industrial, commercial or professional nature in another member state, like Nefcafe, the company is within its rights.

Under Article 43 EC, a company has a right to establish themselves in another member state. However, Nefcafe does not have to have an actual establishment in Germany, as long as it has a ‘registered office, central administration or principle place of business within the Community’. Nefcafe will have satisfied this requirement, found in Article 48 (1) EC, if they have a base in the UK. Therefore, they are in breach of article 43 EC by requiring Nefcafe to have a distributional warehouse.

Buying online is an establishment and constitutes a network of services. The right to provide services has been described by the ECJ as ‘fundamental community rights’. Germany, by imposing this restriction is hindering the free movement of services to others within the member states, effectively restricting access to the market.

The ECJ has ruled that discriminatory rules are prohibited, but any rules which are liable to prohibit or otherwise impede persons providing a service must satisfy the criteria that they be justified and proportionate. Measures which have an adverse effect on inter- state trade, will fall outsider Article 49 EC even if they are not discriminatory.

Germany’s justification is not proportionate because it is in breach of Article 43 EC and Article 49 EC. Under articles 46 and 55 EC derogations are justifiable on the grounds of public policy, pubic health and public security. The adequate monitoring and inspection of food stuffs may have fallen under protection of public health, but because there are not any harmful foodstuffs, this is not applicable. Also, if the UK have got a licence or their goods have been monitored at the border Germany will be in breach if it requires further inspection.      

REMEDIES AND JUDICIAL REVIEW

Nefcafe is able to bring a case against the Netherlands, Sweden and Germany. This will be perused in the national courts. This will be by direct effect as seen in Van Gend en Loos in relation to breaches of EC law.

Based on the case of Factortame, the use of Article 234 is applicable here. Due to the fact that it is not clear why the breaches have been justified. If Nefcafe are waiting for a declaration to see if EC law and national law are compatible then the member state is still able to impose the factors. An injunction may be needed because an interim relief is not as strong with regards to the benefit in Factortame Ltd v. Secretary of State for Transport (No. 2). 

However, Nefcafe can still export to other member states. If the enforcement is sustained then Nefcafe may be entitled to compensation in the form of vertical indirect effect.

Nefcafe may not want to take all the member states to court because it is difficult and it may be easier to ask the UK to take action using Article 227 EC. However, this is not very likely because it is politically confrontational and not a method which they like to use.

Therefore, an application under Article 226 can be made. Nefcafe would have to write to them and ask them to take action against the breaches made by the member states. The Commission is a powerful body and will be able to insert pressure on the Governments. The Administration phase involving Article 230 would result in a full blown judicial case. If the member states ignore the ECJ regarding Article 226 / 227 EC, then daily fines will be imposed upon them. The member states are not normally concerned regarding these fines, but if taxpayers find out what the situation is they will not be happy. In turn they will also exert pressure on the government.

If the Commission fails to take action, in which it has a duty to do, this will result in the breach of Article 232 EC an ‘Omission to Act’. The Commission may then be challenged under Article 232 EC in failing to fulfil their duty. However, it is difficult to make the Commission act satisfactorily. Article 228 EC is a failure to act. If Nefcafe have lost money due to their incompetence then they can present this breach and recover damages from the Commission under Article 228 EC.

Political remedies subsist in that member states can put pressure on the Commission and the European Parliament. This is under Article 17 – 22, as a right to petition as a European Citizen. They can ask the European Parliament to give them answers from the Commission.

The member states can also get together politically as the Council of Ministers and ask the Dutch, Swedish and German governments as to why they are not letting Nefcafe import its products in their countries.    

(B) LEGALITY OF LEGISLATION

An administrative Act, under Article 249 in the form a directive, labelling requirements for coffee have been introduced. Institutions of the Community i.e. the Council, the European Parliament and the Commission have jointly worked together to issue a directive, which is within their power to do so.

 

The legality concerning the legislation is to asses whether Article 95 can have direct effect into national law. Directives are an important form of EC secondary. Article 249 EC  provides that a ‘directive shall be binding, as a result to be achieved, upon each member state to which it is addressed but shall leave to the national authorities a choice of form and methods’.

Directives have ‘direct effect’. Direct effect means that the rights created by a provision are capable of being relied upon in UK courts, and these are specific rights. ‘Effect’ means a provision is applicable, directly or otherwise.

The concept of direct effect was established in the fundamental case of Van Gend en Loos. The case stated that all rules of founding treaties, which are worded unconditionally, means that implementation or validity is not required for any further intervention by member states and applies directly to individuals.

Therefore, Nefcafe who believe that there is lack of scientific evidence with regards to the effects of caffeine means that they believe the regulation imposed by the UK is not in line with the Directive. This is because the directive states ‘to safeguard public health’. This is not clear, thus Article 249 may be invoked in order to clarify and interpret this part of the directive.

There are tools provided by the EC in order to aid the implementation of EC law. The purpose of Article 234 EC is to connect both EC and national law legal systems. It is to ensure consistency and uniformity of interpretation throughout member states. This article is not for member states to send appeal cases to or provide remedies, but is a tool to aid member states in the interpretation of EC law.

Treaties do not expressly provide for supremacy, there is not article which clearly states that EC law is supreme. The Court of Justice has envisaged the doctrine of supremacy through case law (those below).

Justification of EC intervention requires discussion of Supremacy of Community Law. The doctrine of supremacy of community law was established in the cases of Van Gend en Loos, Costa v ENEL and Simmenthal. These cases made it clear that Community law is assumed to be an autonomous legal order which is related to international law and national law, but it distinct from them also.

The doctrine of supremacy effectively means that member states have forfeited their sovereign powers. In return a body of law to bind all law has been established. EC law takes priority over all national law, whether past or present. National law, once EC law is implemented will be suspended. The issue is to implement EC as effectively as possible with national law being set aside. This was referred to in the Factortame v. Secretary of State for Transport..

 

Nefcafe, did not comply with the labelling requirement, as a result they were prosecuted in the magistrates courts. Therefore, the courts will have to interpret the law regarding the directive. This takes the form of ‘indirect effect’. This is where directives are not precise enough to have direct effects. Requiring national courts to interpret national legislation “in so far as is possible” in accordance with community obligations.

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