Opinion of Mr advocate general Reischl

Mr President,

Members of the Court,

The subject-matter of the eight cases, in which I am giving my opinion today and which were joined by order of the Court of 26 October 1978 for the purposes of the proceedings and judgment, is the Commission Decision of 20 July 1978 adopted pursuant to Article 85 of the EEC Treaty. It concerns measures which were and still are applicable to the Belgian market in tobacco products.

In listing the relevant measures a distinction must be made between those prior to 1 December 1975 and those subsequent thereto.

Into the first said period fell measures, which according to the particulars in the Commission decision, were concerned with the following:

On 1 December 1975, and here I come to the period mentioned in the second place, a recommendation made by the governing body of FEDETAB for the sale of cigarettes on the Belgian market entered into force and the seven manufacturers of tobacco products, who are now plaintiffs, announced that they would follow it. It is concerned with:

As early as the beginning of 1971 the Commission was fully informed of the first group of measures — I will in future call them the earlier measures to distinguish them from the recommendation I have just mentioned — after it had sent a request for information to FEDETAB as a result of a complaint by a Belgian undertaking.

On 2 April 1974 GB Entreprises SA (later to become GB-Inno-BM), which operates supermarkets and is already known from Case 13/77 NV GB-Inno-BM v Vereniging van de Kleinhandelaars in Tabak [1977] ECR 2115, complained to the Commission about the earlier measures and asked that proceedings be commenced for a declaration that there was an infringement of Articles 85 and 86 of the EEC Treaty. The Commission did so by a decision of 29 July 1974. In the course of those proceedings objections were raised on 18 July 1975 in accordance with Article 2 of Commission Regulation No 99/63 against FEDETAB and its members which includes all the applicants in the present proceedings.

By letters of 10 and 13 October 1975 two further Belgian undertakings, Mestdagh Frères & Cie., which sells foodstuffs in a number of supermarkets and subsidiaries, and the firm of Eugène Huyghebaert, which supplies retailers, announced to the Commission their intention to be associated with the complaints made by GB-Inno-BM. This was done by a formal complaint dated 17 October 1975, which was apparently received by the Commission on 21 October 1975. On 22 October 1975 there was a hearing at the Commission of the proceedings commenced by decision of 29 July 1974; FEDETAB, various of its members and GB-Inno-BM took part. The representative of the firm of Huyghebaert who had also been invited to the hearing was excluded from it at the applicants' wish. Subsequently, on 13 November 1975, the complaints made by Mestdagh and Huyghebaert were forwarded to the applicants for their comments. Their comments were received by the Commission towards the end of 1975 and beginning of 1976 and then there were further comments in July 1976 by the applicants on the reply lodged by Mestdagh and Huyghebaert.

The recommendation made by FEDETAB was notified to the Commission on 1 December 1975. In this connexion all the applicants declared that they intended to comply with the recommendation. After the proceedings which were already pending before the Commission were extended to the recommendation by decision of 10 May 1976, further objections were notified on 17 May 1976 and on 22 September 1976 there was a second hearing of the applicants.

All this led on 20 July 1978 to the adoption of the aforementioned Commission decision which was delivered to FEDETAB and the undertakings manufacturing tobacco products, Cinta SA, Éts. Gösset SA, Jubilé SA, Vander Elst SA, Weitab SA, and BAT Benelux SA, all of Belgium, and Heintz van Landewyck Sari, a manufacturer of Luxembourg.

Article 1 of the decision found that the earlier measures concerning the organization of the distribution and sale of tobacco products in Belgium represented decisions by the association of undertakings, FEDETAB, and agreements between seven manufacturing undertakings, the applicants in the present proceedings, and constituted from 13 March 1962, when Regulation No 17 entered into force, to 1 December 1975 infringements of Article 85 (1) of the EEC Treaty.

Article 2 of the decision found that the recommendation notified by FEDETAB and the seven manufacturing undertakings to the Commission and taking effect on 1 December 1975 constituted an infringement of Article 85 (1) of the EEC Treaty. Further it did not qualify for exemption under Article 85 (3) thereof.

Finally Article 3 of the decision ordered the addressees to terminate without delay the infringement referred to in Article 2 and in future to abstain from all acts whatsoever having the same object as the FEDETAB recommendation of 1 December 1975.

On 28 and 29 September 1978 the addressees appealed to this Court against that decision.

It is claimed in Case 209/78 that Articles 1, 2 and 3 (1) of the decision should be declared void and in the other cases it is claimed that the decision should be declared void as a whole.

In Case 124/78 there is an additional claim in the alternative to refer the case back to the Commission with an order to consider the applications for exemption under Article 85 (3) of the earlier measures and the recommendation.

Further Case 215/78 seeks in the alternative that Article 2 of the decision be declared void in so far as it provides that application of Article 85 (3) to the FEDETAB recommendation is not justified and that accordingly Article 3 (1) of the decision be declared void.

Finally it is claimed in the alternative in Case 218/78 that Articles 2 and 3 (1) of the decision should be declared void and that in the alternative a declaration should be made as formulated in the alternative in Case 215/78.

Before I can deal with those claims, which the Commission contends should be dismissed, I should mention that several bodies have been allowed to intervene in the proceedings.

They are, in support of the applicants:

Moreover the following intervened in support of the Commission:

In considering the quite extensive material I shall proceed as follows:

First I shall consider the grounds of complaint relating to the course of the administrative proceedings before the Commission. Then I shall consider whether the Commission was right in finding that the measures on the organization of the sale and distribution of manufactured tobacco in Belgium fell within Article 85 (1) of the EEC Treaty, that is to say, were agreements between undertakings, decisions by associations of undertakings and concerted practices which might affect trade between Member States and which had as their object or effect the restriction of competition within the common market. Then if necessary the question must be considered whether exemption under Article 85 (3) was rightly refused.

I — The administrative proceedings conducted by the Commission

In the view of the applicants the administrative proceedings before the Commission were not conducted correctly in various respects. Thus their rights of defence were infringed inasmuch as they were not given sufficient opportunity to inspect the administrative documents drawn up by the Commission. Further, the Commission wrongly refused to hear certain associations of undertakings. Moreover it based its decision on complaints by Mestdagh and Huy-ghebaert without conducting in regard thereto proper proceedings in relation to competition and informing those concerned of the joinder of those proceedings with the others. The Commission was also wrong in publishing business secrets of the applicants. Further not all the officials of the Commission dealing with the matter were continuously present at the hearing. Finally exception must be taken to the fact that in notifying the objections only one of the four conditions laid down in Article 85 (3) was referred to in rejecting the possibility of exemption, whereas in the contested decision mention was made of other conditions for exemption without the applicants' having had an opportunity of giving their opinion thereon. All this must be regarded as infringement of Article 6 of the Convention for the Protection of Human Rights.

1. Alleged insufficient inspection of the administrative documents kept by the Commission

Various aspects must be distinguished here.

(a). In so far as in three actions (Cases 209, 210 and 218/78) there is mention of the fact that the Commission did not grant the request of the applicants made in August 1978, that is after the contested decision was adopted, to inspect the administrative documents, the statements of claim in Cases 209 and 218 themselves show that that obligation is not to be regarded as a ground for voidance but as a ground for discovery (Case 218/78) or (as in Case 209/78) as grounds for reserving the right to supplement the statement of claim if necessary. The same was made clear in Case 210/78, albeit only in the reply, that that was not intended to be the ground' for declaring the contested decision void.

(b). As regards the requests made by the applicants during the administrative proceedings, the Commission explained that the presumptuous demand had never been made to it to make all the administrative documents available to the applicants. No such request, as the Commission rightly pointed out, is to be discerned in certain phraseology used on pages 18 and 19 of the minutes of the second hearing in September 1976.

(c). Further the applicants claim that because those concerned could not know the exact composition of the administrative documents, the Commission, without regard to whether applications had been made, should be required to disclose all documents containing facts taken into account by it — since it should rely only on facts on which those concerned had been able to comment — and that it is open to objection that the opinion of the Advisory Committee on Restrictive Practices and Dominant Positions was not disclosed to the applicants. As to this the following observations in my opinion should be made:

(d). The administrative proceedings cannot therefore be criticized on the grounds that the applicants were refused inspection of documents which was necessary for proper comment on the objections raised against them and which, had it been allowed, could have substantially influenced the course and outcome of the proceedings.

2. The failure to hear certain associations in the administrative proceedings allegedly resulting in the inadequate establishment of the facts

There are two matters to be distinguished.

On the one hand there are the requests originating from the associations themselves to take part in the hearing in relation to the recommendation. Those requests were made:

On the other hand there is the request by FEDETAB on 30 June 1976 to hear two associations namely the aforesaid Groupe Tabac and NVFG, mentioned at the beginning, one of two associations founded de facto after the dissolution of ANGIPMT in 1976.

(a). First as regards the requests made by the associations themselves, Article 19 (2) of Regulation No 17 provides:

(b). On the other hand as far as concerns in this connexion the application by FEDETAB for the hearing of certain associations, Article 3 (3) of Regulation No 99/63 is decidedly in point; it states:

(c). The administrative proceedings can therefore certainly not be regarded as irregular on the grounds that they disregarded the provisions in Regulations Nos 17 and 99/63 on the hearing of third parties.

3. The complaints made by Mestdagh and Huyghebaert and the proceedings resulting therefrom

In October 1975 the Belgian undertakings, Mestdagh Frères & Cie and Huyghebaert associated themselves with the complaints by GB-Inno-BM, and that step was registered with a separate file number. As a result of the last-mentioned circumstance the applicants were of the opinion that separate additional proceedings had been started. On that basis they complained that they had never received a decision joining those proceedings with others pending before the Commission and relating to the system of distribution of tobacco products and that in consequence they had not been able to comment on the relevant grounds therefor. They complained also that as regards the proceedings brought by Mestdagh and Huyghebaert and whose independence they had to assume, they were never sent objections after the formal opening of the proceedings, which incidentally did not take place, and that there was no hearing. This leads to the conclusion that the complaints of Mestdagh and Huyghebaert ought not to have been taken into account in the Commission's decision and thus it was improper to terminate three proceedings with one single decision.

(a). As regards this group of objections the Commission to my mind rightly pointed out that the nature of its administrative proceedings was not such as the applicants assumed it to be. Not every complaint of conduct allegedly distorting competition which for administrative purposes receives a separate file number necessarily introduces independent proceedings even if it relates to matters which as a result of a similar complaint are already the subject of proceedings in relation to competition. In such circumstances it is not a question of starting new proceedings but of extending the proceedings which are already pending to the additional complaints as was done in the present case by the decision of the Commission of 10 May 1976. It was therefore not necessary to have any formal decision joining the proceedings for which reasons would have had to have been given and sent to those concerned for comment. It needed only to be sufficiently clear that the additional complaint would be considered by the Commission in relation to the proceedings already pending and those concerned be given opportunity to comment on the additional complaints.

(b). If moreover consideration is given to the question whether as a result of what the Commission did the rights of defence of those concerned were disregarded and therefore it is to be regarded as inadmissible to have dealt with the Mestdagh and Huyghebaert proceedings in the contested decision, then in my opinion the answer cannot be as mooted by the applicants.

(c). The complaints by Mestdagh and Huyghebaert were not dealt with in the administrative proceedings in a manner to limit the applicants' right of defence as set out in Regulations Nos 17 and 99/63, which would have given cause to declare void the Commission's decision in so far as it concluded the proceedings introduced by the complaints from Mestdagh and Huyghebaert.

4. Breach of business secrets

As we heard in the proceedings the comments of FEDETAB of 22 September 1975 together with annexes were served on the complainant GB-Inno-BM. Those comments and annexes set out market trends of 160 brands of cigarettes in Belgium during the previous five years, the cigarette purchases handled by the main specialized itinerant wholesalers and the credit terms to which the 25 important customers of the largest Belgian cigarette manufacturers kept. In the applicants' view that infringed Article 20 of Regulation No 17 because it naturally related to business secrets and was clearly so shown by being marked confidential. Because the complainant was thus enabled to comment on facts not normally available to it, the proceedings were vitiated with the necessary consequence that the resulting Commission decision should be declared void.

The Commission took the view that in truth the contents of the said annexes, of which moreover only two, and not the one concerned with the sale of 160 brands of cigarettes, were marked confidential, could not be regarded as secret. Even if however that were the case the interest in keeping secrets had to yield before the Commission's interest in full information and establishment of the facts. In any event the proceedings were not so vitiated as to call in question the contested decision.

(a). The question first arises whether the content of the said annexes has in fact to be treated as secret.

(b). On that basis it is further necessary to consider whether the Commission's desire to establish the facts as comprehensively as possible can justify so proceeding. In that respect the Commission relies on Article 20 (2) of Regulation No 17 which states:Without prejudice to the provisions of Articles 19 and 21, the Commission and the competent authorities of the Member States, their officials and other servants shall not disclose information acquired by them as a result of the application of this regulation and of the kind covered by the obligation of professional secrecy.

(c). That certainly does not mean, as the applicants think, that it necessarily follows that the Commission's decision must be declared void. It depends rather, and authority for this is the judgment of 14 February 1978 in Case 27/76 United Brands Company and United Brands Continental BV v Commission 1978 ECR 207, at pp. 305 and 306 [paragraphs 284 to 288], whether the infringement of which the Commission is guilty decisively influences the course of the proceedings and whether it may be assumed that had there been no irregularity there would have been a different outcome. That however cannot be imagined in view of the nature of the facts known and the comments thereon by the complainant. On the other hand in my view the applicants are wrong in referring to the judgment in the aforementioned Case 85/76 Hoffmann-La Roche v Commission 1979 ECR 461, at pp. 512 and 513 [paragraph 14], where it is said that the Commission cannot use facts, circumstances or documents which it cannot in its view disclose to the undertakings concerned. In that respect it must simply be said that the documents in question in the present case were rightly required from FEDETAB and that the Commission considered itself entitled to forward them to the complainant, as was certainly correct as regards the basic contents.

5. Alleged irregular conduct of the oral hearing

The applicants further consider that there are grounds for criticism because for a certain time during the hearing on 22 October 1975, as appears from the minutes of the hearing at p. 58, not all of the officials of the Commission concerned with the case of FEDETAB were present. That infringes Article 9 (1) of Regulation No 99/63 which states: Hearings shall be conducted by the persons appointed by the Commission for that purpose. Indeed it must be regarded as necessary in the interest of the correct establishment of the facts that the officials concerned with the case and responsible for the preparation of the decision should receive their impressions directly from the hearing if at that time an important issue, namely the determination of the terms of payment, was being discussed, and that they should not be content with reports of the oral statement.

The only person however so appointed within the meaning of Article 9 (1) was Mr Thompson, a director, who presented himself as such and was also noted in the minutes in that capacity. It was moreover mentioned in a note sent to the parties before the hearing; accordingly the only person appointed was the official who presided and it was to be assumed that the other officials of the Commission simply assisted him. Since however it is not disputed that Mr Thompson, who signed the minutes of the hearing was continuously present, the conduct of the hearing must be regarded as correct and in any event there can be no serious defect in the fact that the officials who assisted him were temporarily absent even if they asked questions at the hearing and were entrusted with the preparation of the Commission decision as rapporteurs.

It is not possible in my opinion to meet this by reference to the Belgian law cited by the applicants, where the rule apparently obtains that in the case of adoption of a decision by an administrative committee all the members thereof must have been present at all the discussions. On the other hand it is much more significant that all the observations made at the hearing were reported and made available to the officials taking part. It also seems to me significant that in the case-law, such as in the judgment of 15 July 1970 in Case 44/69 Buchler &Co v Commission 1970 ECR 733, it has already been held that in proceedings relating to competition it is sufficient if members of the Commission are given information by the person appointed to conduct the hearing and have available to them the minutes and recordings and the administrative documents. If this suffices in the case of persons responsible for a decision, a different position can hardly be held to obtain in the case of officials who only prepare a decision, the draft of which is nevertheless the responsibility of their superior officer, who in the present case was continuously present at the hearing.

The decision cannot therefore be declared void on the ground of alleged irregular conduct of the hearing, a complaint moreover which relates only to the decisions in respect of the earlier measures.

6. The alleged incompleteness of the objections made known in respect of the recommendation ofl December 1975

The applicants further object that in the notice of objections to the recommendation which entered into force on 1 December 1975 refusal of exemption under Article 85 (3) of the EEC Treaty is mentioned only in reference to one of the conditions referred to there, namely which contributes to improving the production or distribution of goods or to promoting technical or economic progress. That is the reason why they had made written observations and oral observations at the hearing before the Commission only in relation to that matter. In the contested decision however it is mentioned that exemption does not come into consideration because other conditions in Article 85 (3) are also not satisfied. The decision thus relies on objections upon which the applicants were not able to comment; that infringes their rights under Articles 2 and 4 of Regulation No 99/63.

The Commission counters that in its first objections in 1975 relating to the earlier measures mention is made of allowing consumers a fair share of the resulting benefit. The second objections were only supplemental thereto, because the Commission did not abandon the observations it had made earlier. Moreover it was significant that the applicants had made observations on the said condition at the hearing conducted in 1976; further most of the applicants had given their views on all the conditions in Article 85 (3) in their comments on the first objection and also at the hearing in 1975 and in their observations when the recommendation was notified. There can thus be no question of curtailing their right to be heard.

After this discussion the question arises whether it is indeed necessary in giving notice of the objections to make observations on Article 85 (3), and again whether it is sufficient that a further condition of Article 85 (3) was dealt with only in the first notice of the objections and finally whether it suffices that the applicants made comprehensive observations on Article 85 (3) of their own accord at the beginning of the proceedings and when the recommendation was notified.

Since it is not disputed that the question of improving the production or distribution of goods, which is material to the decision, was dealt with in the second notice of objections, those questions will be relevant only if it appears that the part of the decision concerning Article 85 (3) has to be considered at all and if the rejection of the exemption on the ground of the said condition is not sustainable, the other conditions of Article 85 (3), which were passed over in the second objections, are in fact of importance. In these circumstances and in view of the anyhow exceptionally voluminous material in the action, it seems to me proper provisionally not to deal with the relevant complaint and to consider it if necessary in the event of its being necessary to say anything at all about the rejection of the exemptions.

7. Infringement of Article 6 of the Convention for the Protection of Human Rights

In their replies certain applicants have put forward in addition the argument that all the infringements dealt with so far relating to the alleged irregular course of the administrative proceedings are to be regarded as disregard of the rights of defence as given by Article 6 of the Convention for the Protection of Human Rights. According to the case-law of the European Court of Human Rights that provision applies when there is a dispute about rights or duties arising under civil law. Application of Article 85 of the EEC Treaty comes within it. Article 6 of the Convention for the Protection of Human Rights requires, and this did not happen in the present case, that cases should be defended at all stages and it must be accordingly regarded as an infringement if, and this relates particularly to the rejection of the hearing of the associations named by the applicants, a claim to hear defence witnesses is not granted.

The immediate question arises whether that objection has not been raised too late and must be disregarded pursuant to Article 42 of the Rules of Procedure. I wish to leave that matter aside for the moment because it may be doubted whether it is in fact a completely new and independent issue — in truth a legal tag is simply put upon matters already contained in the statements of claim — but also because the case-law shows, and this takes some of the significance from Article 42 of the Rules of Procedure, that particularly important issues may be raised by the Court of its own motion.

As regards consideration of the complaint in other respects, the observations previously made suffice as regards the question of the incompleteness of the objections in relation to exemption under Article 85 (3). As regards the failure to hear the associations named by FEDETAB, it suffices to recall that according to the relevant letter of FEDETAB already mentioned there is considerable doubt whether it was really a question of citing defence witnesses for particular facts, even assuming, as the Commission itself considers proper, that the Community institutions are bound to respect common principles of justice and the Convention for the Protection of Human Rights, it must not be overlooked that Article 6 of the Convention for the Protection of Human Rights merely provides that everyone is entitled to a fair and public hearing by an independent tribunal. That is no basis for claims in respect to administrative proceedings conducted by the Commission; nor does it seem to me possible, as was attempted at the hearing, to justify the claim that because the Commission is not an independent and unbiased court, such proceedings require all the more respect for Article 6 of the Convention for the Protection of Human Rights. Since however it has been shown that the Commission did not infringe the rules of Community law as contained in Regulations Nos 17 and 99/63, and since it could not be shown that those provisions were not in accord with the Convention for the Protection of Human Rights or that apart from that the Commission had infringed the Convention for the Protection of Human Rights, it must ultimately be concluded here too that such considerations cannot lead to voidance of the contested decision.

II — Application of Article 85 (1) of the EEC Treaty

I now come to the question whether the organization of the distribution of tobacco products in Belgium by means of certain agreements and resolutions of FEDETAB between 13 March 1962 and 1 December 1975 and the recommendation which entered into force on 1 December 1975 relating to the sale of cigarettes on the Belgian market infringed Article 85 (1) of the Treaty.

The numerous arguments put forward in that respect call for an attempt to deal with them in some sort of order. Thus I will first deal with the arguments relating in particular to the earlier measures. Then it is necessary to deal with particular objections relating to the recommendation. Finally arguments must be considered which apply to both more or less equally.

A — The particular submissions against the decision in respect of the earlier measures

1. Of interest here in the first place is the observation made by the applicant Heintz van Landewyck that it had signed only the letter of 23 December 1971 laying down the maximum credit terms and no other agreement or measure. In consequence only that letter could be attributed to it; further as regards itself there could not be said to be agreements on competition or concerted practices for in relation to the other measures dealt with in the decision it had merely fitted in with the conduct of other manufacturers because it was compelled so to do by market forces. Here it is proper to mention the general argument put forward by FEDETAB that its members were responsible only for measures and decisions to which they had expressly agreed. Moreover it is necessary to deal in this connexion with the allegation by AGROTAB in the application to intervene that the letter of 23 December 1971 just mentioned was not signed by the applicant Weitab whilst three other companies who had signed it had not been joined by the Commission in the proceedings.

2. A number of other objections to be dealt with in connexion with the earlier measures relate then to the questions whether in fact an agreement may be assumed, whether the letter from FEDETAB of 21 December 1970 (Politique de distribution cigarettes — tabac à partir du 1. 1. 1971) contained mandatory rules and how that is to be reconciled with the fact that certain agreements are said not to have been applied. Moreover some letters mentioned in the decision are said to have been sent by the Association of Wholesalers, FNCG, that is to say, the manufacturers cannot be held responsible for them.

3. A further group of objections which needs special mention relates in substance to the part of the decision concerned with the earlier measures and has as subject-matter the judgment therein on the prohibition of rebates, the laying-down of standard terms of payment, the requirement of a minimum range and the prohibition on certain wholesalers being supplied by other wholesalers.

B — After that I come to certain special objections applying to Article 2 of the contested decision, that is the FEDETAB recommendation on the sale of cigarettes in Belgium.

1. In this respect certain applicants have complained that the decision characterizes the recommendation as an agreement between undertakings who have approved it and said that they would adhere to it. Properly interpreted however, agreements within the meaning of Article 85 (1) of the EEC Treaty are but contracts under national law. The present case is not concerned with such arrangements for there is no binding effect and nothing is provided to ensure that it is adhered to. As authority they cite inter alia the judgment in Case 48/69 Imperial Chemical Industries Limited v Commission [1972] ECR 619 at p. 655 [paragraph 64], where it is stated:

2. It is further objected that the recommendation was treated in the contested decision as a decision by an association of undertakings within the meaning of Article 85 (1). In that respect the intervener AGROTAB pointed out that FEDETAB was a non-profit-making association and as such did not engage in business.

3. On the other hand it cannot be objected that the recommendation is not binding and that paragraph 61 of the contested decision wrongly speaks of the recommendation giving rise to a genuine mandatory rule of conduct for all firms in the industry.

4. Finally in this connexion it is necessary to deal with the objection that the Commission wrongly saw in the recommendation a simple continuation of the distribution system which previously applied. It is said that there were in fact quite clear differences in the effects. The recommendation does not expressly and particularly classify dealers or place any restriction on the class recognized as wholesalers. There are no prohibitions on selling to others in the same class and no collective measures to enforce the terms of payment. Further it confines itself to laying down maximum margins and leaves the manufacturers every freedom as regards other allowances. It is also significant that it applies only between the manufacturer and his immediate buyer; no terms of resale are placed on dealers and therefore it is incorrect to speak of restrictions on competition down the line. Since the Commission did not take account of those matters it must be held that the decision wrongly judged the recommendation on the false facts.

C — Now that I have dealt with the objections which relate specially to Article 2 of the decision and shown that they are not valid I must turn to the criticism which in relation to Article 85 (1) concerns the decision as a whole, that is to say, applies basically both to the part which deals with the earlier measures and to the part in which the recommendation is judged.

1. Of importance here in the first place is the applicants' allegation that it is necessary to have regard to the fact that the aim of the measures which are objected to is the maintenance of the traditional marketing with a fine network giving a chance also to the small and little-known brands which contribute to increasing competition. For this specialized wholesalers are indispensable and if their services were not specially rewarded by the maintenance of a certain price-level they would not be able to stand up to competition from other wholesalers whose turnover is tending to increase. As authority for such an aim Case 26/76 {Metro SB-Großmärkte GmbH & Co KGv Commission [1977] ECR 1875 at p. 1897 et seq.) is cited. According to that decision price competition has no absolute priority. In particular separation of the functions on the one hand of the wholesale trade and on the other of the retail trade accords with the right of competition if it is done on the basis of objective criteria. Further the judgment stresses not only that a selective distribution system may be compatible with Article 85 (1) but also that the desire to maintain a certain price level for the specialist trade and the continued existence of that channel of distribution does not necessarily infringe Article 85 (1). The Commission did not properly take that into account in considering the distribution system applying in Belgium to manufactured tobacco.

2. The further question then arises whether the Commission in assessing the distribution system for manufactured tobacco in Belgium in fact sufficiently and correctly took account of all the essential circumstances and accordingly rightly found a perceptible restriction on competition within the meaning of Article 85 (1).

(aa) The earlier measures

(bb) The Commission considers in the same way the similar type of measures adopted by the recommendation.

(aa) The Belgian tax system

The tobacco trade is characterized by a high proportional tax which is calculated on the retail price fixed by the manufacturer or importer, who is the taxpayer. As we learned at the hearing, this was always so. Nothing changed in that respect after the adoption of the Council Directive of 19 December 1972 on taxes other than turnover taxes which affect the consumption of manufactured tobacco (Official Journal, English Special Edition 1972 (31 December), p. 3). According to that, for the first stage of harmonization the specific excise duty might not be lower than 5% to which Belgium has kept; the same rate applied to the second stage albeit value added tax was then included. Furthermore it does not seem that in the foreseeable future there will be any greater shifting in the relationship between proportional excise duty and specific excise duty in favour of the latter. In that respect I refer to Directive No 77/805 with which the second stage of harmonization began on 1 July 1978 and to the observations at the hearing on the foreseeable further development as regards this issue.

The decisive effect of such a system of taxation is that any change in the cost factors other than the excise duty and value added tax, which is also proportional, has a multiplicative effect upon the retail price; in this way, as the applicants explain, the significance of any competitive dealing is multiplied. In this respect it is common to speak of a multiplier. As regards the Belgian system it falls between a factor of 4 and 5 and, as was shown, between 1972 and 1978 it showed no tendency to diminish, as would accord with the aim of harmonization, but rather did it increase. The applicants, and the Commission too at the hearing, impressively demonstrated in detail with the aid of illustrative figures what that meant in real terms economically. Thus the increase in one cost factor such as the manufacturers' share or the dealers' margin leads to a disproportionately sharp increase in the retail price which in the case of different profit margins and a correspondingly different breakdown of the retail price would lead to a very great competitive advantage for the forms of distribution which are less cost intensive. On the other hand a reduction in the cost factors would lead to a disproportionately sharp reduction in the retail price, because any concession by the manufacturers or dealers would be multiplied by a reduction in excise duty. This justifies speaking of an effect distorting competition to the disadvantage of cost-intensive products, such as new brands, small brands, brands of small manufacturers, and to the disadvantage of cost-intensive forms of distribution. This is moreover expressly recognized in the recitals in the preamble to Directive No 72/464; it was said there that the taxes affecting consumption existing at the time on tobacco goods were not neutral from the point of view of competition but were likely to distort the conditions of competition whether at national level or at Community level. The Economic and Social Committee discusses that in its opinion on the proposal for the Fifth Council Directive on taxes other than turnover taxes which affect the consumption of manufactured tobacco (Official Journal C 204 of 30 August 1976, p. 1). The distortion of competition is to a certain extent increased by the fact that Article 10 of Directive No 72/464 provides for the introduction of a minimum excise duty, as has happened in Belgium, the amount of which may not be higher than 90% of the aggregate amount of the proportional excise duty and the specific excise duty on the most popular brands of cigarettes. That obviously prevents the multiplier effect applying downwards in favour of cheaper products.

In such circumstances the manufacturers are in practice prevented from making price reductions having regard to trade stocks. Because dealers will not forego their margins, trade stocks would have to be disproportionately — that is to say many times what the manufacturers are prepared to forego — relieved of burdens at the expense of the manufacturers or the latter would have to take the goods back for the purpose of tax allowance and for fresh price labels to be attached, which is excluded on the ground of costs.

In such circumstances in which products burdened with high costs have only considerably reduced chances in the market because of the multiplier effect in increasing the price, there is obviously another consequence, namely a levelling of squeezing effect in the field of the manufacturers' share and the distribution costs. This is shown by the fact that 80% of the cigarettes sold in Belgium fall within or below the most popular price range; this was at one time BFR 41 whilst the cheapest cigarettes cost BFR 38. Reference may also be made in that respect to the table to be found on page 81 of the Commission's rejoinder according to which the part of the sale price of cigarettes for which the industry and the trade are responsible is lowest in Belgium of all Member States with the exception of Luxembourg. Moreover reference in this respect may be made to extracts from a report of the English Price Commission to be found on page 18 of the reply in Case 215/78 according to which the multiplier effect of a high proportional excise duty — the report mentions one of 30% — involves the necessity of keeping the costs as low as possible.

Accordingly it may be assumed that a system of excise duty with a very high proportional component considerably restricts the scope of competition by traders and is associated with distortions of competition which cannot be overlooked in applying Article 85 (1).

(bb) The Belgian price review provisions

According to the Arrêté Ministériel [Ministerial Order] of 22 December 1971 price increases must be notified to the Minister for Economic Affairs two months before they are to take effect. The Minister makes a recommendation which has the effect that the price increase must be postponed if it exceeds the scope laid down in the recommendation. Having regard to that rule the slowing-down effect of which cannot be denied and having regard to the assessment of what it does, two circumstances are particularly significant in the tobacco sector. The rules are obviously scrupulously and strictly applied because they influence the price index which plays an important part in many sectors. The Finance Minister is also involved in the negotiations in the tobacco sector and has quite a decisive influence, because in certain circumstances new price labels must be prepared and a new minimum excise duty laid down and also because the tax revenue could be affected. The Finance Minister is concerned, especially in recent years in which there has been a considerable increase in taxes, to see that the revenue's share in any price increase is secured even if at the expense of the other parties. He will further also seek to prevent sharp price increases because they could lead in part to a reduction in consumption and thus to a reduction in tax.

These circumstances mean that all factors of the price, including the various profit margins, are carefully examined. Thus it is apparent from the documents produced, including a letter and decision of the Price Commission in 1976, that a quite definite increase in the trade margin, especially the margin of the wholesalers, was approved. Further it was shown that on a price increase of BFR 5 in 1977 the largest part was reserved to the State and only a small fraction allowed to the retailers. It is also of interest that in 1978 the pricing authority stayed well below the level sought by the parties; the manufacturers were awarded only BFR 20 instead of BFR 28 and the trade only BFR 8 instead of BFR 12. That led to a percentage reduction in the margins.

The special features as mentioned of the procedure of price review, namely the participation of the Finance Minister, mean that, although individual notifications by single firms and individual price measures are possible, the government prefers collective negotiations with associations, that is to say, a measure of concentration. The example mentioned by the applicant BAT of the introduction of a new brand at a particularly low price is typical; I refer for details to the statements at the hearing but it is apparent that after the general price increase in 1977 it was only upon special insistence and then for only a short time that the manufacturer was allowed to retain the lower price level it sought.

It may thus be seen that the procedure of the price review provisions favours a common approach to the fixing of prices and the factors therein. On the other hand because the implementation of the rules very adversely affects the manufacturers' share and the margins — the slump in sales caused by the tax increases in 1979 had to be made good — it may be said that they contribute to a considerable restriction on the scope for competition.

(cc) The Belgian taxation policy

In this connexion the applicants have added particular observations with regard to the Belgian taxation policy. The excise duty on tobacco represents an important source of revenue. Because it is planned for in the budget its measure must be reliably predictable. Finally there is a tendency towards an increase in revenue as shown by the fact that taxation has increased five-fold in ten years.

In fact it cannot be denied, and this was already intimated in dealing with the issue of price review, that the taxation policy contributes substantially to restricting the field of action of firms. Let me refer once again to what was said regarding the efforts of the applicant BAT to maintain a particular price for a brand which it had recently introduced. Of relevance moreover in this respect are statements made by the Belgian Government in proceedings brought against it pursuant to Article 169 of the EEC Treaty. According to those statements it is apparent that in a situation in which there is a reduction in the retail price, for example, because of the special efforts of traders who give particular attention to a brand and are rewarded for so doing, the Finance Minister would not accept any associated reduction in the tobacco duties but would seek compensation perhaps by way of a high special tax.

In my view it is quite clear that such attitudes stultify efforts at competition and should be taken into account in applying Article 85.

(dd) The Belgian rules on fixed prices

According to Article 58 of the Belgian Law on value added tax which entered into force on 1 January 1971 and with which we are already familiar from Case 13/77, there is the obligation to adhere to the price stated on the tax labels.

That obviously means that it is not only difficult but impossible for a trader who makes special efforts with regard to a brand to do so by reducing the retail price. The rule thus prevents competition in respect of one and the same brand at the retail level and cannot be circumvented, as the Commission wrongly thinks by giving away cigarettes, since Article 5 of the regulation which the Commission has in mind and which was adopted as an annex to the Belgian Regulation of 22 January 1948, in truth covers only perquisites for the staff of the manufacturers and importers. That must also be taken into account in considering the attitude to competition of those engaged in the trade in manufactured tobacco products.

In my view that is not refuted by reference to the judgment in Case 13/77 [1977] ECR 2115et seq. in which the said Article 58 was considered from the point of view of adversely affecting trade between States. The Court confined itself to saying that the national court had to decide whether fixed retail prices were compatible with Community law and in particular taking into account the fiscal obstacles affecting the sector of the products in question, whether such, a system of fixed prices is in itself likely to hinder, directly or indirectly, actually or potentially, imports between Member States [p. 2419, paragraph 56]. Accordingly it cannot be assumed, and I tried to show this in my opinion in the said case, that Community law prevents application of the said Article 58 as being incompatible with Community law.

In the event of its being considered that Article 58 is inapplicable or that traders might be able indirectly to have an effect upon the fixing of low retail prices, it may moreover be added in this connexion that even then it scarcely appears conceivable that there would be appreciable competition with regard to the retail prices of one and the same brand. In this respect the thought cannot be dismissed out. of hand that manufacturers are scarcely inclined to pay taxes on the basis of a price higher than that paid by the consumer and that in the event of a price lower than that on the label being charged they will endeavour to bring prices into line generally by making reductions and the transparency of the market encourages that. Moreover it is pertinent to recall the previous observations on the tax policy to the effect that in such a case the revenue will endeavour to make good any reduction in taxes so that any efforts in competition would be of benefit to the consumer for only a short time.

(ee) The prohibition of different tax labels for one brand of cigarettes

In the proceedings it was further explained — I refer to a letter from the Belgian Finance Minister of 25 June 1979 and the answer of the Belgian Government to a question from the Court — that manufacturers and importers are not allowed to market cigarettes of the same brand, quality and packaging with different price labels. Apart from the already mentioned case of perquisites for the staff of manufacturers and importers, the principle of equal taxation applies. An important motive for that principle is that otherwise the revenue from taxation could not be forecast with sufficient reliability. After the adoption of Council Directive No 72/464 the Belgian Government relies, and it must be recognized that the argument is persuasive, on Article 4 thereof to the effect that the proportional excise duty must be based on the maximum retail selling price and there can be only one such.

That also certainly places a restriction on the opportunities for competition which must be taken into account. In fact it is not possible in this way for traders lower down the sales line than manufacturers, such as firms with small distribution costs, to forego part of their margin, which might be conceivable on the basis of special sales efforts, and give effect to such action by a special price label and to pass on what they forego to the consumer.

(ff) Health provisions

Finally it is necessary to deal with certain requirements mentioned by the applicants which are said to arise from the health provisions in Belgium. Mention was made of the requirement, which impedes sales, of placing on cigarette packets a reference to the dangerous effects of smoking on health and to certain measures concerning in particular advertising, which in the applicants' view is a main field of action in competition in the cigarette market.

I have however the impression that they cannot seriously be taken into account in considering the matter from the point of view of the rules on competition.

Quite apart from the fact that it applies to'all products in a similar manner, it may well be doubted whether the compulsory warning notice is a serious obstacle to sales, that is to say whether, by reducing the readiness to buy, it decisively influences the conditions of the market.

As regards other measures and in particular restriction on advertising, no governmental measure up to the time of the contested decision could be cited as having such an effect. The voluntary restriction by firms mentioned in the applicants' reply can hardly be regarded in this light, for according to the Commission's undisputed statements, even if it was accepted by the Minister, it did not exclude advertising. The rules which entered into force only after that time, namely a Law of 24 January 1977 according to which the Minister can adopt restrictive measures, and in particular the Regulations of December 1979 and March 1980 referred to at the hearing, of which only the latter relates to advertising must doubtless be left out of account in the present proceedings.

(aa). First the applicants have claimed that the decision contained certain errors and have attempted to show that the Commission in part assumed certain incorrect facts and circumstances which had an influence on its assessment.

(bb). The applicants also claim that the Commission in considering the case did not have regard to the special features of the Belgian tobacco market which must have led, to the conclusion that competition in the field of the margins was practically precluded as a result of the said rules or that the scope for competition was at least so narrowed that the measures objected to could not be regarded as an appreciable restriction on competition. They claim that the Commission in assessing the compatibility of the measures with the rules on competition proceeded on the basis of a wrong point of view for the following statement in paragraph 88 of the decision:

(cc). It is in fact no longer necessary to discuss detailed criticism made by the applicants in the assessment of particular factors in the system. If however this is done, contrary to the Commission's view that the system must be regarded as a whole, because it cannot necessarily be assumed that parts of the system would not be kept if other parts were found to be contrary to the rules on competition, then the following observations are called for:

3. The applicants' objections to the assessment of the Belgian distribution system for tobacco goods from the point of view of fulfilling the conditions of Article 85 (1) apply in substance both to the earlier measures and to the recommendation in so far as the applications are not expressly confined to the part of the decision relating to the recommendation. Nevertheless certain additional observations are now required on the question whether the previous asssessment in fact suffices not only for the voidance of Article 2 but also of Article 1 of the decision, first because the distribution system created by the recommendation differs to some extent from that which previously obtained and secondly because Belgian law, which had to be discussed at length, has been subject to certain amendments.

III — The remaining issues

As will be recalled, arguments in the proceedings went a long way beyond the issues so far dealt with. Thus in a quite general way, that is to say, in relation to all the measures objected to by the Commission and from diverse points of view, the question was discussed whether in fact an appreciable effect on trade could be assumed. It was further objected that the Commission in applying Article 85 (1) to the Belgian market had disregarded the principle of equal treatment of public and private firms, because it had not proceeded promptly and effectively enough against the more serious obstacles to the business activity of foreign manufacturers in the monopoly countries of France and Italy. Also it did not take into account, and this relates equally to the application of Article 85 (1), the Belgian Law of 27 July 1961 on the unilateral termination of exclusive sales contracts, which aims at protecting licencees and is compatible with the EEC Treaty. Further it did not have regard to the fact that the contested distribution system involved guarantees to the manufacturers, the disappearance of which would have an adverse effect on the common organization of the market in raw tobacco because it would necessarily lead to a reduction in the prices for raw tobacco, increased intervention and to an increase in exports with the aid of refunds.

Finally objection was made that the Commission had wrongly refused to grant exemption under Article 85 (3). In that respect, as far as the earlier measures are concerned, it was said that the Commission had not investigated the possibility at all of exemption because it had disregarded the fact that a letter from FEDETAB in January 1971 in fact was to be regarded as notice and because it overlooked the fact that the measures in question were exempt from the requirement of notice. In relation to the recommendation of 1 January 1975 it was further objected that there was no mention in the objections to all the conditions of Article 85 (3), the Commission had wrongly refused the application and had not given sufficient reasons for some of them because it had not discussed all the arguments put forward by the applicants.

Nevertheless in view of the extent of the examination I have so far made and the result to which I have come in relation to the application of Article 85 (1), I do not wish to discuss all those questions which in my opinion are no longer relevant.

IV — After all that I have said my concluding proposal on what the decision should be is as follows:

The applications should be granted and accordingly the contested decision declared void in its entirety.

The costs of the proceedings, including the costs of the proceedings for an order for interim measures in which the applicants were also successful, should in principle be borne by the Commission. In addition the interveners in the proceedings on behalf of the Commission should be ordered to bear their own costs and the part of the applicants' costs caused by the intervention.

1 Translated from the German.