ECJ rules against minimum tobacco price

An Irish law setting minimum retail prices for cigarettes is illegal, judges ruled today.

The European Court of Justice rejected government claims that it needs to fix a high minimum price to discourage smoking.

That can be achieved, said the Luxembourg judges, by increasing excise duty on tobacco, but imposing a minimum price undermines fair competition in the tobacco market, in breach of EU rules.

An EU “Manufactured Tobacco Tax Directive” says makers and importers of tobacco have the right to fix the maximum retail selling price for their products.

The directive is designed to ensure that the tax base for cigarettes is subject to the same rules in all member states, and also to “maintain the freedom of manufacturers and importers to make effective use of the competitive advantage resulting from any lower cost prices”.

Today’s decision said: “The imposition of a minimum retail selling price means that the maximum retail selling price determined by manufacturers and importers cannot, in any event, be lower than that obligatory minimum price, and is therefore capable of undermining competition by preventing manufacturers or importers from taking advantage of lower cost prices so as to offer more attractive retail selling prices.”

The judges said the ban on minimum prices does not stop countries blocking the sale of tobacco at a loss, as long as the freedom of manufacturers to fix maximum prices is not affected.

Neither do EU rules stop member states from combating smoking: “Public health objectives can be attained by an increase in excise duty.”

The judgment said the aim of ensuring tobacco prices are high can be “adequately” achieved by increasing VAT, since any excise duty rises are, sooner or later, reflected in an increased retail price, without undermining the freedom of manufacturers to set prices.

The same verdict was delivered in similar cases against the French and Austrian governments.

Toby Granwal of tobacco company PJ Carroll welcomed the decision.

"The reality is the set minimum price for cigarettes has become irrelevant," Mr Granwal said.

"Packs of cigarettes are being purchased up and down the country for as little as €3.50 on the black market. This is under half the current minimum price of €7.75."

"We agree with the position asserted by the European Commission and confirmed by the European Court of Justice that the practice of setting minimum prices for cigarettes is illegal in the context of EU rules and distorts competition."