Whiskey drink on wooden table

    Why is it any of the EU’s business if Scotland introduce minimum pricing for alcohol?

    21 October 2016

    This morning, the Scottish courts ruled against the Scotch Whisky Association (SWA) in the latest chapter of a long-running dispute involving the Scottish government’s desire to introduce minimum pricing for alcohol. Sections of the booze industry and several member states have argued that minimum pricing – which will set a floor price of at least 50p per unit on all alcohol – violates EU law. The aim of this post is not to discuss the claims made in favour of the policy but to explain the four year legal battle that led us to this point.

    You might ask why it is any of the EU’s business if a sovereign nation sets a floor price for a consumer product? It all comes down to the common market. If one country artificially raises the price of something, it puts countries which specialise in making cheap products at a disadvantage. This is why countries such as Portugal and Romania objected to Scotland’s minimum pricing proposals. As producers of cheap wine, beer and brandy, they can expect their exports to Scotland to dwindle if the minimum retail price were, for example, £5 for a bottle of plonk. It is not the intention of the Scottish government to discriminate against other EU states, but that will be the effect.

    As far as the EU is concerned, minimum pricing is a ‘quantitative restriction’ on the free movement of goods. Taxation is different. It does not discriminate against cheaper producers; on the contrary, it could help them. This is why the EU courts have traditionally ruled against countries that have introduced minimum pricing for such goods as motor fuel and tobacco. These legal precedents, along with the European Commission’s warning to Scotland that it could breach EU law back in 2012, encouraged a strong presumption that the policy would be ruled unlawful.

    Nobody on either side of this dispute denies that minimum pricing is a quantitative restriction on trade. Instead, the SNP and the temperance groups put their hope in Article 36 of the Treaty of the Functioning of the European Union which makes an exemption if a trade restriction can be justified on grounds of ‘the protection of health and life’. Under this ‘public health’ carve-out, the Scottish government needed to make a strong case that minimum pricing would save lives. That is no easy task since the proposal favoured by the SNP has never been tried anywhere in the world. Canada has the nearest approximation but there is scant evidence that it has ‘worked’.

    Into this evidence void jumped ‘public health’ advocates at Sheffield University who have published numerous reports estimating the benefits of minimum pricing based on a computer model. The model makes some heroic assumptions, several of which are plainly wrong, but the Sheffield team became the go-to people when the government wanted minimum pricing research and, since nobody was producing rival estimates, if they said it would work, it was believed to work.

    But there was still a problem. The EU only allows a trade-restrictive health policy if there is no way to achieve the same outcome with a less restrictive policy. In the case of minimum pricing, the desired outcome is, to put it simply, less heavy drinking, but it was argued that this could be achieved through alcohol taxation. Indeed, since there is more heavy drinking among the rich than among the poor, it was argued that taxation would be more effective than a policy that more or less openly targeted people on low incomes.

    The issue was made more complex by the fact that the Scottish government does not have the authority to raise alcohol taxes. That can only be done from Westminster, but that is not the EU’s problem. The UK, not Scotland, is the member state and the UK can obviously increase alcohol taxes if it wants to.

    That is where the question was left by the European Court of Justice when it sent the matter back to the Scottish courts last year. The alcohol industry found itself in the strange position of having to promote the benefits of alcohol taxation while the ‘public health’ groups had to downplay them. The Scottish government immediately handed a stack of taxpayers’ money to the team at Sheffield University who produced a new report which – happily for the SNP – found that minimum pricing would be more effective than higher taxes.

    Today, the Scottish court agreed. Its judgement quotes the Sheffield estimates liberally and uncritically, and ultimately declares that taxation is not a better option because ‘the elephant in the room is the fact that the Scottish Government has no power to raise taxation on alcohol’. It will be interesting to see what the Supreme Court makes of this assertion when the case is passed onto them (as it probably will, on appeal). As a matter of practical politics, it is clearly true: the SNP can introduce minimum pricing but it cannot raise taxes. But it remains the case that it is the UK that is the member state under scrutiny.

    Since 24th June, much of this has become academic. Brexit means that Scotland will be able to introduce minimum pricing sooner or later, unless Britain signs a new trade deal that precludes it. For the EU-27, however, this ruling creates a worrying precedent. If an untested, paternalistic policy can be introduced on grounds of ‘protection of health’, despite everybody agreeing that it otherwise violates the EU’s trade rules, then those trade rules do not amount to very much. If free trade is to be sacrificed as a result of special pleading from interest groups wielding theoretical models as evidence, it is open season on free trade.

    ‘Public health’ is not the only ground for exemption in Article 36. The full list of special causes that can be cited by those wanting to restrict trade includes ‘public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property.’ In other words, pretty much everything. ‘Public morality’ and ‘public policy’ alone could justify almost any infringement, and ‘commercial property’ allows an extraordinary degree of latitude.

    Those of us who voted Leave in June understood that there is a trade-off between sovereignty and trade. The SNP are an overtly paternalistic party with authoritarian tendencies, but they have been resoundingly elected by the Scottish people. If they want to drain the pockets of the poor by putting a deadweight cost on alcohol, there is a case for respecting their sovereignty. On the other hand, they are party to a trade deal in the form of the common market which, until today, seemed to forbid such actions. 

    For those of us who like free markets and oppose minimum pricing, the EU’s ban on such restrictive practices was one of the things we were going to miss after Brexit. After today, it is one less thing to worry about.