Minimum Unit Alcohol Pricing and the case against the EU

*Full disclosure: I work for an organisation that is in favour of minimum unit pricing, but am writing here entirely in a personal capacity*

Sam Bowman of the Adam Smith Institute thinks it’s a joke that anybody might take the European Court of Justice’s (ECJ) ruling on the Scottish Government’s policy of a minimum unit price for alcohol (MUP) as reason to leave the European Union:

 Sam Bowman MUP

I wouldn’t go that far (I’d still vote to remain in the EU), but I certainly don’t think that’s a ridiculous point of view. In fact, the more I learn about the case, the more it sours me on the way the EU works. MUP doesn’t change my mind, but it’s another entry on the ‘cons’ column.

I am in favour of MUP, which would prevent retailers selling alcohol below a price of 50p per unit of strength, as I think it would reduce a lot of the harm associated with drinking. But my objection isn’t to do with the substance of the policy – I’m not sulking because my side is losing (and to be clear, it’s highly debateable which side is losing: the former government lawyer who described the ruling as “Delphic” had it about right). Even if the Scottish Government is vindicated, that won’t affect my qualms about the process and reasoning of the case, which seem to reflect greater concern for the interests of business than the freedom of governments or the welfare of consumers.

In principle, at least, I think the EU is a Good Thing. Free trade means that consumers have greater choice of goods and services from a range of countries, and means that each country can specialise in areas where it has comparative advantage. As a result we should all be richer and better off. I also appreciate that maintaining a free trade zone means that there have to be rules, and that these rules need to be overseen by courts. If France bans the import of British beer, British breweries need someone to complain to. I understand that governments restricting trade don’t always say they are restricting trade, but can do sneaky things like pretending that imported goods are unsafe. I even get that courts need to be vigilant against hypothetical restrictions on trade – just because no existing companies are currently affected by a regulation doesn’t mean that none ever will.

Basically, I see in principle how the process that allows the Scotch Whisky Association to legally challenge MUP is supposed to work. The Scottish Government wants to ban alcohol producers from selling their products for less than 50p per unit. Let’s imagine that Slovenia has a thriving gin industry, which can produce gin at super low cost and sells this gin at 35p per unit in foreign markets. In that case, MUP could be a sneaky measure to protect Scottish alcohol producers and keep out Slovenians. And in that case, the Slovenians would be fully justified in going to the ECJ to complain. But nobody is saying that the Scottish government is being sneaky on purpose – it is generally accepted that the Scottish government is acting in good faith to improve the health of the Scottish people.

Even if the Scottish government is not being sneaky, it might be that shutting out foreign producers is an inadvertent effect of MUP. But there is no evidence of this. In fact, it is just as plausible (my guess would be more likely) that MUP would benefit foreign producers, for example by shifting the market to a more premium price point where imported products are more competitive. And even if there were evidence of the actual impact of MUP on trade, the ECJ wouldn’t be interested in it because it rules on whether measures are “capable of hindering, directly or indirectly, actually or potentially, trade within the European Union” (my emphasis). The ECJ cares as much about hypothetical restrictions on trade as real ones. For the ECJ, it doesn’t matter whether or not Slovenia produces cheap gin – the point is that it could, and then this imaginary gin would be shut out of the Scottish market. The fact that it is the Scotch Whisky Association, rather than an affected foreign producer, that is the main body raising the legal challenge is further reason to suspect that the concerns about trade are entirely hypothetical.*

This has the perverse implication that the ECJ, which is tasked with protecting the free flow of trade between EU countries, might strike down a law that in practice would increase trade because it hypothetically could restrict some trade. But there’s a deeper issue. As the MUP case reflects, almost any government intervention in a market has winners and losers, at least hypothetically. For example, tighter employment regulations, safety standards or animal welfare requirements all hurt companies that are (or might be) lax in these regards. The upshot is that any government action is immediately suspect under EU trade law. That’s a worrying prospect for anybody who thinks that government intervention in the free market can do good (which, to be fair, might rule out the Adam Smith Institute).

There’s a bit more to the MUP case, though. The ECJ has acknowledged that under EU law, restrictions on trade are permitted for specific purposes, including “the protection of health and life of humans”.  In practice, the case will turn on whether the Scottish Government’s public health objectives could be met by increasing tax on alcohol. I would say this is entirely a question for the democratically elected government – the ECJ should not be striking down policies because it thinks they are less effective than alternatives. The ECJ’s view is that this is a legitimate subject for them to rule on because tax rises are “less restrictive” of trade than MUP. This is just dogma. Raising taxes would shut out low cost producers in the same way as MUP. What’s more, because of EU regulations, beer, wine, cider and spirits all have to be taxed in different ways and so any tax change is likely to benefit some of those categories and hurt others, further distorting trade. The ECJ is hung up on the fact that MUP would force companies to raise their prices, even though it acknowledges that in practice higher taxes have the same effect. For some reason, the ECJ thinks the difference between making cheap booze illegal rather than economically irrational is really important, though they end up in the same place.

I think there are two possible reasons for this, both worrying. The first is that the ECJ sees protecting the freedom of businesses as a key priority, independent of its benefits for consumers. The second is that the ECJ is conservative – it likes tax because governments already have tax powers, but is uncomfortable with untested powers.

There’s a number of themes running through this that make me deeply worried about the ECJ. The fact that business groups can challenge inconvenient government policies despite the lack of an identifiable victim. The apparent suspicion of government action, even the government’s good faith is clear to see. The lack of concern for actual effects on free trade, even though that is what the court is there to protect.  It could be that these sorts of cases are what you have to put up with for a free trade zone to work. But if the MUP case is typical, it at least raises the question of whether it is a cost worth bearing.

* The SWA claim that MUP would start a trade war, but then they already say there’s a trade war over alcohol taxation.

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