European Court throws into doubt national eco-tax law

A recent decision by the European Court of Justice will require Belgium to give greater advance notice of its controversial eco-tax requirements to the European Commission. The ruling is likely to lead to a repeal of the Belgian legislation, and may have wider repercussions for the development of national environmental taxes.

Belgium has been among the EC's front runners in imposing taxes on products on environmental grounds. Examples include batteries and disposable cameras.

The present case concerned the application of the tax to disposable razors, introduced by a Ministerial Order which came into force at the beginning of 1994. Products subject to the tax were required to carry distinctive markings in order to inform consumers and encourage them to switch to less harmful products.

In Bic Benelux SA v Belgium State (Case C-13/96, European Court of Justice, 20 March 1997), one of the main manufacturers of disposable razors challenged the validity of the law on the grounds that the marking requirements had not been notified in advance to the European Commission, as required by a 1983 EC Directive on technical regulations and specifications. The simple question of law, which was referred to the European Court by the Belgian Council of State, was whether the marking requirement fell within the scope of the Directive.

The purpose of the notification requirement is to enable the Commission to check whether such standards are compatible with the free movement of goods or are in fact a disguised restriction on trade. Member States are obliged to delay the adoption of notified measures, generally for up to three months, and, as the European Court noted, "the aim of the Directive is, by preventive monitoring, to protect the environment."

Under the 1983 Directive, a technical regulation is defined to mean technical specifications and other requirements whose observance is compulsory, de iure or de facto, in the case of marketing or use in a Member State or a major part of the State. The term "technical specifications" has a broad definition encompassing specifications which lay down "the characteristics required of a product such as levels of quality, performance, safety or dimensions," and includes requirements such as packaging, marking, labelling and conformity assessment procedures. Following amendments to the Directive in 1994, voluntary agreements between governments and industry also fall within the scope of these definitions.

The Belgian Government argued that the Directive was not intended to cover each and every marking requirement. The eco-marking requirement for disposable razors applied without distinction to national and imported products, and was not in itself capable of hindering the free movement of goods. It was there simply to inform the public that the product was subject to an eco-tax. Its purpose was to protect the environment, and the 1983 Directive should be confined to national measures capable of harmonisation under Article 100a of the EC Treaty relating to the single market.

The Court disagreed. There was no basis in the 1983 Directive to restrict its application solely to national measures capable of harmonisation on the basis of Article 100a. The fact that "a national measure was adopted in order to protect the environment or that it does not implement a technical standard which may itself constitute a barrier to free movement does not mean that the measure in question cannot be a technical regulation within the meaning of" the 1983 Directive.

The Directive contained a specific exclusion concerning technical regulations relating to fiscal measures. It was subsequently amended - after the Belgian laws came into force - to include regulations linked to fiscal or financial measures, although the "standstill" period does not apply to these.

The Commission argued that Belgium's marking requirement was designed as a means of monitoring the collection of environmental taxes, and should be regarded as a fiscal accompanying measure outside the scope of the Directive as then drafted. Again the Court disagreed. In its view, while the marking requirement reinforced the eco-tax, it could not be regarded as being exclusively a fiscal accompanying measure. The marking was mainly intended to inform the public of the effects of the product.

The decision in the Bic case does not invalidate the Belgian eco-tax law, but will give the Commission much greater powers of scrutiny over its compatibility with general principles of Community law.

The use of fiscal instruments for environmental purposes has been rising on the policy agenda for several years, and only a week after the European Court's decision the Commission published a Communication on environmental taxes which attempts to clarify the EC legal framework applicable to national initiatives and the powers available to the Commission to scrutinise proposed national measures. It is likely that the document will have to be amended in the light of the Bic judgement.

Although environmental taxes are favoured by some as an environmental policy tool, they raise particular sensitivities within the Community because, by their very nature, they are intended to have an effect on the operation of the market. The Commission is reported to be challenging the legality of the Belgian laws, and it seems likely that, despite the principle of subsidiarity, major future eco-taxation initiatives will have to be developed more at EC than national level.

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