Complaint concerning base tax on non-refillable beverage packaging in Norway

Reference is made to the EFTA Surveillance Authority’s (hereafter “Authority”) letter dated 27 ^th> February 2006. In the letter the Authority states the preliminary view that the Norwegian base tax is construed in such a manner as to discriminate against imported beverages and to afford protection to domestically produced and is therefore contrary to Article 14 of the EEA Agreement. The Norwegian Government is invited to submit its observations on the content of the letter within 27 ^th> April 2006. By e-mail of 28 ^th> April 2006 the time limit was postponed to 24 ^th> May 2006.

The EEA Agreement and environmental taxes
A national differentiated tax system will be compatible with the EEA Agreement if certain criteria are fulfilled. In that respect the Norwegian Government would like to make some comments concerning the interpretation of Article 14 of the EAA Agreement, which is parallel to Article 90 of the EC Treaty.

The Court of Justice of the European Communities has held that a national differentiated tax system is not in conflict with Article 90 of the EC Treaty if the tax system is based on objective criteria insofar as this differentiation is in keeping with economic policy objectives which are themselves compatible with the requirements of the Treaty and its secondary legislation, and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, in regard to imports from other Member States, cf. Case 106/84 ECR [1986] 833. In Case 140/79 ECR [1981] the Court held that the Italian differentiated tax system concerning alcohol was grounded in a legitimate decision concerning choice of an economic policy.

The Court of Justice has confirmed that the fact that imported products are more frequently subject to a higher tax than similar domestic products does not automatically imply that there is illegal discrimination (cf. Case 140/79, mentioned above), as long as this is an "accidental consequence" of a differentiation which is based on objective reasons. Thus, according to the case-law of the Court, such a consequence is regarded as compatible with the EC Treaty as long as the differentiation can be justified for the attainment of goals which are compatible with the internal market (cf. cases 46/80 ECR [1981] 77 and 140/79).

According to the EEA Agreement the protection of the environment is a goal which is not only compatible with the internal market, but which shall constitute an integral part of all the common policies. Article 73 paragraph 2 reads:

"Action by the Contracting Parties relating to the environment shall be based on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source, and that the polluter should pay. Environment protection requirements shall be a component of the Contracting Parties' other policies."

Thus, environmental protection must also be taken into consideration when interpreting Article 14 with respect to the basic tax. Environmental protection should therefore be regarded as such objective criteria as may justify a differentiated tax system on packaging.

The base tax – history
Introductorily The Ministry of Finance refers to the assessment of the base tax made by the Authority in 1995/1996. This assessment ended with the enclosed letter 7 ^th >June 1999 where the Authority concludes: “that the Norwegian measure is not contrary to the EEA Agreement and the objective of establishing a homogeneous EEA. The Authority has therefore on 26 May 1999 decided not to proceed with the case.”

The base tax on non-refillable beverage packaging was introduced 1 January 1994, according to a decision by the Storting. The introduction of the basic tax was motivated by environmental concerns. The intention of the tax is to establish an incentive to use refillable beverage packaging.

The background for the basic tax is to be found in an assessment made by a public commission on questions related to waste, reuse and recovery (NOU 1990:28 Avfallsminimering og gjenvinning). Representatives from the Ministry of Environment, the Ministry of Industry, the Norwegian Society for Conservation of Nature, the Norwegian Labour Organisation, the Confederation of Norwegian Business and Industry, the Norwegian Association of Local and Regional Authorities and the Consumer Council took part in the commission. The commission was set up in 29 September 1989 and presented its report to the Ministry of the Environment on 3 December 1990. The report gives a comprehensive analysis of waste-related issues. According to the report, the main goal should be to prevent the generation of waste. Further, the waste generated should be recovered at the highest level possible, i.e. reuse should be preferred to material-recycling, which again should be preferred to incineration with energy-recovery (cf. inter alia chapters 0, 5.2.2, 5.4.3 and 6.3.2 in NOU 1990:28).

Norwegian point of view
The base tax on non-refillable bottles is compatible with Article 14 of the EEA Agreement, cf. the Court of Justice’s interpretation of EC Treaty Article 90. In our opinion, the differentiation may be justified for the attainment of goals which are compatible with the internal market, namely environmental reasons.

The reuse of beverage packaging seems to be a principle in waste policy both in Norway and in the European Union. It’s a fact that the amount of waste increases every year and contributes to environmental problems as regards combustion and deposits. From our point of view maintenance of the basic tax will lead to less waste generated. Non-refillable packaging has a 14 % higher net use of materials than refillable packaging. Refillable packaging also represents less impact on the environment as to acidification and the creation of ozone in ambient air than material-recycled packaging. Thus, the Norwegian Government’s aim is to stimulate for the reuse of beverage packaging.

According to the preamble in Directive 94/62/EC of 20 December 1994 on packaging and packaging waste: “….reuse and recycling should be considered preferable in terms of environmental impact…”. However, it’s stated in Article 5 in the Directive that: “Member States may encourage reuse systems of packaging, which can be reused in an environmentally sound manner, in conformity with the Treaty.” Accordingly, the Member States are given the opportunity to prioritize reuse over recycling, if this may be justified environmentally (“in conformity with the treaty”). This in accordance with judgement of The European Court (C-309/02 Radlberger Getränkegesellschaft mbH & Co. and S. Spitz KG v Land Baden-Württemberg). In this case The European Court held that Article 1(2) in the Directive does not preclude the Member States from introducing measures designed to promote systems for the reuse of packaging” (cfr. the Courts answer to the first question). We are of course aware of the fact that the Court in this particular case held that the German legislation did contravene with Article 28 of the EC Treaty, however the facts of this case is not similar to our case.

Furthermore, reference is made to the Commission’s proposal for a new Directive on waste (cfr. COM (2005) 667). This Directive stresses the prevention of waste as an objective. The proposal is based upon a life-cycle perspective, and there is inter alia proposed requirements for establishing programs for the prevention of waste. In our opinion the establishment of incentives to use refillable beverage packaging is in line with this way of thinking.

We are aware of Stiftelsen Østfoldforsknings (STØ) environmental assessment on refillable and non-refillable packaging (report OR 10.03). In that connection, we would like to point out that this report encompasses only one subset of products comprised by the base tax, namely plastic packaging. The report is also based on ideal and not representative conditions. The conclusions from this report are therefore not sufficient as basis for a comprehensive assessment of the base tax as environmental policy instrument, cfr. letter of 28 ^th> May from STØ ( attached).

Finally, to your information, from 1 July 2005 until 1 January 2006 PET-bottles was exempted from the base tax. However, the present Government proposed to the Storting (Parliament) to reintroduce the base tax on all non-refillable packaging (including PET-bottles) in St.prp. nr. 1 Tillegg nr. 1 (2005-2006) 1Changes in the Government’s budget proposal for 2006.. Stortinget was in this budget document informed about the Authority’s questions (raised in/related to package meetings in 2004 and 2005) regarding the EEA-Agreement. By decision of 15 December 2005 the Storting accepted the Government's proposal to reintroduce the base tax on all non-refillable beverages from 1 January 2006.

Yours sincerely,