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Regulatory impediments for retail outlets in violation of European law

Regulatory impediments for retail outlets in violation of European law

It is not at all unusual in the Netherlands for retailers who want to open a new outlet to be required to investigate the effects of this new outlet on the existing retail structure or level of facilities. In fact, the retailer must demonstrate that there is sufficient demand for his new outlet. If, as a result of the new outlet, ‘an adequate level of facilities is not retained [for the residents] in the sense that they can no longer make their daily purchases within an acceptable distance from their homes’, the new outlet is found in violation of good spatial planning.

Although it has already been argued that the Dutch rules concerning retail planning surveys are at odds with European law, the Council of State has continued to accept market surveys to date. For a recent example, see the decision of 27 January 2010. The judgement of 24 March 2011 from the European Court of Justice demonstrates however that Dutch practice does indeed come up against European objections.

The judgement
The European Court of Justice had to assess a Spanish regulation containing provisions for the establishment of large retail businesses.

Firstly the Court looked into whether the Spanish regulation restricted the freedom of establishment. This emerged to be the case since the Spanish regulation:

  1. restricted both the available establishment areas and the sales floor area for which a permit could be granted for new retail businesses;
  2. meant that a permit would only be granted to a new retail business if there would be no effect on the existing small shops, and
  3. made the granting of the necessary permit dependent on various procedural rules that could have a real negative effect on the number of permits applied for and/or issued.

For the rest, Spain had not denied that its regulation restricted the freedom of establishment.

The Court then examined whether the restriction of the freedom of establishment was justified. #After all, on grounds of European law, restricting the freedom of establishment is not automatically prohibited. Restrictions on the freedom of establishment that are applied without discrimination on grounds of nationality can be justified if there are compelling reasons of public interest. It is a condition that restrictions must be appropriate for guaranteeing realisation of the envisioned goal and must not go further than necessary to achieve that goal.

Spain argued that the restrictions were necessary in the context of spatial planning and environmental protection. Although such interests can justify the restriction of the freedom of establishment, the Court said that Spain had not demonstrated why the restriction was necessary in order to achieve the envisioned goal. The Court had found that the Spanish regulation enabled regional differences. In Catalonia there was more space for new, large shopping centres than in other parts of the country.

The Spanish regulation prescribed that a permit had to be applied for for the establishment of a new retail chain. When such a permit was issued, however, account had to be taken of the presence of commercial facilities in the relevant area and the effect of a new outlet on the commercial structure of that area. Spain stated that this provision was justified from the standpoint of consumer protection. The regulation reportedly ensured more efficient competition in terms of price, quality and choice. The Court rejected the Spanish argument. The requirement that the presence of commercial facilities in the particular area and the effect of a new outlet on the commercial structure of that area had to be taken into account was concerned with the consequences for the existing commerce and the structure of the market, the Court said, and not with consumer protection. This is also true for the requirement to have a report on outlet density prepared in the context of the procedure for the issue of that permit, the Court said. Thus the Spanish regulation was based on considerations that were purely economic. Based on established case law, these kinds of considerations may not constitute any compelling reasons of public interest.

The Spanish regulation also stipulated that a commission for commercial facilities had to be consulted. The problem with this commission was that the only sector interest represented was the interest of the existing local commerce. A body thus put together, in which the interests associated with environmental protection and consumer protection were not represented, while potential competitors of the permit applicant were indeed represented, could, in the Court’s view, not be an appropriate means for realising the objectives of spatial planning, environmental protection and consumer protection.

The Court was strict with Spain: Spain acted in violation of the freedom of establishment.

Consequences for Dutch practice
The fact that Dutch practice presents an obstacle to the freedom of establishment really requires no argument. The question here is whether this obstacle is justified. It was noted above that in the Netherlands, the local level of facilities is taken into account from the standpoint of consumer protection. The comparison with the Spanish regulation forces itself upon us. After all, it is in fact the consequences for the existing commerce and the structure of the market, and not consumer protection, that are looked at. As the Court emphasised, these are purely economic considerations that cannot represent compelling reasons of public interest according to established case law. Dutch practice therefore seems to be at odds with the freedom of establishment. Various writers have already warned about this, so we need not be surprised.

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