Germany and EC on collision course

The controversy over Germany's recycling scheme has taken a new turning, with the EC resolving to send a formal request for information concerning the functioning of the scheme. The Commission claims that it is not contesting the principle of setting up a deposit and return system, but that it has a duty to investigate whether the deposit and return systems in Germany are fully compatible with EU law and are not inflicting disproportionate damage on the EU's manufacturing sector.

The Commission has held detailed talks with the German authorities over this matter for several months. The issue illustrates the difficulty of streamlining national policies with global free trade principles, and also represents a test of the EC's resolve.

The formal request for information covers certain kinds of one-way packaging - recyclable but non-reusable beverage cans and plastic bottles. The Commission says that it is concerned that the way in which the systems function may constitute a disproportionate barrier to the free movement of packaged beverages from other Member States, in violation of the Treaty's Internal Market rules and of Article 7 of Directive 94/62/EC - the so-called packaging directive.

The problem is that these measures particularly affect imported drinks, given that for reasons mainly related to long distance deliveries, some 95 per cent of imported drinks are in one-way packaging.

The Commission's request will take the form of a letter of formal notice, the first step of an infringement procedure under Article 226 of the EC Treaty. Germany will be asked to respond within two months. If the Commission is not satisfied with the response, it has the power to send a formal request for the system to be changed. If Germany does not comply, the Commission could take the case to the European Court of Justice.

"We have received many complaints that retailers in Germany are taking beverages imported from other EU countries off their shelves because of the mandatory deposit on one-way packaging combined with the absence of an effective return system,"​ said internal market commissioner Frits Bolkestein.

"Customers cannot get their deposits back on empty packaging and retailers are reluctant to have to stockpile empty cans and bottles. If EU beverage manufacturers were effectively excluded from the German market, this would reduce choice for German consumers and could constitute a serious violation of Community law."​

Under the German packaging law, a mandatory deposit is being charged on mineral waters, beer and sparkling soft drinks sold in one-way packaging. The problem is that the EC claims there is not a properly functioning nationwide return system to allow consumers to return such one-way packaging to any point of sale to recover the deposits paid.

Instead, retailers are only required to accept the return of packaging of the exact type, shape and size they have in their own stock. They can refuse to take back other types of empty packaging.

In the absence of a properly functioning nationwide return system, customers are perhaps less likely to buy beverages in one-way packaging and retailers tend to no longer stock drinks sold in one-way packaging on their shelves. The effect of the deposit and return system, as it currently exists, may therefore restrict imports of drinks into Germany.

Furthermore, the EC claims that the current system encourages the development of specific packaging, as some retailers try to reduce the scope of their legal obligation to take back used packaging and refund deposits. Therefore, by exploiting both the literal wording of the relevant German law and their commercial power, they push their suppliers to provide them with products using a specific type of packaging not available to other retailers. In this way, these retailers limit their financial obligations, by only taking back and refunding the packaging of products they themselves have sold.

This practice is generally known as island solutions. It increases manufacturing costs and can have a restrictive effect on imports from other Member States, as manufacturers have to set up separate production/packaging lines for some parts of the German market. It may also lead to higher prices.

The situation is therefore getting rather messy. The German government faces not only the threat of legal action from the Commission, but also a major revolt from its retail and beverage sectors - leading store operators such as Metro and brewers such as Holsten have already complained at the cumbersome system, and winning over important companies such as these could be just as hard - if not harder - than convincing the Commission.

Recycling schemes have the potential of course to be beneficial for environmental protection objectives. Such systems exist in other Member States and function in full conformity with EU law. The Commission​ says that it remains hopeful that the German situation can still be resolved quickly in cooperation, without the intervention of the European Court of Justice. That, of course, remains to be seen.