THE OCTROI DE MER: BOUYANT IN THE WAKE OF THE FREE MOVEMENT OF GOODS [FRENCH AND EU LAW]
[N.B. – see 'Evidence, proof and English law through the ages, (part 1)' for an explantion as to why I am posting this]
_‘The work of the water-clerk consists in racing under sail, steam, or oars against other water-clerks for any ship about to anchor, greeting her captain cheerily… piloting him firmly but without ostentation to a vast, cavern-like shop… where you can get everything to make her seaworthy and beautiful, from a set of chain-hooks for her cable to a book of gold-leaf for the carvings of her stern; and where her commander is received like a brother by a ship-chandler he has never seen before. There is a cool parlour, easy-chairs, bottles, cigars, writing implements, a copy of harbour regulations, and a warmth of welcome that melts the salt of a three months' passage out of a seaman's heart.’_
I have taken this passage from Conrad in an attempt to contextualise the subject of my discourse: the octroi de mer, the name first given to a French customs duty levied on the cargo of ships when they docked at colonial ports. Had the harbour in our extract from fiction been flying the tricouleur, the duty would have undoubtedly proved a less welcome yet unavoidable salutation for the captain. Yet, ante-diluvian though it may sound the octroi de mer continues to be levied today. It survived the post-war decolonisation process and, more recently, has endured criticism by the European Commission, which is a point I shall examine in detail below. It is now a dock due or a landing charge imposed on imports at the ports of the four French overseas departments (which I will hereafter refer to by their French acronym – DOM – or department d’outre mer) which is then channelled back as a grant to fund their economic and social development. The DOMs are Guyana, an equatorial territory roughly 3/4 of the size of England, on the South American continent, 94% of which is covered by rainforest, and the islands of Réunion, in the Indian Ocean, and Martinique and Guadeloupe in the Carribean. Under the French Constitution of the Fifth Republic they form an integral part of the French Republic. The DOMs suffer from comparative economic hardship, much of which is attributable to force majeure events such as volcanic eruptions, seismic activity and adverse meteorological events such as hurricanes. Tourism, on which Guadeloupe is particularly dependent, fishing and agricultural activities are especially vunerable to such events, particularly as the produce of the DOMs, essentially bananas, rum and sugar, is highly specialised. Other factors debilitating economic growth, such as illiteracy: currently at more than 30% for the population over the age 46 in the DOMs and unemployment, which is roughly at 30%, are anthropically remediable .
A BRIEF HISTORY OF THE OCTROI DE MER AND THE DOMS: FROM COLONIALISM TO FEDERAL INTEGRATION TO DEVOLUTION
The first reference to the octroi de mer is as a tax levied proportionally to the weight of merchandise imported into the French colony of Martinique in 1670 and in its etymology it is equally colonial: octroi derives from the old French for ‘conceding to the king, the sovereign authority,’ though it presently means ‘grant’ in French. Yet the tax always had a munificent objective: the terrestrial octroi was levied at the entrances to cities whose other revenues were not sufficient to cover their public needs. Colbert, who became controller-general of finances in 1661, followed the principle that if the octroi produced a surplus of revenue that surplus should be used to pay off public debts. Though the octroi de mer was not applied in the same way, since the French colonies were at the time governed by private companies who could spend the revenues they gained from the octroi de mer as they saw fit, the principle was the same.
Following a 30 year period in the aftermath of the French Revolution of 1789, during which the colonies and their commerce were declared independent, the octroi de mer was centrally reintroduced in 1819 by a colonial ordinance to Martinique, before being extended to Guadeloupe in 1825, and then to Réunion in 1850 and Guyana in 1878. In 1866 the senatus-consulte passed a law to transfer the power to alter the rate of the octroi de mer from the governor to the DOM council. However, the power to redistribute the revenue created by the octroi de mer remained in the hands of central government and by virtue of a law of 1892 the DOM council lost what little competence it had. Decisions made by DOM councils would thenceforth only become executive after a decree passed by central government.
On the 19th March 1946 the four colonies were departmentalised – i.e. they became DOMs – but perhaps more importantly for them the law passed on this date, in the spirit of protectionism, also brought to an end the levying of the octroi de mer on locally produced goods, a fact that had been leaving the DOM councils reluctant to enforce the charge. It was not until the law of 2nd March 1982 was passed, however, that the DOM councils gained executive powers and further devolution came in the form of another law on 2nd August 1984 which granted the DOM councils the power to modify the rate of the octroi de mer and even impose a DAOM (droit additionel à l’octroi de mer) of 1%.
Today the octroi de mer is levied based on the ‘Cost and Freight’ or CAF principle whereby, once it has been established in which of four categories the good belongs, the charge is imposed ad valorem – i.e. according to the cost price and the cost of transport of the good. The octroi de mer and the DAOM, which together brought in a revenue of 755m€ in 2003, otherwise 20–30% of the total revenue of the DOMs , have a duel purpose. They act both as a resource for the DOMs through their redistribution via funds created for the socio-economic development of the DOMs (which contribute on average to 9% of the market GDP of the DOMs) and protect local industry by the exclusion of its products from the charge. They also penalise certain targetted goods such as tobacco or alcohol, which may be taxed, respectively, up to as much as 30 and 50%.
THE EUROPEAN COMMISSION’S CONCERNS: ART. 90 OF THE EC TREATY
The European Commission’s opposition has been levelled not so much to the octroi de mer itself but rather to the exclusion of its application to locally produced goods, which it sees as discriminatory against any imported goods that are not locally produced, particularly those originating from the EU. In response to complaints dispatched by exporters to the DOMs the European Council adopted decision 89/687/EEC – also known as the Poseidom decision – on the 22 December 1989 affirming that while in principle the exclusion of the octroi de mer from locally produced goods does contravene art. 90 (ex. 95) of the Treaty Establishing the E.C. (TEC) support measures for the DOMs could still be adopted under the banner of bilaterally agreed regional aid, in compliance with arts. 87 (92), 88 (93) and 89 (94) of the T.E.C. This ‘balancing act,’ which I put in quotation marks for to all intents and purposes the octroi de mer has come through largely unscathed from EU intervention, was achieved with the obligations found under art. 299(2) (ex. art. 227(2)) weighing down the on other side of the proportionality pivot. The third subparagraph of Article 227(2) requires the institutions of the Community, within the framework of the procedures provided for in the Treaty, in particular Article 226, to take care that the economic and social development of the DOMs is made possible. Art. 226 provides that a Member State may apply to the Commission for authorisation to take protective mesures, which may involve derrogations from the TEC, if grave economic difficulties in a particular area are liable to continue or deteriorate. In its decision Hansen v Hauptzollamt Flesburg the Court recalled that Article 227(2) made provision for the Treaty to be applied to the DOMs by stages, and in addition it made available the widest powers for the adoption of special provisions commensurate to the specific requirements of those parts of the French territories. Furthermore, the court in Hansen also acknowledged that it remained possible, after all the provisions of the Treaty had entered into force for the DOMs, subsequently to adopt specific measures in order to meet the needs of those territories.
Thus, with the need for socio-economic development in the DOMs in mind, art. 2(3) of the council decision provided for a locally produced goods exemption period from the octroi de mer of 10 years from the date of the coming into force of the new octroi de mer regime, provided that the exemption contributes to the promotion or maintenance of economic activity in the DOMs. This 10 year period began to run from 17th July 1992, when France adopted a law implementing the council decision a few months before the permission granted to France under the council decision to to continue the exclusions under her 1984 law ran out. A year before the expiration of the 10 year period the Commission would have to report on the the impact a wholesale imposition of the octroi de mer would have on the DOMs, taking into account their levels of unemployment, the balance of trade and the regional GDP.
A BREACH OF ART. 25 OF THE EC TREATY ?
In the case of Chevassus-Marche v Conseil Régional de la Réunion the European Court of Justice (ECJ) was asked to consider whether the octroi de mer exclusions are compatible with art. 25 (ex.12) TEC. This argument would appear to be barely tenable for two reasons. Firstly, as was held in the case of Co-Frutta v Amministrazione delle Finanze dello Stato , because the same levy cannot at the same time fall foul of the class of charges having an effect equivalent to a customs duty – under art. 25 – and within that of internal taxes that discriminate against imported products – under art. 90 of the Treaty. Secondly the ECJ had insisted in the case of Italy v Commission of 1969 that in order for a charge to have an equivalent effect to a customs duty the product in question would have to cross a frontier. This ruling was upheld in the case of Commission v France of 1979 Yet the DOMs form an integral part of the French Republic according to its Constitution and the TEC applies to France , despite the objections of M. Nicolo, who claimed unsuccessfully that the citizens of DOMs should not be eligible to participate in the European parliamentary elections since the TEC only applied to metropolitan France (i.e. France in Europe). In this light art. 25 would seem to be inapplicable in the absence of a frontier. However, the ECJ declared in the case of Administration des Douanes v Legros that a charge such as the octroi de mer (as it was pre 1992) imposed on vehicles coming from another part of France and originating from Germany and Sweden is a charge having an equivalent effect to a customs duty regardless of the fact that the frontier crossed is regional and not national. The court went further, maintaining that since it had held in the case of Fink-Frucht v Hauptzollamt Muenchen that where a pecuniary charge is imposed at the import stage it may be classified as internal taxation only if it is imposed on every kind of product, whatever its origin, the octroi de mer, which excluded locally produced goods, could not be caught by art. 90. Not least because it was the exclusions to the octroi de mer rather than the octroi de mer itself whose lawfulness was in question these rulings were perhaps a somewhat uneccessary and unhelpful circumnavigation of the frontier between art. 25, drafted to apply to customs duties duties on imports and exports (and charges having equivalent effect) and art. 90, which was clearly intended to outlaw discriminatory internal taxation imposed after the goods had been imported or exported and while they are circulating within a Member State. The ECJ, however, seems determined to blur the distictions between arts. 25 and 90, as was apparent in its 2001 decision, Charalampos Dounias when the court held ‘it is of no interest to determine whether the tax is considered to be contrary to art. 90 or arts. 23 and 25 of the Treaty.’
THE RESPONSE OF THE FRENCH GOVERNMENT
Unsurprisingly the French government, with obligations towards the wellbeing of its DOM electorate, argued in Legros that the octroi de mer does not constitute a charge having an effect equivalent to a customs duty pointing out that it is introduction into the DOMs that gives rise to the levying of the dock dues and that that the dock dues also affect in the same manner products coming from metropolitan France introduced into Réunion. Perhaps inevitably such protests were to little avail, though the ECJ did, to its credit, rule that its judgement would not take effect retroactively so that the French authorities would not be flooded with claims for restitution from those who had paid the octroi de mer before the date of the judgement. Hilariously, between 17 July 1992 – the date of the Legros decision and the 31st of December 1992 no less than 27 proceedings were brought before the ECJ by companies who had been charged the octroi de mer during that period. The ECJ was left with little option but to accept the French government’s subsissions that, since the octroi de mer operates so that the payment of the charge is in practice passed on from the trader to the purchaser based in the DOM, it would be unjust enrichment if the importer were restituted for the expense. The court further held that the actual passing on of such taxes, either in whole or in part, depends on various factors in each commercial transaction, which it held to be matters of fact to be determined by the national court. The ECJ thus effectively indicated that it would be for the French national court to decide whether or not France should restitute traders who had paid the octroi de mer! At the same time the ruling failed to give much consideration to the fact that the trader may have suffered damage as a result of the very fact that he had passed on the octroi de mer charge, since the increase in the price of the product brought about by passing on the octroi de mer would likely lead to an increase in the price of products originating from the ‘EU in Europe’ while the the price of local products, exempt from the octroi de mer, would remain the same, so that the trader would suffer financially from decreased sales and hence a decrease in demand for his products next time he exported to the DOM.
In any event, the octroi de mer and justified exclusions thereto were finally declared to be lawful in the Chevassus- Marche decision and reaffirmed in joined cases Société Beton Express et al. v Direction Générale des Douanes so that Legros can only be of academic interest now.
France has, to its advantage, exploited the Council’s successive renewals of the exemption period of DOM produced goods from the octroi de mer and has lately adopted, following the acceptance by the Council of its application to the Commission of April 2002, for the prolongation of the exclusion of DOM produced goods from the octroi de mer until 2014 – i.e. another 10 years. A law passed on the 2nd July 2004 instigating a new regime of partial or total exclusions, which came into effect on the 1st August provides, under arts. 4 and 5, that local products may be exonerated from between 10 to 30% of the octroi de mer when the charge is passed onto businesses with an annual turnover of less than 500 000€. Art. 27 of the law provides that otherwise the octroi de mer shall be applied equally to DOM and foreign products.
Despite their efforts the various institutions of the EU have failed to jettison either the tricentennial octroi de mer or its exclusion from products originating in the DOMs. As a result the DOMs have benefited from sustained economic growth. Despite the odds stacked against the DOMs, their GDP per capita rose from a mean of 41% to a mean of 47% as a percentage of the European average between 1986 and 1996). It remains to be seen whether the EU will tolerate the octroi de mer itself once the DOMs have achieved reasonable socio-economic parity with the EU as a whole and there is no longer a need for the exclusions, though as I have indicated this is unlikely ever to happen due to the force majeure nature of the DOMs’ economically disadvantageous geographical lot.
Throughout this article I have made my opinion regarding the utility of the octroi de mer transparent as the sea around some tropical island and I have resolved not to end my voyage without taking on board some wider observations. First of all it is difficult to overlook the evident lack of effective powers of enforcement on the part of the EU institutions against member state governments and the impact this has on the outcome of the decisions of those institutions. Second of all it is perhaps necessary to remark on the avantage géostratégique that France gains from her DOM possessions. The distance separating the DOMs from metropolitan France varies between 7 000 and 9 000 km, giving her 11m km2 of maritime territory and placing her third globally in terms of the area of her exclusive maritime economic zone. Indeed, on reflection, the DOMs are perhaps less conspicuous when lined up beside L’Acadamie français and France’s international veto owing to her being a permanent member of the UN’s Security Council. Here I might also make passing reference to France’s Napoleanic Civil Code, which celebrated its bicentenary in 2004, articles 14 and 15 of which permit any French citizen who has concluded a contract with a foreigner to bring that foreigner before any French court – even if that foreigner is not resident in France – for a court ruling ordering him to carry out his contractual obligation. And no doubt while French holidaymakers are guaranteed, concurrently, winter sun and a familiar police force that may take seriously reports of stolen wallets and cameras France will be able to justify keeping her overseas possessions on the grounds that she is raising the standard of living by encouraging the growth of economies of scale etc. Yet, though the octroi de mer may exclude products produced in the DOMs and thus protect the local industry the cost of the charge on the import, which might be a key product essential to economic growth in the DOMs, is still ultimately borne by the importer, who will likely be an significant turbine driving that economic growth. Though the DOMs are no longer colonies they still concede ultimately, and like the octroi de mer, to the sovereign authority.