Tied houses face legal challenge from Europe

The European Commission yesterday threatened to take Britain to the European Court of Justice over restrictions on sales of foreign beer in pubs.

In a new sign of its reservations about Britain's unique system of tied houses - exclusive distribution arrangements between brewers and public houses - the Commission said the restrictions constituted an illegal trade barrier under the EU treaty.

The Commission was taking issue with the 1989 Beer Orders, which says operators of 10,000 pubs leased from Britain's four biggest brewers may sell beers other than those produced by the brewery to which they are tied only where those "guest" beers are brewed to specific British requirements.

"This rule is discriminatory because it has the effect of excluding draught beers from other member states and, as such, constitutes a disguised restriction of intra-Community trade," the Commission said in a statement.

"The Commission's action is therefore aimed at securing the removal of this discrimination, which is not justified on consumer protection grounds and is fragmenting the single market." It has given the British government 40 days to respond.

The British brewing industry is currently lobbying strongly to keep the tied-houses system outside the scope of the EU's competition rules. A current exemption expires at the end of 1997 and British brewers are lobbying for it to be extended by another 15 years at least.

The British brewers say the system allows small breweries to compete with larger companies and benefits retailers and consumers. But the Commission argues that the rules effectively prevent non- British beers from gaining a guest spot in pubs leased by the UK brewers Scottish & Newcastle, Bass, Carlsberg-Tetley and Whitbread, led by Peter Jarvis. The four dominate the pounds 13.8bn UK market and own almost half of the pubs which are "tied" by contracts to brewers.

The brewers have also forged licensing agreements with non-British brewers to distribute foreign brands through their pubs and in retail outlets. Whitbread, for example, produces Dutch Heineken and Belgian Stella Artois, while Scottish & Newcastle sells Germany's Beck's.

A spokeswoman for the Department of Trade and Industry said the Government has yet to receive a letter from the Commission, but will "consider it and respond" when it does.

The Brewers & Licensed Retailers Association, the trade group for UK brewers and pub owners, rejected the Commission's attempt to allow other EU brewers to sell beer to tied pubs under the guest ale policy.

"Ultimately it will lead to less choice in pubs," said Brian Finnerty, spokesman for the BLRA, claiming that it would lead to bigger lager brands crowding out the smaller regional ales.

"It's outrageous,'' said Mike Benner, spokesman for the Campaign for Real Ale, whose small brewer members benefit from the provision. "It's total European interference in what is an internal matter pure and simple."

A Whitbread spokeswoman said even if the rules were changed, its leased pubs would be guided by consumer demand.