1. What was the ostensible purpose of the Italian law? What was its effect? 

2. Why was the law not found to be discriminatory? 

3. Assume that a municipality in a foreign country passes a law limiting the size of retail stores in the city. How might this affect U.S. firms wanting to open stores there?

Italian law prohibits the opening of certain retail stores without first obtaining a license from the local authorities. A request for a license might be denied if it was believed that the market is adequately served already. The license could be granted by the local mayor on the advice of a ten- to fifteen-person local committee made up of local government representatives, local merchants, and members of local unions of shopkeepers and workers. This particular action was brought by three applicants whose licenses to open new retail stores in Italy had been denied. One of the applicants, a subsidiary of a German company, argued that the Italian retail licensing law discriminated against nonItalian companies and imported goods, and lead to higher consumer prices. It argued that the Italian law was invalid under the laws of the European Union and the Treaty of Rome.

During the oral hearing the applicants submitted that, because the Act operated effectively to exclude new entrants, many of whom would be non-Italian operators desirous of establishing large-scale and sometimes discount outlets which might sell more non-Italian goods than existing traders, it was likely, either actually or at least potentially, to hinder intraCommunity trade. I believe that this argument must be rejected. [W] hile the limits the Act overall number of trading licenses, it does not necessarily produce an overall decrease in the number or value of goods sold on the Italian market nor does it necessarily render more difficult the sale of imports as opposed to domestic goods. I accept the Commission’s observation that this type of provision is not capable of hindering intraCommunity trade … The Italian Act provides that licenses are to be issued by the mayor of the municipality concerned, taking into account the criteria laid down in the municipal commercial development plan. The purpose of that plan is to provide the best possible service for consumers and the best possible balance between permanent trading establishments and foreseeable demand from the population. National rules which require a license to be obtained before a new shop can be opened and limit the number of shops in the municipality in order to achieve a balance between supply and demand cannot be considered to put individual traders in dominant positions or all the traders established in a municipality in a collective dominant position, a salient feature of which would be that traders did not compete against one another. On this point, it is sufficient to observe that rules such as those contained in the Italian Act make no distinction according to the origin of the goods distributed by the businesses concerned, that their purpose is not to regulate trade in goods with other Member States and that the restrictive effects which they might have on the free movement of goods are too uncertain and indirect for the obligation which they impose to be regarded as being capable of hindering trade between Member States. 

Decision. The Italian law requiring the licensing of new retail stores by local committees is not invalid under the laws of the European Union and the Treaty of Rome. 

Comment. Consider the dual effect of this law. It not only barred entry to multinational retailers from outside of Italy, but also to the large volume of imported products they would be likely to sell. It was soon evident that supermarkets and mass retailers would change the face of Italy. Since this decision, the number of supermarkets in Italy has almost doubled, and traditional family-owned businesses, with all the character, richness, and history they represent, has sadly declined. But even a country like Italy, where for generations shoppers made daily stops at the meat, produce, or dairy store, they seemed to enjoy the new convenience and lower prices.