Germany introduced compulsory deposits on non-reusable drinks containers in 2003 because quotas for refillable bottles were not being met, but the EU executive Commission says the system discriminates against the import of foreign products.
The European Court of Justice concurred in part on Tuesday, saying Germany failed to give mineral water producers enough time to adjust to the new rules in January 2003 and calling for a working recycling infrastructure.
"The deposit and return obligations introduced in Germany for non-reusable drinks packaging ... hinder the free movement of goods if producers do not have a reasonable transitional period and a guarantee that the new system will be operational when the old system ceases to exist," a court statement said.
Germany's Environment Ministry said it believed the court had confirmed its view that a deposit scheme conformed with European law, although acknowledged criticism that mineral water producers had not been given enough time to adapt to the rules.
It added that the court had given a clear signal that Germany needed to replace its patchwork system for returning cans and bottles with a nationwide scheme. The upper house of parliament, the Bundesrat, will vote on such a move on Friday.
A spokesman for the European Commission said the Bundesrat's decision -- if positive -- would be a step in the right direction for avoiding future legal action.
The EU Commission said in October it would give Germany a final three months to adjust its system or proceed with another case before the court.
SHAPE, SIZE, FORM
Germany's current system has plenty of critics. Consumers are often frustrated that shops are only obliged to take back bottles and cans that they stock, making it difficult for consumers -- especially those who are travelling -- to return their non-reusable packaging and get deposits refunded.
The court said on Tuesday member states must ensure there are a "sufficient number of return points".
The Bundesrat is expected to back a government proposal to make shops that sell drinks accept any non-reusable cans or bottles. It should also set a 0.25 euros ($0.33) deposit and limit it to containers of beer, mineral water and soft drinks.
One Commission official said the current German rules allow stores to sell bottles and cans in certain shapes and sizes -- and then only accept the same shapes and sizes for recycling.
The new plans would force stores to accept all containers of a given material, such as all plastic bottles, he said.
The court said Germany's current system contributed to protecting the environment but hampered non-German producers as they use "considerably more" non-reusable packaging. This resulted in more costs for foreign producers, it said.
Opponents have also said the arrangement benefits domestic mineral water and beer producers, which use refillable glass bottles, compared to foreign firms that tend to use plastic or aluminium to cut transport costs.
However, the European Court of Justice left it for a German court to decide whether the container return system was in fact functioning effectively.
(additional reporting by Philip Blenkinsop in Berlin)