Important legal notice

61988C0040

European Court reports 1989 Page 01395

Opinion of the Advocate-General

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Mr President,

Members of the Court,

Subsequently however, the customs authorities, the Hauptzollamt ( Principal Customs Office ) Hamburg, by decision of 15 July 1982, demanded repayment of that amount on the ground that the product in question should be classified not as "skimmed milk" under subheading 04.02 A II ( b ) 1 of the Common Customs Tariff, but as a "food preparation" under subheading 21.07 D II ( a ) 1, and did not therefore give rise to entitlement to the aforementioned benefits .

On the basis of that decision, against which a separate objection was lodged, the Customs Office carried out a partial set-off in the amount of DM 613 020.79 between the amount to be repaid and other amounts due to Weber, leaving, obviously, a balance to be paid by the latter .

Weber therefore called upon Milchwerke to supply it with a product in respect of which monetary compensatory amounts and export refunds would be paid . Since that demand was not met, Weber sued Milchwerke for damages equal to the monetary compensatory amounts and export refunds which had to be repaid .

The national court considered that it was essential to the decision in the case to determine whether the product at issue was to be classified as skimmed milk or as a food preparation within the meaning of the abovementioned two subheadings of the Common Customs Tariff . It therefore stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling :

"( 1)Is subheading 04.02 A II ( b ) 1 of the Common Customs Tariff in the version in force in 1978, 1979 and 1980 to be interpreted as including a product made up of 23.4% skimmed-milk powder together with powdered whey ( partly enriched with protein ), lactose, calcium caseinate, sodium caseinate, caseinate ( SVM ), potassium bicarbonate, calcium chloride, calcium carbonate and potash mixed together in dry form?

( 2)Is it relevant in this connection that the caseinate and powdered whey occasionally originated from New Zealand, Canada and Australia and that the mixture, according to the defendant, exhibited the same analytic values as powdered skimmed milk produced from cow' s milk?

( 3)If the first question is answered in the negative, does such a product fall under subheading 21.07 D II ( a ) 1 of the Common Customs Tariff in the version in force in 1978, 1979 and 1980?"

First and second questions

With regard to composition, the national court states that the product at issue is composed of 23.4% skimmed-milk powder, 42.3% protein-enriched powdered whey, 16.2% lactose, 10.6% sodium caseinate, 7.1% calcium caseinate and 0.4% other constituents .

With regard to method of manufacture, the product in question is a mixture which is not obtained in the traditional manner ( that is to say, by dehydrating liquid skimmed milk ) but by remixing various substances in a dry state .

Finally, the powdered whey in the product at issue was found to have been imported from non-Member countries ( Australia and Canada ).

3 . Let me first consider the point concerning the method of manufacture and its relevance for the purpose of interpreting the provision of the Common Customs Tariff .

It should be borne in mind in that regard that according to settled case-law, the decisive criterion for the classification of goods for customs purposes is to be sought in their characteristics and objective properties at the time of importation . That is done both in the interest of legal certainty and for ease ( that is to say, also, speed and economical management ) of verification by the customs . It is sufficient in that regard to refer to the judgments of 23 March 1972 in Case 36/71 Henck v Hauptzollamt Emden (( 1972 )) ECR 187, of 22 November 1973 in Case 128/73 Past v Hauptzollamt Freiburg (( 1973 )) ECR 1277, of 29 May 1974 in Case 185/73 Hauptzollamt Bielefeld v Koenig (( 1974 )) ECR 607, of 10 December 1975 in Case 53/75 Belgium v Vandertaelen (( 1975 )) ECR 1647, of 18 February 1976 in Joined Cases 98 and 99/75 Carstens v Oberfinanzdirektion Frankfurt am Main (( 1976 )) ECR 241, of 16 October 1976 in Case 38/76 LUMA v Hauptzollamt Duisburg (( 1976 )) ECR 2027, of 8 December 1977 in Case 62/77 Carlsen v Oberfinanzdirektion Koeln (( 1977 )) ECR 2343, of 23 September 1982 in Case 237/81 Almadent v Hauptzollamt Mainz (( 1982 )) ECR 2981, of 17 March 1983 in Case 175/82 Dinter v Hauptzollamt Koeln-Deutz (( 1983 )) ECR 969 and of 26 September 1985 in Case 166/84 Thomasduenger v Oberfinanzdirektion Frankfurt am Main (( 1985 )) ECR 3001 .

On the other hand, the way in which the goods are manufactured generally has no effect on classification, as is also the case in regard to other factors such as the use to which they are to be put, the presentation and the commercial value .

There is abundant and consistent case-law on this subject . I note, in particular, paragraph 10 of the judgment in Henck, which states that "the classification of a product ... cannot be affected by the fact that it has undergone processing if the processed product thereafter contains the essential constituents of the basic product in proportions which do not substantially differ from the content in those constituents which the relevant product exhibits in its natural state ". Let me also quote from the Opinion of Mr Advocate General Roemer, who stated that "generally the objective characteristics of products must be above all taken into consideration for the purposes of classifying them in the Common Customs Tariff . This can be explained particularly for administrative reasons as it is often extremely difficult to establish that a particular manufacturing process was applied and to check that this was in fact the case . In addition it must be admitted that the converse could only apply if the words used to describe the products contained in a tariff heading indicate that the manufacturing process is adopted as the criterion ". Paragraph 7 of the judgment in LUMA is in the same vein : "Whilst the Customs Tariff does indeed in certain cases contain references to manufacturing processes and to the use for which goods are intended it is generally preferred, in the interests of legal certainty and ease of verification, to employ criteria for classification based on the objective characteristics and properties of products which can be ascertained when customs clearance is obtained"; paragraph 14 et seq . of Biegi and paragraphs 7 to 13 of Wuensche are similar .

Consequently, the method of manufacture is decisive only where the subheading expressly so provides ( as, for example, in Heading 39.07, as the Court pointed out in its judgment of 8 December 1987 in Case 42/86 Directeur général des douanes et droits indirects v Artimport (( 1987 )) ECR 4817 ).

4 . In this case, subheading 04.02 A II makes no reference to the method of manufacture as a criterion for classification . Moreover, there seems to be no doubt that the particular way in which the product in question is manufactured is not, as such, of such a nature as to affect the analytical values thereof by altering its composition . As the Commission pointed out at the hearing, whether the skimmed-milk powder is obtained by dehydrating cow' s milk or by mixing various ingredients in dehydrated form has no effect on the issue .

I therefore think it can be said that the method of manufacture used in this case has no effect on the scope of the abovementioned subheading of the Common Customs Tariff .

5 . A similar conclusion will be reached after considering the other point raised by the national court, which is the subject of the second question, that is to say, the geographical origin of certain constituents of the product at issue .

It is clear that the classification of a particular product under one subheading of the Common Customs Tariff rather than another has nothing to do with the origin of that product or any of its constituents . Classification for customs purposes must be made in the light of the terms of the subheadings and the notes to the corresponding sections and chapters of the Common Customs Tariff and, as I have already pointed out, on the basis, essentially, of the objective characteristics of the product to be classified . On the other hand, the origin of the product may be relevant at a separate and later stage, that is to say, when the applicable duty falls to be determined ( I am thinking of the preferential import schemes for products from certain countries ) or, as the Commission pointed out in its observations, in the context of the application of the agricultural rules, where it has to be determined whether, and under what conditions, a product may give rise to entitlement to the benefits ( for example, export refunds ) provided for under those rules .

6 . Let me now turn to the last point, which concerns the composition of the product at issue .

In view of the uncertainties which have arisen in that regard, I think it would be useful to set out what is already established .

First of all, it is common ground that the product at issue is a mixture of the various constituents to which I have already referred . Of those constituents, the skimmed-milk powder, powdered whey and lactose, that is to say, a little more than 80% of the total weight, are, as the Commission' s expert confirmed at the hearing, natural constituents, that is to say, ingredients normally found in skimmed-milk powder obtained by the traditional methods . On the other hand, sodium caseinate ( in this case, 10.6 %) and calcium caseinate ( 7.1 %) are not natural constituents, being added by the manufacturer . ( 1 ) However, those additions are not of such a nature as to distinguish the product in its appearance and essential characteristics, including its place on the market, from traditional skimmed-milk powder .

The Customs Cooperation Council' s Explanatory Notes state that the factor which determines essential character will vary as between different kinds of goods . It may, for example be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods ( see paragraph ( VIII ) of the explanatory notes on Rule 3(b ) ).

Obviously, Rule 3 in general can only take effect provided the terms of headings or section or chapter notes do not otherwise require ( see paragraph ( II ) of the explanatory notes on Rule 3(b ), the judgments of 2 May 1979 in Case 137/78 Henningsen Food v Produktschap voor Pluimvee en Eieren (( 1979 )) ECR 1707, in particular paragraph 8 thereof, and of 18 January 1984 in Case 327/82 Ekro v Produktschap voor Vee en Vlees (( 1984 )) ECR 107 ).

8 . In the light of that information, two questions must be answered . Since the product at issue is a mixture, can it be classified under Heading 04.02 on the basis of the factor which determines its essential character, that is to say, in accordance with Rule 3(b)? If so, is that classification compatible with the terms of that heading or the section or chapter notes?

The answer to the first question should be in the affirmative . The mixture which is the subject-matter of these proceedings is composed, as the Court has seen, as to 80% of its weight, of constituents normally present in skimmed-milk powder falling under Heading 04.02 . There can be no doubt that it is precisely the skimmed-milk powder which determines the essential character of the product in question . If, therefore, the customs authorities were to rely solely on Rule 3(b) when classifying the goods, they would classify them without any doubt under Heading 04.02 notwithstanding the addition of sodium and calcium caseinate .

However, as has been pointed out, that rule applies on condition that the relevant subheading does not otherwise require for some particular reason . Thus, in Henningsen, the Court considered that a product composed of 52% whole hen-egg powder, 25% soya meal, 22% glucose syrup and 1% salt and lecithin did not come under subheading 04.05 B I ( Eggs, not in shell; Egg yolks ... Suitable for human consumption ) but constituted a "food preparation" coming under subheading 21.07 G I ( a ) 1 . The Court pointed out that it was clear from the wording of Heading 04.05 and the Explanatory Notes to the Common Customs Tariff that the products to which the subheading referred were essentially egg, not in shell, and egg yolks, without further processing, to which any chemical components were added in small quantities only, in order to preserve them . Consequently, and although there was no doubt that the application of Rule 3(b ) would, by virtue of the high content in whole hen-egg powder ( a lower percentage than the content at issue in this case ), have permitted classification under Heading 04.05, classification under that heading was none the less excluded because the product contained "appreciable quantities of other components, in particular soya meal and glucose syrup which are not in the nature of chemical additives whose sole purpose is to preserve the product", which would have run clearly counter to the terms of the abovementioned heading .

In other words, that amounts to saying that in a case such as the present one, Rule 3(b ) cannot apply because Heading 04.02 formally excludes skimmed-milk powders to which have been added a quantity of sodium caseinate representing more than 3% of the total weight .

The Commission puts forward the following arguments in support of that view .

In limited proportions, up to about 1%, sodium caseinate is acceptable as an emulsifier, that is to say, to make the powdered milk as nearly as possible soluble in a liquid ( coffee, for example ) to the same degree as liquid milk . Slightly higher proportions, up to 3%, are also tolerated in so far as they make it possible to improve the flavour of the product by, once again, making it more like that of liquid milk . On the other hand, the Commission also considers that where there is more than 3% sodium caseinate, the product is wholly artificial, a milk substitute, which, furthermore, if it is classified in the same way as normal skimmed-milk powder, could give rise to abuses by causing undue payments of export refunds to be made .

The 3% limit has been accepted by the Ad hoc Group on Chemistry of the Nomenclature Committee, which was called upon to express an opinion in 1982 in the context of a study undertaken at the initiative of the German delegation, which expressed doubts as to whether a form of skimmed-milk powder containing more than 19% sodium caseinate could be classified under Heading 04.02 . According to the Commission' s statements at the hearing, the Committee on Nomenclature subsequently "took note" of the experts' opinion on that matter . However, no document was produced on that precise point and it is not disputed that the experts' opinion was not the subject of any formal measure on the part of the committee .

A classification slip of 1971, which includes under Heading 04.02 a product obtained by mixing butter and skimmed milk with very small quantities of sodium caseinate, also accords with that view .

10.10 . Are those observations sufficient to exclude from Heading 04.02 any mixture of skimmed-milk powder containing more than 3% sodium caseinate?

Let me remind the Court first that, as the Commission itself pointed out in its written observations ( paragraph B, II, 3 ), the terms of subheading 04.02 A II ( b ) 1 do not exclude a product the composition of which is like that of the product at issue in this case .

Furthermore, the Explanatory Notes to the Common Customs Tariff concerning Heading 04.02 read as follows :

"This heading covers all products ( milk, cream and residual derivatives ) mentioned in Heading No 04.01, which have undergone a concentration process and/or a preservation process within the meaning of Note 2 to this chapter, or which have been sweetened .

Products of this kind may contain certain other added substances such as starch in proportions not exceeding 10% by weight or anti-oxidants, emulsifiers, vitamins or small quantities of acids ( including lemon juice )."

It thus seems to me, on the one hand, that the addition of certain substances, such as emulsifiers, to milk has been expressly accepted and, on the other, that there are no quantitative limits for such substances, with the exception of starch ( which must not exceed 10 %) and acids ( which may be present in "small quantities").

A similar conclusion may be drawn from the Explanatory Notes to the Customs Cooperation Council Nomenclature . Let me point out that those texts are binding .

I should also point out that in the Common Customs Tariff, when the classification of a product depends expressly on the percentage of certain constituents present, that fact is indicated . That is so, for example, in regard to classification in several subheadings of Heading 04.02 on the basis of fat content or, as I have just said, in regard to starch in milk, which must not exceed 10 %. It is easy to find a multitude of examples simply by skimming through the explanatory notes to the Common Customs Tariff, which contain frequent and precise references to content, particularly in regard to sugar, protein, fats, etc .

It seems to me therefore that in this case, there is nothing in the terms of the relevant subheading or the Explanatory Notes to the Common Customs Tariff which prevents the application of Rule 3(b ).

11.11 . I would like to make the following observations in regard to the study, mentioned above, undertaken by the Committee on Common Customs Tariff Nomenclature at the initiative of the German delegation .

In the first place, the study concerned a product containing a much higher proportion of sodium caseinate ( 19.11 %) than the product at issue here . Secondly, in the context of that discussion, the Commission declared itself in favour, at least initially ( see the minutes of the meeting of 13 October 1981 ), of classifying the product under Chapter 4 of the Common Customs Tariff, since it regarded sodium caseinate at that time as a constituent of milk, although it constituted 19.11% of total weight . Thirdly, as has already been mentioned, the study did not give rise to a formal decision of which traders could have been aware because neither a classification slip nor an amendment to the Explanatory Notes to the Common Customs Tariff, and even less a regulation, was adopted . The matter went no further than a purely internal and informal discussion which I do not regard as capable of providing a binding interpretation of the subheading of the Common Customs Tariff before the Court, which must be interpreted, essentially, in the light of the relevant terms of the subheading and of the section and chapter notes of the Common Customs Tariff . Those terms, read in the light of the Explanatory Notes to the Common Customs Tariff, do not exclude a mixture such as the one in this case from subheading 04.02 A II ( b ) 1, notwithstanding the presence of 10.7% sodium caseinate, because it is still the characteristic constituents of skimmed-milk powder ( that is to say, more than 80% of the total ) which give the product its essential character .

12.12 . However, there is another point . The Commission confirmed at the hearing that as yet "there are no analytical methods for determining directly the quantity of sodium caseinate added" to milk powder such as that in the present case . That was already made clear by the Ad hoc Group on Chemistry of the Committee on Common Customs Tariff Nomenclature ( see the minutes of the meeting of 1 April 1982 ) in the context of the abovementioned study carried out at the initiative of the German delegation .

A direct and sufficiently simple customs check of compliance with the 3% sodium caseinate limit is thus impossible .

The only check which can be carried out is an administrative one, that is to say, at the time of production . However, such a procedure can only be envisaged, and even then only with difficulty, in regard to goods produced in the Community for export but not when the problem is to clear through customs as quickly as possible goods coming from non-Member countries .

It thus seems to me that the Commission is proposing a criterion for classification ( based on compliance with the 3% tolerance limit ) which, in addition to the fact that it finds no support in the Common Customs Tariff, is also clearly in contradiction with the fundamental need to ensure the certainty and simplicity of customs controls . Effect is given to that criterion by an interpretation of Heading 04.02 which leads to difficulty in practice and thereby to results which are, to say the least, uncertain in so far as they are based on factors which are difficult, if not wholly impossible, to verify in an objective manner .

It should be pointed out, with regard to the relevance of that point, that the Court has already decided that although difficulties caused by the application of a customs provision - in this case, it is, in fact, an impossibility - may be relevant to its interpretation they are not of such a nature as to call its validity into question ( judgment of 30 September 1982 in Case 317/81 Howe v Oberfinanzdirektion Frankfurt am Main (( 1982 )) ECR 3257 ).

13.13 . There is one last matter which must be considered in limine .

The questions submitted to the Court of Justice by the national court are exclusively concerned with the classification for customs purposes of the product at issue . Another problem is to determine whether that classification can have consequences in regard to the application of Community agricultural rules and, in particular, the provisions concerning export refunds .

As the Court will be aware, in the context of the legislation governing the common organization of agricultural markets, the definition of the products subject to the common organization and which may, in an appropriate case, give rise to certain advantages is generally determined by reference to the relevant subheadings of the Common Customs Tariff . That is the case, for example, in the milk and milk products sector .

The reason why the problem arises in practice is clear . A producer has a very wide range of possibilities in regard to the manufacture of mixtures which, although different from each other by virtue of the proportions in which the various constituents are present, are in fact substantially similar from the point of view of appearance, nature, effects and use .

That variety could naturally entail difficulties in regard to classification, although the tariff system is very detailed and well constructed . It is precisely in those cases that the "essential character" rule, which allows products objectively similar and which, therefore, also, compete with each other on the market, to be classified under the same subheading, within the limits indicated above .

However, in cases in which classification is carried out not for purely customs purposes but to determine, for example, the applicable levy or refund, traders have an obvious interest in manipulating the composition of the mixture . Thus in regard to imports, there is a tendency to "depreciate" the product ( by increasing, for example, the proportion of constituents which could cause it to be regarded as "residual ") so as to avoid payment of a levy, or at least reduce the amount thereof . On the other hand, in regard to exports, there is a tendency to act in the opposite direction, namely to increase the value of the goods so as to obtain the highest possible refund, even if the quality of the product remains inferior but just sufficient to give rise to entitlement to a refund .

Naturally, it is for the national authorities to assess those factors when applying the agricultural rules . Furthermore, let me point out that the national court has referred no question to the Court concerning those rules . That is therefore an aspect of the matter which goes beyond the scope of these proceedings .

None the less, and in order to make clear that considerations inherent in the functioning of the agricultural market organizations should not have an effect on the interpretation of the rule laid down in the Common Customs Tariff, I consider it appropriate to make clear that the classification for customs purposes of the product at issue under Heading 04.02 does not prejudice the application of the rule for classification laid down by the national authorities for other purposes and in other legislative contexts .

It is true that, in principle, those rules must be interpreted in a uniform manner, independently of the legislative context in which they arise . That principle was laid down in the judgment of 4 July 1978 in Case 5/78 Milchfutter v Hauptzollamt Gronau (( 1978 )) ECR 1597, in which the Court observed that "in the absence of any express provision, it would be inappropriate for the headings of the Common Customs Tariff to be applied in different ways to the same product depending on whether they are used for the classification thereof in connection with the levying of customs duties, the application of the system of the common organizations of the market or the application of the system of monetary compensatory amounts" ( paragraph 12 ). That formulation was also used in paragraph 18 of the judgment of 28 March 1979 in Case 158/78 Biegi v Hauptzollamt Bochum (( 1979 )) ECR 1103 .

However, it is also true that, in addition to the reservation "in the absence of any express provision", that principle has in practice been significantly restricted .

In the judgment in Henck, cited above, the Court had occasion to state that "the reference made in Regulation No 19/62" ( concerning levies on certain goods ) "to tariff Heading 23.07 does not encompass forage preparations which, whilst coming under this heading, do not contain products referred to as such by the provisions of the common organization of the markets laid down by the said regulation ". In so holding, the Court was following Mr Advocate General Roemer, who stated that "when ... the correct classification of the goods requires the legal context of the tariff heading, which certainly includes the interests of the organization of the market, to be taken into consideration, this merely amounts in short to advocating the application of an entirely normal method of interpretation", which, moreover, does not infringe the legitimate expectations of the interested parties, who are aware of the context of the tariff headings and the political objectives involved .

There is perhaps an even clearer statement in the judgment of 26 April 1972 in Case 92/71 Interfood v Hauptzollamt Hamburg-Ericus (( 1972 )) ECR 231, in which, addressing the argument of the plaintiff in the main proceedings that it was "inadmissible that within the same tariff and the same chapter a classification provision may be interpreted differently according as it relates to the classification of the product for the purpose of imposing the levy or for the purpose of customs duties", the Court stated that "such an argument fails to observe the independent nature of the provisions of the common organization of the agricultural markets . Although, in accordance with Article 9(2 ) of Regulation No 865/68 ... the implementing provisions of the Common Customs Tariff apply to the classification of products coming under the common organization of the agricultural markets established by this regulation, such classification is conclusive regarding the imposition of customs duties but is merely a guide regarding any levy chargeable ".

The judgment of 18 January 1984 in Case 327/82 Ekro (( 1984 )) ECR 107 is along the same lines and is particularly interesting because of its similarity to this case . In that judgment, the Court pointed out that Rule 3(b ) for the interpretation of the Common Customs Tariff ( which lays down the criterion of "essential character ") applies to classifications carried out under the regulation fixing the export refunds on beef and veal, unless some other solution is dictated by the terms of the regulation or by the aims of the export refund scheme .

Ultimately, it seems to me that the principle of the uniform interpretation of tariff headings independently of the area in which they arise, which fulfils obvious requirements of legal certainty, should be limited in practice by the special requirements of the specific rules relating to those headings . It is then for the national authorities to take account of those requirements when applying the relevant Community rules in each case .

Let me emphasize, however, that although the scope of a tariff heading, when applied together with an agricultural rule, can sometimes be completely different from its scope in the customs context, the contrary is not true, in the sense that considerations related to the market organization rules should not and cannot, also for reasons of legal certainty, determine the interpretation of the same provision exclusively for customs purposes .

It seems to me therefore that in this case, which is concerned only with the interpretation of the tariff heading, as the Commission has rightly pointed out, the reply to the national court must be based exclusively on the headings of the Common Customs Tariff and the Explanatory Notes thereto, and on the principle of "essential character ". Those legislative provisions, which are the only ones of which traders will be aware, make it necessary to classify the mixture at issue under Heading 04.02, at least until the institutions competent in that regard have amended that subheading in a precise and clear manner .

14.14 . For the reasons set out above, I propose that the Court should reply to the questions put by the national court as follows :

"A mixture with the composition of the product at issue comes under subheading 04.02 A II ( b ) 1 of the Common Customs Tariff, regardless of the method by which the product was manufactured and the origin of some of its constituents ."

(*) Original language : Italian .

( 1 ) In fact, the Commission' s agent claimed, both in the written observations and at the hearing, that sodium caseinate is naturally present in amounts less than 3% in the dried matter of milk . That statement was later rectified on the basis of information supplied by the expert .

( 2 ) It should be noted that the Commission did not see any difficulty in the presence of 7.1% of calcium caseinate .