C-294/81

CONTROL DATA v COMMISSION

In Case 294/81

CONTROL DATA BELGIUM N V SA, a limited liability company governed by Belgian law having its registered office at 50 Rue de la Fusée, 1130 Brussels, represented by Ian S. Forrester, of the Scots Bar, instructed by Oppenheimer, Wolff, Foster, Shepard & Donnelly, attorneys-at-law, Minneapolis and St Paul, Minnesota, United States of America, and of Brussels, with an address for service in Luxembourg at the Chambers of Jean-Claude Wolter, 2 Rue Goethe, applicant, v

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by Richard Wain- wright, a member of its Legal Department, acting as Agent, with an address for service in Luxembourg at the office of Oreste Montako, Jean Monnet Building, Kirchberg, defendant,

APPLICATION for a declaration that Commission Decision 81/692/EEC of 10 August 1981 (Official Journal 1981, L 252, p. 36) establishing that the apparatus described as "Control Data-Cyber 170-720; Cyber 170-750" may not be imported free of Common Customs Tariff duties is void,

T H E C O U R T (Second Chamber)

The facts of the case, the course of the procedure and the submissions and arguments of the parties may be summarized as follows: (b) . . . scientific . . . materials, listed in annexes . . . D . . . ."

I — The legislative b a c k g r o u n d Annex D to the Agreement initially included, subject to certain reservations, "scientific instruments or apparatus, The contested decision was adopted intended exclusively for educational within the framework of Regulation purposes or pure scientific research". (EEC) No 1798/75 of the Council of 10 July 1975 on the importation free of The first recital in the preamble to Regu- Common Customs Tariff duties of lation No 1798/75 states that ". . . in educational, scientific or cultural order to facilitate the free exchange of materials (Official Journal, L 184, p. 1), ideas as well as the exercise of cultural as amended by Council Regulation activities and scientific research within (EEC) No 1027/79 of 8 May 1979 the Community, it is necessary to allow, (Official Journal, L 134, p. 1), and of by all possible means, the admission free Commission Regulation No 2784/79 of of Common Customs Tariff duties of 12 December 1979 laying down educational, scientific and cultural provisions for the implementation of materials . . .". Various materials which Regulation No 1798/75 (Official are of such a nature are listed in Annexes Journal, L 318, p. 32). I and II to the regulation, Article 3 of which provides that "Scientific instru- The purpose of those regulations is to ments and apparatus not included in ensure the implementation by the Article 2 imported exclusively för Community of the Florence Agreement, educational purposes or for pure drawn up under the auspices of the scientific research may be admitted free United Nations Educational, Scientific of Common Customs Tariff duties . . ." and Cultural Organization (Unesco), as (subject to certain conditions). supplemented by the Nairobi Protocol, approved by Council Decision 79/ 505/EEC of 8 May 1979 (Official The Nairobi Protocol amended Annex D Journal, L 134, p. 13). to read as follows :

Compound optical microscopes, whether The Guide to the Operation of the or not provided with means of "Florence Agreement" and its Protocol, photographing or projecting the image. drawn up by Unesco, contains the following remarks with regard to An- nex D: Electrical measuring, checking and analysing instruments and apparatus (e.g. ammeters, ohmmeters and voltmeters, "The governmental experts attach frequency meters, measuring bridges, considerable importance to the free oscilloscopes and oscillographs, phase circulation of scientific equipment, parti- meters, potentiometers and synchro- cularly for the developing countries. scopes). They stressed that this annex to the Agreement should be administered in the Geophysical instruments (e.g. seismo- most liberal manner consonant with the graphs and seismometers). Hydrologicai great progress made in science and instruments (e.g. bucket-wheel current technology since the Agreement was meters, rain gauges and indicators, level drafted. Accordingly, they recommended recorders, swell and tide recorders). that the notion of pure scientific research should be interpreted so as to exclude only those instruments and apparatus Instruments and apparatus for measuring intended for commercial purposes. or checking quantities of heat, light or sound (e.g. calorimeters, luxmeters, photometers).

Meteorological instruments (e.g. actino- and the results which it makes it meters, anemometers, nephoscopes, possible to obtain is mainly or sunshine recorders). exclusively suited to scientific activities . . .." Microscopes and diffraction apparatus, electron and proton. Regulation N o 2784/79 laying down provisions for the implementation of Nuclear physics equipment. Regulation N o 1798/75 contains in Title III the following specific provisions with Turning now to the Protocol to the regard to Article 3 of the latter regu­ Agreement, its Annex D extends duty­ lation: free entry to all scientific instruments and apparatus, whether or not they are "Article 5 intended for educational purposes or pure scientific research. The Protocol excludes, however, instruments or (1) For the purposes of the first indent apparatus intended for commercial of Article 3 (3) of Regulation (EEC) purposes, since it maintains the condition N o 1798/75, the 'objective technical regarding consignment to approved characteristics' of a scientific instru­ scientific or educational establishments ment or apparatus shall be under­ and to use under the control of these stood to mean those characteristics establishments." resulting from the construction of that instrument or apparatus or from Following the conclusion of the Protocol 1 adjustments to a standard instrument the Council amended, by means of or apparatus, which make it possible the above-mentioned Regulation N o to obtain high-lėvėl performances 1027/79, inter alia Article 3 of Regu­ above those normally required for lation No 1798/75, which now reads as industrial or commercial use. follows : Where it is not possible to establish clearly on the basis of its objective "Article 3 technical characteristics whether an instrument or apparatus is to be (1) Scientific instruments and apparatus regarded as a scientific instrument or not included in Article 2 and apparatus, reference shall be made to imported exclusively for non­ the general uses in the Community commercial purposes may be of instruments or apparatus of the admitted free of Common Customs type for which duty-free admission is Tariff duties provided that: requested. If this examination shows that the instrument or apparatus in question is used mainly for scientific purposes, it shall be deemed to be of a scientific nature." (3) For the purposes of this article:

The Committee on Duty-Free Agree- ments drew up on 12 February 1980 a II — F a c t s a n d w r i t t e n p r o c e d u r e working document which, in its expla- natory notes on the meaning of "scientific instruments or apparatus", Since the Free Universities of Brussels provides the following information: wished to import Control Data-Cyber 170-720 and Cyber 170-750 computers free of duty, they submitted, together · "1.3.1. The following are normally with the applicant, an appropriate considered to be outside the application to the Belgian customs auth- scope of the description of orities which referred the matter to the scientific apparatus or instru- Commission, the defendant in these ments : proceedings. The Commission received (a) apparatus and instruments the following objections from Member normally used for pro- States : duction, commercial appli- cations of production, rou- tine analyses or other non- The Netherlands: "These computers are scientific processes (engines, used to handle both scientific and machine-tools, computers, commercial information. That means graphic recorders, etc.). that they do not display objectives characteristics rendering them particu- larly adapted to scientific research."

1.3.2. Certain instruments or apparatus United Kingdom: " N o scientific charac- referred to under point 1.3.1 teristics." above may, in certain circum- stances, be considered as being scientific instruments or appar- Ireland: "The Irish Technical Authority atus if there have been additions has expressed the view that this system or substantial modifications should not be regarded as scientific for which have the effect of render- the purpose of EEC Regulation No ing them specifically suitable for 1798/75 as computers are 'general research or educational purposes. purpose machines'."

ments to which the point was sub- ". . . in accordance with the provisions of sequently referred contain the following Article 7 (5) of Regulation (EEC) No information : 2784/79, a group of experts composed of representatives of all the Member States met on 23 June 1981 within the framework of the Committee on Duty- "8. File 023/81: Control Data CD Free Arrangements to examine the Cyber 170-720 and 170-750 matter; 8.1. The file concerns importation of computer equipment under a . . . this examination showed that the leasing contract. The importer apparatus in question are computers; has taken legal advice and set out in a compendious report the reasons why such equipment . . . they do not have the requisite must be considered as scientific. objective characteristics making them In view of the considerable specifically suited to scientific research; importance of the matter the . . . moreover, apparatus of the same kind Belgian State has submitted it are principally used for non-scientific for examination by the activities; . . . their use in the case in Committee. question could not alone confer upon them the character of scientific apparatus; . . . they therefore cannot be regarded as scientific apparatus; . . . the 8.3. The expert from Ispra states duty-free admission of the apparatus in that the particular technical question is therefore not justified." characteristics put forward by the importer as justification for the scientific nature of the By application received at the Court apparatus are all normal Registry on 23 November 1981 the characteristics of computer applicant instituted these proceedings. equipment. Since the software Upon hearing the report of the Judge- used has not been specially Rapporteur and the views of the designed in any way for Advocate General, the Court decided to scientific purposes and is inter- open the oral procedure without any changeable it must be denied preparatory inquiry. categorically that the equipment in question is of a scientific By order of 14 July 1982 the Court nature. decided to assign the case to the Second Chamber. 8.4. The Committee concurs in that view."

Admissibility First submission: failure to appreciate the concept "scientific instrument or apparatus" The Commission states that the contested decision, which is addressed to the Member States and is of unlimited The applicant claims that the Com- duration, is general in nature. The mission, in merely asserting in its applicant is directly concerned by the decision that it is concerned with decision in so far as it gives no margin of computers, has failed to appreciate not discretion to the national authorities but only certain distinctive features which the decision is not of individual concern render Cyber computers particularly to the applicant which, as a limited suitable for scientific use but also the company, has a legal personality separate flexible nature of the Florence from the parent company and its subs- Agreement and the Nairobi Protocol. idiaries in the other Member States. The The above-mentioned Guide and the applicant does not belong to a closed submissions of the Commission itself in and restricted class whose number and Case 72/77 {Universiteitskliniek Utrecht, identity had become fixed and ascer- judgment of 2 February 1978 [1978] tainable before the date of the decision. ECR 189) show clearly that the The applicant is the importer for Agreement, and thus the Community Belgium only whilst the importer for the rules relating to it, must be applied as Community is the Control Data Group. liberally as possible. This contention is in There is nothing to prevent the parent no way contradicted by the fact that the company from effecting imports into the Guide provides, by way of illustration, a Community through companies other list of scientific instruments which does than the present members of the Group, not include computers, since that "list particularly in a Member State in which . . . is not intended to be restrictive in no Control Data company has yet been any way". The same applies to the ex- established. planatory notes in the working document of the Committee on Duty-Free Arrange- ments which merely rule out computers from normally being considered as The applicant replies that it is the sole scientific instruments or apparatus. importer for Belgium and that, like all

The applicant further contends that there The applicant points out with a number is a small, but distinct and well- of examples that scientists engaged in recognized, class of specialized advance research in nuclear physics and computers designed for the scientific other fields use computers to perform market. The physical features of the complex mathematical operations or Cyber computers which render them experiments, which may involve millions particularly suitable for scientific of steps. The volume and complexity of application as opposed to commercial these operations make the use of a applications are the following: computer indispensable. Some branches of research became feasible only when computers were available. For example, mathematical "models" are used to simulate physical conditions which cannot be created experimentally. The scientist's computer must perform math- (a) Architecture ematical operations with extreme accuracy in the case of both very large and very small numbers, and the results must be available quickly enough to make the research worthwhile. Scientific research in certain fields is therefore The central processor performs compu- inconceivable without the availability of tational tasks at very high speeds. The suitable computers, which are thus to be central processor has no contact with regarded as instruments used by scientists external equipment. There are no "data in their research. channels" linking the central processor other than to the computer memory. The only function of the processor is to process data which are supplied directly from the memory. The Cyber processor is thus not designed to perform the Whether a computer is adapted par- shifting and comparison of data typically ticularly to scientific or to commercial required of commercial computers.

Commercially-orientated computers usually record and address information in basic units of 8 bits known as "charac- ters" or "bytes". An 8-bit character can contain a simple number or. a letter or a The basic word which the Cyber punctuation mark. Ability to handle such computer addresses contains 60 bits. easily recorded short units of infor- When it operates in so-called "double mation is important for the businessman, precision", 120 bits are available to and such computers are said to be record a single number or value. Thus, a character-orientated. Cyber computers number consisting of perhaps 200 digits are orientated to addressing words and could be recorded. Such a large number cannot, without special modification, would be irrelevant in commercial use. In address individual characters. This a commercially-orientated computer, the represents a serious hindrance to normal maximum number of bits commercial users. In Cyber computers, available to record a single number is 32 characters consist of only 6 bits. or, in double precision, 64. A number Commercial computers with 8-bit charac- requiring more bits cannot be accurately ters can therefore handle up to four recorded or manipulated in a times as many representations (for commercially-orientated computer. The example, letters, numbers, punctuation availability in Cyber computers of marks, or symbols) as Cyber computers.

JUDGMENT OF 17. 3. 1983 — CASE 294/81

CONTROL DATA v COMMISSION

characteristics of the Cyber computer, the Cyber computer can be used that it is an excellent multi-purpose with different programming computer capable of carrying out languages — including Fortran complex calculations and thus well suited (formula translation) which is to scientific calculations. Nevertheless adapted to scientific calculations that computer is also well suited for use and Cobol (common business in other fields requiring complex, oriented language) which is accurate and swift calculation. designed for commercial use. This shows that the Cyber computer, like all computers, is of universal With regard to the characteristics listed application depending on the by the applicant the Commission makes programming language used." the following comments:

Second submission: failure to provide an "(a) Word-orientated hardware and adequate statement of the reasons on precision which the decision is based

JUDGMENT OF 17. 3. 1983 — CASE 294/81

procedure and which are accordingly additional information before the acquainted with the policy pursued by it, adoption of the decision. the Commission disregards the role of the applicant as a a party directly and The Commission's reply to this is that all individually concerned. the procedural rules laid down in the regulations were complied with and that The Commission concedes that the the applicant, which submitted an reasoning is brief but maintains that it is application for duty-free admission, sufficient. The Member States, to which lodged a voluminous file and thus had the decision is addressed, participated in ample opportunity to make known its the procedure and were fully informed point of view. of the reason for the Commission's attitude. With regard to the applicant it is clear from the application itself that V — Oral procedure the applicant was perfectly aware of the Commission's policy although it does not accept that its computers should be At the sitting on 16 December 1982 oral treated as ordinary computers. argument was presented and answers were given to the questions submitted by Third submission: procedural defect the Court by the following: Ian S. Forrester, assisted by C. Jackson, as The applicant claims that the procedure technical expert, for the applicant; R. prescribed by Regulation N o 2784/79 Wainwright, assisted by Mr Barbera of is entirely different from that which the Joint Research Centre, Ispra, as applies, for example, in competition technical expert, for the Commission. matters, inasmuch as it does not allow any exchange of views, provide for the The Advocate General delivered his opportunity of being heard on any opinion at the sitting on 3 February matters in dispute or even of furnishing 1983.

2 That decision was adopted within the framework of Regulation (EEC) No 1798/75 of the Council of 10 July 1975 on the importation free of Common Customs Tariff duties of educational, scientific or cultural materials (Official Journal, L 184, p. 1), as amended by Council Regulation (EEC) No 1027/79 of 8 May 1979 (Official Journal, L 134, p. 1), and of Commission Regulation N o 2784/79 of 12 December 1979 laying down provisions for the implementation of Regulation No 1798/75 (Official Journal, L 318, p. 32). The purpose of those regulations is to ensure the implementation by the Community of the Agreement on the Importation of Educational, Scientific and Cultural Materials drawn up on the initiative of the United Nations Educational, Scientific and Cultural Organization (Unesco) adopted at Florence in July 1950 (United Nations Treaty Series, Vol. 131, p. 25), as supplemented by the Nairobi Protocol, adopted on 26 November 1976, and approved by Council Decision 79/505/EEC of 8 May 1979 (Official Journal, L 134, p. 13).

3 Article 3 of the above-mentioned Regulation N o 1798/75 of the Council, as amended by Regulation No 1027/79, provides that subject to certain conditions "scientific instruments and apparatus" may be admitted free of Common Customs Tariff duties provided that they are imported exclusively for non-commercial purposes. According to Article 3 (3) the words quoted above mean "any instrument or apparatus which, by reason of its objective technical characteristics and the results which it makes it possible to obtain, is mainly or exlusively suited to scientific activities".

6 The file on the case shows that the two Free Universities of Brussels concluded a "leasing contract" with the applicant concerning the acquisition of two computers of the Cyber 170-720 and Cyber 170-750 types, both manufactured in the United States. In order to import the computers free of duty the applicant, acting in the name of the universities, submitted an appropriate application dated 6 August 1980 to the Belgian customs auth- orities. It appended to its application a very detailed file which was further supplemented after conversations with the authorities.

7 In pursuance of Article 7 of Regulation No 2784/79 the Belgian authorities transmitted the application, together with the file, to the Commission. Since three Member States challenged the scientific nature of the two computers the Commission referred the matter to the Committee on Duty-Free Arrangements and, in accordance with the opinion of the latter, adopted the decision at issue.

s That decision is based entirely on the non-scientific nature of the two computers. The decisive recitals in the preamble to the decision are worded as follows:

". . . this examination showed that the apparatus in question are computers,

CONTROL DATA v COMMISSION

. . . they do not have the requisite objective characteristics making them specifically suited to scientific research; . . . moreover, aparatus of the same kind are principally used for non-scientific activities; . . . their use in the case in question could not alone confer upon them the character of scientific apparatus; . .. they therefore cannot be regarded as scientific aparatus; . . . the duty-free admission of the apparatus in question is therefore not justified."

(b) infringement of the Community rules defining the scientific nature of an instrument or apparatus.

JUDGMENT OF 17. 3. 1983 — CASE 294/81

(a) Infringement of an essential procedural requirement

12 In the first place the applicant claims that the reasons on which the decision is based have not been adequately stated. The recitals in the preamble which have been cited above merely contain, according to the applicant, a stereotyped formula employed in all the decisions concerning computers which the Commission has adopted since the entry into force of the regu- lations of 1979. That terse statement of reasons completely disregards the particular characteristics of the computers in question in respect of which the applicant lodged a comprehensive file which was largely based on technical analyses.

1 3 The Commission concedes that the statement of reasons on which the decision is based is brief but considers that it is sufficient. The addressees of the decision, namely the Member States, participated in the procedure and were fully informed of the reason for the Commission's attitude. With regard to the applicant, it is clear from its own arguments that it is perfectly aware of the Commission's policy although it does not accept that its computers should be treated as ordinary computers.

1 4 In this connection it should be recalled, as the Court has already emphasized on numerous occasions, that by imposing upon the Commission the obligations to state reasons for its decision, Article 190 is not taking mere formal considerations into account but seeks to give an ooportunity to the parties of defending their rights, to the Court of exercising its power of review, and to Member States and to all interested nationals of ascertaining the circumstances in which the Commission has applied the Treaty.

(b) Infringement of the Community rules defining the scientific nature of an instrument or apparatus

18 In this connection the applicant maintains that the Commission has entirely disregarded the particular characteristics of the two computers which wholly justify their classification as scientific instruments or apparatus for the purposes of the Community rules. It therefore asks the Court not only to declare the contested decision void but also to make a finding establishing the scientific nature of the computers in question.

19 Although it is not for the Court to make such a finding within the framework of an application for a declaration that a measure is void it must on the other hand ascertain whether the criteria applied by the Commission are in accordance with the Community rules and whether in applying those criteria the Commission took account of the objective characteristics of the computers referred to by the decision. It is therefore necessary to examine both the criteria emanating from the decision itself and those which were stated by the Commission in the course of the proceedings before the Court.

JUDGMENT OF 17. 3. 1983 — CASE 294/81

20 The decision finds that the apparatus in question are computers and states that they do not have the requisite objective characteristics making them specifically suited to scientific research and that apparatus of the same kind are principally used for non-scientific activities. The decision does not make clear whether those statements relate to computers in general or whether they refer specifically to the two types of computer in question. In the course of the procedure before the Court however, the Commission contended that at least the last of these statements concerned computers in general and that, in its view, no computer may be regarded as. being scientific in nature unless it is incorporated in equipment which, considered as a whole, has that nature.

25 The applicant replies that Cyber computers are, from the very nature of their hardware, intended for scientific use. They are constructed in order to solve very complex mathematical equations with an accuracy and speed which is not required by a typical commercial user. On the other hand the design of such computers is particularly unsuited to the handling or comparison of a large amount of recorded information, that is to say, to the work which a commercial user most often requires. With regard to the application software Cyber computers are largely compatible with the principal scientific programming language, Fortran. A part of each computer is indeed reserved exclusively for such programmes. On the other hand the computers are broadly incompatible with the principal commercial programming language, Cobol. Finally, the construction of Cyber, computers is such that the programme cannot be interrupted in course to record new information, an important facility for the commercial user. For all these reasons the applicant disputes the view that the application software alone renders these computers suitable for scientific purposes.

26 Confronted with these conflicting points of view, the Court does not consider that it can exclude the possibility that a criterion based on the difference between the hardware and the software of a computer may be in conformity with the Community rules on the duty-free importation of scientific instruments and apparatus. However, it has not been established either in the statements of the reasons on which the decision at issue is based or in the proceedings before the Court that a precise criterion of that nature was in fact applied by the Commission for the purpose of adopting the decision. Nor, furthermore, is there anything to show that if the Commission did apply such a criterion it took sufficient account of the objective characteristics of the two computers, both with regard to their hardware and to their system software.

so With regard to the examination of the general uses of an apparatus of that type which is prescribed by Article 5 of Regulation N o 2784/79 in cases

CONTROL DATA v COMMISSION

where it is not possible to establish clearly on the basis of the objective technical characteristics of the imported apparatus whether it is to be regarded as a scientific instrument or apparatus, it should be recalled that the examination must cover the Community as a whole and not merely one Member State. In addition, according to the article, it is sufficient, in order to establish the scientific nature of the equipment, that the examination should show "that the instrument or apparatus in question is used mainly for scientific purposes".

3i It must therefore be concluded that neither the statement of the reasons on which the decision at issue in based nor the Commission's arguments before the Court have made it possible for the Court to find that when the Commission adopted the decision it applied clear criteria which were in accordance with the Community regulations and that in doing so it had sufficient regard for the particular objective characteristics of the two computers in question.

32 For that reason the decision adopted by the Commission should be declared void and the matter should be referred back to the Commission for reconsideration.

Costs

2. Orders the Commission to pay the costs.

Pescatore Due Bahlmann

Delivered in open court in L u x e m b o u r g on 17 M a r c h 1983.

For the Registrar H. A. Rühi P. Pescatore Principal Administrator President of the Second Chamber

OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN DELIVERED ON 3 FEBRUARY 1983

My Lords, An application was made by the universities on 6 August 1980 to the Belgian customs authorities for these two computers (between which no distinction Control Data Belgium N V SA ("the is made for present purposes) to be applicant") is a wholly-owned subsidiary admitted free of duty pursuant to of Control Data Corporation, an Council Regulation (EEC) No 1978/75 American company which with its (Official Journal, L 184 of 15 July 1975, affiliates manufactures computers. The p. 1, as amended by Regulation (EEC) applicant has the exclusive right to No 1027/79 (Official Journal, L 134 of import those computers into Belgium for 31 May 1979, p. 1) and Commission re-sale or leasing. In 1980 the Université Regulation No 2784/79 (Official Libre de Bruxelles and the Vrije Journal, L 318 of 13 December 1979, p. Universiteit Brussel agreed to hire two 32). The Belgian authorities were unable computers, known respectively as to decide whether these computers were Control Data-Cyber 170-720 and scientific instruments or apparatus or 170-750, from the applicant for what whether there existed instruments or was considered to be their normal useful apparatus of equivalent scientific value life. currently manufactured in the Com-