C-401/93

GOLDSTAR EUROPE

OPINION OF ADVOCATE GENERAL JACOBS delivered on 21 September 1994 *

My Lords, Council regulations in this sphere, namely Council Regulation (EEC) N o 950/68 on the Common Customs Tariff 2 and Council Regu- lation (EEC) N o 97/69 on measures to be taken for the uniform application of the nomenclature of the Common Customs Tar- iff. 3 The second and third recitals in the pre- 1. Where a provision of a Commission reg- amble to Regulation N o 2658/87 explain the ulation which classified certain important purpose of the regulation as follows: parts of video recorders under the Combined Nomenclature code for complete video recorders proved to be inconsistent with a subsequent opinion issued by the Customs Cooperation Council and was consequently deleted by a later Commission regulation, was the former regulation applicable even though the code itself remained unchanged throughout the relevant period or does the '... the collection and exchange of data on the later regulation have retroactive effect so as statistics of external trade of the Community to be applicable to goods imported before it can best be achieved through the use of a entered into force? That, essentially, is the Combined Nomenclature replacing the exist- issue on which the Finanzgericht Rheinland- ing Common Customs Tariff and Nimexe Pfalz seeks a ruling from the Court in the nomenclatures, in order to meet tariff and present case. statistical requirements simultaneously;

Relevant Community legislation

... the Community is a signatory to the Inter- national Convention on the Harmonized Commodity Description and Coding Sys- tem, known as the "harmonized system", 2. Council Regulation (EEC) N o 2658/87 which is intended to replace the Convention on the tariff and statistical nomenclature and of 15 December 1950 on Nomenclature for on the Common Customs Tariff ' replaced, the Classification of Goods in Customs Tar- with effect from 1 January 1988, the existing iffs; whereas, as a consequence, the said

4. Article 3(1) of the regulation provides:

2. The Combined Nomenclature shall com- prise:

'Each C N subheading shall have an eight (a) the harmonized system nomenclature; digit code number:

(b) Community subdivisions to that (a) the first six digits shall be the code nomenclature, referred to as " C N sub- numbers relating to the headings and headings" in those cases where a corre- subheadings of the harmonized system sponding rate of duty is specified; nomenclature;

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4 — The Combined Nomenclature, originally set out in Annex I to Regulation N o 2658/87, was amended during the relevant period pursuant to Article 9 of the reguladon Dy Commis- sion Regulations (EEC) N o s 3174/88 (OJ 1988 L 298, p. 1), 2886/89 (OJ 1989 L 282, p. 1), 2472/90 (OJ 1990 L 247, p. 1) and 2587/91 (OJ 1991 L 259, p. 1). Pursuant to Article 12 of Regulation N o 2658/87 the amended nomenclature is repro- duced in each of those regulations.

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Pursuant to that provision Commission Reg- assembly for a video recording or reproduc- ulation (EEC) N o 2275/88 5 classified certain ing apparatus as a part of such an apparatus goods in the Combined Nomenclature. Item under heading 8522.90 of the Harmonized 9 of the annex to that regulation contained System Nomenclature. the following classification:

Description Classifi- of cation Reasons the goods (CN code)

Mechanical as- 8521 10 39 Classification is sembly for a determined by the video record- provisions of gen- 8. In accordance with that opinion the Com- ing or repro- eral rules 1, 2(a) mission, by Regulation (EEC) N o 3085/91, 6 ducing appara- and 6 and the texts deleted Item 9 of the annex to Regulation tus of CN of CN codes N o 2275/88 with effect from 23 October code 8521, 8521, 8521 10 and 1991. equipped with 8521 10 39. recording and This mechanical as- reproducing sembly presents the heads (Meca- essential characteris- deck). tics of a video record- ing or reproducing apparatus.

tially classified as parts of video recorders ing from the Court on the following ques- under C N Code 8522 90 99 and attracted tions: duty at a rate of 5.8%. Following the adop- tion of Regulation N o 2275/88 the defendant in the main proceedings, the Hauptzollamt Ludwigshafen, concluded that the goods in question fitted the description of 'meca- decks' in the regulation and should have been classified under C N Code 8521 10 39 as 'other video recording or reproducing appa- ratus', attracting duty at a rate of 14%. Accordingly it imposed duty at the higher '(1) Was Commission Regulation (EEC) N o rate in respect of both previous and subse- 2275/88 of 25 July 1988 concerning the quent imports. Following the adoption of classification of certain goods in the Regulation N o 3085/91, amending Regula- Combined Nomenclature valid in so far tion N o 2275/88, GoldStar applied to the as it classified under C N Code defendant, on 25 October 1991, for repay- 8521 1039 the "mechanical assembly for ment of the additional duty levied on goods a video recording or reproducing appa- imported during the previous three years, i. ratus of C N Code 8521, equipped with e. from 25 October 1988. The defendant recording and reproducing heads (meca- refused to repay the duty, and so GoldStar deck)" described in Item 9 of the annex appealed to the Finanzgericht Rheinland- to the regulation? Pfalz. Before that court it contended, first, that there were essential differences between a 'mecadeck' and a 'deck ass'y' and that the latter, even in conjunction with a 'main board ass'y', did not constitute a video appa- ratus and, in the absence of a number of important components, did not have the essential characteristics of such an apparatus. It argued secondly that Regulations Nos 2275/88 and 3085/91 were merely declara- (2) If the first question is answered in the tory, being intended to ensure uniform appli- affirmative: cation of the Combined Nomenclature and not to modify the scope of the relevant C N codes; Regulation N o 3085/91, modifying a classificatory practice recognized by the Commission to be incorrect, was accordingly applicable to earlier imports, particularly since the wording of the relevant codes had at all material times remained unchanged.

12. With respect to the validity of Item 9 of What are the "essential characteristics" the annex to Regulation N o 2275/88, the (see the entry under "Reasons" for Item Commission observes that the decisive crite­ 9 of the Annex to Regulation N o rion for the purposes of tariff classification is 2275/88) or the "essential character" generally the objective characteristics and (see General Rule 2(a)) which led the properties of the relevant goods, as defined Commission to classify "mecadecks" as in the wording of the headings and subhead­ complete video recording or reproduc­ ings of the Common Customs Tariff ('the ing apparatus under Code 8521?' Tariff') and in the notes to sections and chap­ ters. The Commission is also empowered by Articles 9(l)(a) and 10 of Regulation N o 2658/87 to classify certain goods itself. According to the Commission, such classifi­ cations must not however amend the word­ Question 1 ing of the Tariff or the content of the head­ ings and subheadings. None the less it claims that it has a wide margin of discretion in choosing between headings, and that the Court's review is limited to examining whether the Commission has committed a manifest error or a misuse of powers. The Commission must, it observes, also take 11. In its written observations the Commis­ account of the explanatory notes and opin­ sion, in answering the Finanzgerichťs first ions of the Customs Cooperation Council question, deals with the issues raised by all since its failure to do so would undermine three questions. Responding first of all to a the uniform application of the nomenclature point raised by the Finanzgericht in its order in the framework of the International Con­ for reference, it contends that Regulation N o vention on the Harmonized System. 2275/88 is not invalid simply because the Nomenclature Committee (i. e. the Commit­ tee established by Article 7 of Regulation N o 2658/87 comprising national customs experts and chaired by representatives of the Com­ mission) failed to give its opinion within the time-limit set by its chairman and before the 13. Applying those principles to the present adoption of the regulation. According to the case, the Commission asserts that the Commission, Article 10(1) and (2) of Regu­ mechanical assembly for a video recorder lation N o 2658/87 require the Commission known as a 'mecadeck' possesses the 'essen­ to defer application of measures only if they tial character' of a complete video recorder are not in accordance with the opinion of the for the purposes of Rule 2(a) of the General Committee. A failure by the Committee t o Rules for the Interpretation of the Com-

15. In my view the Commission's observa- tions are in all essential respects convincing. I do not think, first of all, that Regulation N o 2275/88 can be considered invalid because 14. The Commission, referring to Biegi v the Commission brought it into force imme- Hauptzollamt Bochum, 7 observes that clas- diately rather than deferring its application sificatory regulations do not in principle for three months under Article 10(2) of have retroactive effect. The position, it Regulation N o 2658/87. Article 10, which asserts, is different if a regulation merely lays down the procedure for the adoption of clarifies the legal position existing prior to its measures under Article 9, provides: entry into force. According to the Commis- sion, that was not the case here. The opinion of the Customs Cooperation Council, which was given at the initiative of the Japanese delegation, was adopted by a 14 to 8 major- ity. Although the Commission remained ' 1 . The representative of the Commission convinced of the correctness of its view, it shall submit to the committee a draft of the was obliged to amend Regulation N o measures to be adopted. The committee shall 2275/88 in order to ensure uniform applica- deliver its opinion on the draft within a tion of the nomenclature within the territory time-limit which the chairman may lay down of the Contracting Parties to the Convention according to the urgency of the matter. The on the Harmonized System. The Commis- opinion shall be delivered by the majority sion accepts that the Customs Cooperation laid down in Article 148(2) of the Treaty in Council's opinion constitutes a possible the case of decisions which the Council is interpretation of the Tariff. However, prior required to adopt on a proposal from the to the opinion considerable uncertainty pre- Commission. The votes of the representa- vailed. In that connection the Commission tives of the Member States within the com- refers to a letter sent by the Nomenclature mittee shall be weighted in the manner set and Classification Directorate of the Cus- out in that Article. The chairman shall not toms Cooperation Council to the Korean vote. Embassy stating that the Community's ear- lier classification of 'mecadecks' could not be regarded as an infringement of its obligations

16. The wording of Article 10(2) indicates (c) If, within three months of the proposal that the measures decided upon by the being submitted to it, the Council has mission are to apply immediately unless they not acted, the proposed Regulation shall conflict with an opinion adopted by the req- be adopted by the Commission.' [My uisite majority of the Nomenclature Com- emphasis] mittee. The wording of the regulation differs in this respect from that of its predecessor, Regulation N o 97/69. 8 Article 3(2) of that regulation, as amended by Council Regula- tion (EEC) N o 2055/84, 9 expressly equated the case where no opinion was delivered with the case where the proposed regulation was not in accordance with the opinion of The omission of the italicized words in Arti- the Committee. It read as follows: cle 10(2) of Regulation N o 2658/87 makes it clear that the Commission may bring the classificatory measure into force immediately both where the measure is in accordance with the opinion of the Committee and where the Committee has failed to issue an '(a) The Commission shall adopt the pro- opinion within the time-limit laid down by posed Regulation where it is in accor- its chairman. It may be noted that there is no dance with the opinion of the Commit- suggestion in this case that the time-limit laid tee. down by the Commission representative chairing the Committee was unreasonably short or indeed that there was any other 8 — See note above. irregularity in the proceedings of the Com- 9 — OJ 1984 L 191, p. 1. mittee.

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GOLDSTAR EUROPE

20. It is true that in this case no opinion was issued by the customs experts of the Member States sitting on the Nomenclature Commit- tee, so that there could be no question of the Court's substituting its own evaluation for See also the judgments in The Queen v HM that of the Committee. However, I do not Customs and Excise, ex parte Imperial consider that point decisive. The Commis- Tobacco, n and the Bagusat cases. , z sion complied fully with the procedural requirements laid down by Regulation N o 2658/87 by referring the matter to the Com-

i ó — Casc C-265/89 [1990] ECR 1-3411. 11 — Case 141/86 [1988] ECR57. 12 — Case 37/75 Bagusat y HaupaoUamt Berlin-Packhof [1975] ECR 1339, and Joined Cases 87, 112 and 113/79 Bagusat v 13 — At p. 1350. HaupaoUamt «eriin-AttiAo/[1980] ECR 1159. 14 — Paragraph 14 of the judgment.

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mittee and by refraining from adopting the When, furthermore, such an interpretation measure until the time-limit laid down by reflects the general practice followed by the the chairman of the Committee had expired. Contracting States, it can be set aside only if It was therefore entitled to adopt a classifica- it appears incompatible with the wording of tory measure in accordance with its own the heading concerned or goes manifestly evaluation. beyond the discretion conferred on the Cus- toms Cooperation Council.'

16 — Case C-233/88 Cijs van de Kolk-Douane Expediteur v 15 — Case 38/75 [1975] E C R 1439, paragraphs 24 and 25 of the Inspecteur der Invoerrechten en Accijnzen [1990] ECR judgment. 1-265, paragraph 10 of the judgment

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25. Accordingly, it remains necessary to consider whether the Commission, by classi- fying 'mecadecks' under CN Code 23. Support for that proposition is to be 8521 10 39, exceeded the limits of its powers found in previous judgments of the by choosing a manifestly incorrect classifica- Court. For example, in Compagnie tion amounting in effect to an amendment of d'Approvisionnement v Commission17 the the Tariff. In my view it did not. Court stated unequivocally that:

18 — See also Case 40/72 Schroeder v Germany [1973] ECR 125, paragraph 14 of the judgment, and Joined Cases 17 — Joined Casts 9 and 11/71 [1972] ECR 391, paragraph 39 of C-267/88 to C-285/88 Wuidart and OAen v Laiterie the judgment. Coopérative Eupenoise [1990] ECR 1-435, paragraph 14.

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26. The Court has consistently held that: finished (or falling to be classified as com- plete or finished by virtue of this rule), pre- sented unassembled or disassembled.'

'... in the interests of legal certainty and ease of verification, the decisive criterion for the customs classification of goods must gener- 28. It is necessary therefore to identify the ally be their objective characteristics and essential characteristics of a video recording properties, as defined by the wording of the or reproducing apparatus and to determine headings of the Common Customs Tariff whether 'mecadecks', although incomplete, and the notes to the sections or chapters'. 19 possess the essential character of such an apparatus.

housing assembly as well as various casing electric motors, which provide the move- panels. The deck assembly comprises a pre- ment necessary for the recording and repro- cise arrangement of the following compo- duction processes. nents:

31. From the above description it is clear that it is the components of the deck assem- transducers for video and sound information bly, in particular the video and sound heads, (video and audio heads), which during the the control head and the other electro- recording process convert electrical and magnetic transducers, which give the appara- video information into magnetic information tus its essential character. It is those compo- which can be recorded on the magnetic tape nents which, mounted in a precise manner and, during the reproduction process, con- on the tape-deck, serve primarily to perform vert the magnetic information on the tape the apparatus's basic functions of video into electrical signals; recording and reproduction.

32. It appears that the 'mecadeck' referred to a transducer for control information (control in Item 9 of the annex to Regulation No head), which serves to record on, and repro- 2275/88 incorporates those components. duce information from, the magnetic tape in Item 9 itself defines a 'mecadeck' as the a way that ensures a specified and controlled 'mechanical assembly for a video recording speed of transportation of the magnetic tape or reproducing apparatus ..., equipped with on the tape-deck; recording and reproducing heads'.

33. Reference may also be made to the opin- a transducer for erasing recorded informa- ion of the Customs Cooperation Council, tion (erasing head), which erases magnetic published with the Explanatory Notes of the information stored on the magnetic tape; Customs Cooperation Council (COM/AS — 7 July 1991, p. 39E), which reads as fol- lows:

36. The comparison made by GoldStar between the cost of the deck assembly and (iv) a capstan which keeps the magnetic tape the selling price of a complete video recorder playing at a fixed speed. is inappropriate since the selling price pre- sumably includes other costs such as wages and overheads and also profit. A more rele- vant ratio for present purposes would be the proportion of the total cost of the compo- nents of the apparatus represented by the Classification as part of the appropriate deck assembly. This would probably be sig- apparatus.' nificantly higher. It is in any event clear that

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the deck assembly constitutes a significant goods. It may, for example, be determined proportion of the total cost of the apparatus. 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.'

37. The Explanatory Notes to Rule 2(a) of the General Rules for the Interpretation of the Harmonized System make no reference to the value of components. However, in its GoldStar contends that that note must also observations on the Commission's reply be taken into consideration for the purpose GoldStar refers to Explanatory Note VIII to of interpreting Rule 2(a) on incomplete or Rule 3 of the General Rules. Rule 3(b) pro- unfinished articles. Since the deck assemblies vides that: cannot be considered to have the essential character of complete video recorders on the basis of other criteria, reference must be made to the criterion of value.

imported as a single item of goods. Even 39. It would certainly have been possible for though they account for the larger part of the Commission to take the view that it was the cost of the complete apparatus, it is the deck assembly and the main board doubtful whether, without the deck assembly assembly containing the electrical circuitry which contains the components that most which together gave the apparatus its essen- directly perform the particular functions of a tial character. However, the Commission video recorder, they could properly be cannot in my view be said to have made a regarded as having the essential character of manifest error in coming to the view which the complete apparatus for the purposes of it did. Rule 2(a). That the value of a component is not conclusive for the purposes of classifica- tion under Rule 3(b) is, moreover, clear from the judgment in Schickedanz v Oberfinanzdirektion Frankfurt am Main,20 where the Court held that sports shoes with uppers of textile fabric on to which were sewn pieces of leather were to be classified as ' O t h e r footwear' rather than as 'Footwear with uppers of leather', notwithstanding the fact that the leather covered approximately 40. In my opinion, therefore, the Commis- 70% of the textile fabric and was of greater sion was acting within the limits of its dis- value. At paragraph 12 of the judgment the cretion in concluding that a 'mecadeck' had Court stated that: the essential character of a complete video recording and reproducing apparatus for the purposes of General Rule 2(a) and hence should be classified under C N Code 8521 10 39.

43. The Commission appears to suggest that a regulation may have retroactive effect in so far as it merely clarifies the existing legal position. It would however be more correct 45. The answer to this question follows to say that in such circumstances a classifica- from my answer to Question (1). The essen- tory regulation may provide guidance as to tial characteristic of a video recording or how the Tariff was to be interpreted prior to reproducing apparatus is its capacity to the entry into force of the regulation. In any record and reproduce visual images and event, as the Commission correctly observes, sound. The Commission was entitled, in the Regulation N o 3085/91 was manifestly not exercise of its discretion in this matter, to intended to confirm the existing legal posi- conclude that a 'mecadeck' or mechanical tion. As is apparent from its preamble and its assembly for a video recording or reproduc- provisions, the regulation amended the exist- ing apparatus has the essential character of ing position in order to bring the Commu- the complete apparatus because it has nity legislation into Une with the opinion of mounted on it, appropriately arranged, the the Customs Cooperation Council. components which perform the apparatus's essential functions of video recording and reproduction, in particular the video, sound 21 — See note above. and erasing heads.

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Conclusion

46. I am accordingly of the opinion that the questions referred to the Court by the Finanzgericht Rheinland-Pfalz should be answered as follows: