Markus & Walsh v Hauptzollamt Hamburg-Jonas (14/69)

Contents

In Case 14/69Reference to the Court under Article 177 of the EEC Treaty by the Finanzgericht (Finance Court), Hamburg, for a preliminary ruling in the action pending before that court betweenMarkus & Walsh, a limited partnership, Hamburg,andHauptzollamt (Principal Customs Office) Hamburg-Jonas,THE COURTcomposed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner, A. Trabucchi, W. Strauß (Rapporteur) and J. Mertens de Wilmars, Judges,Advocate-General: J. GandRegistrar: A. Van Houttegives the following

Judgment

Issues of fact and of law

I —Background

The facts may be summarized as follows:A —(a) On 27 October 1966 the Council of the EEC adopted Regulation No 160/66/EEC. The goods directly covered by that regulation are not agricultural products within the meaning of Article 38 et seq. of the EEC Treaty, since they are not listed in Annex II to the said Treaty; they are, however, the result of the processing of agricultural products. The regulation concerns both trade between Member States and trade with third countries, which alone is of importance in the present case. In respect of these goods, Article 1 of the regulation establishes ‘between the Member States and in respect of third countries,… a system of importation and of exportation directed towards … an equalization of the costs of procuring raw materials incorporated in the said goods and towards an improvement of the protection to be given to those goods’.According to Article 2(1) the regulation applies to the goods included in the list appearing in an annex to it; among these goods there appear those which are the subject of the proceedings. Article 2(2) lists the agricultural products which, unlike the aforementioned products which result from the processing of agricultural products, are regarded as ‘basic products’ within the meaning of the regulation; ‘beet sugar and cane sugar, solid’, inter alia, appear in that list. Lastly, Article 2(4) states:‘The Council … shall determine in respect of all goods to which this regulation applies, the quantity of basic products considered to have been used in their manufacture …’According to Article 10 of the regulation ‘There shall be levied on importation into a Member State from third countries, on goods to which this regulation applies, a charge in substitution for the customs duties levied by that Member State and which shall be composed of:— a fixed component consisting of an ad valorem customs duty determined in accordance with the conditions laid down in Article 11, and intended to protect the industry producing the goods in question;— a variable component laid down in accordance with the conditions provided for in Article 12, and intended to reflect, for the quantities of basic products determined in accordance with the procedure laid down in Article 2(4), the difference between the prices of those products in the importing Member State on the one hand, and the prices of imports from third countries on the other, when the total cost of those quantities of basic products is higher in the importing Member State’.According to Article 11 or the regulation, the rate of the abovementioned fixed component is to be fixed by the Council in a uniform manner for all the Member States. This rate was fixed by Regulation No 83/67/EEC of the Council, adopted by virtue of Regulation No 160/66/EEC (Official Journal of 26 April 1967, p. 1597/67 et seq.). In accordance with Annex I to Regulation No 83/67/EEC, the rates of the duties imposed on the goods in question are the following:Heading number | Rate of duty | Rates of duty resulting from partial (autonomous) suspension17·04-C | 20.7 % | 18 %18·06-B | 22.3 % | 19 %According to Article 12 of Regulation No 160/66/EEC, the Commission is to fix the amount of the abovementioned variable component quarterly for each Member State.The first paragraph of Article 16 of the regulation which is the subject of the reference for a preliminary ruling is worded as follows:‘If upon the entry into force or this regulation the customs duty applicable to goods to which it applies is bound under GATT, and for as long as such binding continues, the total amount of the tax mentioned in Article 10, expressed as a percentage of the import price of the goods in question, may not exceed the rate of the consolidated Common Customs Tariff duty in relation to third countries.’(b) The provisions of GATT which are in question here, appearing in Schedule XL of Annex B to the Protocol to the General Agreement on Tariffs and Trade signed at Geneva on 16 July 1962 (hereinafter referred to as ‘the GATT Protocol’). They are worded in the following terms, only the French and English texts being authentic:Tariff heading No | Description of products | Rate of duty17 04 | Sugar confectionery, not containing cocoa: … || … || C.Other | 27 % (a)… | … |18 06 | Chocolate and other food preparations containing cocoa: || B.Other | 27 % (a)… | … |B — At the end of October and the beginning of November 1967, Markus & Walsh, the plaintiff in the main action, obtained customs clearance from the relevant customs office for sugar confectionery and food preparations containing cocoa, (tariff headings 17.04-C and 18.06-B of the Common Customs Tariff) imported from the United Kingdom and the Republic of Ireland. On the basis of Regulation No 160/66/EEC the customs office levied a customs duty composed of a fixed duty calculated as a percentage of the value of the goods and of a sum in Deutschmarks.Markus & Walsh pointed out before the Finanzgericht, Hamburg, that, contrary to the provisions of the first paragraph of Article 16 of Regulation No 160/66/ EEC, the total amount of this customs duty exceeded the rate of duty of the consolidated Common Customs Tariff in respect of third countries, the bound duty being 27 % in respect of the goods in question. It maintained further that it is of little importance in the present case that in the GATT Protocol the Community reserves the right to impose an additional duty, since it appears from the wording of footnote (a), relating to tariff heading 17.04 and 18.06 (cf. A, (b) above), that this additional duty cannot be regarded as a ‘bound duty’.The Hauptzollamt maintains, on the other hand, that the concept of ‘bound duty’ extends not only to the fixed component of the undertaking entered into within the framework of GATT, but also to what may possibly be added to it in the form of footnotes, as is the case in undertakings of a complex nature. The column of the GATT Protocol which shows the rates applicable is headed ‘Rate of duty’ and not ‘bound duty’. Consequently, asserts the Hauptzollamt, for the tariff headings 17.04-C and 18.06-B, the ‘bound tariff concession’ includes both the fixed duty and the additional duty on sugar.

II —Contents of the order making the reference; reasons relied upon by the Finanzgericht

A —On 12 March 1969, the Finanzgericht, Hamburg, decided to suspend the proceedings and to ask the Court of Justice to give a preliminary ruling on the following question:‘By customs duty bound under GATT within the meaning of the first paragraph of Article 16 of Regulation No 160/66/EEC of the Council laying down the trade arrangements applicable to certain goods resulting from the processing of agricultural products must there be understood solely the duty of 27 % applicable to the products under tariff headings 17.04-C and 18.06-B included in Annex B (Schedule XL) to the Protocol to the General Agreement on Tariffs and Trade which was arrived at by the Tariff Conference of 1960-1961, or does that concept also include, in addition to such customs duty, the additional duty which, in accordance with footnote (a) to the tariff heading, may be levied on the sugar contained in the product?’

B —The Finanzgericht bases its order making the reference on the following grounds:The legal situation is not clear. The reply to the question put will depend essentially on what must be understood by ‘rate of duty of the consolidated Common Customs Tariff’ within the meaning of the first paragraph of Article 16 of Regulation No 160/66/EEC. As footnote (a) concerning the tariff headings in question mentions an ‘additional’ duty to be levied in addition to the bound duty, it may be that Article 16 does not cover that duty. Further, that footnote in the French version, which alone is authentic, distinguishes between ‘bound duty’ and ‘additional duty’.Consequently Markus & Walsh, in support of its argument, submits reasoning which is at least plausible, and this fact is sufficient to justify a reference of the case to the Court in accordance with Article 177 of the EEC Treaty.

III —Procedure

The order making the reference was received at the Court Registry on 21 March 1969.Under Article 20 of the Protocol on the Statute of the Court of Justice, the Commission of the European Communities submitted written observations.Markus & Walsh, represented by its authorized representative at litem, G. Espey, Advocate of Hamburg, and the Commission of the European Communities, represented by its Legal Adviser, Friedrich-Wilhelm Albrecht, presented oral argument at the hearing on 9 July, 1969.The Advocate-General delivered his opinion at the hearing on 18 September 1969.

IV —Summary of the observations submitted by those concerned

Markus & Walsh considers that the first facet of the preliminary question must receive an affirmative answer and the second a negative answer. In fact in respect of the goods concerned in the present case the first paragraph of Article 16 of Regulation No 160/66/ EEC refers to Schedule XL of Annex B to the GATT Protocol. These provisions of GATT distinguish clearly between ‘bound duty’ and ‘additional duty’ and it must be accepted that the Commission and the Council knew of this document when they drafted Article 16.The sense in which the concept of ‘binding’ is used in the other provisions of GATT is irrelevant.Although Article 16 is obscure it cannot be interpreted at the expense of the importers concerned.The Commission puts forward submissions to the opposite effect, making the following points in particular:1. To the extent to which it dealt with trade with third countries, the purpose and the rationale of Regulation No 160/ 66/EEC may be summarized in the following manner:The profitability of an undertaking processing basic agricultural products depends very largely on the prices of those products. Undertakings of a country in which the cost of the basic product is high are handicapped from the point of view of competition as compared with undertakings in countries in which the basic product is sold at a low price.The EEC Treaty provides for the unification of external customs tariffs. In respect of the processed products referred to by the said regulation, it was necessary to take into account that fact that a simple ad valorem duty would not serve the purpose envisaged by the legislature. When, for example, a basic product is sold at a low price by an exporting country, the commercial value of the processed product will also be relatively low; it may happen consequently that the differences in the prices of basic products are not entirely counterbalanced and that the intended object, the protection of the processing industry, is not completely achieved.The duty in question allows these difficulties to be avoided.2. The concept of bound customs duty in respect of third countries, within the framework of GATT, calls for the following observations:A — The concept of ‘binding’ is not defined in the General Agreement on Tariffs and Trade (GATT) and does not always have the same meaning within it. On the other hand, the concept of ‘concession’ and in particular that of ‘tariff concession’ appears regularly in the provisions of GATT. Neither does the GATT Protocol contain the concept of ‘binding’. The footnotes in Schedule XL use the expression ‘bound duty’ to refer to the rates appearing under the column headed ‘Duty’.On the other hand, in the technical language of international trade relations, the expression ‘bound’ means in practice ‘which has been the subject of an undertaking in respect of the contracting parties of GATT’ or ‘determined in accordance with the rules of GATT’. It is necessary therefore to understand by ‘binding’ not only the undertaking not to raise the customs duty above the established level, but also that of reducing it or not increasing it beyond a given level.B — If the first paragraph of Article 16 of Regulation No 160/66/EEC is interpreted on the basis of these statements ‘the ceiling of the charge is in this case the concession made by the Community within the framework of GATT on the basis of its own customs tariff. In other words, the rights resulting for the contracting parties to GATT from tariff concessions should not be jeopardized’. The fact that the provision in question speaks of ‘rates of the consolidated Common Customs Tariff in respect of third countries’ also confirms that interpretation. It is also reinforced by the penultimate recital of the regulation: ‘Whereas the total amount of the charge applicable in respect of third countries, expressed as a percentage of prices on importation of the goods in question, may not exceed the rates of customs duties resulting from any undertakings entered into in respect of the said countries’.C — Lastly the Commission refers to a series of provisions taken from agricultural regulations of the Council which, taken together, show an exclusive concern that the undertakings made by the Community within the framework of GATT shall always be observed. Furthermore, Regulation No 1059/69/ EEC of the Council of 28 May 1969, which replaced Regulation No 160/66/ EEC, enables it clearly to be seen that the Community has used its right to levy the ‘additional duty’ in dispute.3. Such was also the case in the present instance, for in addition it would be incomprehensible that the protection provided for by Regulation No 160/66/ EEC, which was therefore regarded as being necessary, should not be completely ensured, when this could have been done without infringing the rights of third parties.It is not possible to raise the objection that the relevant provision of the GATT Protocol distinguishes between bound duty and additional duty. The expression ‘bound duty’ referred to in footnote (a) on the contrary is simply intended to refer to the column headed ‘Duty’ and means ‘rates above, being part of the bound tariff concession.’

Grounds of judgment

The substance of the case

1By an order dated 12 March 1969 received at the Court Registry on 21 March 1969, the Finanzgericht, Hamburg, in accordance with Article 177 of the Treaty establishing the EEC, submitted a question on the interpretation of the first paragraph of Article 16 of Regulation No 160/66/EEC of the Council laying down the trade arrangements applicable to certain goods resulting from the processing of agricultural products. By this question the Court is asked to rule on the question whether ‘By customs duty bound under GATT within the meaning [of the said] first paragraph of Article 16, … there must be understood solely the duty of 27 % applicable to the products under tariff heading 17.04-C and 18.06-B in Annex B (Schedule XL) to the Protocol to the General Agreement on Tariffs and Trade embodying the results of the 1960-61 Tariff Conference’ —hereinafter referred to as the ‘GATT Protocol’ — ‘or does that concept also include, in addition to such customs duty, the additional duty which, in accordance with footnote (a) to the tariff heading, may be levied on the sugar contained in the product’.

2According to the wording of the said first paragraph of Article 16, ‘If upon the entry into force of this regulation the customs duty applicable to goods to which it applies is bound under GATT, … the total amount of the tax mentioned in Article 10’ of the same regulation — that is to say, of the duty imposed on the importation of goods to which the regulation applies from third countries into a Member State—, ‘expressed as a percentage of the import price of the goods in question, may not exceed the rate of the consolidated Common Customs Tariff duty in relation to third countries’.

3According to the wording of Schedule XL in Annex B to the GATT Protocol, a rate of 27 % is imposed in respect of tariff heading 17.04 for ‘Sugar confectionery, not containing cocoa … C Other’ and tariff heading 18.06 for ‘Chocolate and other food preparations containing cocoa’ subject to footnote (a) concerning an additional duty on sugar. This footnote provides that ‘The Community reserves the right to levy, in addition to the bound duty, an additional duty on sugar, corresponding to the charge borne by sugar on importation, and applicable to the quantity of various sugar (calculated in sucrose) contained in these products’.

4The question raised seeks therefore to ascertain whether the maximum rate which, according to Article 16, the disputed charge may not exceed consists of the duty of 27 % laid down in the GATT Protocol or the total of that duty and the ‘additional duty on sugar’ referred to in footnote (a).

5It has been contended that the aforementioned provisions of the GATT Protocol distinguish between the ‘bound duty’ —a concept which would relate solely to the rate of 27 %—on the one hand, and the ‘additional duty on sugar’ , on the other.

6Moreover, the Community provisions applicable have not defined the expressions ‘binding’ and ‘bound duty’ any more than did those of GATT. It is common ground that these expressions are frequently used in a wide sense to cover all the tariff concessions made by the members of GATT and to form the subject of an obligation within the framework of that agreement. Accordingly, the answer to the question raised must be deduced primarily from the reasons for and aims of Regulation No 160/66/EEC.

7Under the terms of Article 2, this regulation applies not only to the products which are the subject of the main proceedings, but to all the goods listed in the annex thereto.Under Article 10 of this regulation, the charge which it introduces is composed, on the one hand, ‘of a fixed component consisting of an ad valorem customs duty … intended to protect the industry producing the goods in question’ and, on the other hand, of ‘a variable component … intended to reflect, for the quantities of basic products [contained in those goods] … the difference between the prices of those products in the importing Member State … and the prices of imports from third countries … when the total cost of those quantities of basic products is higher in the importing Member States’.

8According to the seventh recital of the preamble to the regulation in question ‘the introduction of the system of agricultural levies for raw materials used has altered the previously established relationships between the protection assured to third countries in respect of the production of the agricultural products in question and of the goods resulting from their processing; whereas this change results in certain cases in a considerable reduction in the advantages which the industries of the Member States producing these goods enjoyed in the Community’. The eighth recital of the same preamble states: ‘Whereas the situation thus created and the abovementioned difficulties may be overcome by the introduction of Community trade arrangements directed, on the one hand, to bringing the prices of agricultural products imported into each Member State in the form of the goods in question to the level of those ruling on the domestic market, and on the other hand, to guaranteeing protection for the industries producing those goods’.

9Taken as a whole, these factors indicate anxiety to ensure effective protection for the processing industries of the Member States against the importation of competing goods from third countries, in so far as the industries of those countries are able to obtain the basic agricultural products as prices more advantageous than those ruling in the Member States for the same agricultural products.The ‘variable’ part of the charge provided for by Article 10 abovementioned meets this requirement precisely. On the other hand, the division of the charge introduced by this provision into a ‘fixed component’ and a ‘variable component’ indicates a clear parallel with the distinction resulting from the provisions of the GATT Protocol in question.

10It must therefore be assumed that the authors of the first paragraph of Article 16 intended to utilize exhaustively the rights which the Community had reserved as against other members of GATT under the wording of the above-mentioned footnote (a) to Schedule XL of Annex B to the GATT Protocol.

11This solution is confirmed by the penultimate recital of the preamble to the said regulation according to which ‘the total amount of the taxation applicable in respect of third countries, expressed as a percentage of the import price of the goods in question, may not exceed the rate of the customs duties resulting from any undertakings entered into in respect of the said countries’. In fact this, together with the following sentence in the same recital whereby ‘the total amount of the taxation applicable in intra-Community trade … must, however, remain lower than the rate of the abovementioned customs duties’, permits the converse conclusion that in extra-Community trade the authors of the regulation did not intend to renounce, even partially, the powers granted to them by virtue of footnote (a) to the provisions of the GATT Protocol in question.

12In all these circumstances the first paragraph of Article 16 of Regulation No 160/66/EEC appears sufficiently clear, despite the lack of precision of its wording, to permit a negative reply to the first part and an affirmative reply to the second part of the question put by the Finanzgericht.

Costs

13/14The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before the Finanzgericht, Hamburg, the decision on costs is a matter for that court;

Operative part

On those grounds,Upon reading the pleadings;Upon hearing the report of the Judge-Rapporteur;Upon hearing the oral observations of Markus & Walsh, the plaintiff in the main action, and the Commission of the European Communities;Upon hearing the opinion of the Advocate-General;Having regard to the Treaty establishing the European Economic Community, especially Article 177;Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community, especially Article 20;Having regard to Regulation No 160/66/EEC of the Council laying down the trade arrangements applicable to certain goods resulting from the processing of agricultural products, especially Articles 2 and 10 and the first paragraph of Article 16;Having regard to the Rules of Procedure of the Court of Justice of the European Communities;THE COURTin answer to the question refered to it by the Finanzgericht, Hamburg, by order of that court of 12 March 1969, hereby rules: By ‘customs duty … bound under GATT’ and in respect of tariff headings 17.04 -C and 18.06 -B appearing in Schedule XL of Annex B to the Protocol to the General Agreement on Tariffs and Trade embodying the results of the Tariff Conference of 1960-1961, the first paragraph of Article 16 of Regulation No 160/66 /EEC of the Council includes not only the 27 % duty provided for by the abovementioned provisions of that Protocol, but also the ‘additional duty on sugar’ mentioned in footnote (a) to the said headings.

Delivered in open court in Luxembourg on 15 October 1969.