JUDGMENT OF 18. 6. 1970 — CASE 72/69 HAUPTZOLLAMT BREMEN v BREMER HANDELSGESELLSCHAFT

In Case 72/69 Reference to the Court under Article 177 of the EEC Treaty by the Bundesfinanzhof for a preliminary ruling on the interpretation of certain provisions of Regulation No 19 of the Council of 4 April 1962 and of the Annex thereto, in the action pending before that court between

THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner, A. Trabucchi, W. Strauß and J. Mertens dë Wilmars (Rapporteur), Judges, Advocate-General: K. Roemer Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts and procedure

The facts and procedure may be summarized as follows:

1) By Regulation No 19 of the Council of 4 April 1962 (OJ 1962, p. 933) on the progressive establishment of a common organization of the market in cereals, in particular Articles 1 and 14 in conjunction with the Annex to the said regulation, imports from third countries of manioc flour and meal under heading 11.06 of the Common Customs Tariff (flour and meal of sago and of manioc, arrowroot, salep and other roots and tubers falling within heading 07.06) are made subject to a system of levies.

2) On 20 May 1966 the Bremer Handelsgesellschaft applied for customs clearance for 524 sacks declared to contain ‘Thailand tapioca waste flour’ and sought to have the goods classified under heading 23.03 of the German Customs Tariff in force in 1966, which corresponded to the Common Customs Tariff (sugar beet pulp, sugar cane trash and other sugar waste; brewery and distiller waste ; residues from the manufacture of starch and similar residues).

3) It was stated in the customs declaration the goods had been rendered unfit for human consumption and contained, according to the terms of the contract, 65 % starch, including soluble carbohydrates.

4) Relying on a circular from the Federal Minister for Finance of 29 December 1965 according to which tapioca residues (residues from the manufacture of starch) can only be classified under heading 23.03 if their starch content, in relation to the dry material, does not exceed 55 % and otherwise should be classified under heading 11.06 as manioc flour, the customs office applied the rate applicable to the latter heading and required payment of a levy of DM 2129.67, whereas if the goods had been classified under heading 23.03 they would have been free of any import duty or levy.

5) In an action brought by the Bremer Handelsgesellschaft the Finanzgericht Bremen (Bremen Finance Court) held that the goods in question did not fall under heading 11.06. The Hauptzollamt Bremen-Freihafen appealed to the Bundesfinanzhof (Federal Finance Court) where the Seventh Senate decided that the case relate to the imposition of a levy on manioc flour and held that the solution depended on the interpretation of the expression ‘manioc flour’ in Article 1 (d) of Regulation No 19 of the Council of the EEC of 4 April 1962. Therefore, by an order of 21 October 1969 it decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling in accordance with the first and third paragraphs of Article 177:

‘Must the expression manioc flour within the meaning of Article 1 (d) of Regulation No 19 of the Council of 4 April 1962 on the progressive establishment of the common organization of the market in cereals (Official Journal, 1962, p. 933) and of the Annex to the said regulation, be interpreted as meaning that irrespective of the method of manufacture it applies to all products obtained from manioc tubers which contain more than 55 % starch, or should the maximum or minimum content of other constituent elements such as raw fibres, sugar or proteins be taken into consideration?’

6) After the goods had been given customs clearance a decree of the Federal Minister of Finance of 27 June 1966 (Bundesgesetzblatt, II, 5 July 1966, p. 509) implementing a decision of the government experts of the Member States in the Working Party on Customs Nomenclature specified that only products whose starch content in relation to dry material did not exceed 40 % could be considered residues from the manufacture of starch:

7) The order making the reference was received at the Court Registry on 4 December 1969. The Bremer Handelsgesellschaft, the Government of the Federal Republic of Germany and the Commission of the European Communities submitted their written observations in accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate-General the Court decided not to hold any preparatory inquiry. The oral observations of the praties were heard on 21 April 1970. The Advocate-General delivered his opinion at the hearing on 12 May 1970.

II — Observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice

The observations submitted under Article 20 of the Protocol on the Statute of the Court may be summarized as follows :

A — Observations of the Bremer Handelsgesellschaft

1. The Bremer Handelsgesellschaft takes the view that it is only on the basis of the customs tariff itself that it is possible to define the respective areas of application of the two tariff headings in question. It follows directly from the wording of heading 11.06—taking into account the place which that heading occupies in the Common Customs Tariff and the reference which it has to heading 07.06—that what must be concerned are roots and tubers under heading 07.06 which have been processed solely by grinding. By grinding is meant the mechanical crushing of the raw product after cleaning and sifting, to the exclusion of operations in the course of which the product undergoes chemical or physical treatment which alters its nature. More particularly, it does not cover heat-treatment or washing if this results in a new and more refined commercial product. It follows that the residues obtained from the manufacture of a new and more refined commercial product can under no circumstances be products of grinding but are only residues from the manufacture of the new product. The same criterion makes it possible to define the concept of ‘manioc flour’ within the meaning of heading 11.06 in relationship to that of ‘residues from the manufacture of starch’ within the meaning of heading 23.03. The first of these headings only covers flour obtained from manioc roots by means of grinding and cannot supply to products obtained as residues from the manufacture of starch from manioc. These residues therefore come under heading 23.03.

2. The decision of the German administration to enlarge the scope of heading 11.06 at the expense of heading 23.03 as far as including all tapioca products independently of the means of manufacture used in so far as their starch content is in excess of 40 % is due in the final analysis due to concerns of a fiscal nature: it seeks to prevent the importation without levy of tapioca products which have been subjected to superficial processing. Although these concerns are justified in themselves, the quantitative criterion chosen for the purpose of deciding on the classification is still open to criticism. In fact it is based on a fiction for it is absolutely impossible in the present state of technical knowledge and industrial possibilities to obtain residues with a starch content of 40 % or less, as the Bremer Handelsgesellschaft offers to prove.

3. The Federal Republic of Germany cannot deny the arbitrary nature of this limit by stating that it was introduced on the recommendation of the Commission of the EEC, for it should be noted that : with the exception of the Federal Government, no other Member State followed this recommendation, or adopted such a criterion for the classification of tapioca products under the two tariff headings in question; besides, the Commission itself has in the meantime observed that this criterion is not correct as is clear from the draft regulation of 8 January 1969 on trade in feedstuff's.

4. Further, the starch content considered in isolation is not a sufficient criterion for classifying the goods in the two tariff headings in question. The only way to make an accurate and certain delimitation between manioc flour from a grinding process and the residues of the manufacture of starch from manioc is to analyse their content in raw fibres, sugar and protein. The raw fibre content is clearly higher in residues whereas their sugar content, after washing, is clearly lower than in ground roots. The appearance of the starch also enables the two products to be distinguished, for the presence of large quantities of corroded starch is an infallible indication that the product has been intensively treated with either heat or humidity. Finally manufacturing residues from manioc, precisely because of their content of raw fibres, have a considerably lower commercial value than ground manioc roots: this commercial value is another acceptable criterion for distinguishing between them. The Bremer Handelsgesellschaft states finally that the term ‘manioc flour’ within the meaning of Article 1 (d) of Regulation No 19/62 must in its opinion be interpreted as applying solely to the roots of manioc or tapioca processed by grinding and not to the residues of the manufacture of starch from manioc. The fact that, irrespective of the manufacturing process, a product deriving from manioc roots has a starch content in relation to dry material of over 55 % is not of itself sufficient for it to be regarded as manioc flour.

B — Observations submitted by the Federal Republic of Germany

1. After giving detailed technical information on the production and starch content of manioc flours, the German Government points out that the description ‘manioc flour’ in international trade indicates any flour extracted from manioc tubers irrespective of the method of manufacture and that the starch content of these products varies considerably according to their respective qualities.

2. Tariff heading 11.06 makes no reference to the manufacturing process. It cannot be denied that manioc flour can be obtained by grinding manioc tubers but it is equally true that the products thus obtained, even if there was subsequently removed from them, by a washing process, a certain quantity of starch, may still be regarded as flours within the meaning of the customs tariff. For it would be absurd that, by reason of the simple fact of this process, flours should automatically come within the category of residues although continuing to have a starch content as high as that of other qualities of flour. Only the starch quantity contained (or still contained) is thus decisive for the purposes of a distinction between flours coming under the two tariff headings in question and not for the manufacturing process employed. In this context the description ‘starch residues’, which appears under tariff heading 23.03, can only therefore refer to the residues from the production of starch from which it is impossible to extract any more starch in commercially and economically significant quantities. In order to guarantee a uniform tariff structure and the implementation of the common organization of the markets it was vital to establish a certain starch content as a standard quantity. Having compared the submissions of all the Member States this quantity has only been fixed at about the 40 % recognized by the Commission.

3. The German Government considers that no criterion other than the starch content can be used to make a distinction between the two headings. Neither the corrosion of the starch grains nor the colour of the flour nor the raw fibre or sand content enables the distinction to be made. Moreover the raw fibre or protein content cannot be used as an additional criterion to the starch content for the purpose of distinguishing the two headings because of enrichment by adding starch or alteration by residues with a high cellulose content.

4. Finally the Government of the Federal Republic of Germany states that in its view ‘manioc flours’ within the meaning of Article 1 of Regulation No 19/62 are distinguished from the ‘residues’ referred to by tariff heading No 23.03 solely by reason of their starch content. The percentage of 40 % adopted for this purpose corresponds to an objective criterion for making a distinction for tariff purposes.

C — Observations of the Commission of the European Communities

The Commission takes the view that the Bremer Handelsgesellschaft's argument finds support neither in the wording of tariff heading 11.06 nor in the fundamental principles of the Common Customs Tariff and that it fails to correspond to the ultimate purposes of the levy. To this end it argues in particular as follows:

1) In the literal sense manioc flours mean any farinaceous substance obtained from manioc roots whatever it scomposition, its quality or the manufacturing process used. Consequently tariff heading No 11.06 covers all goods which, in contrast with residues from the manufacture of starch within the meaning of tariff heading No 23.03, do not mainly contain other constituent elements than starch. There is no difficulty in including residues of tapioca manufacture with a high starch content since they are merely ground manioc roots from which some but by no means all of the natural separable starches have been removed by means of an additional decantation. This view conforms to the explanatory notes of the Brussels Nomenclature which, even if not formally constituting Community law, can nevertheless not be ignored in explaining the tariff headings. The explanatory notes relating to tariff heading 11.06 in the Brussels Nomenclature are as follows : ‘The flours and meals contained under this heading are those obtained by the mere grating or grinding of the products classified under heading 07.06’. The definition first mentions flours obtained directly from the raw material (in this case manioc roots) which have not been subject to any process to alter their nature, apart from grinding and which clearly fall under heading 11.06. According to the usual interpretation 'of these explanatory notes the abovementioned text is merely a list giving examples of the main flours referred to here which does not exclude from this heading comparable flours intended for an identical use. Moreover the preliminary observations on Chapter 11 contained in the abovementioned explanatory notes provide that the chapter covers all products deriving from the raw materials in Chapter 10 which have been subjected to grinding or processing as provided for in that chapter, such as malting or starch extraction.

2) In any case even on the basis of a restrictive interpretation of the concept of ‘flour’ the fundamental principles of the Common Customs Tariff do not permit tapioca residues to be classified otherwise than under tariff heading 11.06. Resort to such principles for the interpretation of the descriptions of the goods contained in Regulation No 19/62 is quite permissible: the distinction between the tariff headings in question should indeed be made according to the rules for the interpretation of the Common Customs Tariff even if in this particular case distinction has to be made between products which are subject to the organization of markets and some products which are not so subject, as Regulation No 19/62 adopted without alteration the tariff headings of the Common Customs Tariff for the purpose of defining its sphere of application. However, by virtue of the rules of interpretation which may be deduced from the Common Customs Tariff and also from the explanatory notes to the Brussels Nomenclature, tapioca residues which, on the basis of the aforesaid concept of flours are not precisely shown in either of the two tariff headings in question, must in case of uncertainty, be classified under tariff heading 11.06 since that heading prescribes a higher rate of duty and the products which it describes are the closest to those in question.

3) In addition the classification under heading 11.06 of residues from the manufacture of tapioca with a high starch content is the only one which corresponds equally to the specific objective of protection pursued by the levy system provided for by Regulation No 19. The object of including flours under tariff heading 11.06 is to protect the starch manufacturing and animal fodder industries. In these circumstances it would have been economically illogical to restrict the levy to flours defined in such a restrictive sense as that advocated by the Bremer Handelsgesellschaft because the need for protection exists in respect of all flours which still contain sufficient starch to make its extraction profitable in view of the technical knowledge existing in the Community and also, although to a lesser extent, in respect of all the manioc flours whose starch content makes them suitable for cattle fodder. This protection was quantitatively necessary as the statistics produced clearly show a substantial drop in the imports of products traditionally classified under heading 11.06 in comparison with imports of tapioca waste which were at first exempt from the levy.

4) For all these reasons the distinction between tapioca waste under heading 11.06 and the residues under heading 23.03 must be based on the starch content which determines the value and intended use of the product. A limit of 40 % of starch in relation to dry material appears sufficient: the product would then consist mainly of components other than starch and in view of its reduced nutritive value it could not compete with Community food products, in particular barley. On the other hand heading 23.03 includes those products from which no significant amount of starch can be extracted at the present state of technical knowledge. Finally the Commission maintains that the expression ‘manioc flour’ within the meaning of Article 1 (d) of Regulation No 19/62 must be so interpreted that irrespective of the manufacturing process it covers all products made from manioc tubers which contain more than 40 % of starch in relation to dry matter without its being necessary to take account of the maximum or minimum contents of other components such as raw fibres, sugar or proteins.

Grounds of judgment

1. By order of 21 October 1969, which was received at the Court Registry on 4 December 1969, the Bundesfinanzhof has referred to the Court of Justice, pursuant to Article 177 of the Treaty establishing the EEC, a question seeking to know whether the expression ‘manioc flour’ in the Annex referred to in Article 1 (d) of Regulation No 19/62 of the Council of 4 April 1962 (OJ 1962, p. 933) should be interpreted in such a way as to cover, irrespective of the manufacturing process, all products derived from manioc roots, if their starch content is higher than 55 % or whether the maximum or minimum contents of other constituent elements such as raw fibres, sugar or protein should also be taken into account.

2. Article 1 of Regulation No 19/62, on the progressive establishment of a common organization of the markets in the cereals sector, subjects to a system of levies the importation of cereals and certain non-cereal products, including those under heading 11.06 of the Common Customs Tariff, including manioc flours, imported especially as feeding-stuffs, by reason of their high starch content. These products are liable to a 28 % ad valorem levy. On the other hand, the products under heading 23.03, including, inter alia, starch residues, were left outside the area of application of Regulation No 19/62 and are not liable to any customs duty or levy.

3. Following the entry into force of Regulation No 19/62, crushed manioc roots were imported into the Federal Republic of Germany after undergoing treatment in their country of origin intended to extract the starch. Even after this treatment these goods still exhibited a high starch content which rendered them capable of being marketed as manioc flours. However, they were declared to the customs as ‘starch residues’ under heading 23.03 — which was intended to exempt them from the levy affecting these flours. The question referred thus seeks, as regards the products derived from manioc, to establish what criteria make it possible to distinguish the ‘starch residues’ of manioc under heading 23.03 from manioc flours under heading 11.06.

4. The interpretation of one tariff heading in relation to another must, in a case of doubt, take into account both the function of the customs tariff in regard to the necessities of the systems of organization of the markets and its purely customs function. Although Regulation No 19/62 included non-cereal products under heading 11.06 — and, inter alia, manioc flours — in the system of the organization of the market in cereals, this was because precisely by reason of their high starch content these products compete on the common market with cereal products and, in particular, after denaturing, with feeding-stuffs.

5. There is no doubt that ‘starch residues’ under heading 23.03 are also sold as fodder but because of their lesser starch content they are not capable of being marketed under the same description as the products under heading 11.06 so that they do not compete with local production in the same way as the said products. However, as regards manioc, it has become apparent that in certain countries the extraction methods leave a product the starch content of which is still comparable to that of manioc flours and which, after milling, is marketed under the description. This fact shows that, in regard to the objectives of the levy prescribed in the present case, it is only in terms of the starch content, so far as manioc is concerned, that the line must be drawn between the ‘residues of starch manufacture’ and flours.

6. Moreover, the plaintiff in the main action maintains that the description ‘flours’ within the meaning of heading 11.06 must be reserved for manioc products obtained by the simple grating of the dried roots to the exclusion of all other treatment. It bases its argument on the title to Chapter 11 — in which heading 11.06 appears — which mentions, inter alia,‘Products of the milling industry’, on the wording of the explanatory notes on the Brussels Nomenclature concerning the said heading as well as on the fact that the flours under heading 11.06 must derive from the vegetable raw materials mentioned under heading 07.07 (manioc roots … other tubers having a high starch content) which would exclude roots from which the starch has already been extracted.

7. This interpretation would give to heading 11.06 a content which it does not possess. By classifying flours as the products of the milling industry the Common Customs Tariff does not contemplate a specific form of processing vegetable products into flours. On the other hand, the expression ‘by simple grating’ used by the explanatory notes concerns the stage of processing roots into flour and not the treatment which those roots may or, in certain cases, must have undergone previously. Moreover, the prior extraction of a small part of their starch content leaves the roots, before they are crushed, with properties such that they continue to come under heading 07.06 which includes all roots or tubers having a high starch content. The result of this treatment is thus not to remove from heading 11.06 flours deriving from the grating of the roots treated in this way.

8. The Commission and the Federal Government on the one hand and the plaintiff in the main action on the other take issue with each other on the question of the percentage of the starch content which enables flour residues to be distinguished and rely on the authority of experts whose evaluations, as regards the starch content of the residues, vary between 30 % and 70 % of starch in relation to dry material. According to the Commission and to the Federal Government only primitive and superficial extraction methods leave starch contents in excess of 50 % or 60 %, whereas with modern extraction methods the residues have a starch content which does not exceed 40 %. The plaintiff in the main action on the other hand states that residues with a starch content under 40 % do not exist and that, even after treatment by modern processes, manioc roots still have a starch content in excess of 60 %, particularly by reason of the peculiarities of their fibrous structure.

9. If, even with modern methods, it is possible to extract from manioc roots only relatively small quantities of starch so that the new material remaining still contains 60 % or more of starch, then it must be concluded that this material cannot be regarded as a residue — that is to say, according to the terms of the explanatory notes to heading 23.03 — waste from starch manufacture within the meaning of that heading, but that it still constitutes a product the high starch content of which must lead to its falling under heading 07.06 (manioc roots) and the simple grating of which provides a product marketed as manioc flour.

10. The level of starch which is decisive is therefore that at which the roots which have been treated previously cease to constitute such a product. On the other hand in order to ensure the functioning of the Common Market and in particular the organizations of the agricultural markets this level must be fixed in a uniform manner for the whole Community.

11. A circular from the Federal Minister of Finance of 29 December 1965 had fixed this limit at 55 %. During the year 1966, when the Committee on Common Customs Tariff Nomenclature set up by Regulation No 97/69 of the Council of 16 January 1969 (OJ Special Edition 1969, p. 12) was not yet operative, a group of officials from the Member States presided over by a representative of the Commission was of the unanimous opinion that only products which, after being subjected to treatment designed to extract starch, contained no more than 40 % of that product, could be regarded as residues from the manufacture of starch from manioc and placed under heading 23.03. The result of this discussion was communicated by the Commission's departments to the Permanent Representatives of the Member States, and in particular to the Representative of the Federal Government by letter dated 13 May 1966.

12. In the absence of express Community provisions, an interpretation fixing the limit of heading 23.03 at 40 % of starch content, as regards the ‘residues from the manufacture of starch’ from manioc, is calculated to ensure that at any event, despite the peculiarities of the trade concerned in the different Member States, manioc products which could, without the addition of other substances, be marketed as manioc flour, shall be subject to the levy.

13. Although this limit may be regarded as fixed at the lowest level, it does not, however, have the effect of destroying the substance of the concept ‘residues from the manufacture of starch’. Whilst it leads to a narrow interpretation of the concept ‘residues from the manufacture of starch’ from manioc, this interpretation finds its justification, however, in the fact that, unlike residues from the manufacture of starch from other products, what is left over from the manufacture of starch from manioc constitutes a product which has nothing in common with waste but has from the commercial point of view the characteristics of a raw material from which it is still possible to obtain manioc flour.

14. The expression ‘manioc flours’ within the meaning of Article 1 (d) of Regulation No 19, read in conjunction with heading 11.06 of the Common Customs Tariff, mentioned in the annex to that regulation, must therefore be interpreted as referring to all farinaceous substances obtained from manioc roots, irrespective of the treatment which those roots may have undergone, where the product has a starch content in excess of 40 %.

Costs

15. The costs incurred by the Commission of the European Communities and by the Government of the Federal Republic of Germany, which have 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 Bundesfinanzhof of the Federal Republic of Germany, the decision on costs is a matter for that court.

On those grounds, Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the observations of the plaintiff in the main action, the Government of the Federal Republic of Germany 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 Articles 38 to 47, 177 and 189; Having regard to Regulation No 19 of the Council of the European Economic Community of 4 April 1962; Having regard to Regulations of the Council of the European Communities Nos 950 of 28 June 1968 and 2451 of 8 December 1969; Having regard to Regulation No 97 of the Council of the European Communities of 16 January 1969: Having regard to the Protocol on the Statute of the Court of Justice of the EEC, especially Article 20; Having regard to the Rules of Procedure of the Court of Justice of the European Communities, THE COURT in answer to the question referred to it by the Bundesfinanzhof of the Federal Republic of Germany under the order made by that court on 21 October 1969 hereby rules: