JUDGMENT OF 26. 2. 1980 — CASE 54/79 HAKOSCHUH v HAUPTZOLIAMT FRANKFURT AM MAIN-OST

In Case 54/79 REFERENCE to the Court under Article 177 of the EEC Treaty by the Hessisches Finanzgericht [Finance Court, Hessen] for a preliminary ruling in the action pending before that court between

THE COURT composed of: A. O'Keeffe, President of the First Chamber, Acting as President, A. Touffait (President of the Second Chamber), P. Pescatore, Lord Mackenzie Stuart, G. Bosco, T. Koopmans and O. Due, Judges, Advocate General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

1. On 2 February 1978 Firma Hako-Schuh Dietrich Bahner (hereinafter referred to as “Hako-Schuh”), Augsburg, obtained customs clearance for and imported into the Federal Republic of Germany from Spain footwear consisting of fabric uppers and hempen rope soles covered at the toe, the joint and the heel with rubber. The rubber coating covers 57% of the sole. The importer declared the shoes as footwear with outer soles of rope coming under heading 64.04, worded as follows: The duty under this heading on goods from Spain is 2.8%. The Hauptzollamt Frankfurt am Main-Ost (hereinafter referred to as “the Hauptzollamt”) however classified the said goods under subheading 64.02 B involving as regards Spain a duty of 12% and worded thus:

“Footwear with outer soles of other materials.”

“64.02. Footwear with outer soles of leather or composition leather; footwear (other than footwear falling within heading No 64.01) with outer soles of rubber or artificial plastic material: A. ... B. Other.”

2. The objection which Hako-Schuh made against this classification was rejected by the Hauptzollamt and the matter then came before the Hessisches Finanzgericht. The Finanzgericht took the view that the rubber reinforcements of parts of the outer hempen sole should not be taken into account for purposes of tariff classification of the goods where it is not an essential and substantial part of the outer sole. The court had doubts “whether footwear with an outer sole of hemp having only certain parts of the area of that sole... reinforced with rubber is to be considered footwear with outer soles of rubber”. Because of these doubts the court stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty:

“Can footwear with outer soles of hemp, approximately half the area of which is provided with a rubber reinforcement, be classified as ‘Footwear with outer soles of rubber’ under heading 64.02 of the Common Customs Tariff?”

3. The order referring the matter to the Court was registered at the Court Registry on 9 April 1979. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC written observations were submitted by Hako-Schuh, represented by E. Leierseder of the Munich Bar, by the Government of the French Republic, represented by P. Achard, Secretary General of the Interministerial Committee for Questions of European Economic Cooperation, acting as Agent, the Government of the Italian Republic, represented by A. Maresca, Ambassador, acting as Agent, assisted by A. Marzano, Avvocato dello Stato, and the Commission of the European Communities, represented by Manfred Beschel, a Member of the Legal Department of the Commission, acting as Agent. After hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II — Written observations under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

Hako-Schuh refers to the observations which it made during the main action and reiterates the application for expert evidence it made then. In the observations submitted to the Court of Justice it therefore confines itself to setting out very briefly its basic arguments which are as follows:

The whole manufacture, including the way the sole is made, determines the essential character of the footwear in question. In order to take account of the cold and wet weather in certain countries into which this kind of footwear has recently been imported it has been necessary to adapt it by strengthening the sole in parts with an artificial plastic covering. The only purpose of the adaptation is to ensure that the footwear is waterproof and to increase its durability without in any way altering its nature.

The French Government observes, first, that according to the Common Customs Tariff footwear with outer soles of rubber or plastic fall under subheading 64.02 B. Espadrilles the outer sole of which consists mainly of an artificial covering fall under subheading 64.02 B while only espadrilles the outer sole of which consists of rope fall under heading 64.04. This view is confirmed by the Explanatory Notes to the Common Customs Tariff which while not being legally binding are nevertheless an important aid to interpreting the tariff.

Although the question put to the Court mentions footwear with “approximately half” the outer sole reinforced with rubber, it appears from the order that the rubber coating covers almost 60% of the sole of the espadrilles in question and that the main parts of the sole are completely made of rubber. Since, contrary to the case of traditional espadrilles, the rope in such sandals is only of secondary and inessential importance, classification under subheading 64.02 B is justified.

The Government of the Italian Republic takes the view that on the basis of the Rules for the interpretation of the nomenclature of the Common Customs Tariff and, in any event, on the basis of the rule that in the absence of any other solution the highest rate of duty should be applied, the footwear in question should be classified under subheading 64.02 B.

This solution moreover accords with an opinion which the Committee on Common Customs Tariff Nomenclature gave in 1976 when called upon to consider the question of classification of certain samples of footwear, which classified footwear with fabric uppers and outer soles partly or wholly covered with rubber under subheading 64.02 B; on the other hand footwear with outer rope soles merely reinforced with rubber were classified under heading 64.04.

Although in the present case rubber does not cover the whole of the under part of the footwear, nevertheless all parts which touch the ground are so covered; the rubber is the real “outer sole” and is more vital and important than the layer of rope (which is coverd precisely in those parts which cannot serve as the “outer sole”).

The stoutness and durability of the footwear are ultimately ensured by the rubber just like footwear with soles entirely of rubber. If a lower rate of duty were levied on these espadrilles than that provided in subheading 64.02 B this would gravely affect the Community manufacturers of footwear with soles entirely of rubber, who would face competition from a product of inferior quality imponed into the territory of the Communites at a reduced rate of duty.

The Commission of the European Communities observes that the question raised relates to the definition of two headings (64.02 B and 64.04) of the Common Customs Tariff.

The only criterion determining classification under headings 64.02 to 64.04 of the Common Customs Tariff is the material from which the outer sole of the footwear is made.

The classification of traditional espadrilles with an outer sole entirely of hempen rope poses no problem. On the other hand it is more difficult to classify footwear with an outer sole consisting of two materials (in the present case rubber and rope).

It is therefore necessary to apply Rule A 3 of the General Rules for the Interpretation of the Common Customs Tariff. According to Rule A3 (a) it is necessary first to consider whether one of the relevant headings is more specific than the other. In so far as heading 64.02 requires the outer soles to be of a specific material (rubber or artificial plastic material) it may be regarded as more specific than heading 64.04 which refers generally to “other materials”. The latter heading covers moreover all materials not expressly included in headings 64.02 and 64.03. This is nevertheless not convincing because headings 64.02 and 64.04 equally stress the material composition of the outer sole and refer to three classes of material which, as classes, have the same tariff significance. This is supported by the Explanatory Notes to the CCCN (Customs Cooperation Council Nomenclature) to the effect that if two or more headings each refer to one only of the materials contained in mixed or composite goods, those headings are to be regarded as equally specific in relation to those goods.

In these circumstances it is necessary to consider the question in the light of General Rule A 3 (b) according to which mixtures and composite goods consisting of different materials or made up of different components “shall be classified as if they consisted of the material or component which gives the goods their essential character, in so far as this criterion is applicable”.

How then is the material or component giving a product its essential character to be determined? The Explanatory Notes to the Customs Cooperation Council Nomenclature simply list, by way of example, factors determining the essential character of goods in each case.

In turn the Committee on Common Customs Tariff Nomenclature, which was called on to consider the question of tariff classification of footwear with outer soles partly reinforced with rubber, listed certain particulars in this respect in the Explanatory Notes to subheading 64.02 B and heading 64.04.

Regarding subheading 64.02 B it stated:

“This subheading includes footwear of the espadrille type having outer soles of rope at the toe, the heel, the middle part and all round the edge, with rubber or artificial plastic material... The subheading also covers footwear of this type having outer soles of rope covered at the heel and most of the forepart of the sole with rubber or artificial plastic material...”

Regarding heading 64.04 is stated:

“This heading covers footwear of the espadrille type having outer soles of rope, even if the toe and the heel or the toe, the heel and the middle part are covered with rubber or artificial plastic material... Some footwear of this type must, however, be classified under subheading 64.02 B. Such is the case, in particular, with footwear having outer soles covered at the toe, the heel, the middle part and all round the edge, or at the heel and most of the forepart of the sole, with rubber or artificial plastic material (see Explanatory Notes to subheading 64.02 B).”

The Committee thus made great efforts to give a balanced and differentiated answer to a question which is not easy. The criterion adopted is primarily quantitative (classification depends on whether the rubber reinforcement covers more or less than the half of the outer sole) but at the same time qualitative, because a very extensive rubber reinforcement alters the qualities of the footwear giving it better adhesion to the ground and more durability. Since the essential character of the sole is determined both quantitatively and qualitatively by the rubber reinforcement and by the effect which it produces, the rubber must be regarded as the material giving the sole its essential character. The fact that the rubber does not appreciably alter the characteristic appearance of the espadrilles is irrelevant for purposes of customs classification.

In view of the foregoing considerations the Commission therefore proposes that the question put by the Hessisches Finanzgericht should be answered as follows:

“Footwear with outer soles of hemp, approximately half the surface of which is reinforced with rubber, is to be classified under heading 64.02 of the Common Customs Tariff”

III — Oral procedure

The Government of the French Republic, represented by Philippe Moreau Def arges, Conseiller des Affaires Etrangères in the Legal Affairs Directorate of the Ministry for Foreign Affairs, the Government of the Italian Republic, represented by Arturo Marzano, Sostituto Avvocato dello Stato, and the Commission of the European Communities, represented by Manfred Beschel, a Member of the Legal Department, presented oral argument at the hearing on 29 November 1979.

The Advocate General delivered his opinion at the sitting on 15 January 1980.

Decision

1. By order dated 13 March 1979, received at the Court of Justice on 9 April 1979, the Hessisches Finanzgericht (Seventh Senate) put the following question to the Court under Article 177 of the EEC Treaty:

“Can footwear with outer soles of hemp, approximately half the area of which is provided with a rubber reinforcement, be classified as ‘Footwear with outer soles of rubber’ under heading 64.02 of the Common Customs Tariff?”

2. It appears from the particulars contained in the order making the reference that the footwear in question is espadrilles imported from Spain having fabric uppers and hempen rope soles which have a coating of rubber at the toe, joint and heel. The order of the German court also states that the rubber coating covers 57% of the sole. The importer's customs declarations stated that the footwear was footwear with outer soles of rope coming under heading 64.04, which, for imports from Spain, involves a duty of 2.8%. The customs office on the other hand considered that the footwear came under subheading 64.02 B involving for this importation a duty of 12%. The Hessisches Finanzgericht referred to the Court the aforementioned question for a preliminary ruling to settle the question of tariff classification.

3. Subheading 64.02 B of the Common Customs Tariff applies inter alia to footwear with only the outer soles of rubber or artificial plastic material and not having uppers of leather. Tariff heading 64.04 comprises footwear with outer soles of other materials such as twine or rope, paperboard, textile fabric, felt, straw etc. It thus appears from the structure of these two tariff headings that the distinctive criterion on which they are based relates solely to the material of which the outer sole of the footwear is made: rubber or artificial plastic material as regards heading 64.02 and material other than rubber, plastic, leather, wood or cork as regards heading 64.04.

4. As regards “mixtures” such as those in the present case, Rule A 3 (b) of the Rules for the Interpretation of the Nomenclature of the Common Customs Tariff provides that composite goods consisting of different materials which cannot be classified by reference to Rule 3 (a), which relates to the criterion of the most specific heading, “shall be classified as if they consisted of the material... which gives the goods their essential character, in so far as this criterion is applicable”. In the interests of legal certainty it is the objective characteristics and properties of products which, as a general rule, provide the decisive criterion for their classification

5. In the present case it is apparent from tariff headings 64.02, 64.03 and 64.04 that the distinction between products falling under one or the other heading depends basically only on the characteristics of the outer sole, that is to say the part of the footwear in direct contact with the ground. In accordance with this criterion of classification, the Explanatory Notes to the Common Customs Tariff provide as regards footwear of subheading 64.02 B: The same Explanatory Notes state as regards footwear of heading 64.04:

“This subheading includes footwear of the espadrille type having outer soles of rope covered at the toe, the heel, the middle part and all round the edge, with rubber or artificial plastic material...

The subheading also covers footwear of this type having outer soles of rope covered at the heel and most of the forepart of the sole with rubber or artificial plastic material....”

“This heading covers footwear of the espadrille type having outer soles of rope, even if the toe and the heel, or the toe, the heel and the middle part are covered with rubber or artificial plastic material...

Some footwear of this type must, however, be classified under subheading 64.02 B. Such is the case, in particular, with footwear having outer soles covered at the toe, the heel, the middle part and all round the edge, or at the heel and most of the forepart of the sole, with rubber or artificial plastic material (see Explanatory Notes to subheading 64.02 B).”

6. As the Court stated in its judgment of 8 May 1974 (Case 183/73 Osram [1974] ECR 477) although the Explanatory Notes to the Common Customs Tariff cannot modify the text of that tariff, they nevertheless constitute an important factor in its interpretation enabling the scope of the various tariff headings or subheadings to be defined or clarified. In the present case it appears from the Notes that for footwear of heading 64.04 the coating of rubber or artificial plastic material covers the toe, the heel and possibly the middle part of the outer sole whereas for footwear classified under subheading 64.02 B it covers, apart from those places, “all round the edge” of the outer sole and moreover extends to the parts of the sole in direct contact with the ground. With these particulars the Notes in question thus confirm that the distinction between products of heading 64.02 and those of heading 64.04 is essentially based on the characteristics of the outer sole and that, in accordance with that criterion, the classification of footwear with rope outer series reinforced with rubber depends upon the extent and area covered by such reinforcement on the parts of the outer sole in direct contact with the ground. When the rubber reinforcement covers the surface of the outer sole to such an extent that the parts of the sole most subject to wear have a strength and durability comparable to that of a rubber sole, the reinforcement gives the sole to which it is applied characteristics and a function similar to that of a rubber sole and result in such a “mixture” being assimilated, for tariff purposes, to footwear of heading 64.02 of the Common Customs Tariff.

7. The national court refers in its question to footwear of the espadrille type having a fabric upper and hempen rope outer sole which has a coating of rubber at the toe, joint and heel which covers 57% of the total surface leaving 43% uncovered. Having regard to its extent in relation to the surface of the sole in direct contact with the ground, such rubber reinforcement gives the outer sole the characteristics and function of a rubber sole. Because of this it justifies assimilating the said footwear, for customs purposes, to “footwear with outer soles of rubber” within the meaning of heading 64.02.

8. For these reasons it is necessary to answer the national court that footwear with outer soles of hempen rope, 57% of the surface of which is reinforced with rubber at the toe, joint and heel, must be classified as footwear with outer soles of rubber under heading 64.02 of the Common Customs Tariff and, having regard to the material of which the uppers are made, under subheading B of that heading.

Costs

9. The costs incurred by the Government of the French Republic, the Government of the Italian Republic and the Commission of the European Communities, which have submitted written observations to the Court, are not recoverable. As the proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT in answer to the question put by the Hessisches Finanzgericht by an order of 13 March 1979 hereby rules: