JUDGMENT OF 23. 2. 1984 — CASE 93/83 ZENTRAG v HAUPTZOLLAMT BOCHUM
In Case 93/83 REFERENCE to the Court of Justice under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Düsseldorf for a preliminary ruling in the proceedings pending before that court between
THE COURT (Third Chamber) composed of: Y. Galmot, President of Chamber, U. Everling and C. Kakouris, Judges, Advocate General: S. Rozès Registrar: H. A. Rühl, Principal Administrator
gives the following
JUDGMENT
Facts and Issues
The facts of the case, the course of the procedure and the observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:
I — Facts and procedure
1. Article 10 (3) of Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organization of the market in beef and veal (Official Journal, English Special Edition 1968 (I), p. 187) and Commission Regulation (EEC) No 611/77 of 18 March 1977 fixing the special levy in respect of live bovine animals and beef and veal other than frozen (Official Journal 1977, L 77, p. 14) provide for the charging of levies on imports of beef originating in and coming from Austria, Sweden and Switzerland at a special reduced rate in relation to the general rate applied on imports from non-member countries, since in those three countries trading structures and systems of cattle production are comparable to those existing in the Community and price levels for beef are relatively high. Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 on the common definition of the concept of the origin of goods (Official Journal English Special Edition 1968 (I), p. 165) provides as follows: In order to implement that provision, the Commission adopted, on the basis of Article 14 of Regulation No 802/68, Regulation (EEC) No 964/71 of 10 May 1971 on determining the origin of the meat and offals, fresh, chilled or frozen, of certain domestic animals (Official Journal, English Special Edition 1971 (I), p. 253) which contains the following provisions: Between 18 February and 18 May 1982 the Zentralgenossenschaft des Fleischergewerbes e.G. (hereinafter referred to as “Zentrag”) submitted 23 consignments of beef to the Hauptzollamt [Principal Customs Office] Bochum for customs clearance under cover of Austrian certificates of origin issued by the Kammer für Gewerbliche Wirtschaft [Chamber of Commerce] Graz. The Hauptzollamt therefore charged levies in accordance with the special rate applicable for Austria. The Hauptzollamt subsequently established that the imported meat did not originate from animals slaughtered in Austria but had been purchased as beef quarters in Hungary by Zentrag's supplier who, while it was still subject to customs control, had it boned, trimmed and the sinews drawn, cut in pieces and vacuum-packed in a processing plant in Austria. On the basis of those findings, the Hauptzollamt Bochum, by notice of assessment of 3 November 1982, claimed the difference, amounting to DM 1918709, between the special levy and the ordinary levy applicable to non-member countries.
“A product in the production of which two or more countries were concerned shall be regarded as originating in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture.”
The slaughter of domestic animals falling within headings ... 01.01 and 01.04 of the Common Customs Tariff shall confer on the edible meat and offals, fresh, chilled or frozen, which are thus obtained, the origin of the country or of the Community, according as the slaughter took place there, only if the animals in question have been fattened in that country or in the Community during a period of at least three months in the case of horses, asses, mules and cattle and of at least two months in the case of swine, goats and sheep.
It the slaughter does not satisfy the conditions laid down in Article 1 of the regulation, the meat and offals referred to in that article shall be considered as originating in the country where the animals from which they were obtained were fattened or reared for the longest period.”
2. Zentrag instituted proceedings against that notice of assessment before the Finanzgericht [Finance Court] Düsseldorf. It also applied for a suspension of the operation of the contested decision on the ground that there were serious doubts as to its legality since the processing of the meat in Austria was an operation determining its origin for the purposes of Article 5 of Regulation No 802/68. In the view of the Finanzgericht Düsseldorf, the decision in the case depends on the validity of Article 1 of Regulation No 964/71 of the Commission and on the interpretation of Article 5 of Regulation No 802/68 of the Council. In the first place, it is doubtful, in the Finanzgericht's opinion, whether the Commission, in adopting Regulation No 964/71, acted within the powers vested in it for implementing the provisions of Regulation No 802/68 of the Council. In the context of Article 5 of Regulation No 802/68 the origin of a product may be defined on the basis of a technical description or an economic assessment (percentage-increase-in-value rule) or a combination of the two. In the production of meat the following activities may be given a technical description: the raising and fattening of animals; the slaughter of animals and the processes of eviscerating, skinning, cutting in two and chilling which are directly connected with it; the further processing of the meat, such as boning, trimming, drawing the sinews and cutting into pieces; and the preparation of the meat in- quantities suitable for the consumer market. The last substantial process or operation is carried out at the final stage. Since Article 1 of Regulation No 964/71 presupposes that the place of slaughter determines the place of origin in all cases, it is incompatible with Article 5 of Regulation No 802/68. Moreover, there is also a difference in the treatment of meat on importation (imposition of a levy) and on exportation (grant of a refund) since, in the case of Regulation (EEC) No 885/68 of the Council of 28 June 1968 laying down general rules for granting refunds on beef and veal and criteria for fixing the amount of such refunds (Official Journal, English Special Edition 1968 (I), p. 237), no implementing regulation corresponding to Regulation No 964/71 has been adopted. If Article 1 of Regulation No 964/71 is invalid, a further question which arises, in the opinion of the Finanzgericht Düsseldorf, is whether the process of boning meat, trimming, drawing the sinews, cutting it into pieces and vacuum-packing it constitutes a process determining its origin for the purposes of Article 5 of Regulation No 802/68; the Finanzgericht is inclined to answer that question in the affirmative. Admittedly, the sole purpose of vacuum-packing is to meet marketing requirements. The other processing operations, on the other hand, result in the manufacture of new products, which are marketable in their own right, in particular special meat preparations such as fillet, roast beef, entrecôte, brisket and meat for processing. Those operations produce a considerable change in the original meat which, after processing, has its own properties and a composition of its own which it did not possess before. Accordingly, by order of 20 April 1983, the Finanzgericht Düsseldorf stayed the proceedings and referred to the Court of Justice, pursuant to Article 177 of the EEC Treaty, the following questions for a preliminary ruling:
“1) Is Article 1 of Regulation No 964/71 of the Commission of 10 May 1971 invalid on the ground that it infringes Regulation No 802/68 of the Council of 27 June 1968?
2) Does the processing of meat by boning, trimming, drawing the sinews and cutting it into pieces constitute a process determining origin for the purposes of Article 5 of Regulation No 802/68?”
3. The order making the reference was received at the Court Registry on 25 May 1983. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by Zentrag, represented by Walter Schürmann und Partners Steuerberatungsgescllschaft mbH, Frank-furt-am-Main; by the Hauptzollamt Bochum, represented by its Chief Executive Officer; and by the Commission of the European Communities, represented by Jörn Sack, a member of its Legal Department. On 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. By order of 8 October 1983, made pursuant to Article 95 (1) of the Rules of Procedure, the Court assigned the case to the Third Chamber.
II — Written observations submitted to the Court
1. Obsevations submitted by Zentrag
In Zentrag's opinion, it is necessary in the first place to consider the scope of Article 1 of Regulation No 964/71. That provision merely contains a definition of the slaughter of domestic animals as one of several operations which may determine origin and, as is apparent from the recitals in the preamble to the regulation, “cutting” comes within the concept of slaughter only in so far as it constitutes a “related operation”. That is the case only as regards cutting into approximate halves or quarters which is designed to permit or to facilitate further transportation of the slaughtered animal and further operations on or processes affecting it.
That provision does not therefore prevent origin from being established by the processes or operations which follow the slaughter of the animal and which also include cutting it into pieces, an operation unrelated to slaughter, provided that the general requirements prescribed by Article 5 of Regulation No 802/68 are fulfilled.
In answering the second question, the Court must also take into account the fact that the meat is vacuum-packed. It is incorrect to state that vacuum-packing does not affect the essential properties of the meat.
2. Observations submitted by the Hauptzollamt Bochum
The Hauptzollamt Bochum considers in the first place the question of the interpretation of Article 5 of Regulation No 802/68. It takes the view that a process or operation is “substantial” for the purposes of that provision only if the product resulting therefrom has its own properties and a composition of its own which it did not possess before. Activities affecting the presentation of the product for the purposes of its use, but which do not bring about a significant qualitative change in its properties, are not of such a nature as to determine the origin of that product.
According to those criteria the cutting of meat into pieces cannot determine its origin since the further processing of the meat following the slaughter of the animal, such as evisceration, skinning, cutting in two and chilling, leaves its composition unchanged. The process of severing the meat into different cuts, such as fillet, beef for roasting, topside and silverside — which requires expert knowledge — admittedly enhances its value quite appreciably (by approximately 30% according to Zentrag) but that increase in value is attributable exclusively to the fact that the presentation of the product is altered for the purposes of resale, without bringing about any change in the individual pieces of meat.
On that basis, it must be affirmed that, as Regulation No 964/71 provides, only slaughter brings about a substantial qualitative change. However, since that is a comparatively simple operation, there must bé an additional factor, that is to say fattening or rearing. Conversely, it must also be possible for an additional, costly operation following slaughter to be taken into consideration. In the present case, therefore, there would be no objections to the meat's being regarded as of Austrian origin, if the slaughter of the animal had also taken place in Austria.
Article 1 of Regulation No 964/71 is therefore inapplicable in the present case. That regulation is concerned exclusively with the question which operations preceding slaughter must have been carried out, in addition to slaughter, if the latter is to have the effect of conferring origin.
3. Observations submitted by the Commission
The Commission considers, in the first place, whether the first question concerning the validity of Regulation No 964/71 is of any relevance at all for the purpose of resolving the matter in litigation. In its view, that is not the case since Regulation No 964/71 does not deal with the question whether the processing operations mentioned in the order making the reference in themselves suffice to determine origin or whether they must be preceded by slaughter. It merely provides that the country in which the animals are slaughtered and in which certain related operations such as evisceration, skinning, cutting and chilling of the meat are performed may be regarded as conferring origin only if the animals were fattened for at least three months or, as the case may be, two months in that country prior to slaughter, since slaughter adds very little to the value of “meat” as a product (approximately 2% of the market value based on live weight). Regulation No 964/71 is silent on the question whether other meat-processing operations, more complex than mere slaughter, can confer origin for the purposes of Article 5 of Regulation No 802/68.
The country of origin and the country of slaughter need not always be the same. Although slaughter following an appropriate period of fattening in the same country does establish origin, it does not follow that in all cases only a combination of fattening and slaughter establishes origin. At the very least it is possible to envisage an interpretation of Regulation No 964/71, consistent with the Treaty, along these lines, with the result that it is unnecessary for the regulation to be declared invalid.
The answer to the first question referred to the Court should therefore be that Regulation No 964/71 does not deal with the question whether the processing of beef otherwise than by slaughter and related operations preceded by a minimum fattening period determines the origin of the meat.
As regards the second question referred to the Court, the Commission is of the opinion that the processing of beef by boning, trimming, drawing the sinews and cutting it into pieces is not a substantial process or operation resulting in the manufacture of a new product or representing an important stage of manufacture and cannot therefore determine its origin for the purposes of Article 5 of Regulation No 802/68.
Those operations can be carried out with expert knowledge alone and do not require the use of any special machines or implements. Boned meat is, moreover, not by any means always easier to sell and is therefore not always “more marketable” than meat which has not been boned since many meat-processing undertakings and butchers prefer to bone the meat themselves, in accordance with their own requirements. Furthermore, marketability is not the decisive criterion. The operations described do not bring about any change in the essential properties of the product or enhance its value appreciably. Boning, trimming, drawing the sinews and packing represent only a negligible part of the whole economic process involved in the production of beef. Under the common agricultural policy the boning of beef, including storage costs, prepresents only about 5% of the market value based on the live weight of the cattle and the increase in value as a result of boning and related operations such as trimming and drawing the sinews is undoubtedly well below 10%. Admittedly, those processes also improve the quality of the product to a very slight extent, but they do not add to its properties unlike the case where a processed product such as corned beef or sausage is manufactured from beef.
Finally, the Commission points out that under Article 10 (3) of Regulation No 805/68, as implemented by Regulation No 611/77, the special levy on meat from Austria, Sweden and Switzerland applies only in the case of meat the price of which is in fact on a level with the prices recorded in those countries. However, that is not so in this case since the meat, which originally came from Hungary, was subject to customs control in Austria and was not therefore subject to the import duties applicable in that country.
III — Answers to the questions put by the Court
In answer to a question which the Court had put to them on the subject, the parties supplied a detailed description of the relevant operations and of the alterations which they bring about in the characteristics and the value of the meat.
In this connection, Zentrag laid particular emphasis on the importance of vacuum-packing, which, it said, is a complex and modern process which extends the time during which the meat will keep and improves the maturing process. The total increase in value produced by the operations in question amounts, according to the details given by Zentrag, to more than 200% in terms of individual pieces of meat and 17.6% on a comparison between the proceeds of sale of a side of beef and the total proceeds of the same meat after it has been cut into pieces, boned, trimmed and vacuum-packed.
The Hauptzollamt stated that any change in the quality of the meat can only result from vacuum-packing if at all and that it merely consists of making a somewhat longer period of storage possible and reducing weight loss by about 5%. In any event, the increase in value is less than 10%.
The Commission repeated that in its view none of the operations at issue amounted to an important stage of processing.
IV — Oral procedure
Zentrag, represented by Hinrich Glashoff, tax consultant, Frankfurt-am-Main, the Hauptzollamt Bochum, represented by Mr Ambs, Regierungsdirektor [Permanent Secretary] at the Federal Ministry of Food, Agriculture and Forestry, and the Commission of the European Communities, represented by Jörn Sack, a member of its Legal Department, presented oral argument and, assisted by experts accompanying them, replied to the questions put to them by the Court at the sitting on 1 December 1983.
The Advocate General delivered her opinion at the sitting on 26 January 1984.
Decision
1. By order of 20 April 1983, received at the Court on 25 May 1983, the Finanzgericht [Finance Court] Düsseldorf referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the validity of Regulation (EEC) No 964/71 of the Commission of 10 May 1971 on determining the origin of the meat and offals, fresh, chilled, or frozen, of certain domestic animals (Official Journal, English Special Edition 1971 (I), p. 253), and on the interpretation of Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 on the common definition of the concept of the origin of goods (Official Journal, English Special Edition 1968 (I), p. 165).
2. Those questions arose in the course of a dispute between the Zentralgenossenschaft des Fleischergewerbes e.G. (hereinafter referred to as “Zentrag”), Frankfurt-am-Main, and the German customs authority. The dispute relates to the payment of levies applicable, under Article 10 of Regulation (EEC) No 805/68 of the Council of 17 June 1968 on the common organization of the market in beef and veal (Official Journal, English Special Edition 1968 (I), p. 187), to the importation into the Federal Republic of Germany of a number of consignments of “beef, fresh pieces without bone” which came from Austria. Zentrag claims that these imports should have the benefit, which was refused by the customs authority, of the reduced rate applicable under the specific basic levy fixed for products originating in and coming from Austria, Sweden and Switzerland, in accordance with paragraph (3) of that article and with Commission Regulation No 611/77 of 18 March 1977 fixing the specific levy in respect of live bovine animals and beef and veal other than frozen (Official Journal 1977, L 77, p. 14).
3. The meat consignments at issue were delivered to Zentrag by an Austrian supplier under cover of Austrian certificates of origin issued by the Graz Chamber of Commerce. The supplier had bought beef quarters in Hungary and then arranged for the boning, drawing of the sinews, trimming, cutting into pieces and vacuum-packing of the meat, while it was still subject to customs control, in a processing plant in Austria. According to Zentrag, since these operations were carried out in Austria, the meat was of Austrian origin; against this, the customs authority maintains that those operations did not alter the Hungarian origin of the meat in question.
4. With reference to the origin of goods, Article 5 of Regulation No 802/68 of the Council provides as follows: The Commission exercised its power under Article 14 of that regulation to lay down the implementing provisions necessary in order to apply Article 5 above, and provided in Article 1 of its Regulation No 964/71 that the slaughter of animals does not confer on meat which is thus obtained the origin of the country in which the slaughter took place unless “the animals in question have been fattened in that country ... during a period of at least three months in the case of ... cattle.”
“A product in the production of which two or more countries were concerned shall be regarded as originating in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture.”
5. In order to be able to determine, for the purposes of the application of Regulation No 611/77, the origin of the meat which had been imported by Zentrag, the Finanzgericht Düsseldorf referred the following questions to the Court for a preliminary ruling:
“1) Is Article 1 of - Regulation (EEC) No 964/71 of the Commission of 10 May 1971 invalid on the ground that it infringes Regulation (EEC) No 802/68 of the Council of 27 June 1968?
2) Does the processing of meat by boning, trimming, drawing the sinews and cutting into pieces constitute a process determining origin for the purposes of Article 5 of Regulation No 802/68?”
The first question
6. It is clear from the order making the reference that the Finanzgerichťs first question, relating to the compatibility of Regulation No 964/71 with the criteria for determining origin laid down by Article 5 of Regulation No 802/68, calls for an examination of the question whether Regulation No 964/71 has the effect of preventing processing operations carried out on the meat after slaughter, and in particular the preparation of pieces intended for sale to the consumer, from conferring on the meat the origin of the country where those operations take place, and is invalid on those grounds.
7. In this connection, Zentrag, the customs authority and the Commission maintained in their observations before the Court that Regulation No 964/71 is not intended to deal with the question whether and in what conditions processing operations subsequent to slaughter are of such a nature as to confer upon the meat subjected to those operations the origin of the country where they take place.
8. As is clear from the second and third recitals in the preamble to Regulation No 964/71, the Commission was of the opinion, when it adopted that regulation, that slaughter alone, together with certain related operations, could not be regarded as a substantial process or operation carried out on the meat within the meaning of Article 5 of Regulation No 802/68, and for that reason it provided that slaughter confers on the meat the origin of the country where it takes place if the slaughtered animals were previously fattened for a certain period in that country. This statement of the reasons for Regulation No 964/71 shows that the Commission did not wish to adopt a position on the matter of what subsequent processing operations may be capable of conferring a new origin on the meat. This is confirmed by the wording of Articles 1 and 2 of Regulation No 964/71, which make no reference to the processing of the meat after slaughter.
9. The reply to the first question put to the Court by the Finanzgericht Düsseldorf should therefore be that Regulation (EEC) No 964/71 of the Commission of 10 May 1971 does not have the effect of preventing processing operations carried out on meat after slaughter from conferring on that meat the origin of the country where those operations took place.
10. Since the question whether the processing of meat by boning, trimming, drawing the sinews, cutting into pieces and vacuum-packing can confer upon it a new origin must be determined on the basis of Article 5 of Regulation No 802/68 alone, the question concerning the validity of Regulation No 964/71, which was raised in this connection by the Finanzgericht Düsseldorf, is devoid of purpose.
The second question
11. With reference to the second question, which relates to the interpretation of Article 5 of Regulation No 802/68 with regard to the processing operations at issue, Zentrag considers that those operations satisfy the requirements laid down by that provision. The result of the operations is that the meat becomes a product which can be sold directly to the consumer. Vacuum-packing extends the time for which the meat will keep and improves the maturing process. In addition, the market value of the meat is greatly increased as a result of the operations, by more than 200% in the case of certain prime cuts of meat, by 17.6% in relation to all the cuts taken from a single beef quarter, or as much as 22%, according to the data supplied by Zentrag in the course of the oral procedure, in relation to the value per kilogramme of that beef quarter.
12. According to the customs authority and the Commission, the process in question cannot be described as the manufacture of a new product or as an important stage of manufacture within the meaning of Article 5 of Regulation No 802/68, because it only affects the presentation of the product and does not alter its essential characteristics. The added-value which the process gives to the meat is 10% at most.
13. In this connection, it should be borne in mind that, as the Court stated in its judgment of 26 January 1977 in Case 49/76 Gesellschaft für Überseehandel [1977] ECR 41, the last process or operation referred to in Article 5 of the regulation is only “substantial” for the purposes of that provision if the product resulting therefrom has its own properties and a composition of its own, which it did not possess before that process or operation. Activities altering the presentation of a product for the purposes of its use, but which do not bring about a significant qualitative change in its properties, are not of such a nature as to determine the origin of the said product.
14. In the present case, it may be accepted that the operations in question facilitate the marketing of the meat by enabling it to be sold to the consumer through commercial undertakings which do not have their own butcher. However, these operations do not produce any substantial change in the properties and the composition of the meat, and their main effect is to divide up the different parts of a carcase according to their quality and pre-existing characteristics and to alter their presentation for the purposes of sale. A certain increase in the time for which the meat will keep and a slowing down in the maturing process do not constitute a sufficiently pronounced qualitative change in substance to satisfy the requirements mentioned above. Finally, while the market value of a whole beef quarter which undergoes the operations at issue is increased, according to the calculations supplied by Zentrag at the hearing, by 22%, that fact is not in itself of such a nature as to enable those operations to be regarded as constituting the manufacture of a new product or even an important stage of manufacture.
15. The answer to the second question referred to the Court by the Finanzgericht Düsseldorf should therefore be that Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 must be interpreted as meaning that the processing of the meat derived from beef quarters by boning, trimming, drawing the sinews, cutting into pieces and vacuum-packing does not confer upon the meat the origin of the country in which those operations are carried out.
Costs
16. The costs incurred by the Commission of the European Communities, which submitted observations to the Court, are not recoverable. As these 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 (Third Chamber), in answer to the questions referred to it by the Finanzgericht Düsseldorf by order of 20 April 1983, hereby rules:
1 Regulation (EEC) No 964/71 of the Commission of 10 May 1971 does not have the effect of preventing meat-processing operations following slaughter from conferring upon the meat the origin of the country in which those operations are carried out.
2 Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 must be interpreted as meaning that the processing of the meat derived from beef quarters by boning, trimming, thawing the sinews, cutting into pieces and vacuum-packing does not confer upon it the origin of the country where those operations are carried out.