Report for the Hearing delivered in Case 40/88

I — Facts and written procedure

1. In 1978, 1979 and 1980 the company Paul F. Weber (hereinafter referred to as ‘Weber’), the plaintiff in the main proceedings, purchased from Milchwerke Paderborn-Rimbeck (hereinafter referred to as ‘Milchwerke’), the defendant in the main proceedings, a product which was described in the written contracts as ‘German spray-dried skimmed-milk powder, factory fresh, sound and of merchantable quality’.

2. Milchwerke delivered that product to Weber, who exported it to the Netherlands and, through the intermediary of a dealer in Great Britain, to Japan.

3. Between 7 December 1978 and 4 February 1980 the Hauptzollamt Hamburg-Jonas (Principal Customs Office, hereinafter referred to as the ‘Customs Office’), granted Weber the export refunds and monetary compensatory amounts it had applied for in respect of skimmed-milk powder falling under subheading 04.02 A II (b) I of the Common Customs Tariff.

4. By a notice dated 15 July 1982 the Customs Office demanded the repayment by Weber of the export allowances granted, amounting to DM 716476.47. The Customs Office based its decision on the fact that inquiries by the Hanover Customs Investigation Service had shown that the product in question was not skimmed-milk powder falling under tariff subheading 04.02 A II (b) 1, but a food preparation within the meaning of subheading 21.07 D II (a) 1 of the Common Customs Tariff. According to the Customs Office, the product, which had not been manufactured by Milchwerke itself but which it had bought in from Mipro Entwicklungs- und Produktionsgesellschaft für Milch- und Nahrungsmittelerzeugnisse mbH, Göttingen, and Unitrade GmbH, Göttingen, was made up of a mixture of various constituents in the following proportions: skimmed-milk powder: 23.4% by weight powdered whey: 42.3% by weight lactose: 16.2% by weight calcium casemate: 7.1% by weight sodium caseinate: 10.6% by weight other constituents: 0.4% by weight 100% by weight.

5. Weber lodged an objection against the repayment notice issued by the Customs Office, on which no decision has yet been taken.

6. The Customs Office set off an amount of DM 613020.79 in respect of its claims in the repayment demand against amounts payable to Weber in respect of other exports.

7. Weber thereupon demanded delivery by Milchwerke of skimmed-milk powder that qualified for export allowances in accordance with the contracts concluded between the parties, demanded that the aforesaid obligation be met within a specified period and threatened that otherwise, on the expiry of that period, it would refuse to accept delivery from Milchwerke.

8. When Milchwerke did not comply with that demand, Weber sued for damages before the Landgericht Paderborn for nonperformance of the contracts concluded between the parties. Weber asks that Milchwerke be ordered to pay the sum of DM 613020.79 plus interest and to indemnify Weber in respect of the amount of DM 103455.68, representing the remaining amount of the repayment demanded by the Hauptzollamt.

9. Milchwerke admits that it bought the product in question from the firms Mipro and Unitrade and resold it unaltered to Weber. It further admits that that product was manufactured from a dried mixture of the individual constituents listed by the Customs Office in its repayment notice. Milchwerke adds that in order to improve the quality of the product the firms Mipro and Unitrade used protein-enriched powdered whey from Australia and Canada. Nevertheless, in Milchwerke's view, the product supplied did constitute skimmed-milk powder within the meaning of subheading 04.02 A II (b) 1 of the Common Customs Tariff. It considers that although the product was not manufactured in the usual way by extracting the liquid from skimmed milk, but by recombination, it did have all the analytic characteristics of skimmed-milk powder manufactured in the traditional way from skimmed milk. According to Milchwerke, recombination is simply another method of manufacture which differs from the classic method. Tariff classification does not depend on the method of manufacture, but on the objective characteristics of the product.

10. Weber does not accept those assertions by Milchwerke and maintains that the product in question does not fall under subheading 04.02 A II (b) 1 of the Common Customs Tariff.

11. The Landgericht Paderborn considered that the case involved interpretation of the Community regulation in question and therefore by an order of 12 January 1988, pursuant to Article 177 of the EEC Treaty, it decided to suspend the proceedings until the Court of Justice had given a preliminary ruling on the following questions:

‘(1) Is subheading 04.02 A II (b) 1 of the Common Customs Tariff in the version in force in 1978, 1979 and 1980 to be interpreted as including a product made up of 23.4% skimmed-milk powder together with powdered whey (partly enriched with protein), lactose, calcium caseinate, sodium caseinate, caseinate (SVM), potassium bicarbonate, calcium chloride, calcium carbonate and potash mixed together in dry form?

2) Is it relevant in this connection that the caseinate and powdered whey occasionally originated from New Zealand, Canada and Australia and that the mixture, according to the defendant, exhibited the same analytic values as powdered skimmed milk produced from cow's milk?

3) If the first question is answered in the negative, does such a product fall under subheading 21.07 D II (a) 1 of the Common Customs Tariff in the version in force in 1978, 1979 and 1980?’

12. The order of the Landgericht Paderborn was received at the Court Registry on 4 February 1988.

13. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted on 9 May 1988 by Paul F. Weber, the plaintiff in the main proceedings, represented by Klaus Landry, Rechtsanwalt in Hamburg, and by the Commission of the European Communities, represented by its Legal Adviser, Jörn Sack, assisted by Albrecht Stockburger, Rechtsanwalt in Frankfurt.

14. Upon hearing the repon of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

15. By a decision of 27 October 1988 adopted pursuant to Article 95(1) and (2) of the Rules of Procedure, the Court assigned the case to the Second Chamber.

II — Written observations submitted to the Court

1. Weber, the plaintiff in the main proceedings, considers that the first two questions submitted by the national court seek to obtain an interpretation of the term ‘skimmed-milk powder’ within the meaning of subheading 04.02 A II (b) 1 of the Common Customs Tariff. In that regard Weber states that the Court has already had occasion to examine that term in its judgment of 21 September 1983 in Joined Cases 205 to 215/82 Deutsche Milchkontor GmbH and Others v Federal Republic of Germany [1983] ECR 2633. Although that judgment dealt with the interpretation of various provisions of Regulation (EEC) No 986/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal, English Special Edition 1968 (I), p. 260), Weber considers that the Court's reasoning there should be applied to the interpretation of tariff subheading 04.02 A II (b) 1. Weber points out that Article 1(d) of the abovementioned regulation, as amended by Council Regulation No 876/77 of 26 April 1977 (Official Journal 1977, L 106, p. 24), defines skimmed-milk powder in exactly the same way as Heading 04.02 of the Common Customs Tariff. First, the title of that heading is ‘Milk ... concentrated ... ’. Secondly, the title of subheading 04.02 A II, ‘Milk ... in powder ... ’ uses the same words as the abovementioned Article 1(d). Moreover, products regarded as milk within the meaning of Heading 04.01 are, under Explanatory Note No 1 of Chapter 4 of the annex to Regulation No 950/68, exclusively products of the milk-yield of cows. That corresponds to the definition given in Article 3(1)(a) of Regulation No 1411/71 of the Council of 29 June 1971 laying down additional rules on the common organization of the market in milk and milk products for products falling within tariff Heading No 04.01 (Official Journal, English Special Edition 1971 (II), p. 412). In Weber's view, it follows that paragraph 12 of the judgment cited above, according to which a product for the manufacture of which substances other than the milk-yield of one or more cows have been used cannot be described as skimmed-milk powder under Regulation No 986/68 regardless of the chemical composition of the final product obtained in this way, is also applicable when interpreting tariff subheading 04.02 A II (b) 1. Weber further maintains that that argument is confirmed by the fact that tariff heading 04.02 refers only to milk and cream and does not include preparations based on milk and cream. According to the case-law of the Court (judgment of 23 March 1972 in Case 36/71 Henck v Hauptzollamt Emden [1972] ECR 187), ‘preparation’ must mean either the processing of a product or a mixture with other products. In the present case the mixture is clearly a preparation in that sense and cannot therefore be classified under subheading 04.02 A II (b) 1. Weber concludes that the first question submitted by the national court should be answered as follows: With regard to the third question, Weber takes the view that a powder with the characteristics indicated in the first question referred to the Court constitutes a preparation and as such falls under subheading 21.07 D II (a) 1 of the Common Customs Tariff.

‘A product obtained as described in this case does not constitute skimmed-milk powder within the meaning of subheading 04.02 A II (b) 1 of the Common Customs Tariff in the version in force from 1978 to 1980, even if the analytical values of that product are identical to those of skimmed-milk powder produced from the milk-yield of cows.’

2. In its observations the Commission makes a preliminary comment on the admissibility of the reference. In the Commission's view the main proceedings turn essentially on the interpretation of the contracts concluded by the parties, which is a matter for the national court alone. However, the national court considers that the tariff classification of the product in issue could throw light on the question. Hence, although the case does not concern the application of the Common Customs Tariff directly, the reference for a preliminary ruling is admissible in accordance with the Court's case-law (judgment of 26 September 1985 in Case 166/84 Thomasdünger v Oberfinanzdirektion Frankfurt am Main [1985] ECR 3001). With regard to the first question, the Commission states first of all that the Deutsche Milchkontor judgment (cited above) concerns the meaning of the term ‘skimmed-milk powder’ for the purposes of the Community rules relating to agricultural policy, whereas in this case the order referring questions to the Court for a preliminary ruling concerns the interpretation of certain headings of the Common Customs Tariff. It follows that neither the Deutsche Milchkontor judgment nor the abovementioned Regulation No 986/68 on which it was based but which made no reference to the Common Customs Tariff are of assistance when answering the questions put by the national court. Moreover, the sole function of the Common Customs Tariff nomenclature is to enable goods to be classified for customs purposes, so that recourse to that nomenclature for agricultural policy or other purposes has no relevance as far as the interpretation of tariff provisions is concerned. As the Court has repeatedly held (Henck, cited above; judgments of 18 February 1976 in Joined Cases 98 and 99/75 Carstens Keramik and August Hoff [1976] ECR 241, of 1 July 1982 in Case 145/81 Ludwig Wünsche & Co. [1982] ECR 2493 and Thomasdünger, cited above), the decisive criterion for the classification of goods for customs purposes is to be sought in their characteristics and objective properties as defined in the wording of the relevant heading of the Common Customs Tariff and of the notes to the sections or chapters. According to the Commission, the wording of subheading 04.02 A 11 (b) 1 of the Common Customs Tariff does not directly preclude a product with the composition of the product at issue in the present case from falling under that heading. Note 1 to Chapter 4 of the annex to Regulation No 950/68 does not give any definition of milk and confines itself to listing the different forms in which it is marketed. Moreover, the manner in which the products are obtained is irrelevant and the aforementioned Note 1 in fact permits the addition of certain substances (fermentation). The Commission states further that in respect of agricultural products the Court has established the principle (see Henck, cited above) that a processed product containing all the essential constituents of the basic product in proportions that are approximately similar is to receive the same classification as the basic product regardless of the manner of processing. For the tariff classification of skimmed-milk powder it is therefore necessary to know whether the product in question contains the essential constituents of the basic product, that is to say skimmed, dried milk obtained from the milk-yield of cows, and whether the composition of the powder differs fundamentally in the proportions of its constituents from that of the basic product. In that respect the Commission claims that, in accordance with a classification notice of 22 January 1971 (Explanatory Notes to the Common Customs Tariff published by the Federal Ministry of the Economy and Finance), a product which in appearance and chemical composition exhibits the essential characteristics of (whole) milk in powder may be classified under tariff Heading 04.02, even though very small quantities of sodium caseinate have been added. The Commission maintains that according to expert opinion the proportion of sodium caseinate is generally below 3%. For that reason the Ad hoc Group on Chemistry of the Nomenclature Committee of the Common Customs Tariff, at its meeting of 29 to 31 March 1982 in Brussels (Doc. Commission SUD/399/82 of 1 April 1982), considered that milk in powder form within the meaning of tariff Heading 04.02 could include added sodium caseinate not exceeding 3%. In this case the product contains 10.6% of sodium caseinate, which is more than three times the permissible proportion, and the Commission believes that it should not therefore be classified under subheading 04.02 A II (b) 1 of the Common Customs Tariff. With regard to the second question, the Commission recalls that the tariff classification of a processed product depends solely on whether the product contains the essential constituents of the basic product and whether its composition differs fundamentally from that of the product in its natural state. However, the origin of the various constituents of the basic product is not relevant to the interpretation of the Common Customs Tariff. As far as the third question is concerned, the Commission observes that the product at issue does not fall under any more specific tariff heading, so that it may be classified under the residual subheading 21.07 D II (a) 1 of the Common Customs Tariff. To sum up, the Commission suggests that the following replies should be given to the national court:

‘(1) Subheading 04.02 A II (b) 1 of the Common Customs Tariff must be interpreted as not including a processed product which although otherwise made up of the essential constituents of the basic product — dried skimmed milk — nevertheless contains more than 3% sodium caseinate.

2) Classification of a product under a heading of the Common Customs Tariff does not depend on the origin of the product's constituents, since its classification under a tariff heading should be based on its characteristics and objective properties.

3) A processed product made up of all the essential constituents of the basic product — dried skimmed milk — but nevertheless containing more than 3% sodium caseinate falls under subheading 21.07 D II (a) 1 of the Common Customs Tariff.’

F. A. Schockweiler

Judge-Rapporteur

1 Language of the case: German.