Report for the Hearing in Case C-120/90

I — Facts and procedure

1. In 1988, Ludwig Post GmbH (‘Post’), the plaintiff in the main proceedings, applied to the Oberfinanzdirektion (Regional Finance Directorate) Munich (‘the Oberfinanzdirektion’), the defendant in the main proceedings, for a binding customs tariff advisory notice for a product defined as ‘75% whey protein concentrate’. The product is a powder obtained by ultrafiltration of whey and is intended for use in food products; it contains 76.6% protein, 5% lactose, 2.1% milk fat, and no detectable sugar.

2. On 14 June 1988, the Oberfinanzdirektion issued to Post a notice classifying the product under subheading 04049033, ‘products consisting of natural milk constituents, ... not elsewhere specified or included, not containing added sugar or other sweetening matter, of a protein content exceeding 42% and a milk-fat content exceeding 1.5% but not exceeding 27%’, of the combined nomenclature of the Common Customs Tariff (‘CCT’).

3. However, Post considered that the product should be classified either under subheading 04041011 ‘whey, whether or not concentrated ... not containing added sugar or other sweetening matter’ or under subheading 35029059 ‘milk albumin (lactalbumin)’ of the CCT.

4. Following dismissal of its objection against the binding customs tariff notice issued by the Oberfinanzdirektion, Post appealed to the Bundesfinanzhof (Federal Finance Court).

5. In support of its appeal, Post contended that it was apparent from the Explanatory Notes on the harmonized commodity description and coding system (‘the Explanatory Notes’) concerning heading 0404 that the removal of part of the lactose or some minerals from the product in question did not alter its character of ‘whey’ within the meaning of tariff subheading 04041011. In that regard, Post relied on scientific practice in respect of foodstuffs and on the terminology used in trade circles.

6. In the grounds of its order for reference, the Bundesfinanzhof first stated that in any event the product in question could not be classified under heading 3502 of the CCT and that doubts remained only as regards classification of the product within heading 0404. The Bundesfinanzhof then stated that it was inclined to share the view held by the Oberfinanzdirektion, since it was immaterial whether a product like the one at issue was regarded in trade circles as whey. According to the Bundesfinanzhof, it is apparent from the explanatory note on heading 0404 of the CCT that ‘whey’ is understood as the natural constituents remaining when the fat and casein have been removed from the milk. Those residual components are whey, mineral salts and lactose, the latter being the determinative constituent of whey. According to the explanatory note, the lactose or minerals may be partly removed without affecting the classification of the product as whey. However, the lactose content of the product in question amounted to only 5% as against 76.6% protein, whilst whey powder normally contains 70 to 75% lactose as against 10 to 14% albumin. In the light of those proportions, it seems inappropriate to speak, in the present case, of only partial removal of lactose, within the meaning of the abovementioned explanatory note. Since die proportion of lactose in the product concerned represents only about one fourteenth of the proportion usually contained in whey powder, the product at issue here is bo longer whey from which part of the lactose has been removed, but modified whey with a low lactose content. In that connection, the Bundesfinanzhof referred to die judgment of the Court of Justice of 25 May 1989 in Case 40/88 Weber [1989] ECR 1395, paragraph 24, according to which goods which have lost the essential characteristics of the basic product can no longer qualify for the same tariff classification as that product. However, the Bundesfinanzhof considered that the interpretation of the tariff provisions in question in the present case raised certain doubts since, on the one hand, a change to the tariff rules was envisaged whereby modified whey would be classified with ‘whe’ under subheading 040410 of the CCT and, in addition, Post's representative contended that the United Kingdom and Netherlands customs authorities had classified whey powder containing 75% protein and 3% lactose under subheading 040410 of the CCT.

7. Considering that the dispute thus raised a problem of interpretation of the relevant Community provisions, the Bundesfinanzhof, by order of 13 March 1990, stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty:

‘Must the combined nomenclature (1988) be interpreted as meaning that a powder containing 76.6% milk protein, 2.1% milk fat and 5% lactose, without detectable sugar, obtained from the ultrafiltration of whey must be classified under subheading 04049033 as a “product consisting of natural milk constituents...” or, if not, under subheading 04041011 as “whey...”’?

8. The order from the Bundesfinanzhof was received at the Court Registry on 26 April 1990.

9. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted on 19 July 1990 by the Commission of the European Communities, represented by Jorn Sack, Legal Adviser, acting as Agent, on 30 July 1990 by Post, represented by Barbara Festge, Rechtsanwalt, Hamburg, and on 1 August 1990 by the French Government, represented by Philippe Pouzoulet, Sous-Directeur des Affaires Juridiques, Ministry of Foreign Affairs, and Hélène Duchene, Secrétaire des Affaires Etrangères, in the same Ministry.

10. Upon 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.

11. Pursuant to Article 95(1) and (2) of the Rules of Procedure, the Court, by decision of 16 January 1991, assigned the case to the Second Chamber.

II — Written observations submitted to the Court

1. Post first states that the 75% whey protein concentrate at issue in the proceedings before the National Court is whey in the form of powder. In the manufacturing process, liquid whey is concentrated by ultrafiltration, an operation which eliminates not only the water but also some salt and a little lactose, with the result that the protein content by weight is increased. The liquid whey concentrate is then dehydrated. Post emphasizes that nothing is added to the product and that it is made up exclusively of the natural constituents of whey. Just as in the case of milk, where the percentages of the constituents vary, the proportions between the components of whey, namely proteins, lactose, fat and ash, similarly vary. The higher or lower percentage of those constituents may indeed determine the quality, and therefore the price, of whey but is certainly not determinative as regards definition of the product as whey. Post also states that the Bundesfinanzhofs view that lactose is the determinative constituent of whey is based on a false premise. That statement, which would have been correct in the 1960s, is now outdated, in so far as the various constituents of whey are today regarded as equivalent. In Post's view, the product in question is a whey, falling to be classified under subheading 040410. (a) In the first place, that conclusion follows from an interpretation of the CCT itself. Thus, heading 0404 distinguishes between, on the one hand, ‘whey, whether or not concentrated or containing added sugar or other sweetening matter’ (subheading 040410) and, on the other hand, ‘other’, that is to say products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or included (subheading 040490). However, it is apparent from a comparison of those two subheadings that, whilst subheading 040490 is subdivided according to the content by weight of proteins or fats and is subject to an upper or lower limit by reference to a maximum or minimum content of protein, lactose or fat, subheading 040410, by contrast, makes no distinction or limitation of that kind. According to Post, it follows that all whey, whatever its content by weight of protein, fat or lactose, falls to be classified under subheading 040410 of the CCT. Furthermore, subheading 040490 is a residual heading, since it covers only products ‘not elsewhere specified or included’. Since whey has its own tariff heading, it does not fall within subheading 040490. The same conclusion follows from Rule 3(a) of the General Rules for the Interpretation of the Common Customs Tariff, according to which a more specific heading must take precedence over headings which are more general in scope. A specific designation by name (‘whey’) is more specific than a generic designation (‘products consisting of natural milk constituents’). Moreover, Post sutes that the reason for the introduction of subheading 040490 was the ‘milk powder scandal’ in the early 80s. Since the values for milk powder obtained by reconstitution are entirely different from those of natural milk powder, subheading 040490 was introduced into the CCT specifically to cover those products which, although in fact made up of natural constituents of milk, are obtained by reconstitution and do not therefore come within tariff heading 04.02 21. That is also why subheading 040490 contains very clear subdivisions by reference to the content by weight of sugar, protein and fat in the product. In those circumstances, it is clear that a natural product such as whey cannot fall within subheading 040490 of the CCT. (b) Post contends that that reading of the CCT is supported by the explanatory notes which, as the Court has consistently held, provide valuable help in interpreting the headings of the Common Customs Tariff. The explanatory notes concerning heading 0404 of the CCT state that subheading 040410 also covers whey ‘whether or not part of the lactose or some minerals have been removed’. Moreover, those notes indicate that subheading 040490 also covers products ‘consisting of milk constituents which do not have the same composition as the natural product, provided they are not more specifically covered elsewhere’. Post deduces from this that whey can certainly have had part of the lactose removed. In the absence of precise details in the explanatory notes as to the proportion of lactose removal, whey may have even a large proportion of lactose removed, provided that it is not entirely eliminated, in which case it would become lactalbumin falling within subheading 35029059. Furthermore, the product at issue cannot fall within subheading 040490 since it is covered more specifically in subheading 040410 as whey or modified whey. (c) According to Post, its view is further supported by Commission Regulation (EEC) No 1285/80 of 23 May 1980 classifying certain products under subheading 04.02 A I of the Common Customs Tariff (Official Journal 1980 L 132, page 13). It is of no importance that that regulation was adopted in respect of the old version of the Common Customs Tariff, as appearing in the Annex to Regulation EEC No 950/68 of the Council of 28 June 1968 on the Common Customs Tariff (Official Journal, English Special Edition 1968 (I), p. 275), in which whey was classified under subheading 04.02 A I, since at that time too whey was classified under a specific tariff heading which distinguished it from other dairy products. It is apparent in the first place from the recitals in the preamble to Regulation (EEC) No 97/69 of the Council of 16 January 1969 (Official Journal, English Special Edition 1969 (I), p. 12), which provides the legal basis for Regulation No 1285/80, that the regulations on the classification of goods ‘should specify the content of the headings or subheadings of the Common Customs Tariff, without, however, amending the text thereof’ and are therefore intended merely to clarify the situation existing on the basis of Regulation No 950/68. Moreover, Regulation No 1285/80 provides that a product presented in the form of powder, obtained from whey by the removal, inter alia, of part of the lactose by ultrafiltration, so that the content by weight of proteins amounts to 56.2% and that of lactose falls to 30.9%, constitutes whey. Although those figures do not correspond to the composition of the product at issue here, the content by weight of whey has nevertheless been reduced by 63% and that of protein multiplied by 3.5. Since the legislature regards such a product as whey, a product with a lower lactose content by weight and a higher protein content by weight, or vice versa, should also be classified as such and, in particular, there is no reason for which a product with a higher percentage of proteins should cease to be whey. For so long as a product retains the characteristic constituents of whey, it must be classified as such, whatever proportions those constituents bear to each other. The product at issue contains the four constituents characteristic of whey, namely fat, ash, protein and lactose. (d) Those views are confirmed by an expert's report commissioned by the plaintiff in the main proceedings. In that report, acknowledged experts on foodstuffs confirm that, from the nutritional point of view and by virtue of a chemical analysis of those products, the protein contained in whey is its determinative constituent. In particular, the experts concluded that a product containing, inter alia, 76.6% protein and 5% lactose is powdered whey, because it displays the characteristics of that product. (e) Post also states that the judgment in Case 40/88 Weber, cited above, to which the Bundesfinanzhof refers in its order for reference, is not relevant to the decision to be given in the main proceedings, since that case concerned the tariff classification of a product created artificially by mixing constituents naturally present in milk and milk powder with constituents which are not usually found in milk powder. In the present case, however, there is no question of remixing or, a fortiori, of adding substances which are not present in the product in its natural state. On the contrary, the product at issue is made up of natural constituents, of which only the proportions have been changed by the partial removal of two constituents. (f) According to Post, at least those Member States which are large-scale importers of whey powder, such as the United Kingdom, the Netherlands, Denmark, France and Italy, classify a 75% whey protein concentrate, that is to say a product with approximately the same composition as the product at issue, as whey under code number 040410. (g) Finally, Post observes that the Customs Cooperation Council Nomenclature Committee has decided to clarify heading 040410 by using the words ‘whey, whether or not modified, and whether or not concentrated or containing added sugar or other sweetening matter’, an amendment which is to come into force on 1 January 1992. Moreover, that committee has decided to supplement the explanatory notes by adding the following phrase: ‘For the purposes of number 040410, modified whey includes products consisting of whey constituents, that is to say whey from which all or part of the lactose, proteins or mineral salts have been removed or to which have been added natural constituents of whey, as well as products obtained by mixing natural constituents of whey.’ In short, Post suggests the following answer to the question submitted by the Bundesfinanzhof:

‘The combined nomenclature (1988) must be interpreted as meaning that a powder obtained by ultrafiltration of whey and containing 76.6% protein, 2.1% fat and 5% lactose, without detectable sugar, must be classified as whey under subheading 04041011’.

2. The French Government first states that 75% whey protein concentrate is a product recently put on to the market, obtained by ultrafiltration of whey and characterized by a very low lactose content (5%), whereas whey which has not been processed in any way contains 70 to 75% lactose. In order to answer the question submitted by the Bundesfinanzhof, it is therefore necessary to compare the proportion of lactose contained in whey with that contained in the product at issue and to decide whether the latter may be regarded as a whey from which ‘part’ of the lactose has been removed. The importance of the question is that modified whey is included in the composition of dietetic foodstuffs which are enjoying growing commercial success. In the French Government's view, 75% whey protein concentrate falls within tariff subheading 04049033. That is the result of the rules in force, as confirmed by the explanatory notes. The Court has consistently held that the decisive criterion for the customs classification of goods must in general be sought in their objective characteristics and properties, as defined by the wording of the Common Customs Tariff headings and subheadings, and the notes on sections or chapters thereof. Moreover, according to the Court's case law, the explanatory notes are important from the interpretative point of view since they make it possible to define or delimit the scope of the various headings and subheadings. According to the French Government, analysis of the composition of the product in question unequivocally places it within subheading 04049033 of the CCT, since the objective characteristics defined by the wording of that subheading are present in 75% whey protein concentrate. It is without doubt a product consisting of natural constituents of milk, which contains 76.6% protein, in other words more than 42%, as required by the wording of the subheading in question, whose fat content of 2.1% is within the prescribed range (between 1.5 and 27%) and in respect of which the exclusion of any added sugar or other sweeteners is satisfied by the absence of detectable sugar. Nor can 75% whey protein concentrate come within subheading 04041011 since both the wording of that heading and the explanatory notes on it draw attention to the importance of the lactose content in classifying the product in question. According to the notes, whey is made up of natural milk constituents which remain when the fats and casein have been removed. The product may have part of the lactose or mineral salts removed and may be concentrated. Laboratory analyses show that, when fats and casein are removed from milk, a product is obtained which contains about 70% lactose, lactalbumin and mineral matter. On the other hand, in the product at issue here, which is obtained by removal of almost all the lactose, the lactose content falls from 70 to 5%. It therefore no longer satisfies the definition of whey given by the explanatory notes. Furthermore, in its judgment in Case 40/88 Weber, supra, the Court held that a certain proportion must be maintained between the constituents of a product, otherwise its nature is changed. In the 75% whey protein concentrate at issue in this case, the proportions of the constituents of whey are not maintained, since it contains only 5% lactose. The product is thus of an entirely different nature and is not whey but a protein concentrate. The French Government adds that in France products similar to the one at issue in this case are always classified under subheading 040490 of the CCT. In conclusion, the French Government suggests that the Court reply as follows to the question submitted by the Bundesfinanzhof:

‘75% whey protein concentrate must be classified under tariff subheading 04049033 as a “product consisting of natural milk constituents”’.

3. The Commission first points out that subheadings 04041011 and 04049033 are within heading 0404 of the CCT, which comprises two groups of products, described on the one hand as ‘whey, whether or not concentrated or containing added sugar or other sweetening matter’ (040410), and on the other, as ‘products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or included’ (040490). The Commission also states that, according to the explanatory notes, ‘whey’ means the natural constituents which remain after the fat and casein have been removed from the milk. Moreover, whey may even have had pan. of the lactose or some minerals removed from it. Even if whey may differ in composition according to the type of product, lactose is always the essential constituent of powdered whey (rennet-curdled whey powder: 72.7% lactose; powdered acid whey: 65.5% lactose). It follows that, where the lactose content is only 5%, it is impossible to speak of only partial removal of the lactose. Moreover, because of the almost total elimination of lactose, the proportions of the other constituents of the whey have also changed radically so that the product no longer displays the essential characteristics of the basic product ‘whey’. Accordingly, that product cannot come within subheading 040410. That conclusion is confirmed, in the first place, by the judgment in Case 40/88 Weber, supra. It is also supported by the decisions of the Nomenclature Committee of the Customs Cooperation Council which, by seven votes to two, decided to classify modified whey under subheading 040490. The Commission adds that the fact that, at that time, the committee indicated, by eight votes to one, that it considered it desirable in the future to modify the nomenclature so as to place natural whey and modified whey together under subheading 040410 and that that view was adopted on 5 July 1989 by the Customs Cooperation Council in the form of a recommendation addressed to the Member States, which will be incorporated in Community legislation as from 1 January 1992, is irrelevant to the interpretation of the present version of the Common Customs Tariff. Similarly, neither the terminology used in trade circles nor differing applications of the law in certain Member Sutes can influence the interpretation of the Common Customs Tariff. Consequently, the Commission suggests the following answer to the question submitted by the Bundesfinanzhof:

‘The combined nomenclature of the Common Customs Tariff, in its 1988 version, must be interpreted as meaning that a “75% whey protein concentrate”, that is to say a powder obtained by ultrafiltration of whey, intended to be used in foodstuffs and containing 76.6% protein, 2.1% fat and 5% lactose, without detectable sugar, must be classified under subheading 04049033’.

F. A. Schockweiler

Judge-Rapporteur

1 Language of che case: German.