European Customs & Trade Law & Practice

EU-South Korea Free Trade Agreements

2009-11-27T03:33:00.000-08:00

Introduction

As part of the Global Europe strategy the European Commission in May 2007 launched negotiations for bilateral trade agreements aiming to boost the European Union’s presence in growing emerging markets and complement the multilateral WTO system by pushing liberalisation in key areas not currently covered by WTO rules.

The European Union (hereinafter: ‘EU’) recognized The Republic of Korea as such growing emerging market. Studies commissioned by the EU suggested that an ambitious EU-Korea Free Trade Agreement (hereinafter: ‘FTA’) would increase EU exports to Korea and Korean exports to the EU by between 30 and 40%.

After eight rounds of formal negotiations the EU and South Korea on 15 October 2009 initialed an ambitious and comprehensive FTA.

The FTA includes extensive provisions on investments both in services and industrial sectors and strong disciplines in important areas such as the protection of intellectual property, public procurement and competition rules. Although not specifically focusing on customs issues, one of the key benefits of the deal is the quick elimination of import duties for EU exporters to South Korea and Korean exporters to the EU.

Besides, specific commitments have been agreed to eliminate and prevent non-tariff barriers - that may be complicated and burdensome and which may in some cases present greater obstacles than import duties - including regulations and standards in industries like automotive, pharmaceutical and consumer electronics.

Elimination of customs duties

The removal of customs duties for goods originating in South Korea and imported into the EU is done over a transitional period in order to allow domestic (i.e. EU) producers gradually adapting the lowering of customs duties.

The majority of the customs duties, however, will be removed already at the entry into force of the agreement. For the most sensitive industrial products, such as passenger cars with small engines (up to 1,500 cc), and consumer electronics including TV sets, video recorders and LCD monitors, the EU customs duties will only be fully eliminated in year 5 of the agreement. The EU customs duties for a number of other sensitive goods, including cars with engines exceeding 1,500 cc, have a 3 year liberalisation period.

Under the FTA, the elimination of customs duties only applies to products that originate in South Korea. The rules to determine whether a product is considered an ‘originating product’ are set out in a protocol with some annexes.

For the purpose of the FTA not only products wholly obtained in South Korea but also products obtained in South Korea incorporating materials which have not been wholly obtained there (i.e. have been imported), provided that such materials have undergone sufficient working or processing in South Korea are considered ‘originating products’. In this respect, for the automotive sector the level of foreign content has been agreed to 45%.

Under the current EU rules of origin ‘change of tariff heading’ (implying manufacture from materials of any heading of the Harmonized System except that of the product) also results in a product having ‘originating’ status. Under the FTA, however, for consumer electronics this principle is solely allowed if the parts of the final product are classified in the same heading than the one of the final product. Moreover, the EU ruled that the permissible foreign content would be limited to 45% for the most sensitive electronic items.

Korean exporters may benefit from the duty drawback scheme that is allowed under the FTA. If for the production of a final product foreign materials are required for which they have to pay import duties in South Korea, the duty drawback scheme provides for refund of duties paid when the final product is exported even though, under the FTA, the final product would not attract customs duties when imported into the EU.

Next steps

The initialling of the FTA signifies the closing of the negotiations between the EU and South Korea. The European Commission will formally present the legal text to the EU Member States in early 2010. Following signature of the FTA by the EU Presidency and the Commission, it will be presented to be approved by the European Parliament. Entry into force of the FTA is to be expected in the second half of 2010.

By: Brian Mulier

UK sharpens sanctions Iran

2009-11-27T03:32:00.000-08:00

At international as well as on EU-level sanctions have been imposed targeted against Iran. At EU-level these sanctions are laid down in Council Common Position 2007/140/CFSP as amended and in Council Regulation (EC) 423/2207 which has been amended by several Council and Commission Regulations.

The sanctions cover goods and technology, technical assistance, investment and brokering services which could contribute to Iran’s enrichment-related, reprocessing or heavy water-related activities or to the development of nuclear weapon delivery system. The sanctions also include freezing of funds and economic resources or persons, entities and bodies engaged in, directly associated with or providing support for such activities or development. One of the entities listed is Bank Mellat.

In addition the EU sanctions include certain measures to be applied by EU credit and financial institutions to exercise vigilance over their activities with banks domiciled in Iran and their subsidiaries, branches or other financial entities outside Iran.

Finally, the EU sanctions cover inspection and prior information requirement of certain cargoes to and from Iran, namely aircraft and vessels owned or operated by Iran Air Cargo and the Islamic Republic of Shipping Lines (“IRISL”). Until 31 December 2010 the entry and exit summary declarations and the required additional elements as provided in the Council Regulation (EC) 423/2007 as amended may be submitted in written form using the commercial, port or transport information provided that they contain the necessary particulars. As from 1 January 2011 the required additional elements have to be submitted either in written form or using the entry and exit summary declarations.

The UK adopted on 9 October 2009 the Financial Restriction (Iran) Order 2009. This order entered into force on 12 October 2009. This order prohibits to all persons operating in the financial in the UK to enter into or to continue to participate in any transaction or business relationship with Bank Mellat or the IRISL. The HM Treasury may, however grant licenses to exempt persons operating in the UK financial sector from this prohibition.

The Department for Business Innovation & Skills (“BIS”) has also included Bank Mellat and IRISL on the “Iran List”. This list indicates entities that may give cause for concern whatever their involvement in an export transaction may be. This includes end-users, consignees and third parties. The fact that an entity has been listed does not automatically mean that an export license will not be granted. IRISL has been added to the Iran List on 16 October 2009 due to the adoption of the Financial Restriction (Iran) Order 2009. Bank Mellat was already listed.

By: Martine Chin-Oldenziel

ECJ Decision: Interested parties must be heard prior to adverse decision

2009-10-16T03:28:00.000-07:00

On 18 December 2008, the European Court of Justice issued its judgment in the Soprope-case (Case C-349/07, find the judgment here).

Soprope imported footwear, the preferential origin of which was the subject of a subsequent investigation by Portuguese customs. The investigations lead to the conclusion that the preferential certificates of origin were forged. Soprope was invited to respond to the draft findings within 8 days. Soprope did participate in a subsequent hearing, after which Portuguese customs concluded that their findings were not rebutted by Soprope, and issued an assessment for customs duties, thirteen days after they notified Soprope of their draft findings. This was in accordance with national Portuguese law which stipulates a period of 8 to 15 days for taxpayers to exercise their right to challenge an intended assessment in a hearing.

Soprope filed appeals against the assessment and argued in second instance, inter alia, that the first-instance court had not correctly applied the principle of respect for the rights of the defence as guaranteed by Community law.

The Portuguese second instance court then raised questions to the ECJ, enquiring if:

(1) the period of 8 to 15 days to exercise a right for a hearing with regard to an intended assessment is compatible with the principle of respect for the rights of the defence, and;
(2) whether a period of 13 days, reckoned from the notification made by the customs authority to a importer (in this case, a small Portuguese undertaking dealing in footwear) to exercise its right to a prior hearing within 8 days to the date of notification to pay import duties within 10 days in relation to 52 imports of footwear from the far east under the GSP made over a period of two and a half years (between 2000 and mid-2002), be considered reasonable for an importer to exercise its rights of defence?’

In its judgment the ECJ held:

"Observance of the rights of the defence is a general principle of Community law which applies where the authorities are minded to adopt a measure which will adversely affect an individual. In accordance with that principle, the addressees of decisions which significantly affect their interests must be placed in a position in which they can effectively make known their views as regards the information on which the authorities intend to base their decision. They must be given a sufficient period of time in which to do so (see, inter alia, Commission v Lisrestal and Others, paragraph 21, and Mediocurso v Commission, paragraph 36). "

The ECJ then decided:

"1. With regard to recovery of a customs debt for the purpose of effecting post-clearance recovery of customs import duties, a period of 8 to 15 days allowed to an importer suspected of having committed a customs offence in which to submit its observations complies in principle with the requirements of Community law.
2. It is for the national court before which the case has been brought to ascertain, having regard to the specific circumstances of the case, whether the period actually allowed to that importer made it possible for it to be given a proper hearing by the customs authorities.
3. The national court must also ascertain whether, in the light of the period which elapsed between the time when the authorities concerned received the importer’s observations and the date on which they took their decision, they can be deemed to have taken due account of the observations sent to them."

Thus, the ECJ confirms that customs authorities can not simply issue re-assessments where they find import declarations incorrect, but must grant the potential customs debtor a proper opportunity to present its views prior to the assessment being issued.

This is contrary to the rules of procedure as they apply in various EU countries, such as for example the Netherlands. In various judgments, Dutch courts have not confirmed that where no such pre-assessment procedure was followed, assessments must be anulled. Where more than 3 years lapsed between the relevant import and the date the assessment was issued (the statutory time bar for assessments under the EU Customs Code) the Dutch courts held that no new re-assessments could be imposed. This principle may, however, not apply in cases where criminal offenses were committed because in those cases the relevant time bar must be established by national law, which commonly provides for time bars in excess of 3 years.

Irish customs have meanwhile also adopted a "Soprope"-policy which can be found here.

EU drafts for Modernized Customs Code: First Sale no longer allowed and royalties must be added to dutiable value

2009-09-29T23:43:00.000-07:00

This post examines the impact of the prohibition of first sale for export as transaction value and new criteria for dutiability of royalties under the current draft EU Implementing Provisions for the EU Modernized Customs Code.

Case 1: Independent manufacturer

Facts

Company Europe purchases products from Company Hong Kong and imports these products into Europe.

Company Hong Kong concludes contracts with independent manufacturers in China. Company Hong Kong pays a price per unit of product to the Chinese manufacturer. The Chinese manufacturer ships the products directly to Company Europe.

Company Europe makes a royalty payment to Intellectual Property Company in Switzerland. This royalty payment is for various rights including rights to use trademarks and copyrights, the rights to manufacture and distribute, etc. held by Intellectual Property Company.

The IP is used in the products that Company Hong Kong orders from the independent manufacturer.

Company Europe, Company Hong Kong and Intellectual Property Company are part of the same group of companies.

See this presentation for a graphical display of this case.

Case 1: Customs Value & Legal Basis under Current EU Customs Code

The customs value for the products imported by Company Europe is the price paid by Company Hong Kong to the independent manufacturer (“Price 1”). The legal basis for this is Article 29 of the EU Customs Code[1], combined with Article 147 of the EU Implementation Regulation[2] (the so called “First Sale for Export”).

The royalty must be added to customs value if it is a condition of sale, and related to the imported products (Article 157 (2) EU Implementing Regulation). The royalty paid by Company Europe to Intellectual Property Company is not a condition of sale and thus excluded from customs value because the seller in the transaction from which the customs value is derived (the independent manufacturer) is unrelated to the buyer (Company Europe), Article 160 EU Implementation Regulation.

Exclusion of the royalty from customs value follows from the ability to apply the First Sale for Export. This position, adopted by some EU customs administrations, may be challenged by others though. As per published guidance from the EU Customs Code Committee (Valuation Section, Commentary 11) the royalty could still be considered a condition of sale and thus to be added to customs value if Intellectual Property Company were able to, directly or indirectly, exercise (legal, contractual or factual) control over the unrelated manufacturers. Commentary 11 seeks to extend the addition of royalties to customs value.

Case 1: Customs Value & Legal Basis under draft MCCIP

Article 230 (2) of the MCCIP will replace the current Article 147 of the Implementation Regulation. Article 230 (2) MCCIP applies the last sale in a chain of sales as basis for transaction value as per World Customs Organisation (“WCO”) Commentary 22.1 from July 2007.

Thus, application of the First Sale for Export under the MCCIP is no longer possible. This means that the price for customs value is the price paid by Company Europe to Company Hong Kong.
With regard to royalties, article 230 (11) MCCIP para 3 (a) states: “Royalties and licence fees are paid as a condition of sale for the imported goods (…) a) if the seller or a person related to the seller requires the buyer to make this payment” and b) if the payment is made to fulfil an obligation of the seller. Thus, the royalty is a condition of sale, because the transaction for customs value is the sale by Company Hong Kong to Company Europe, and the royalty is paid by Company Europe to Intellectual Property Company, which is related to Company Hong Kong.
Thus, under the MCCIP, First Sale for Export can no longer be applied, and thus the royalty is a condition of sale.

But even if Company Hong Kong and Intellectual Property Company would be unrelated, the royalty would still be a condition of sale because of the addition of a new criteria in article 230 (11) para 3 (c) “Royalties and licence fees are paid as a condition of sale for the imported goods (…) c) if the goods may not be produced or sold without the royalties or licence fees being paid directly or indirectly to the licensor.” This text infers that the manufacture of the goods is considered, not whether the seller is willing to sell the goods without the payment of the royalty or license fee.

Under this criterion it is no longer relevant whether there is a relation between seller and recipient of the royalty. Where the royalty is paid for intellectual property rights (such as trademarks, patents, copyright etc) this criterion is met. Such rights are exclusive in that their owner has the sole right to use them, and can prohibit others from producing/selling products that comprise the subject matter of such rights without the owner’s permission.

Example: Luxury Branded Goods Company X owns the trademark for the Brand A. Anyone who would manufacture a product bearing the logo of Brand A would be infringing Company X’s trademark, hence the product would be illegal, unless a license to produce goods using the trademark is obtained from Company X, for which Company X would require payment of a royalty. Thus, under the proposed MCCIP the royalty must be added to customs value, regardless of whether Company X is related to the buyer/seller under the relevant transaction.

The question then remains if the royalties are related to the products imported by Company Europe.

For this, article 230 (11) para 2 MCCIP states: “Royalties and licence fees are related to the imported goods if the rights transferred under the licence or royalties agreement are embodied in them.” The products contain IP for which the royalty is paid, and thus embody the rights transferred under the license agreement between Company Europe and Intellectual Property Company.

Case 2: Related manufacturer

Company Europe buys goods directly from related Manufacturing Company in China and imports these products into Europe. Under the purchasing contract, Company Europe is at liberty to also order the products from unrelated other manufacturers/suppliers.

Company Europe makes a royalty payment to Intellectual Property Company in Switzerland. This royalty comprises the following elements: royalties for the use of trademarks held by Intellectual Property Company, a payment for the right to distribute the products in the European market.

Under the license contract, Company Europe must pay both royalty elements regardless whether Company Europe orders/distributes products from related or unrelated manufacturers/suppliers.

Company Europe, Manufacturing Company and Intellectual Property Company are part of the same group of companies.

See this presentation for a graphical display of this case.

Case 2: customs Value & Legal Basis under Current EU Customs Code and MCCIP

The customs value for the products imported by Company Europe is the price paid by Company Europe to Manufacturing Company (“Price”). The legal basis for this is Article 29 of the EU Customs Code.

The royalty component sub a (trademarks) is excluded from the customs value under Article 159 EU Implementation Regulation (despite Article 160 EU Implementation Regulation) because Company Europe is free to obtain the relevant products from other, unrelated, manufacturers/suppliers. However, under the MCCIP, Article 159 is eliminated.

The royalty component sub b (distribution fees) is excluded from the customs value under Article 32 (5) (b) EU Customs Code because Company Europe (under the license contract) is free to obtain the relevant products from other, unrelated, sellers/manufacturers, and this royalty element thus is not related to the goods imported.

This view, adopted by some EU customs administrations, may be challenged though. Potentially, these distribution fees could be considered as royalties. According to published guidance from the EU Customs Code Committee (Valuation Section, Commentary 11), royalties are a condition of sale and thus need to be added to customs value if Intellectual Property Company were able to exercise, directly or indirectly, (legal, contractual or factual) control over Manufacturing Company. Commentary 11 seeks to extend the addition of royalties to customs value.

Conclusions

Articles 157 through 160 of the current EU Implementation Regulation are brought together in a new Article 230-11 MCCIP (see below).

Under the current Implementation Regulation, royalties can be excluded from customs value because:

Payment of royalties is not a condition of sale because of the absence of a relation between buyer and royalty-recipient due to application of First Sale for Export (Case 1), or;
The royalties are not related to the imported goods because the buyer of the imported goods is free to source them from suppliers related to the royalty-recipient, as well as suppliers who are not related to the royalty-recipient (Case 2).
However, under the MCCIP, these arguments for exclusion of the CIP payment appear no longer valid.

Article 230-11 MCCIP still contains the same 2 requirements for adding royalties to customs value, namely that the royalties are: related to the goods imported, and a condition of sale.

As regards the royalties being related to the goods imported:

Article 230-11 (2) MCCIP only contains a single criterion to establish whether royalties are related to the goods imported, namely if the rights transferred under the royalty agreement are embodied in those goods. It does appear that where products bear trademarks, comprise patented technology and/or other intangibles this requirement is very easily met.

As regards the condition of sale:

Article 230-11 (3) states that a royalty is a condition of sale if the seller or related entity requires the buyer to pay it, or if the payment is made by the buyer to fulfil an obligation of the seller. The current EU Customs Code has therefore been expanded to include an implied “obligation of the seller.”.

Article 230-11 (3) also introduces a third new (alternative) criterion, namely that a condition of sale exists if the goods may not be produced or sold without the royalty being paid directly or indirectly to the licensor. This new criterion is easily met because the production/sale/ distribution of all products that incorporate trademarks/technology/workmanship/ other intangibles protected by intellectual property rights such as trademarks, patents, plant variety rights, copyrights etc. without permission of the holder of such intellectual property right is against the law. Such permission is granted by way of a license for which payment of compensation (royalty) is required.

Thus, the MCCIP draft allows addition of royalties to customs value in virtually all cases, regardless whether royalties are paid to or their payment is required by the seller under the transaction which serves as basis for customs value (or parties related to the seller) and even regardless whether directly related to the goods imported or not.

ECJ requested for preliminary ruling with regard to import duties for goods delivered under condition ‘delivered duty paid’

2009-09-28T22:56:00.000-07:00

The Dutch Supreme Court has requested the European Court of Justice (“ECJ”) to give a preliminary ruling following a dispute involving recovery of an amount of the customs debt for goods delivered under the condition ‘delivered duty paid’ (“DDP”). The case concerns a situation where the seller and buyer have agreed to deliver goods under DDP and have stated so on the customs declaration. However, when determining the transaction price, they wrongly assumed that import duties were not due for the import of the goods and consequently stated no amount related to customs duties on the invoice or customs declaration. Taking this into account, the Dutch Supreme Court adjourned the proceedings in order to assess from ECJ whether, in the matter at hand, it is to be assumed that import duties have been included in the stated transaction price and are to be deducted according to Article 33 of Community Customs Code (“CCC”), which stipulates that import duties are not part of the customs value.

Factual background

The matter involves a shipping agent in the Netherlands (“the applicant”) who was acting by order of a transporter in Iceland. The transporter in Iceland was, on his turn, acting by order of a shipping agent in Iceland. The applicant submitted in the period of 1998 to 2000, in his own name and account, several declarations for release of fish products (hereafter “the goods”) into free circulation. The applicant submitted with each declaration of import, invoices stipulating origin as being ‘European Economic Area’ (“EEA”) and requested for the application of the preferential zero duty tariff for import duties. The invoices related to the transaction between the shipping agent in Iceland and a customer in Spain. The invoices further stated ‘DDP’[1] as condition of delivery, as well as the following (invoice) declaration: “The Exporter of products covered by this document (…) declares that, except where otherwise clearly indicated, these products are of EEA preferential origin”. The condition of ‘DDP’ was also stated in box 20 of the Single Administrative Document. Accordingly, the goods were released by the custom authorities into free circulation, having applied the requested preferential zero duty tariff.

However, a subsequent investigation by the customs authorities related to the origin of the goods concluded that the preferential zero duty tariff was not to be applied because the goods were of origin from third countries. As a consequence, the customs authorities imposed the recovery of the amount of the customs debt by determining the customs value on the basis of the transaction price(s) stipulated on the declaration(s) of import without deducting any applicable import duties.

The District Court and Court of Appeal

The District Court and Court of Appeal ruled in favour of the customs authorities by concluding that there was no apparent reason to attribute a part of the transaction price to import duties which, according to Article 33 of CCC, are to be excluded from the customs value. In specific, the Court of Appeal stated in its judgment that the applicant failed to reasonably convince that the transaction price, stipulated on each declaration of import, comprises a certain amount related to import duties. Moreover, the condition that the deliveries occurred under ‘DDP’ to a Spanish customer, is not sufficient to determine that for each delivery a certain amount of import duties was included in the transaction price of the goods. Moreover, the Court of Appeal ruled that it is plausible that the contracting parties, when determining the price of the goods, assumed that no import duties were due for the importation of the goods so as to exclude any amounts of import duties in the transaction price.

Memorandum of appeal

The applicant appealed to the Supreme Court and contested in its memorandum of appeal that the Court of Appeal based its judgment on an incorrect interpretation of Article 33 sub f) of the CCC considering that the matter involves a shipment under ‘DDP’ to a customer in the European Community (“EC”). This is, according to the applicant, sufficient to establish that the customs value should be set by deducting the import duties, and other applicable (import) taxes in the EC, from the transaction price.

The applicant further stipulated that the proportion of the import duties is not to be seen as being dependent on the assumption of the contracting parties with regard to the their transaction. In that regard, the applicant referred to the agreed liability of the seller in relation to import duties which implies that the seller had agreed to receive a lower amount for the goods.

The applicant further substantiated his view by referring to Advisory Opinion 3.1 of The Technical Committee on Customs Valuation of the World Customs Organisation (“WCO”) and point 8 of Commentary 5, section ‘customs value’, of the Customs Code Committee. These imply, according to the applicant, that for the application of Article 33 sub f) of the CCC the amount of import duties does not need to be stated on the invoice of the seller, but that it is sufficient if one of the accompanying documents shows that the seller is liable for any import duties, no matter how high these may be. Moreover, the applicant stated that it is in the interest of the Customs Code Committee that the contracting parties showed that, at the time of the conclusion of the agreement, the parties were aware that the transaction price covered in part the costs due with regard to import duties.

The Supreme Court

The Supreme Court affirmed, on one hand, that in the underlying transactions between the seller and buyer, it was agreed that the seller was liable for payment of import duties for the concerned goods. Moreover, the seller and buyer assumed, when concluding the agreement, that the import duties for the concerned goods were not due. Therefore, it is uncertain for which price the seller would have sold the goods to the buyer if the contracting parties (at least the seller) had a correct conception of the import duties due. Such an uncertainty provides, in the eyes of the Supreme Court, an argument in favor of the view that the sole reference to ‘DDP’ is not sufficient to assume that import duties have been included in the price actually paid or payable for the imported goods.

On the other hand, the Supreme Court determined that if Article 33 sub f) of the CCC is not to be applied, import duties may be levied over a transaction price including import duties which is in contradiction with Article 33 sub f) of the CCC. Moreover, it can also be argued that in cases where the seller and buyer did assume that import duties were due, it is difficult for the contracting parties to determine the right amount of import duties to be charged to the seller, for example if there is uncertainty with regard to the classification of goods in the Combined Nomenclature or if the customs authorities assume a different amount than the seller to calculate the payable amount of import duties, which can lead to miscalculations. This leads, according to the Supreme Court, to the conclusion that for the application of Article 33 sub f) of the CCC, it would not matter whether the import duties are levied directly after the submission of the declaration for free circulation or any time afterwards, provided that at the time of import it is clear that the seller is liable for the import duties.

Taking the above into account, the Supreme Court determined that a clear answer could not be derived from Articles 29 – 33 of the CCC or ECJ’s jurisprudence and accordingly requested the ECJ to give a preliminary ruling.

[1] A transaction in which the seller must pay for all of the costs related to transporting the goods and is responsible in full for the goods until they have been received and transferred to the buyer. This includes paying for the shipping, the duties and any other expenses incurred while shipping the goods.

By: Goran Danilovic

European Commission sets out Explanatory Note and CN Code for mobile phones with increased functionality

2009-09-28T22:52:00.000-07:00

The European Commission has recently determined the classification of telephones for cellular networks or other wireless networks (“mobile phones”) in the Combined Nomenclature (“CN”) by publishing Commission Regulation (EC) No 717/2009 (“Regulation 717/2009”). The adoption of Regulation 717/2009 was preceded by the publication of the concerning Explanatory Note clarifying the characteristics for mobile phones with increased functionality, such as GPS receivers and mobile TV. With that regard, the Explanatory Note and Regulation 717/2009 determine that the defining characteristic for classifying a mobile phone (with increased functionality) under CN Code 8517 12 00, prescribing an import tax of 0 percent, is the ‘mobile phone function’, meaning that the telephony function needs to take precedence over all other functions including when incoming calls are normally notified to the user regardless of secondary functions used.

Introduction

The final outcome of the new Explanatory Note and CN Code for mobile phones (with increased functionality) has been awaited by the technology industry as well as World Trade Organisation (“WTO”) members. With that regard, a different outcome may have led to a WTO dispute if the European Commission had determined that a mobile phone with increased functionality were to be classified in a dutiable customs category in the CN, prescribing an import tax of 14 percent. This would have been seen as being in total contradiction to the European Union’s commitments under the Information Technology Agreement, signed by WTO members in 1996, which requires duty-free treatment for most information technology products.

However, the European Commission has decided that mobile phones with increased functionality can still benefit from the zero rate, prescribed by CN Code 8517 12 00, provided that “the principal function of the apparatus (…) is considered to be that of mobile phone communication over a cellular network”. The characteristics and criteria to be taken into account in order to classify a “mobile phone” under CN Code 8517 12 00 are further stated in the Explanatory Note and Regulation 717/2009.

Explanatory Note for “mobile phones”

The Explanatory Note for CN subheading 8517 12 00 is to include “mobile phones” having the following characteristics:
- they are "pocket-sized", i.e. they are of dimensions that do not exceed 170 mm x 100mm x 45mm, when measured in their most compact form;
- they are capable of operating without an external source of electric power;
- they have both a microphone, and an earphone and/or a loudspeaker, either in the same unit or in the form of a detachable headset presented together with the "mobile phone", for the transmission and reception of voice enabling voice communication;
- they incorporate other components such as an amplifier and an antenna for telephony, which provide for dual-way short-range transmission of voice within a network consisting of base stations of subheading 8517 61 and using mobile telephony frequency bands;
- they are able to do telephony communication using cellular networks when equipped with a SIM (Subscriber Identity Module) of various types (physical or software) that has been activated. They may provide that emergency calls may be made without the SIM.

In addition, "mobile phones" may also have other functions such as sending and receiving SMS (Short Message Service) and MMS (Multimedia Messaging Service) messages, emails, packet switching for access to the Internet, sending and receiving positioning signals, navigating, routing, maps, instant messaging, VOIP (voice over Internet Protocol), PDA (Personal Digital Assistant), gaming, receiving radio or television signals, capturing, recording and reproducing sound and images.

Regulation 717/2009

Regulation 717/2009 sets out three particular models of mobile phones with various functions that are classified under CN Code 8517 12 00. In short, the characteristics of the models can be summarised as handheld, battery-operated, foldable apparatus, having an alpha-numeric keyboard of a kind used in cellular phones, with a colour display of the liquid crystal device (LCD) type, and including other various functions which can be performed in addition to the mobile telephony function.

However, the principal function for classification of a “mobile phone” under CN Code 8517 12 00 is, assuming that the apparatus is equipped with an activated SIM, that of mobile phone communication over a cellular network which means that the mobile telephony function takes precedence over all the other functions of the apparatus.

It should also be mentioned that the national customs authorities will treat the descriptions of the three models in Regulation 717/2009 as examples of the kind of devices that fall under CN Code 8517 12 00, analysing each time whether the principal function of the device is that of mobile phone communication over a cellular network. With that regard, a reference can be made to the European Court of Justice ruling (C-130/02) stating that “the application by analogy of a classification regulation, (…), to products similar to those covered by that regulation facilitates a coherent interpretation of the CN and the equal treatment of traders”.

Binding Tariff Information (BTI)

In addition, Regulation 717/2009 stipulates that BTI’s which have been issued by the national customs authorities of Member States of the European Union in respect of the CN classification but which are not in accordance with Regulation 717/2009 can, for a period of three months, continue to be invoked by the BTI holder.

Regulation 717/2009 is in force as of 27 August and is being applied by the national customs authorities of the Member States of the European Union.

By: Goran Danilovic

EU Commission to propose new duties on mobile phones with increased functionality

2009-07-09T22:49:00.001-07:00

Introduction

The new draft of the Combined Nomenclature’s (“CN”) Explanatory note for multifunctional devices with mobile phone function (subheading 8517 12 00) was recently presented at the 2nd meeting of the Customs Code Committee (“CCC”) held in Brussels. In addition, a draft Regulation relating to three particular products with a mobile phone function was also presented by the Chair of the CCC.

The Chair of the CCC commenced by explaining that the exclusions contained in the previous version of the draft CN Explanatory note, which removed certain ‘sophisticated’ phones from the Information Technology Agreement’s zero tariff status into a dutiable customs category, had disappeared due to the strong opposition of the Member States of the European Union (“Member States”).

However, during the 2nd meeting of the CCC, remarks were still made by Member States to introduce exclusions for the GPS and television reception functions from the essential characteristics of a mobile phone. The adoption of these exclusions could entail that mobile phones with increased functionality, such as GPS receivers and mobile TV would face a tax of up to 14% upon entry to the European Union.

In the end, it follows from the summary report of 2nd meeting of the CCC that a consensus has yet to be reached on the wording, legal reasoning and aim of the new presented draft texts of the CN Explanatory note and Regulation for multifunctional devices with mobile phone function. This is to be derived from the following issues which were raised during the meeting.
The new draft CN Explanatory note: Multifunctional devices with mobile phone function
With regard to the wording of the new presented draft text of the CN Explanatory note, suggestions were made as to introducing the exact dimensions of what “pocket-size” is for nomenclature purposes as these dimensions already exist in the current nomenclature.
As to the definition of a mobile phone, several Member States considered the wording in the new draft of what constitutes the principal function to be unhelpful as it does not state when and under what conditions the mobile telephony function has priority over the other functions; on the contrary, it rather gives the impression that any product with a mobile telephony function remains a mobile phone independently of the number and quality of the other functions present in the product. In this respect, it was suggested to state that the principal function is due to the fact that incoming calls are notified irrespective of the other functions used. It was further explained that a specific function cannot constitute an objective characteristic of a product and that therefore a separate paragraph, reflecting the legal reasoning, should be introduced in the draft Explanatory note in relation to the product's principal function.

Moreover, if the aim of the new draft CN Explanatory note is to classify any device with mobile telephony function as a mobile phone, one Member State asked what are the objective characteristics of the products on which such classification is based as there is no legal text giving precedence to heading 8517 over other headings in the CN.

As to the functions of a mobile phone, one Member State suggested including the PDA function to the other functions that can be performed by a “pocket-size” device with mobile telephony function. On the other hand, one Member State argued that the GPS and television reception functions should be taken out from the essential characteristics of a mobile phone as according to that Member State they would influence the classification of the device. This Member State suggested introducing exclusions for these 2 competing headings in the current draft. This would entail that mobile phones with GPS and mobile TV functions would face a tax of up to 14% upon entry to the European Union.

The draft Regulation: Multifunctional devices with mobile phone function

As to the draft Regulation relating to three particular products, the legal reasoning of the draft Regulation was the main focus of attention for many Member States.

Several Member States asked further clarification on the reasons for giving the mobile telephony function precedence over the other function of the apparatus. It was explained that by deciding that a device equipped with a SIM card is a mobile phone, the draft regulation is giving an overall precedence to heading 8517 without any consideration of the other functionalities present in the device or the quality of these functionalities.

Moreover, one Member State also underlined that the draft Regulation was not providing any guidance as to the classification of other multifunctional devices performing without an activated SIM card or without a mobile telephony function.

As to the GPS function of a mobile phone, Member States could not agree as to whether a mobile phone having both the antenna and GPS module should be classified under heading 8517 or be moved into a dutiable customs category.

Conclusion

Overall, a clearer wording and legal reasoning of the draft text of the CN Explanatory note and Regulation were asked for by the Member States. On the other hand, Member States were asked to reflect and provide the Customs Code Committee with other criteria supporting classification of mobile phones under heading 8517. The Customs Code Committee will now reflect upon the comments made during the meeting and a measure for vote will be presented at a future meeting.
The proposed measure might state that ‘sophisticated’ mobile phones are to be moved into a dutiable customs category in the CN. This would entail that mobile phones with increased functionality, such as GPS receivers and mobile TV, would face a tax of up to 14% upon entry into the European Union.
If the European Union decides to go ahead with a duty rate of up to 14% for ‘sophisticated’ mobile phones, the decision might be perceived by other World Trade Organisation (“WTO”) members as being in total contradiction to the European Union’s commitments under the Information Technology Agreement, signed by WTO members in 1996, which requires duty-free treatment for most information technology products.

Recast EU Dual Use Export Controls Regulation

2009-07-09T22:51:00.000-07:00

Introduction

The European Union (“EU”) has adopted a Recast of Regulation (EC) 1334/2000 (“EU Dual Use Regulation”) by adoption Regulation (EC) No 428/2009. The Recast provides for new legislation on controlling exports, transfers, brokering and transit of dual-use items for, within or through the EU. Furthermore, Annex I of the EU Dual Use Regulation which provides for the common EU control list of dual-use items has been amended. Regulation (EC) 428/2009 comes into force on the 27th August 2009.

New Controls on brokering services

The Recast provides for authorisations for persons providing brokering services in relation to dual-use items listed in Annex I of the EU Dual Use Regulation. An authorisation shall be required for brokering services of dual-use items listed in Annex I if the broker has been informed by the competent authorities of the EU Member States in which the broker is established or resident that the items are or may be intended for Weapons of Mass Destruction (“WMD”) end-use. Furthermore, when the broker is aware that such items are intended for WMD end-use he must notify the competent authorities who will decide whether an authorisation is needed.

The Recast provides for a model that is to be used for broker services authorisations.
EU Member States may adopt national provisions to impose an authorisation for brokering services of dual-use items that are not listed in Annex I and that are or may be intended for WMD or military end-use. Furthermore, EU Member States may adopt national provisions providing for an authorisation requirement if the broker has grounds that the dual-use items in question are or may be intended for WMD end-use. EU Member States have to notify the European Commission of these measures.

Controls on transit

The Recast imposes controls on transit of dual-use items. Transit is being defined as “transport of a non-Community dual-use items entering and passing through the customs territory of the Community with a destination outside the Community”.

The EU Dual Use Regulation provided only for an authorisation on export of items listed in Annex I of the EU Dual-Use Regulation. Export was defined as “export within the meaning of Article 161 of Regulation (EEC) No 2913/92 (the Community Customs Code, “CCC”), a “re-export within the meaning of Article 182 CCC” and “transmission of software or technology by electronic media, including by fax, telephone, electronic mail or any other electronic means to a destination outside the European Community”. The definition for “export” will be the same with the exception that export is also re-export within the meaning of Article 182 CCC but not including items in transit”.

The transit controls include that EU Member States may prohibit a transit of dual-use items if the items are or may be intended for WMD end-use. Furthermore, EU Member State may impose an authorisation requirement during the period that the competent authorities need to decide whether they will prohibit the transit. This will enable the entity or person involved to show that the items are intended for civil end-use rather than WMD end-use.

Finally, EU Member States may adopt national provisions to extend the prohibition and authorisation requirement to transit of dual-use items that are not listed in Annex I of the EU Dual Use Regulations that are or may be intended for WMD or military end-use. EU Member States have to notify the European Commission of these provisions.

Amendment of Annex I

Annex I has been amended. Amendments include export control classification numbers (“ECCNs”) in all categories. Certain amendments include new or old definitions, but also new controls have been added. The European Commission has made a summary of changes listing all amendments. In order to review this summary, please visit the following link. (http://trade.ec.europa.eu/doclib/docs/2009/june/tradoc_143396.en09%20CN07_03.pdf).
Annex IV that lists dual-use items that are subject to an intra-Community license has not been amended.

Consequences Recast for the Netherlands

The Dutch Decision on strategic goods, which is based on the General Custom Law, will have to be amended to include amendments in relation to the movement of dual-use items. However, amendments in relation to dual-use services require the adoption of a new law in the Netherlands, because the Dutch General Customs law is limited to export controls of dual-use items and does not include strategic services.

For that purpose, the Law on Strategic Services (in Dutch: Wet strategische diensten) will be adopted. This law will include the already existing legislation on strategic services, but will also include new controls.

The law on strategic services will make a difference between services for dual-use items and military items. The proposal distinguishes three forms of strategic services: non-physical transfer of software and technology, technical assistance and brokering.

With respect to dual-use items, the non-physical transfer of software and technology was already included in the EU Dual Use Regulation. The provisions related to brokering have been added in the Recast. The controls related to technical assistance are laid down in Council Joint Action of 22 June 2000 concerning the control of technical assistance related to certain military end-uses (2000/0401/CFSP).

The State Secretary of the Dutch Ministry of Economic Affairs aims to finalise the proposal to adopt the Law on Strategic Services in 2010. Within that context, the State Secretary will verify to what extent this law will have to include extra-territorial elements.

Dutch Supreme Court-Toner Cartridges Customs Classification

2009-07-10T00:37:00.000-07:00

The Dutch Supreme Court puts aside the WCO classification opinions and upholds the CN-classification of toner cartridges under heading 3707 (toner).

On 29 May 2009, the Supreme Court delivered a judgment referring to the classification in the Combined Nomenclature (“CN”) of toner cartridges for photocopying apparatus. The Supreme Court ruled that the toner cartridge in question is to be classified under CN heading 3707 and furthermore explicitly stipulated that the classification opinions of the World Customs Organisation (“WCO”) are to be set aside as far as these are incompatible with the wording of the concerned heading of the CN or if they go manifestly beyond the discretion conferred on the WCO.

Factual background

The matter concerned the CN classification of a toner cartridge containing a chemical substance (i.e. toner) necessary for the photographic process in specific photocopying apparatus.
In specific, the toner cartridge in question has the following objectives and characteristics:
“The product is a toner cartridge, comprising of a plastic housing in the form of a cylinder (approximate measurements: length of 23 cm and cross-cut of 9 cm), filled with powder i.e. the toner. The upper side of the product has a conical form and a narrow filling opening at its end, which can be sealed by a screw top. The under side of the product is fitted on the outside and breadthwise with agigator ramps which ensure that the toner can flow from the cartridge. The product can solely be used in specific copying apparatus of Ricoh. Inside the copying apparatus, a green bracket holds the cartridge firmly to the copying apparatus. Due to an electrical motor in the copying apparatus, the cartridge is able to move clockwise enabling it to equally disparage the toner on to the magnetic roll.”

The complainant classified the stated toner cartridge under CN heading 9009 90 00 (as being parts and accessories of photocopying apparatus), comprising a zero tariff duty in the year 2000. Due to an examination by the tax/customs authorities, the inspector concluded that the toner cartridge was to be classified under CN heading 3707 90 30 (as being chemical substances for photographic use), comprising a duty of 6%, and accordingly issued a demand for payment of customs duties. The Dutch Regional Court of Appeal ruled in favour of the inspector by confirming classification of the toner cartridge under CN heading 3707 90 30.

The Supreme Court

The complaints put forward at the Supreme Court referred among others to the fact that the Regional Court of Appeal, while basing its judgment, did not take into consideration the cited classification opinions of the WCO related to CN heading 9009 which refer to (toner) cartridges similar to those in question.

With that regard, the Supreme Court stipulated that the notes and opinions of the WCO are an important aid to the interpretation of the scope of the various tariff headings but do not have legally binding effect to the contracting parties. These notes and opinions are to be put aside, as far as these are incompatible with the wording of the concerned heading of the CN or if they go manifestly beyond the discretion conferred on the WCO.[1]

Moreover, the Supreme Court referred to the judgments of the European Court of Justice (“ECJ”) in the Turbon-cases[2], ruling that the stated classification reasoning in those judgments, by classifying ink cartridges under CN heading 3215, is equally applicable to the toner cartridges in question. This reasoning is applicable although the ECJ judgments in the Turbon-cases concern a different product (ink instead of toner) and different CN headings. Therefore, the Supreme Court concludes that the WCO classification opinions, which are dated before the ECJ judgments in the Turbon-cases, do not carry sufficient weight for the Supreme Court to rule otherwise.

Conclusion

The Supreme Court draws a clear line on the force in law of a classification opinion of the WCO in connection with the classifying of a product in the CN. In that regard, it can be concluded that an opinion issued by the WCO, on the classification of a certain product in its Harmonised System has no legally binding force and is no more than an indication assisting in the interpretation of the scope of the various tariff headings of the CN. If such a classification opinion is contrary to the wording of the heading in the CN, it must therefore be disregarded.

[1] ECJ, judgment of 19 January 2005, SmithKline Beecham plc, C-206/03, par. 24; and ECJ, judgment of 17 April 2006, Kawasaki Motors Europe N.V., C-15/05, par.36.
[2] ECJ, judgment of 7 February 2002, Turbon International GmbH, C-276/00; and ECJ, judgment of 26 October 2006, Turbon International GmbH, C-250/05.

Commission to propose new tax on mobile phones with increased functionality

2009-07-09T22:49:00.000-07:00

Recent Dutch seizures of generic drugs add fire to the WTO dispute regarding seizure of goods in transit

2009-05-06T04:05:00.000-07:00

The dispute regarding goods in transit has been highlighted in recent months due to several seizures of generic drugs in transit by the Dutch customs authorities. The seizures taken by the Dutch customs authorities, the latest involving a consignment of Indian-made medicines destined for distribution to clinics in Nigeria, are in particular reflecting the ‘friction’ between the European Union ("EU") legislation to counterfeit fake medicines and the World Trade Organization ("WTO") rules providing for freedom of transit of goods. The seizures have raised a growing concern among the developing countries that the continuous EU seizures of generic drugs in transit could have an indirect impact on trade flows and also impede developing countries’ access to essential medicines.

Intervention by Brazil

In that regard, Brazil is already considering a WTO disputes suit after the Dutch customs authorities detained, in December 2008, a consignment of Losartam Potassum, an active pharmaceutical ingredient used in the production of medicines for arterial hypertension. The consignment of these generic drugs against high blood pressure was being traded between the Indian company DR. REDDY’s and the Brazilian importer EMS. At the time it was seized, the consignment was officially in transit. Apparently, the seizure was initialised due to the contact between the Dutch customs authorities and Merck & Co, Dupont Co and Merck Sharp & Dohme, which jointly hold the patent for Losartan’s trade-name equivalent Cozaar. The particular ingredient is not patented in India or Brazil. In the end, the consignment was released back to the Indian owner, who decided at that point to return the shipment to India.
As a consequence of the action taken by the Dutch customs authorities, Brazil has intervened at the WTO General Council stating that the measure taken by the Dutch customs authorities clearly violated the freedom of transit, which is a right enshrined in Article V of the General Agreement on Tariffs and Trade ("GATT"). Article V of the GATT provides among others that "traffic coming from or going to the territory of other contracting parties shall not be subject to any unnecessary delays or restrictions and shall be exempt from customs duties and from all transit duties or other charges imposed in respect of transit".
Moreover, Brazil takes the view that under the existing intellectual property legal structure, which includes the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"), patents are territorial and protected according to each country’s national law and system. Therefore, the medicines seized are generic under the law of the market in which they were meant to be commercialised, namely Brazil, and not the country of transit, such as the Netherlands. In that regard, Brazil is mostly concerned that the Dutch seizures will set a precedent for extraterritorial enforcement of intellectual property ("IP") rights which would affront the fundaments of the multilateral trade system, in particular the established principle of territoriality which is one of the pillars of the international IP regime. Brazil stated that the Doha Declaration on TRIPS and Public Health, adopted on 14 November 2001, stipulates that the TRIPS Agreement "can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and (…) to promote access to medicines for all". With that regard, Brazil recalled that the protection of public health and the promotion of public interest are still part of the TRIPS fundamental principles.
Brazil also raised its concerns about growing trade in counterfeit medicines and pledged its full commitment, in the light of the TRIPS Agreement, to IP protection. However, Brazil argued that IP protection should only be enforced to goods destined for a Member’s own market and should not affect goods in transit. In that regard, Brazil requested for conformity of the legislation of the Netherlands and/or the European Community ("EC") with the WTO rules and disciplines in order to ascertain safe transit of generic intellectual property-free medicines.

EC intervention

In reaction to Brazil’s intervention, the EC took the stage at the WTO General Council in order to clarify the issue at stake, recalling in the first place that none of the WTO’s Members would wish the EC to allow the flow of counterfeit goods to their populations.

In this connection, the EC clarified that the current provisions of the TRIPS Agreement neither mandate nor forbid the seizure of goods in transit. However, in the matter at hand, the EC clarified that, following the request of the company having patent rights over the generic medicines in the Netherlands, the Dutch customs authorities temporarily detained (which does not mean seize, confiscate or destroy) the consignment in order to control it. The EC further stipulated that the action taken by Dutch customs authorities was in accordance with both the EU legislation and WTO rules, in particular Article V of GATT and Article 51 of TRIPS.

a) TRIPS Agreement

The TRIPS Agreement requires in Article 51 that Members shall adopt procedures to enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trade mark or pirated copyright goods may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation of such goods. However, there is no obligation to apply such procedures to imports of goods put on the market in another country by or with the consent of the right holder, or to goods in transit. In that case, Members are free to determine whether or not to apply such procedures to goods in transit. In the case that a Member does apply such procedures, Article 41 of the TRIPS Agreement states that these procedures shall be fair and equitable. Moreover, the procedures shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.

Therefore, the EC justified the action taken by the Dutch customs authorities as having detained the consignment of generic medicines temporarily on the basis of valid suspicious grounds of the right holder that the generic medicines in transit infringed an intellectual property right. In addition, the EC recalled that compensation will be entitled if the detention has been done on the basis of an unsubstantiated complaint.

b) The EU Anti Piracy Regulation

Taking into account the above stated, it should be noted that, in July 2008, the Court of The Hague in preliminary relief proceedings ruled in the case of Sosecal v. Sisvel that the "fiction of the deemed place of manufacturing" is still to be applied under the new Anti Piracy Regulation ("APR") . The APR contains this so-called legal fiction which entails that counterfeit goods which originate from outside the European Union ("EU") and are in transit in a Member State, should be considered as if they had been manufactured in the Member State where the goods are in transit. This means that if such goods are counterfeit under the laws of the transit Member State, their transit can be prohibited. Thus, it is legally justified to assess, on the basis of the law of the transit Member State, whether the goods in transit infringe an IP right of the patent holder.

Conclusion

It can be concluded that the detentions and seizures reflect ‘friction’ between the EU legislation and WTO rules. The difficulty lies in, among others, drawing a clear line between counterfeit medicines and approved generic drugs. The temporary detentions or seizures by the customs authorities in the EU could impede quick access to essential medicines destined for developing countries without sufficient or no manufacturing capacities in the pharmaceutical sector. The application of enforcement procedures to medicines in transit will remain for now an issue to be dealt with by the World Customs Organization, World Health Organization and WTO.

By Goran Danilovic

Principle of equal treatment succeeds in relation to conflicting BTI-rulings

2009-05-06T04:08:00.000-07:00

The Customs court in Haarlem (“Customs court”) has recently upheld the applicability of the principle of equal treatment in relation to a Binding Tariff Information (“BTI”) ruling issued in The Netherlands which was conflicting with a BTI-ruling issued in Slovenia for the same product.

Factual background

The dispute concerned two conflicting BTI-rulings, which have been issued in The Netherlands and Slovenia, in relation to the same product, namely an XX daylight-system. The conflicting BTI-rulings classified the XX daylight-system differently in the Combined Nomenclature (“CN”).
The customs authorities in The Netherlands issued a BTI-ruling concluding that the XX daylight-system was to be classified under CN code 9013 8090. The plaintiff disagreed and argued, in the action brought before the Customs court, that the appropriate CN classification should be CN code 9405 5000 90 by referring to the BTI-ruling issued by the Slovenian customs authorities which classified the XX daylight-system under CN code 9405 5000 90.
During the proceedings before the Customs court, the plaintiff raised pleas on the basis of the principle of protection of legitimate expectations, principle of legal certainty and principle of equal treatment. With regard to the principle of equal treatment, the plaintiff stated that the reasoning behind the initiative to start proceedings before the Customs court was based on the fact that the plaintiff was confronted with importers/customs agents who imported the same product, for which the plaintiff had the exclusive rights, in Member States other than the Benelux, for using the BTI-ruling issued by the Slovenian customs authorities.
This article will not cover all the aspects of the judgment. Instead, we provide a synopsis of the Customs court’s conclusions with regard to the principle of equal treatment.

The judgment of the Dutch Customs court

Firstly the Customs court tackled the CN classification of the XX daylight-system. The Customs court determined that, on the basis of the objective characteristics of the XX daylight-system and Commission Regulation (EC) No 457/2008 concerning the classification of certain goods in the CN, the XX daylight-system was to be classified under CN code 9013 8090.
Secondly, the Customs court dismissed plaintiff’s arguments based on the principles of the protection of legitimate expectations and the principle of legal certainty.
However, the Customs court did uphold the applicability of the principle of equal treatment by determining that there was a breach of the principle of non-discrimination, as established in Community law. The non-discrimination principle stipulates that, without prejudice to an objective justification, equal situations are not to be treated differently and different situations are not to be treated equally. In that regard, the Customs court found it plausible that:
“The plaintiff has unequivocally stated that he was told at several meeting occasions of the said importers that, in relation to the releasing of the product in free circulation, the product at issue was to be classified under CN code 9405.5000. The plaintiff has found in the European BTI database (EBTI) the BTI-ruling issued by the Slovenian customs authorities in which the product at issue was classified under CN code 9405.5000.”
Moreover, the Customs court stated that the XX daylight-system was imported during the same period by others than the plaintiff, in Member States other than Benelux, in which cases the XX daylight-system was classified under CN code 9405.5000. In that regard, the Customs court assumed that the BTI-ruling was used by its stated holder.
Consequently, the Customs court referred to Article 9 of Regulation (EEC) No 2454/93 laying down provisions for the implementation of the Community Customs Code (“IPCCC”) which comprises a procedure for uniform application of the CN in regard to conflicting BTI-rulings relating to the same product. With that regard, the Customs court took the view that, considering that this procedure encompasses a time period of one to two months before the item is placed on the agenda of the Committee and another six months before a measure is adopted for uniform application of the CN, this specific procedure cannot prevent that during a certain period of time equal cases can be treated differently in Member States, which is exactly the situation in the case at hand.

In this connection, the Customs court found that in this case there is no objective justification for the different treatment of the equal cases considering that the Slovenian customs authorities have not initiated the procedure laid down in Article 9 of IPCCC. The Slovenian customs authorities could have consulted the EBTI beforehand and concluded that the Dutch customs authorities issued a BTI-ruling for the XX daylight-system under CN code 9013 8090. Accordingly, if the Slovenian customs authorities would have disagreed with the Dutch BTI-ruling, then the Slovenian customs authorities could have suspended the issuance of their own BTI-ruling for the XX daylight-system under CN code 9405 5000 and could have started the procedure under Article 9 of IPCCC. This course of action could have prevented a breach of the rule that equal cases are to be treated equally. Taking this into account, the Customs court concluded that this course of action was not initiated as a result of which there is no objective justification for different treatment in the case at issue.

Conclusion

The judgment of the Customs court is of importance considering that a plea on the basis of the principle of equal treatment can succeed in relation to conflicting BTI-rulings which have been issued in different Member States for the same product.
However, this is to be determined on a case-by-case basis by establishing a breach of the principle of non-discrimination, as provided for in Community law, without having an objective justification.

Such an objective justification can rise if one of the Member States initiated the procedure laid down in Article 9 of IPCCC in relation to conflicting BTI-rulings. This course of action would justify that equal cases be treated differently.
Thus, a plea to the principle of equal treatment, in relation to conflicting BTI-rulings, can succeed if there is, without prejudice to an objective justification, a breach of the principle of non-discrimination as established in Community law.

By Goran Danilovic

EU Recast of Dual Use Export Controls

2009-03-13T05:49:00.000-07:00

The EU has been preparing a recast of the EU Dual Use Regulation over the last years.

On 26 January 2009, a conference was held in Brussels in order to allow exporters to comment on the current proposals. The proposed changes of the EU Dual Use Regulation can be found here, though this proposal does not yet reflect the results of ongoing discussions with the EU member states. A report of the conference can be found here as well.

Also, a presentation at C5's 3rd Annual Export Controls conference held in London on 10 and 11 MArch 2009 on the recast can be found in Jasper Helder's Linked In profile (follow the link left of this posting).

Export Controls Seminar on March 31st, The Hague, NL

2009-02-26T09:09:00.000-08:00

Over the last years, the regulatory aspects in the field of international trade increasingly attract the awareness of businesses to focus on safety and security in relation to their supply chain. One of the hot topics is export controls on dual use goods.

Thise Export Controls Seminar, jointly organised by the American Chamber of Commerce in the Netherlands and the international law firm Bird & Bird, intends to create an open forum for businesses and organizations that are relatively new in the field of US, EU and national export controls and sanctions. The seminar will provide a balanced overview of legislative and business related aspects of this regulated area. It will cover issues such as a contemporary introduction to US and EU export controls, a review of the nonproliferation policy, EU and Dutch policy regarding export controls and discuss the compliance aspects of export controls in day-to-day business practice.

PROGRAM:

14.00 – 14.30 Reception and registration

14.30 – 14.35 Word of welcome by the Chairman

14.35 – 15.20 A general overview of the legislative and regulatory aspects of EU and US export controls by Brian Mulier (senior associate Bird & Bird Trade & Customs)

15.20 – 15.40 Coffee break

15.40 – 16.40 A general introduction to the Non-Proliferation policy and current EU and Dutch policy in relation to export controls by Kees Jan Steenhoek (senior policy advisor on export controls at the Ministry of Economic affairs in the Netherlands)

16.40 – 17.25 Export controls in the business practice by Wolter Boerman (Vice President Philips International, Corporate Legal, Corporate Export Controls & Supply Chain Security)

17.25 – 17.30 Closing remarks

17.30 – onwards Drinks

Registration: jasper.helder@twobirds.com

European Court of Justice rules on classification of LCD monitors

2009-02-19T13:09:00.000-08:00

By Chiara Klaui, Bird & Bird LLP

On 19 February 2009, a judgment was given by the European Court of Justice ("ECJ") in the 'Kamino' case (C-376/07). This case concerned the classification of LCD monitors with the following specifications: screensize of 53.48 x 46.55 x 24.84 cm (w x h x d) with a 58.42 cm (23 inch) diagonal measurement; maximum resolution of 1 920 x 1 200 pixels; screen aspect ratio of 16:10; horizontal picture frequency of 30 to 81 kHz; vertical picture frequency of 50 to 76 Hz; brightness of 250 candela per square metre; 16.7 million colours and a contrast ratio of 500:1.
According to the Dutch customs authorities, these LCD monitors had to be classified under subheading 8528 21 90 (14% duty rate) whilst Kamino took the view that these monitors were classifiable under subheading 8471 60 90 (0% duty rate).

Questions referred for a preliminary ruling

The Dutch Supreme Court decided to refer the following questions to the ECJ for a preliminary ruling:

Must Note 5 to Chapter 84 of the ... CN ... be interpreted as meaning that a colour monitor which can display both signals from an automatic data-processing machine as referred to in heading 8471 ... and from other sources is excluded from classification under heading 8471 ...?

If classification in heading 8471 ... of the ... monitor referred to in the first question above is not excluded, on the basis of which criteria must it then be determined whether it is a unit of the sort that is solely or principally used in an automatic data-processing system?

Does the scope of application of .. Regulation ... No 754/2004 ... extend to the monitor at issue and, if so, in light of the answers to the first and second questions, is that regulation valid?

Judgment of the ECJ

1. The ECJ ruled that classification of the monitors such as those at issue in subheading 8471 60 90, as units of the kind used 'principally' in an automatic data-processing system within the meaning of Note 5(B)(a) to Chapter 84 of the CN is not precluded on the sole ground that they are capable of displaying signals coming from both an automatic data-processing machine and from other sources.

In other words, LCD monitors which can not only display signals from a computer but also from other sources (e.g. DVD player, games console, etc) can not for this reason alone be precluded from being classified under subheading 8471 60 90 since they may still be of a kind used 'principally' with a computer.

2. In order to determine whether monitors such as those at issue are units of the kind used principally in an automatic data-processing system, the national authorities, including the courts, must refer to the indications given in the Explanatory Notes relating to heading 8471 of the HS, in particular to points 1 to 5 of Part One, Chapter I(D), relating to display units of automatic data-processing machines:
* standard connection sockets for computers
* intended to be viewed close up
* cannot display television signals
* low magnetic field emissions
* display pitch starts at 0.41 mm for medium resolution and gets smaller as the resolution increases
* bandwith (video frequency) is 15 MHz or greater
* dimension of the pixels on the screen is smaller thatn for video monitors in heading 8528
* convergence of computer monitors is greater than for video monitors

3. With regard to the applicability of Regulation 754/2004 ("Regulation") to the monitors at issue, the ECJ decided that this Regulation did not apply. According to the ECJ, the plasma monitors mentioned in the Regulation are not identical nor sufficiently similar to apply this Regulation to the monitors at issue. The monitor mentioned in the Regulation concerned a plasma screen with a diagonal screen measurement of 41.73 inch and a resolution of 852 x 480 pixels and 1 024 x 1 024 pixels respectively, whilst the monitor at issue concerned an LCD screen with a diagonal screen measurement of 23 inch and a resolution of 1 920 x 1 200 pixels.

Conclusion

With its judgment that monitors which can display signals from computers as well as from other sources can not for this reason alone be excluded from classification under subheading 8471 60 90, the ECJ has clarified part of the ongoing dispute on the proper classification of LCD monitors. It is now up to the national courts and the customs administrations of the different Member States to apply the criteria as set out in the Explanatory Notes to heading 8471 of the HS, in particular points 1 to 5 of Part One, Chapter I(D) when determining whether these LCD monitors are to be considered of the kind used 'principally' with a computer.

Placing embedded videos on commercial website no longer free of charge in Netherlands

2009-02-01T20:19:00.000-08:00

Last year, Buma/Stemra, the Dutch music copyright organisation, started to send out invoices to hosts of private as well as of commercial websites which displayed embedded videos obliging them to pay EUR 26 and EUR 65 per month respectively for the displaying of these videos. This initiative was heavily criticised which eventually led to Buma/Stemra withdrawing its plans. Now however, Buma/Stemra has decided to restart the public debate on the possibility of imposing copyright remunerations on the placement of embedded videos on websites by announcing that these remunerations will be payable if the embedded videos are placed on a commercial website. Private individuals who have placed an embedded video on their own weblog, for example, are thus not required to pay the copyright remuneration. The same applies to commercial websites who merely provide a link to a certain video. Only in the situation where an embedded video is placed on a commercial website (e.g. a website on which advertisements are placed around the embedded video) will a copyright remuneration be payable. The rates of the copyright remunerations as well as the date of commencement of these remunerations will be announced on the website of Buma/Stemra (http://www.bumastemra.nl/en-US/Home.htm) in February.

EU Court of First Instance rules in favour of disclosure of the minutes of the Working Group assisting the Nomenclature Committee

2009-02-01T20:18:00.000-08:00

In the case of Pablo Muñiz v the Commission of the European Communities (Case T-144/05), on 18 December 2008 the Court of First Instance (“CFI”) annulled the decision of the Commission of the European Communities (“Commission”) refusing access to requested documents of the Working Group assisting the Nomenclature Committee. The judgment will increase transparency in the Commission’s decision-making process regarding the adoption of classification rules of products under the Combined Nomenclature (“CN”) and TARIC.

The Muñiz judgment

On 13 October 2004, Pablo Muñiz, a lawyer specialising in advising on customs related issues, submitted a request to the Commission for access to the minutes of the Working Group assisting the Nomenclature Committee as well as for access to certain TAXUD (Taxation and Customs Union Directorate-General) documents. The request was based on Regulation 1049/2001 (“Regulation”) which enables access, under certain conditions, to documents of the European Parliament, Council and Commission. The Commission refused access on the basis of Article 4.3 of the Regulation contesting that the requested documents related to matters where a decision had not yet been taken by the Commission, and that disclosure would seriously undermine the Commission’s decision-making process. Accordingly, Pablo Muñiz brought his action at the CFI.

a) Main arguments

Pablo Muñiz argued in the first place that the contested decision infringed Article 4.3 of the Regulation by refusing full access to the requested documents. Pablo Muñiz argued that the dismissing grounds are not valid grounds for dismissal under Article 4.3 of the Regulation. Pablo Muñiz claimed that the content of the Commission’s decision for refusal erroneously reasoned by reference to a category of documents rather than evaluate the content of each one of the requested documents.
In the second place, Pablo Muñiz argued that the contested decision infringed Article 2.1 of the Regulation by leading to a systematic refusal to disclose internal documents, on the sole ground that the relevant file is not closed.
On the other hand, the Commission relied on a number of grounds which can be split into two groups.
In the first group of arguments, the Commission emphasised the characteristics of the Commission’s decision-making process. The Commission relied amongst other factors, on the preliminary nature of the analysis of technical matters contained in the requested documents, on the informal nature of the Working Group, and on the fundamental nature of that ‘space to think’ in its decision-making process. In that regard, the Commission contended that the disclosure of the views expressed within the Working Group would be premature, considering that some of the views would not be followed when considered in the context of the Nomenclature Committee. In this connection, the Working Group was created to support the work of the Nomenclature Committee and carries out a preliminary analysis of technical matters for subsequent discussion in the meetings of the Nomenclature Committee. Therefore, it is the Nomenclature Committee, according to the Commission, that delivers opinions on the measures to be adopted by the Commission. The Commission further emphasised the informal character of the Working Group considering that there is no legal basis, mandate or formal decision creating it. Therefore, the Working Group cannot give official opinions to the Commission, regarding the adoption of draft implementing measures.
In the second group of arguments, the Commission put the emphasis on the consequences of possible access to the requested documents. The Commission argued that the disclosure would expose the Nomenclature Committee to “unnecessary and detrimental pressure” which would restrict the Commission’s staff and experts to express their views considering the possibility of disclosure of their opinions.

b) Court of First Instance

The CFI rejected all the arguments put forward by the Commission.
As regards the first group of arguments, the CFI decided that neither the preliminary nature of the analysis contained in the requested documents, nor the informal nature of the Working Group justified the refusal to disclose the requested documents. In that regard, the CFI ruled that the exception in Article 4.3 of the Regulation does not preclude by its wording or reason that it protects, the possibility of requesting access to documents for internal use containing a preliminary analysis. The CFI further emphasised that the Commission’s arguments as to the informal nature of the Working Group do not alter in the slightest the fact that documents emanating from the Working Group ‘can be disclosed’ subject to the exception provided for in the first subparagraph of Article 4.3 of the Regulation.

With regard to the second group of arguments, the CFI ruled that the risk of external pressure was unsubstantiated. The CFI decided that the mere possibility of external pressure, on account of the significant commercial interests in matters of customs tariff classification, cannot per se constitute a legitimate ground for restricting access to documents since the exception provided for in Article 4.3 of the Regulation must be interpreted and applied strictly. Conclusion
The Muñiz judgment is of importance for the Commission’s decision-making process regarding the adoption of classification rules of products under the CN and TARIC. In that regard, the Muñiz judgment provides for more transparency and offers to all stakeholders the possibility to acquire, under the conditions provided for in Article 4.3 of the Regulation, a preliminary view of future classification initiatives and rules.

Moreover, the increase in transparency will not only contribute to a better flow of information towards all stakeholders but also to a better preparation as stakeholders have the possibility to request documents relating to, for example, discussions regarding new classification rules.

Update on proposed EU Carbon Import Tax

2008-11-19T00:19:00.000-08:00

On 23 January 2008, the European Commission introduced the "Climate action and renewable energy package" (“the package”) aimed at achieving the two major targets of the EU's climate policy:

1. a reduction of at least 20% in greenhouse gases by 2020 – rising to 30% if there is an international agreement committing other developed countries to "comparable emission reductions and economically more advanced developing countries to contributing adequately according to their responsibilities and respective capabilities"; and

2. a 20% share of renewable energies in EU energy consumption by 2020.

As follows from the first target, the EU has set a unilateral target of a 20% reduction in greenhouse gases with a possibility of an increase to 30% if an international post-Kyoto agreement is reached. Agreement on such a continuation of the Kyoto Protocol and its concomitant reduction targets for greenhouse gas emissions will therefore be out of the Commission’s hands.

For this reason the EU has decided to take separate action in order to achieve the aforementioned targets on reduction of the greenhouse gas emissions. This separate action, the so-called “go-it-alone” scenario, consists of, inter alia, the imposition of “border adjustment measures” such as a “Carbon Import Tax” on products imported into Europe, the aim of which is the establishment of a level playing field with countries not subject to the same carbon restrictions.

Some argue that this Carbon Import Tax would, at least to a certain extent, prevent the harmful effects of “carbon leakage”, coming from countries where carbon restrictions do not apply, whilst securing the competition position of the EU undertakings which are subjected to these carbon restrictions.

Others, including the former EU Trade Commissioner Mr. Peter Mandelson and WTO Director-General Mr. Pascal Lemy, take a different stance on this issue.

They are of the opinion that the issue of ‘carbon leakage’ should be addressed through the conclusion of an international agreement and not by a ‘back door policy’ of the EU. The reason being that whilst the border adjustment measures may provide some relief to energy intensive industries, they would also have a negative impact on other sectors as well as consumers. Moreover, the administration and, even more so, the enforcement of these measures will most likely lead to serious problems.

Besides these practical issues, another point that should not be overlooked is whether the ‘Carbon Import Tax’ is in line with the rules set by the World Trade Organization (“WTO”).

It could perhaps be argued that the ‘Carbon Import Tax’ falls within the scope of measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”, as stated in Article XX(g) of GATT (The General Agreement on Tariffs and Trade)1994, one of the exceptions to the ‘most-favoured-nation treatment’ as set out in Article I.1 of GATT 1994.

The possible introduction of border adjustment measures, such as the Carbon Import Tax, will only take place once the conclusion of a post-Kyoto agreement is off the table.

However, the mere possibility of imposing a measure such as the Carbon Import Tax, might be sufficient for non-EU countries to be ‘convinced’ into adopting a proposal for an international post-Kyoto agreement. The possible introduction of the Carbon Import Tax can, therefore, be seen as the ultimate tool for the EU to reach its environmental targets.

It would be interesting to see whether non-EU countries are simply going to accept the EU’s ‘Carbon Import Tax’ or whether they will argue the non-compatibility of this measure with the EU’s WTO requirements.

EU Commission publishes the 2009 version of the Combined Nomenclature

2008-10-31T05:48:00.000-07:00

The European Commission has published the latest version of the Combined Nomenclature (CN) applicable from 1 January 2009.

The Combined Nomenclature forms the basis for the declaration of goods (a) at importation or exportation or (b) when subject to intra-Community trade statistics. This determines which rate of customs duty applies and how the goods are treated for statistical purposes. The CN is thus a vital working tool for business and the Member States' customs administrations. It is the EU imlementation of the Harmonised System ("HS").

The Combined Nomenclature was established by Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff. It is updated every year and is published as a Commission Regulation in the Official Journal of the European Union, L Series. The latest version is now available as Commission Regulation (EC) No 1031/2008 in EU Official Journal L 291 of 31 October 2008. This version applies from 1 January 2009.

Proposal to Udate EU Dual Use Export Controls List

2008-10-08T07:25:00.000-07:00

On September 11, the EU Commission submitted a proposal to amend the Control List for Dual Use goods, Annex I to EU Reg. 1334/2000.

This list contains 9 categories of products/technology which, upon export from the EU, are subject to an export license. This list is not exhaustive: EU countries can add controlled products/technologies on national dual use control lists.

The current proposal serves to implement changes to control lists under the Wassenaar Arrangement, the Missile Technology Control Regime and as drafted by the Australia Group, which are all international initiatives for the non-proliferation of certain types of armaments.

In particular, the proposal introduces the excemption of export licenses for encryption technology contained in medical equipment as adopted by the Wassenaar Arrangement, found here. Under the EU regime, encryption is controlled under category 5A002.

The proposal is now for review before the EU Council and can be found here.

EU LCD Classification: Opinion Advocate-General

2008-09-16T23:42:00.000-07:00

As per the current WTO compliant by the US (supported by Taiwan and Japan) vs. the EU on the Information technology Agreement, the EU fails to grant zero duties to LCD monitors. The EU says these are not covered by the WTO Info Tech Agreement. In the EU itself, legal battles on the correct customs classification and duty rate of LCD monitors continue. In the "Kamino"-case, now before the European Courty of Justice, the Netherlands' courts are seeking guidance on how to classify LCD monitors on an EU level.

On 4 August 2004, Kamino International Logistics B.V.imported LCD colour monitors under subheading 8528 21 90 . The colour monitors at issue have a 23 inch screen and connectors for D-sub, DVI-D, USB, S-video and Composite-video. These allow the monitors to display signals from a computer ("PC"), as well as from other sources, such as a DVD player. The monitors are also provided with an audio port with a capacity of maximum 4 Watt to which loudspeakers can be connected.

Kamino argues that the LCD monitors should be classified under subheading 8471 60 90 of the CN (0% customs duties) . The Customs Chamber of the Amsterdam Court of Appeal decided in Kamino's favour. The State Secretary of Finance appealed to the Dutch Court of Cassation ("Hoge Raad"). On 13 July 2007, the Hoge Raad referred three questions to the European Court of Justice ("ECJ").

On September 10, the Advocate General ("AG") to the ECJissued his opinion. This opinion does not contain a final judgment but merely advises the ECJ.

Conclusion AG

As mentioned earlier, the Hoge Raad referred three questions to the ECJ for a preliminary ruling . The AG discusses each of these questions.

Kamino is in favour of classification of the LCD monitor at issue under Chapter 84 (heading 8471) whilst the State Secretary of Finance believes the correct classification to be Chapter 85 (heading 8528).

Note 5 to Chapter 84

First question is whether Note 5 to Chapter 84 of the CN (EU implementation of the HS) can be interpreted in such a way as to exclude a colour monitor that can display signals from a PC as well as from other sources. This stance is taken by the Dutch Government and the European Commission.

The AG deals summarily with this point. Equipment that is aimed to be 'principally' but not solely connected and used with a PC, can be classified as an 'IT product' under Chapter 84. The AG, therefore, concludes that Note 5 to Chapter 84 of the CN 2004 should be interpreted in such a way as to prohibit the exclusion from classification under heading 8471 of the CN of a colour monitor merely because that monitor is capable of displaying signals from a PC as well as from other sources

When can an LCD monitor be classified under heading 8471?

As indicated by the AG himself, this is the most delicate question to answer. The Dutch Government has stated that it is of the opinion that the LCD monitor at issue cannot be seen as of the sort used solely or principally in relation to an automatic data-processing machine, especially because of the connections the monitor possesses (D-sub, DVI-D, USB, S-video, Composite-video, audio port).

The AG provides a practical tool for the interpretation of the notion of 'principally using'. The notion of 'principal use' should, according to the AG, be interpreted as meaning normal/standard use. The time-frame during which a product is used for a certain application in relation to that used for other applications is thus not relevant; what is relevant is the use most frequently given to the product. In brief, it has to be determined what the normal use of the product is. Decisive importance is hereby given to the technical qualities of the product.

In case of the LCD monitor at issue, these qualities obviously are the resolution, the dimensions (ratio between the width and height of the screen), available connections, adjustability in height, possibility to tip over the monitor, and so forth. The AG stresses that all these factors need to be taken into account when determining whether the normal use of the monitor is mainly aimed at use with a PC.

Salient detail in this regard is the comment made by the AG that the presence of a DVI connection - this in contrast to what has been argued by the Dutch Government and the European Commission - is insufficient to determine that a monitor is not principally used for PC purposes.

Finally, the AG advises to not take into account the commercial use of the product when determining the normal use of the product because this increases the risk of misuse by the manufacturer.

Are the LCD monitors at issue covered by Classification Regulation No 754/2004?

In this Regulation, the European Commission has classified plasma monitors with a 42 inch screen size under subheading 8528 21 90. The AG concludes that this classification regulation does not cover the LCD monitor at issue because the products - taking into account their screen size and the used technology (plasma vs LCD) - differ too strongly.

Outlook to the future

In the Kamino case, the AG concludes that the mere fact that an LCD monitor can display video images from other sources than from a PC, does not exclude its classification under heading 8471. For Kamino this opinion is useful, as is the AG's conclusion that the monitors at issue are not covered by Regulation (EC) 754/2004.

The question now is whether the ECJ will decide to abide by the opinion of the AG. If this is indeed the case, the national judge must go back to the base for the classification of the goods.

In fact, the AG gives the national judges homework amounting to the renewed assessing of the product by applying classification rule 1: "(...) for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes (...)". The tool given by the AG entails that for the classification of an LCD monitor the normal use of the monitor is determinative, thus including the technical qualities of the product such as the resolution, the dimensions, etc.

We will keep you posted on the final ECJ judgment.

New Rukles for Product Compliance CE-Marking

2008-09-16T23:35:00.000-07:00

Manufacturers, importers and distributors, who place products on the market of the European Community (“Community”), are responsible for the compliance of their products with all applicable legislation. CE marking serves to signify compliance. CE marking is the only marking which attests the conformity of the product with the applicable requirements set out in the relevant EU harmonisation legislation.

By affixing CE marking, the manufacturer indicates that he takes responsibility for the conformity of the product with all applicable requirements set out in the relevant Community harmonisation legislation providing for its affixing.

The producer (this also includes any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer) is liable for damage caused by a defect in his product. This defect also includes non compliance with the EU harmonisation legislation.

Manufacturer

The obligation to maintain required technical documentation and carry out the conformity assessment procedure rests with the manufacturer. Where compliance of the product has been demonstrated by that procedure, manufacturers shall issue an EC declaration of conformity and affix CE marking.

The manufacturer must also ensure that its product, or the packaging or document accompanying the product, bears an element allowing identification and the address at which he can be contacted. Moreover, the manufacturer must make sure that the product is accompanied by instructions and safety information in a language which can be easily understood by the end-user.

Importer

The importer ensures that the manufacturer has drawn up the required technical documentation for the product and has carried out the correct conformity assessment procedure as well as having affixed CE marking.

The obligation that the (trade) name or trade mark as well as a contact address must be on the product, or on the packaging or a document accompanying the product, also applies to the importer. The importer is also responsible for supplying instructions and safety information accompanying the product in a language which can be easily understood by the end-user.

Distributor

Before making a product available on the market, the distributor must verify that the product bears the required conformity marking and is accompanied by the required documents and by instructions and safety information in a language which can easily be understood by consumers and other end-users in the Member States in which the product is to be made available on the market.

Additional obligations

An importer or distributor shall be considered a manufacturer, and must therefore fulfil the manufacturers-obligations , if he:

places a product on the market under his name or trade mark; or
modifies a product already placed on the market in such a way that compliance with the applicable requirements may be affected.

In addition, every economic operator (this thus includes the manufacturer, the importer as well as the distributor) who considers or has reason to believe that a product which he has made available on the market is not in conformity with EU legislation , shall make sure that the corrective measures necessary to bring that product into conformity, to withdraw it or recall it are taken.

EU vs. US Technology Dispute moves to WTO Panel

2008-08-18T22:34:00.000-07:00

The US Federal Trade Representative announced on 18 August that the consultations between US and EU to try to resolve their dispute about tariffs for certain Technology (IT, telecoms) products have failed.

The US has now requested the WTO Dispute Settlement Body to appoint a Panel to decide on this dispute. The USTR's announcement can be found here. An overview of the case, including the US request for consultation and the supporting requests from Japan and Taiwan can be found here.

The request to appoint a Panel will be considered by the WTO Dispute Settlement Body at its 29 August meeting.

EU - US FSC penalty duties: due for "sailing" products ?

2008-07-17T02:35:00.000-07:00

The German Court of Appeal recently issued an interesting reference for a preliminary ruling in the case to the ECJ (Reference number C-134/08). The case is about when additional EU customs duties ("penalties" for the US FSC program permitted by the WTO) for US products are due. The case is about products exported from the US prior to the date of first application of the additional EU duties, but after the date of entry into force of the applicable EU Regulation.

On 20 March 2000, at the request of the EU, the WTO DSB adopted panel and appellate body reports which established that the tax treatment of foreign sales corporations ("FSC") by the US constituted a prohibited export subsidy under the WTO Agreement.

On 15 November 2000, the US enacted the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 ("Act"). On 29 January 2002, the WTO DSB adopted panel and appellate body reports which established that the Act also constituted a prohibited export subsidy and that the Act did not amount to withdrawal of the FSC subsidy.

Consequently, on 7 May 2003, the European Community was authorised by the WTO DSB to impose countermeasures up to a level of US$ 4,043,000 in the form of additional duties on certain products originating in the US.

On 8 December 2003, the EU adopted Regulation (EC) No 2193/2003 establishing additional customs duties on imports of certain products riginating in the United States of America ("Regulation"). These products include, amongst others, articles of apparel and clothing accessories, footwear, iron and steel, etc.

Recital (6) of the Regulation reads as follows:

"products for which it can be proved that they have been exported from the United States of America to the Community prior to the date of first application of the additional customs duties should not be subject to these additional customs duties."

Article 4(2) of the Regulation, however, establishes that:

"products listed in the Annex for which it can be demonstrated that they are already on their way to the Community on the date of entry into force of this Regulation, and whose destination cannot be changed, shall not be subject to the additional duty."

In a recent German court case, the question was raised whether an additional customs duty of 5 % imposed by the German customs authorities on top of the 'normal' customs duty already applicable, was justified. The products were exported from the US on 20 February 2004 and declared for import into the EU on 5 March 2004.

On the basis of Article 4(2) of the Regulation, products are not subject to additional customs duties if they have been on their way to the EU on the date of entry into force of this Regulation, i.e. 17 December 2003 (in addition the requirement that the destination of the goods cannot be changed applies).

According to Consideration 6 to the Regulation, however, for the products not be subjected to additional customs duties, they must have been exported from the US to the EU prior to the date of first application of the additional customs duties, i.e. 1 March 2004.

If the latter definition would indeed apply, the additional duty that was imposed in the aforementioned case is not legally due and could, therefore, be reclaimed.

The German Court of Appeal therefore referred the following question for a preliminary ruling to the European Court of Justice:

"Is Article 4(2) of Council Regulation (EC) No 2193/2003 of 8 December 2003 establishing additional customs duties on imports of certain products originating in the United States of America to be interpreted, contrary to its wording, as meaning that products for which it can be demonstrated that they are on their way to the Community on the date of first application of the additional duties and whose destination cannot be changed are not affected by the additional duty?"

Conclusion

The outcome of this reference for a preliminary ruling is of interest to any US exporter who had additional customs duties imposed under the Regulation for goods that were on their way to the Community before 1 March 2004 and whose destination could not be changed. If the European Court of Justice rules in this case that the additional customs duties are not legally due, US exporters have a possibility to reclaim the paid additional customs duties under EC law.

EU - Iran Tech Transfer Restrictions and new Netherlands rules

2008-07-16T10:16:00.000-07:00

Resolution 1737 (2006) of the UN Security Council aims to prevent specialised teaching or training of Iranian nationals of disciplines which would contribute to Iran's proliferation sensitive nuclear activities and development of nuclear weapon delivery systems.

This statement has been reiterated in Section 6 of Common Position 2007/140/CFSP of the European Council.

In the Netherlands, the aforementioned statements have been implemented by amending the 'Sanctieregeling Iran 2007' (Iran Sanction Regulation 2007). The new rules prohibit the provision of certain types of specialist training/education as well as access to certain facilities involved in handling nuclear materials and/or relevant research, without prior authorisation.

The Annex with such locations and education types includes the following (unofficial translation of the Dutch text):

'Locations and data files as referred to in Section 2a:

- Plants of Urenco;
- RID ('Reactor Instituut Delft', i.e. Reactor Institute Delft) and the HOR ('Hoger Onderwijs Reactor', i.e. Higher Education Reactor), both located in Delft;
- Plants and databases NRG (Research reactors (LFR, HFR), located in Petten, and the NEA database);
- Nuclear power plant in Borssele;
- COVRA ('Centrale Organisatie Voor Radioactief Afval', i.e. Central Organisation for Radioactive Waste).'

'Education and research as referred to in Section 2a:

Natural sciences

- Chemistry, specificially aimed at the development of solid and liquid missile fuels;
- Materials science, specifically aimed at the development and treatment of corrosion resistant steal and metal alloys with aluminium (metallurgy) and the development and production of composite materials (composite technique);
- Physics, specifically related to (bipartite-)hydrodynamics in relation to the development of missile motors and boiling water reactors;
- Physics, specifically aimed at laser technology as applied in nuclear technology, especially laser enrichment.

Techniques

- Mechanical engineering, specifically aimed at the development and production of (parts of ) gasturbines and missile motors;
- Aviation and aerospace technology, in which all techniques that are applicable in missile systems are relevant;
- Production technology, specifically aimed at technology relevant for the designing and organising of production processes for missile systems;
- Metalworking, related to CNC machines with 3 or more axles, specifically related to the production of parts usable in the (uranium) enrichment process or missile systems;
- Vacuum technology, specifically aimed at the designing and manufacturing of machinery for the obtaining of the vacuum state as far as specifically applicable in the (uranium) enrichment process or missile systems.'

These changes apply to everyone potentially offering and supplying 'specialised teaching or training', thus including private individuals and businesses where a transfer of specialised teaching or training is taking place, regardless of whether or not such a transfer is taking place in the framework of an official Dutch education institution or not.