Ospig Textilgesellschaft KG W. Ahlers ν Hauptzollamt Bremen-Ost (reference for a preliminary ruling from the Finanzgericht Bremen)

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1 JUDGMENT OF THE COURT (THIRD CHAMBER) 9 FEBRUARY Ospig Textilgesellschaft KG W. Ahlers ν Hauptzollamt Bremen-Ost (reference for a preliminary ruling from the Finanzgericht Bremen) (Valuation of goods for customs purposes Inclusion of quota charges) Case 7/83 Common Customs Tariff Valuation for customs purposes Quota charges relating to the acquisition of export quotas Exclusion (Council Regulation No 1224/80, as amended by Regulation No 3193/80) Quota charges relating to the acquisition of export quotas do not form an integral part of the value for customs purposes of goods imported into the Community within the meaning of the provisions of Council Regulation No 1224/80 on the valuation of goods for customs purposes, as amended by Regulation No 3193/80. In Case 7/83, REFERENCE to the Court under Article 177 of the Treaty by the Finanzgericht [Finance Court] Bremen for a preliminary ruling in the action pending before that court between OSPIG TEXTILGESELLSCHAFT KG W. AHLERS, Bremen, HAUPTZOLLAMT BREMEN-OST [Principal Customs Office, Bremen East], and on the interpretation of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes (Official Journal, L 134, p. 1), 1 Language of die Case: German. 609

2 JUDGMENT OF CASE 7/83 THE COURT (Third Chamber), composed of: Y. Galmot, President of Chamber, U. Everling and C. Kakouris, Judges, Advocate General: G. F. Mancini Registrar: P. Heim gives the following JUDGMENT Facts and Issues The facts of the case, the course of the procedure and the observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows : I Facts and procedure The Community has concluded agreements with a number of non-member countries limiting textile imports. Observance of the import quotas is ensured by a system of double-checking whereby export licences are issued in the exporting country and import licences within the Community. Presentation of an export licence is a precondition to obtaining permission to import into the Community. The problem which is the subject of the litigation arises when an exporting vendor has run out of the quotas necessary for proceeding with his sale. Two solutions are then possible: either the Community purchaser procures an export licence from an exporter having surplus quotas at his disposal, and gives the licence to his vendor free of charge, or else the exporting vendor himself procures an export licence from an exporter holding surplus quotas, and invoices to the purchaser, with his consent, the extra costs connected with the acquisition of the licence. The cost of the quotas is determined by the relationship between the demand to export and the extent to which quotas have been used up. On 25 November 1981 Ospig Textilgesellschaft ["Ospig"] applied to the Hauptzollamt Bremen-Ost [Principal 610

3 OSPIG ν HAUPTZOLLAMT BREMEN-OST Customs Office, Bremen (East)] for the admission into free circulation of 600 pairs of men's jeans bought from Wan Tat Industrial Limited in Hong Kong. Apart from the shipping and insurance costs, Ospig entered as the value for customs purposes the invoice price of the goods, namely Hong Kong dollars. Under a notice of taxation dated 26 November 1981, the Hauptzollamt Bremen-Ost charged customs duties amounting to DM , based on a value for customs purposes of Hong Kong dollars. The dollars which had been added to the amount declared by Ospig represented the "quota charges" invoiced separately by Wan Tat Industrial Limited and paid to the latter by Ospig. Relying on the provisions of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes, Ospig lodged an objection with the Hauptzollamt Bremen-Ost, claiming that the quota charges should not be included as part of the value of the goods for customs purposes. The objection was dismissed on 28 April Ospig appealed against the decision in question to the Finanzgericht [Finance Court] Bremen which, by an order dated 9 December 1982, decided to suspend the proceedings and to request the Court of Justice to give a preliminary ruling on the following question: "Are the costs (known as quota charges) which are incurred in the acquisition of free (export) quotas and are charged separately by an exporter in Hong Kong to a German customer to be included in the value for customs purposes (the transaction value referred to in Article 3 of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes)?" The order making the reference was lodged at the Court Registry on 13 January In accordance with Article 20 of the Protocol on the Statute of the Court of Justice, written observations were submitted by Ospig, represented by Dirk Oelbermann of the Bremen Bar, by the Hauptzollamt Bremen-Ost, represented by its director, Mr Neideck, and by the Commission of the European Communities, represented by Christoph Bail, a member of its Legal Department, acting as Agent. Upon hearing the report of the Judge- Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. By an order dated 5 October 1983 the Court decided, pursuant to Article 95 (1) and (2) of the Rules of Procedure, to assign the case to the Third Chamber. II Relevant Community provisions By Council Decision No 80/271/EEC of 10 December 1979 concerning the conclusion of the Multilateral Agreements resulting from the 1973 to 1979 trade negotiations (Official Journal 1980, L 71, p. 1) the Council approved in particular, on behalf of the Community, the Agreement on implementation of Article VII of the General Agreement on Tariffs and Trade (Official Journal 1980, L 71, p. 107). The Agreement, which lays down rules for facilitating international trade by removing barriers to such trade arising from the application of different methods 611

4 JUDGMENT OF CASE 7/83 of customs valuation, introduces the transaction value as the basis for the customs valuation of goods. By the adoption of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes (Official Journal, L 134, p. 1), amending Regulation (EEC) No 803/68 of 27 June 1968 (Official Journal, English Special Edition 1968 (I), p : 170), the Council decided to implement the provisions of the aforesaid agreement as from 1 July payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. The payment need not necessarily take the form of a transfer of money. Payment may be made by way of letters of credit or negotiable instruments and may be made directly or indirectly." Article 3 (4) and Article 15 of the regulation exclude from the customs value certain charges, amongst which quota charges are not mentioned. Regulation No 1244/80 of 28 May 1980 was amended by Council Regulation (EEC) No 3193/80 of 8 December 1980 (Official Journal, L 333, p. 1). III Summary of the written observations submitted to the Court Article 3 (1) of Regulation No 1244/80 provides as follows : "The customs value of imported goods determined under this article shall be the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted in accordance with Article 8...". Article 8 lists exhaustively the items which must be added to the "price actually paid or payable" for imported goods; quota charges are not included therein. Under Article 3 (3) (a) of Regulation No 1224/80, as amended: "The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all Ospig states that it entirely endorses the conclusions of the report submitted for the Court's consideration on quota charges and valuation for customs purposes, prepared by the Verband der Fertigwarenimporteure ev [Association of Importers of Finished Products] of Hamburg (an association of 150 import undertakings which operate in the textiles and clothing sector and are engaged in importing from overseas). The report prepared by that association explains why, in its opinion, there is no connection between export licences and the goods in question. The arguments set forth in support of that view may be summarized by the following two observations : 1. Export licences cannot be associated with a contract for the sale of goods, owing first to their purpose and basis, and secondly to the possibility of transferring any given licence to other similar goods. 612

5 OSPIG ν HAUPTZOLLAMT BREMEN-OST (a) Export licences are designed principally to monitor movements in trade. The grant of an export licence signifies no more than the right to export a certain category of goods from a non-member country, and falls within the framework of the agreement on voluntary restraint concluded by the Commission with the exporting nonmember country; (b) Export licences may be used for all goods belonging to any given category and having the same country of origin, and are therefore not associated with a contract for the sale of goods. When, for example, the arrival in the country of destination of an export licence for goods to be transported by sea coincides with the arrival in the same Member State of similar goods transported by air from the same non-member country, the importer may ask that his export licence be transferred to the goods which have reached their destination faster. 2. The cost of the export licence is independent of the value of the goods exported. (a) The price for the purchase of textile products and clothing, generally expressed in United States dollars per mercantile unit, is (the Verband maintains) the same for all purchasing countries and is determined by the relationship between the volume of production and the utilization of production capacity. (b) The cost of the export licence, which represents payment for the entitlement to export, is autonomous, and separate from the purchase price of the goods. The acquisition of an export licence entails payment whenever the buyer does not hold his own licence. The cost of the licence then reflects the relationship between the demand for importation and the opportunities available for doing so under the regulations. When, on the otier hand, the buyer holds an export licence, he makes it available to the exporting vendor free of charge. Without commenting on its content, Ospig appends to its observations a communication from the Bundesverband des Deutschen Groß- und Außenhandels ev [Federal Association for German Wholesale and Foreign Trade] concern.ng the opinion reproduced in full of the Customs Valuation Committee, which sits under the auspices of the Commission pursuant to Articles 17 and 18 of Regulation No 1224/80. The opinion, drawn up on the occasion of the Committee's 33rd meeting from 19 to 21 January 1983, runs as follows : "The extra charges for the acquisition by the purchaser or his representative of an export licence may not be regarded as forming an integral part of the price paid or payable for goods in cases where the purchaser or his representative pays them to a third party who is independent of the vendor of the goods." According to the Hauptzollamt Bremen- Ost the preliminary question raised by the Finanzgericht Bremen calls for an affirmative answer. In the opinion of the Hauptzollamt Bremen-Ost, the provisions or Council Regulation No 1224/80 indicate that quota charges relate to imported goods, since the latter cannot be delivered unless the quota charges are paid. The Hauptzollamt Bremen-Ost maintains that the two sums corresponding to the cost of purchasing the export licence and the goods respectively represents the total payment made by the purchaser to the vendor, and is equivalent to the purchase price of the goods for the purposes of Article 3 (3) (a) of Regulation No 1224/80. The Hauptzollamt Bremen-Ost takes the view that breaking down that total into separate invoices has no effect on the transaction value within the meaning of Article 3 (1) of Regulation No 1224/80. According to the Hauptzollamt Bremen- Ost, that interpretation is borne out by the 613

6 JUDGMENT OF CASE 7/83 provisions of Article 3 (4) and Article 15 of the regulation, which exclude from the customs valuation certain charges, amongst which quota charges are not mentioned. The argument put forward by the Hauptzollamt Bremen-Ost is, furthermore, confirmed by the opinion of the Customs Valuation Committee quoted above. In the preliminary deliberations on the opinion, both the Commission and the other members of the Customs Valuation Committee discerned two separate cases: on the one hand, the case where the vendor purchases, his export licence from a third party and then invoices the purchaser separately or otherwise for the resultant charges, and on the other hand, the case in which the purchaser buys the licence from a third party, pays the latter for it and makes it available to the vendor free of charge. Following disagreement over the issue of whether it was appropriate in both cases to include the quota charges in the customs valuation, the members of the Committee opted for the solution adopted in this matter by the customs administration of the United States of America, whereby payment made by the purchaser forms part of the value for customs purposes in the first case alone. In the opinion of the Hauptzollamt Bremen-Ost, that solution, endorsed by the above-mentioned opinion, has the merit of. taking into account only those charges arising from the transaction between the vendor and the purchaser of the goods, and not those incurred by the purchaser, the origins of which the vendor was powerless to control. The Hauptzollamt Bremen-Ost takes the view that the above conclusion is in keeping with the objectives of the provisions on the valuation of goods for customs purposes as expressed in the preamble to the Agreement on implementation of Article VII of the General Agreement on Tariffs and Trade. The preamble indicates that the valuation of goods for customs purposes must be based on simple, objective criteria, so that the value may be both foreseeable and readily determined by the persons concerned as well as by the customs administration. The Commission maintains that quota charges do not form part of the transaction value within the meaning of Article 3 of Regulation No 1224/80 because the charges relate, not to the imported goods, but to the purchase of a right which exists independently of such goods. In support of that contention, the Commission sets forth a number of arguments. In the first place, the Commission argues that the quota charges relate to the purchase of a freely transmissible right whose market value is independent of that of the products themselves. The level of the quota charges reflects, on the one hand, the degree to which the import allowances under the regulations have been used up, and on the other hand the importer's wish to take delivery within a certain period. In the opinion of the Commission, quota charges are not regarded in commercial practice as forming an integral part of the price of the goods, wherein they differ, in particular, from the royalties attaching to industrial and commercial property rights which, being discharged as a condition of the sale, are included in the price of the goods pursuant to Article 8 (1) (c) of Regulation No 1224/80. The Commission argues, in the second place, that the quota charges must be excluded from the transaction value on the ground that such charges are not generally paid to the vendor, and because in any event payment thereof does not accrue to the benefit of the latter but rather to that of a third party holding unused quotas. 614

7 OSPIG ν HAUPTZOLLAMT BREMEN-OST The Commission maintains that the above interpretation of Article 3 of Regulation No 1224/80 is supported by the sixth recital in the preamble thereto : "... the objective of this regulation is to foster world trade by introducing a fair, uniform and neutral system of customs valuation excluding the use of arbitrary or fictitious customs values; therefore, the customs value must be determined in accordance with criteria which are compatible with trade practice; According to the Commission, the charges for export licences are a consequence of the Community policy of monitoring and imposing quantitative restrictions on the importation of sensitive products such as textiles. Integrating those charges into the value for customs purposes would, in view of the resultant rise in customs duties, be tantamount to an extension of protectionism such as was not contemplated by the system of quantitative restrictions on imports, and would run counter to fair, uniform and neutral methods of customs valuation. According to the Commission, it was the mention of that risk which led the members of the Customs Valuation Committee, at its 33rd meeting, to adopt the conclusion recorded above. The Commission, taking the view that the above conclusion should be extended to cases where the buyer has instructed the vendor to obtain the export licence and where the latter has invoiced him separately for the sum representing the quota price demanded, proposes that the following reply be given to the question raised by the Finanzgericht Bremen: "The charges (known as quota charges) which an exporter in Hong Kong pays to a third party for the acquisition of free (export) quotas and which he invoices separately to his German customer are not to be included in the value for customs, purposes (the transaction value referred to in Article 3 of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes)." In the Commission's opinion, the interpretation proposed should not be affected by the fact that the exclusion of quota charges from the valuation for customs purposes might encourage abuse. The Commission acknowledges that in so far as the identity of the recipients of the quota charges is unknown, it would appear difficult to verify the amount invoiced by a foreign vendor, who might therefore charge a fictitious amount for the purchase of the goods so as to include his own export quota, which would lead to an artificial reduction in the price of the goods and hence in the value for customs purposes. IV Oral procedure At the sitting on 10 November 1983 oral argument was presented by Ospig, represented by Dirk Oelbermann, Rechtsanwalt, and the Commission of the European Communities, represented by Christoph Bail, acting as Agent, assisted by Karl-Eugen Ahrens, expert (President of the Customs Valuation Committee of the EEC). The Advocate General delivered his opinion at the sitting on 12 January

8 JUDGMENT OF CASE 7/83 Decision 1 By order dated 9 December 1982, which was received at the Court on 13 January 1983, the Finanzgericht [Finance Court] Bremen referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes (Official Journal, L 134, p. 1). 2 The question arose in the context of a dispute between Ospig and the Hauptzollamt Bremen-Ost following a decision by the latter to include in the valuation of goods for customs purposes the charges relating to the acquisition of export quotas (hereinafter referred to as "quota charges") in a non-member country with which the Community had made agreements for the limitation of exports. 3 The observance of import quotas as defined in those agreements is ensured by a double check consisting of the issue of export licences in the nonmember exporting country and by the grant, on presentation of those licences, of import licences into the Community. 4 Where an exporter/vendor no longer possesses sufficient quotas to enable him to sell goods which he intends to export to the Community customs territory, in certain non-member countries there exists the possibility of buying export quotas. The quota charges are paid by the Community purchaser either direct to a person who is not a party to the contract binding that purchaser to the vendor of the goods, but who possesses surplus quotas, or to the exporter/vendor who has himself procured quotas from a third party. The price of the quotas is a function of the relationship between the demand to export and the extent to which the quotas have been exhausted. 5 On 25 November 1981, Ospig applied to the Hauptzollamt Bremen-Ost for the admission into free circulation of textile products purchased in Hong Kong, entering, as the value for customs purposes, the invoice price for the goods excluding that part relating to the quota charges, which was invoiced separately by the exporter/vendor. 616

9 OSPIG ν HAUPTZOLLAMT BREMEN-OST 6 Under a notice of assessment dated 26 November 1981, the Hauptzollamt Bremen-Ost charged customs duties calculated on the aggregate of the purchase price of the goods and the price paid for the export quotas. 7 The Hauptzollamt Bremen-Ost declined to withdraw that decision and on 28 April 1982 dismissed the objection raised by the importing company to that end. 8 Ospig appealed against that decision to the Finanzgericht Bremen which has referred the following question to the Court: "Are the costs (known as quota charges) which are incurred in the acquisition of free (export) quotas and are charged separately by an exporter in Hong Kong to a German customer to be included in the value for customs purposes (the transaction value referred to in Article 3 of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes)"? 9 It should first be emphasized that Article 3 (1) of Council Regulation (EEC) No 1224/80 of 28 May 1980 provides: "The customs value of imported goods determined under this article shall be the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted in accordance with Article 8." 10 Moreover Article 3 (3) (a) of that regulation, as amended by Council Regulation (EEC) No 3193/80 of 8 December 1980 (Official Journal, L 333, p. 1) provides : "The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. The payment need not necessarily take the 617

10 JUDGMENT OF CASE 7/83 form of a transfer of money. Payment may be made by way of letters of credit or negotiable instruments and may be made directly or indirectly." 11 It follows from the combined provisions of paragraphs (1) and (3) (a) of Article 3 of Regulation No 1224/80, as amended, that the value for customs purposes includes all sums paid or payable as a condition of the sale of the goods imported by the purchaser to the vendor or by the purchaser to a third party in order to fulfil one of the vendor's obligations. 12 It may be noted, moreover, that Article 8 of Regulation No 1224/80, to which Article 3 (1) refers, provides that "there shall be added to the price actually paid or payable for the imported goods" a number of charges ancillary to that price, from an economic point of view. Article 8 provides an exhaustive list of the charges which may thus be taken into account for the determination of the value for customs purposes and it should be noted that the "quota charges" do not appear in that list. 13 It should be emphasized, for the purpose of the interpretation of the aforementioned provisions, that the system of export and import licences forms part of the Community system of authorization and quantitative limitation of imports into the Community of textile products from certain non-member countries, provisionally laid down by Commission Regulation (EEC) No 3019/77 of 30 December 1977 (Official Journal, L 357, p. 1) and Council Regulation (EEC) No 265/78 of 7 February 1978 (Official Journal, L 42, p. 1) and definitively laid down by Council Regulation (EEC) No 3059/78 of 21 December 1978 (Official Journal, L 365, p. 1) replaced on 23 December 1982 by Council Regulation (EEC) No 3589/82 (Official Journal, L 374, p. 106). 1 4 Those rules, which seek only to control the quantities of textile products imported from certain non-member countries, pursue an entirely different objective from that of Regulation No 1224/80, as amended, whose purpose is to establish a fair, uniform and neutral system of customs valuation of goods for the application of the Common Customs Tariff. The latter regulation must therefore be interpreted without reference to the rules on the system of export and import licences. 618

11 OSPIG ν HAUPTZOLLAMT BREMEN-OST 15 It follows from the foregoing that the quota charges connected with the acquisition of export quotas in the context of the aforementioned regulations may not be taken into account for the calculation of the valuation of goods for customs purposes carried out on the basis of Council Regulation No 1224/ The Hauptzollamt Bremen-Ost however, in support of its argument, attempts to draw a contrary argument from the terms of the opinion, which is not binding, of the Customs Valuation Committee, established pursuant to provisions of Title II of Regulation No 1224/80, issued at its 33rd Meeting held between 19 and 21 January Under that opinion, supplementary costs for the acquisition of an export licence by the purchaser or his representative may not be considered as forming an integral part of the price paid or payable for goods where the purchaser or his representative pays them to a third party, independent of the vendor of the goods. The Hauptzollamt is consequently of the opinion that the contrary solution must be adopted when the quota charges are paid directly by the purchaser to the exporter/vendor. 17 The Court is of the opinion however that the solution suggested by the Customs Valuation Committee also applies when the exporter/vendor who no longer has any quotas obtains some himself from a third party and invoices them to the purchaser. To hold otherwise would, in fact, create an unjustified disparity between importers in the Community placed in an analogous situation and would therefore be contrary to the fair, uniform and neutral system of customs valuation established by Council Regulation No 1224/ In the light of the foregoing, the answer to be given to the question submitted by the national court must be that quota charges relating to the acquisition of export quotas do not form an integral part of the value for customs purposes of goods imported into the Community within the meaning of the provisions of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes, as amended by Council Regulation (EEC) No 3193/80 of 8 December

12 JUDGMENT OF CASE 7/83 Costs 19 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court the decision as to costs is a matter for that court. On those grounds, THE COURT (Third Chamber), in answer to the question referred to it by the Finanzgericht Bremen by order dated 9 December 1982, hereby rules: Quota charges relating to the acquisition of export quotas do not form an integral part of the value for customs purposes of goods imported into the Community within the meaning of the provisions of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes, as amended by Council Regulation (EEC) No 3193/80 of 8 December Galmot Everling Kakouris Delivered in open court in Luxembourg on 9 February P. Heim Registrar Y. Galmot President of the Third Chamber 620