The European Court of Justice of the European Communities (“ECJ”) ruled that the non-preferential origin of colour television receivers (“CTRs”) can be based on the value added rule. The complexity of the assembly process prevented the establishment of the non-preferential origin of the CTRs on the basis of technical criteria. In that event, it is justified to establish the non-preferential origin on the basis of the value added rule. In order to determine the non-preferential origin, it is not necessary to determine the non-preferential origin of each separate component.
In its judgment of 13 December 2007, the ECJ rule on the non-preferential origin of CTRs in a case concerning the recovery of anti-dumping duties. Regulation (EC) No. 2584/98 imposes anti-dumping duties on CTR’s originating, amongst others, in the People’s Republic of China (“China”) and the Republic of Korea (“Korea”).
Asda Stores Ltd (“Asda”) imported CTRs, which have been assembled in Turkey. UK customs authorities contested the non-preferential origin of the CTRs. In their opinion, the CTRs did originate in China and Korea, and not in Turkey. Therefore, the UK customs authorities reclaimed anti-dumping duties and value added tax (“VAT”). Asda challenged the anti-dumping duties and VAT before the customs authorities, and then before the VAT and Duties Tribunal in London (“Tribunal”). The Tribunal asked the ECJ preliminary questions as regards to establishing the non-preferential origin of CTRs.
Challenging anti-dumping duties
Various cases have addressed the issue of CTRs imported from Turkey (see ECJ, 14-11-2002, C-251/00 Illumitronica). In the Asda case, however, not the preferential origin was at stake, but the non-preferential origin.
Asda argued that the UK customs authorities could not recover the anti-dumping duties on the following grounds. First of all, recovery was not possible, because Annex 11 of Regulation (EC) No. 2454/93 (Implementing Provisions of the Community Customs Code, “ICCC”) is invalid due to incompatibility with the provisions of Article 24 of the Regulation (EC) No. 2913/92 (Community Customs Code, “CCC”).
Furthermore, Asda argued that the recovered anti-dumping duties have been calculated on stipulations that are incompatible with the obligations of the Additional Protocol and Decision No. 1/95. These stipulations relate to the EEC-Turkey Association Agreement. Decision No. 1/95 introduces a customs union between the European Communities (“EC”) and Turkey, which in principle applies to agricultural products. This article, however, will not address this issue.
Rules of non-preferential origin
The rules for non-preferential origin are laid down in Articles 22-26 CCC, Articles 35-65 ICC and Annexes 9-11 ICCC. Article 24 CCC stipulates that “goods whose production involved more than one country, shall be deemed to originate in the country where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture”.
Annex 11 ICCC requires that the increase of value acquired as a result of assembly operations, and if applicable, the incorporation of parts originating in the country of assembly must represent at least 45% of the ex-works price of the CTRs in order to acquire the origin of the country where the goods have been assembled. This is the so-called added value rule. In the opinion of Asda, Annex 11 ICCC is incompatible with Article 24 CCC, because the criteria in Annex 11 ICCC are “quantitative”, whereas the criteria laid down in Article 24 CCC are “qualitative”.
Value added rule is justified in case of complex assembly
The ECJ did not agree with the reasoning of Asda. The ECJ decided that the value added rule is taking into account the circumstances of the case justified. The main rule to establish the non-preferential origin of assembled goods is the following.
An operation may be regarded as conferring origin where it represents, from a technical point of view and having regard to the definition of the goods in question, the decisive production stage during which the use to which the component parts are to be put becomes definite, and the goods in question are given their specific qualities.
However, in view of the variety of operations which may be described as assembly, there are situations where consideration on the basis of technical criteria may not be decisive in determining the origin of goods. In such cases it is necessary to take account of the value added by assembly as an ancillary criterion. The ECJ referred to established case-law (e.g. ECJ 13-13-1989, C-26/88, Brother International), the Kyoto Convention, the Agreement on Rules of Origin attached to the Final Act signed in Marrakesh and Regulation (EC) No. 2632/70.
In the underlying case the assembly of the various components of the CTRs could be regarded as a complex industrial process. In that case, it is justified to use the added value to establish the non-preferential origin of the CTRs. In conclusion, the Court ruled that the elements disclosed did not affect the validity of Annex 11 of ICCC.
Determining value added
The next question that arose was how the added value of the CTRs could be calculated. Asda maintained that it is firstly necessary to determine separately the origin of one of those parts, namely the chassis. Pursuant to the applicable provisions, the chassis had to be considered as originating in Turkey. Therefore, the value acquired as result of its incorporation and the assembly operations, represents at least 45% of the ex-works price of the CTRs in question.
According to the ECJ, it is not necessary to establish the non-preferential origin of each component. In order to establish the non-preferential origin of the CTRs, the whole of the components actually and objectively entering into the assembly carried out by the undertaking which manufactures the finished product, has to be taken into account.
In order to calculate the value added, it is not necessary to establish the origin separately of, for example, a built-in chassis in the finished product. Because this would amount to leaving to the assessment of the importer or the supplier, the function of determining at what stage of that assembly process one of the components of the imported product acquires the status of a finished product used, which will be used as material for the manufacturing of the product within the same undertaking. Such an approach is incompatible with the objective and foreseeable nature of Annex 11 ICCC.
It follows from the answers to the preliminary questions, that the non-preferential origin of the CTRs can be established on the basis of the value added rule, because the complexity of the industrial process prevents the non-preferential origin being established on the basis of technical criteria. In order to establish the value added, all components have to be taken into consideration. If a component (e.g. chassis) has been acquired from a third party, this component has to be taken into consideration for establishing the non-preferential origin and not the parts which compose it, contrary to the situation, where that component, such as in the underlying case has been assembled. Although the products are technically identical, they are not identical for the application of the rules of origin.
This case underlines how difficult it is for undertakings to challenge anti-dumping duties. Undertakings should determine whether the imported goods have indeed the preferential and non-preferential origin, as indicated in the import declaration. In order to do so, it is necessary to obtain information on the assembly process.