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

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

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’

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

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

Dutch Supreme Court-Toner Cartridges Customs Classification

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.

Recast EU Dual Use Export Controls Regulation

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.

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

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.

Commission to propose new tax on mobile phones with increased functionality

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.

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

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

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

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

EU Recast of Dual Use Export Controls

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).