What type of processing is sufficient to confer origin on a product?

26 February 2010

The ECJ once again rules on the issue…

The ECJ was once again recently faced with the issue of what constitutes sufficient working or processing to convey origin on a product in the case of Hoesch Metal and Alloys (C-373/08).

 

The Facts

Hoesch imported silicon metal into Germany under CN code 2804.69.00 for release into free circulation. The product had been imported from India and was also declared to have originated from India. However, the silicon “originally” came from China and was exported to a factory in India for further working/processing and it was there that origin was “conferred”. Following an investigation by the European Anti-Fraud Office (OLAF), the German Customs Authority decided that the working/processing that had taken place in India was insufficient to confer origin on the products. Therefore the goods were deemed to originate from China and were subsequently liable to Anti-Dumping Duty (ADD) under Council Regulation (EC) 398/2004. Hoesch were then presented with a post-clearance recovery claim for EUR 100,000 in unpaid ADD. Hoesch appealed to the German Tax Tribunal which decided to refer the following question to the ECJ:

• [Does the] separation, purification and crushing of silicon metal blocks and the subsequent sieving, sorting and packaging of the silicon grains resulting from the crushing constitute origin-conferring processing or working?

The Arguments

Hoesch argued that all of the working/processing operations in India were sufficient to convey non-preferential origin of the goods as required under Article 24 of the Customs Code. They argued that the materials were modified to such an extent that they acquired other characteristics and argued that the processing was “substantial” as the resulting product had its own specific properties and composition which it did not possess prior to processing and referred to ECJ case C-49/76 Gesellschaft für Überseehandel [1977].

The German authorities argued that existing understanding of what constitutes “substantial processing” (CN Chapter Notes and the WTO list rules) stated that it was necessary for the product to change Tariff heading in order for origin to be conferred. They also argued that the classification of silicon under the CN depended on its degree of purity. So for example, it was argued that for silicon to be classified under CN 2804.61, the silicon must be at least 99.99% pure and thus corresponds not only to the use which is made of it but also the work necessary for its manufacture.

They argued that simply crushing the metal blocks and then sieving them in no way altered the metallurgic make-up of the silicon from the original silicon blocks and in no way altered the use of the silicon which remained the manufacture of aluminium alloys. They did recognise that there were occasions where specific types of processing could constitute sufficient processing even if there was no change in the Tariff heading (i.e. that the purification represented a stage of manufacture in which at least 80% of the existing impurities are eliminated or that, a degree of purity was attained which enabled a specific use of the existing product or second, that the crushing corresponded to a deliberate reduction of the silicon leading to a specific result.) In this particular case though, the authorities argued that the elimination of at least 80% of the impurities had not been proved and furthermore because the silicon grains had been sieved, it was impossible to hold that the silicon had been reduced deliberately and controlled as required.

1 Article 24:  “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.”

The Judgement

The ECJ reasonedthat the WTO list rules did not have binding legal force and that along with the CN Chapter Notes they should be used to aid interpretation rather than to determine it. As such, the court argued that to limit “sufficient processing” to a change in Tariff heading was not the correct course of action to take. The ECJ did state however that the last processing or working is ‘substantial’ vis-a-vis Article 24 CC, only if the product resulting from the working/processing had its own specific properties and composition which it did not possess prior to the processing. Activities that altered the presentation of the products could not be held to confer origin. The Court reasoned that the processing that took place in this particular case did not alter the metallurgic make-up of the product and merely altered the presentation of it.

The ECJ therefore ruled that the products could not originate from India but from China and that Hoesch were liable to the post-clearance demand from the German customs authority.

How can International Trade Solutions help?

ITS has a wealth of experience in complex origin issues. As well as having access to a wealth of advanced materials such as a database of previously decided ECJ and Tribunal Cases and explanatory notes to legislation, we have extensive industry-specific experience and knowledge and an enviable success rate of successful origin projects.

If you have any queries that are origin-related or about any other customs-related issues please contact us by email at: mail@internationaltradesolutions.co.uk or call us on (01905) 619229.

 

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