Opinion of Mr Advocate General Lenz delivered on 9 July 1992. - Firma E. Merck v Hauptzollamt Hamburg-Jonas. - Reference for a preliminary ruling: Finanzgericht Hamburg - Germany. - Sugar - Export refund. - Case C-285/91.



European Court reports 1993 Page I-00729



Opinion of the Advocate-General

++++

Mr President,

Members of the Court,

A ° Facts

1. The request for a preliminary ruling from the Finanzgericht (Finance Court) Hamburg which I am to consider today relates to export refunds for vitamin C (ascorbic acid) falling under heading 29.38 V C of the Common Customs Tariff (= CN Code 2936 2700).

2. That product is listed in Annex I to Regulation (EEC) No 1785/81 on the common organization of the markets in the sugar sector. (1) Consequently, its exportation may give rise to the grant of an export refund under the conditions set out in Article 19 of that regulation. Article 19(1) provides, inter alia, as follows:

"To the extent necessary to enable the products listed in Article 1(1)(a), (c) and (d) to be exported in the natural state or in the form of goods listed in Annex I to this Regulation on the basis of quotations or prices on the world market for the products listed in Article 1(1)(a) and (c), the difference between those quotations or prices and prices within the Community may be covered by an export refund."

3. White sugar (heading ex 17.01 A of the Common Customs Tariff = CN Code 1701 99 10) is one of the products listed in Article 1(1)(a) of the regulation. That product is at the beginning of the manufacturing process by which the applicant in the main proceedings (hereinafter "the applicant") produces the ascorbic acid exported.

4. The mechanism for fixing the export refunds for products manufactured in this way by processing products which themselves are subject to the relevant market organization ° for example, the organization of the market in sugar ° is laid down by Regulation (EEC) No 3035/80. (2) That mechanism, which is at issue in these proceedings, consists essentially of two procedures. For certain "basic products" listed in Annex A to that regulation ° including white sugar °, a refund rate is fixed under Article 4, generally each month (Article 4(1)), in accordance with the criteria set out in Article 4(2) to (5). The manner in which, on the basis of that rate, the refund has to be calculated for the products which are actually exported (which are referred to as "goods" ° see the second subparagraph of Article 1(1) of Regulation No 3035/80) is set out in Article 3 in conjunction with Article 2 of the regulation. Article 3 determines "the quantity of each of the basic goods to be taken" in each case. For that purpose, it draws a distinction between goods listed in Annex B (Article 3(1) and (2)) and goods listed in Annex C (Article 3(3)). The principle, which, admittedly, is tempered by various detailed rules, consists in the case of Annex B in actually calculating the "quantity ... actually used in the manufacture of the exported goods". In the case of Annex C, the ° flat-rate ° calculation is set out in the annex itself and hence Article 3(3) merely refers to it.

5. The first paragraph of Article 2 lays down the following rule on that basis:

"The amount of the refund granted for the quantity, determined in accordance with Article 3, of each of the basic products exported in the form of the same type of goods, shall be obtained by multiplying this quantity by the rate of the refund on the basic product calculated per unit of weight in accordance with Article 4." (3)

6. In addition, the fourth paragraph of Article 2 (in the version of Article 2 amended by Article 1(5) of Regulation (EEC) No 2223/86 (4)) or the third (original) paragraph of that article, to which the national court' s order refers, provides as follows:

"When goods are used in the manufacture of the goods exported, the refund rate to be taken in calculating the amount applying to each of the basic products, to products derived from the processing thereof, or to products assimilated to one of those two categories in accordance with Article 1(2) which were used in the manufacture of the goods exported, shall be the rate applicable when the former goods are exported unaltered". (5)

7. This mechanism ° as I have already mentioned ° also applies to other market organizations, in particular to the organization of the market in cereals governed by Regulation (EEC) No 2727/75, (6) Article 16 of which is the parallel provision to the aforementioned Article 19 in the case of the organization of the market in the sugar sector. However, Annex B, to which Article 16 of Regulation No 2727/75 refers, has covered ascorbic acid only since 28 January 1989, the date on which amending Regulation No 166/89 (7) entered into force.

8. As regards the ascorbic acid which the applicant has exported since 1984, the manufacturing process was made up of the following stages:

white sugar (sucrose) (8) ° glucose ° sorbitol ° ascorbic acid.

9. The particular feature of this process is that sucrose is first used to obtain glucose, which is itself then converted into sorbitol, whereas the "classical" method consists of converting the sucrose directly into sorbitol.

10. It appears from the documents in the main proceedings that Hauptzollamt (Principal Customs Office) Hamburg-Jonas (hereinafter "the defendant") initially granted refunds in respect of exports of the product manufactured by the applicant by that process. However, as from 1987 (application of 21 August 1987, export made on 12 August 1987) it rejected 106 successive applications for refunds, by decision of 18 July 1989.

11. According to the national court' s order, the defendant initially relied on the fourth paragraph of Article 2 of Regulation No 3035/80, inferring from that provision that since the exported goods were manufactured from sorbitol, the refund had to be calculated on the basis of the rate applicable to sorbitol. The refund for sorbitol is calculated in accordance with Annex C to Regulation No 3035/80. In this connection, the defendant relies on footnote 7, which was incorporated into Annex C by Regulation No 2223/86 and reads as follows:

"The refund shall be determined in relation to the quantities used of D-glucitol (sorbitol) obtained from any amylaceous products and of D-glucitol (sorbitol) obtained from sucrose, and shall be calculated on the basis of the following quantities of maize and white sugar:

° 1,52 kg of maize for 1 kg of D-glucitol (sorbitol) in aqueous solution, obtained from amylaceous products,

° 0,74 kg of white sugar for 1 kg of D-glucitol (sorbitol) in aqueous solution, obtained from sucrose,

° 2,45 kg of maize for 1 kg of D-glucitol (sorbitol), other than in aqueous solution, obtained from amylaceous products,

° 1,06 kg of white sugar for 1 kg of D-glucitol (sorbitol) other than in aqueous solution, obtained from sucrose." (9)

12. It should be observed here that, before that footnote to the annex in question was added, the conversion coefficients applicable to sorbitol (both sorbitol falling within Chapter 29 and sorbitol falling within Chapter 38 of the Common Customs Tariff) were set out in the actual body of the text of the annex. The actual coefficients themselves underwent, at least as regards the varieties of sorbitol obtained from sugar, no change.

13. The defendant considers that the glucose from which the sorbitol was obtained constitutes an amylaceous product within the meaning of the aforementioned footnote, irrespective of the agricultural product from which it was actually manufactured. Glucose does not come under the common organization of the market in the sugar sector, but under the common organization for cereals, and no refund was laid down for it at the material time; it has only given rise to export refunds since Regulation No 166/89 entered into force.

14. The applicant brought an action against the decision of rejection. The Finanzgericht Hamburg, before which the action was brought, has doubts as to the interpretation of some of the aforementioned provisions of Regulation No 3035/80. It therefore referred the following question to the Court for a preliminary ruling:

"Must the fourth paragraph of Article 2 and Article 3(1), (2) and (3) in conjunction with footnote 7 to Annex C to Regulation (EEC) No 3035/80 be interpreted as meaning that export refunds can also be granted for vitamin C produced from sorbitol at the rates of refund laid down in respect of sugar if the sorbitol has been obtained from glucose produced from white sugar?"

B ° Assessment

15. I. I would observe in limine that, of the provisions cited in the national court' s question, the fourth paragraph of Article 2 of Regulation No 3035/80 is not applicable to the calculation of the export refund in this case, as defined by the question itself. As the term "ed"nd the method of calculating the refund described therein show, that provision relates to the case where exported goods were manufactured using several agricultural products (see the fifth recital in the preamble to the regulation).

16. II. In contrast, in accordance with the system of the regulation, as described above, the starting point should be Article 3(1) and (2) in order to find a clause which might possibly preclude any entitlement to refunds, since the exported product is listed in Annex B to the regulation.

17. 1. In this connection, account should be taken of the special feature of the case at issue, namely that the ascorbic acid exported is obtained directly from sorbitol, whereas the basic product itself constitutes only the starting point for subsequent stages in the processing. However, the various alternatives set out in Article 3(1) are based on the quantity "actually used in the manufacture of the exported goods", and the first sentence of Article 3(2) makes it clear that

"the products used unprocessed in the manufacture of exported goods shall be considered as actually used". (10)

18. It follows that the provision applicable to the calculation in question must do two things.

In the first place, it has to make the arithmetical connection between the exported product and the goods which were directly utilized in order to manufacture it (namely, sorbitol).

Secondly, the same connection has to be established between those goods and the basic product; here again, account has to be taken of the special feature consisting in the fact that sorbitol is listed in Annex C to the regulation, with the result that ° at least according to the rule set out in Article 3(3) ° the flat-rate conversion rates set out therein are applicable.

19. 2. To my mind, the first indent of Article 3(1)(c) of the regulation constitutes that provision. It provides, inter alia, as follows:

"in the case of use:

° either of a product not covered by Annex II to the Treaty derived from the processing of a product referred to in (a) or (b),

...

the quantity, to be determined on the basis of the quantity of the product actually used in the manufacture of the goods exported, shall be equal, for each of the basic products in question and subject to the provisions of paragraph 3, to the quantity established by the competent authorities in accordance with Article 8(1)."

20. (a) Leaving aside the uncertainties expressed in the national court' s order, to which I shall return later, the case at issue falls without question within the system of that provision.

21. As far as the conditions set out in that indent are concerned, it should be observed that a product not listed in Annex II to the Treaty, to wit, sorbitol, was used to manufacture the exported goods. In turn, that product was obtained by processing a basic product, namely a product referred to in Article 3(1)(a). It will be necessary to show hereinafter that that conclusion is not undermined by the fact that the sorbitol obtained was not derived directly from the basic product.

22. Since the conditions set out in the first indent are satisfied, the quantity of the basic product to be taken has to be determined in two stages.

23. It is stipulated in the first place that that quantity has to be determined "on the basis of the quantity of the product actually used in the manufacture of the goods exported". Consequently, it must be determined in the first stage what quantities of sorbitol were ° actually ° used to manufacture the quantities of ascorbic acid exported.

24. Next, the quantity of the basic product which has to be calculated on that basis is "equal ... subject to the provisions of paragraph 3, to the quantity established by the competent authorities in accordance with Article 8(1)". The reservation in favour of paragraph 3 concerns ° and I cannot see how it could be otherwise construed ° the case where the product (directly) used to manufacture the exported goods is listed in Annex C to the regulation and where, therefore, the conversion formulas mentioned therein have to apply. Since sorbitol is one of those products, this is the approach which has to be taken. The conversion formula, which has remained unchanged since the entry into force of Regulation No 3035/80 for varieties of sorbitol coming under Chapters 29 and 38 of the Common Customs Tariff which are manufactured from sugar, has appeared, since the entry into force of Regulation No 2223/86, in footnote 7 to Annex C, which is mentioned in the national court' s question and has been quoted above. (11) It indicates what quantities of white sugar should be taken for each kilogram of sorbitol.

25. (b) According to the system of the applicable provisions, as understood in this sense, they do not stand in the way of the applicant' s claim to refunds. In the final analysis, the doubts expressed about this by the defendant and by the national court are not convincing.

26. The particular feature due to the fact that the sorbitol is obtained from the basic product, not directly, but through the intermediate stage of the production of glucose could be relevant for the purposes of the application of the provisions mentioned in two respects. First, the wording of the first indent of Article 3(1)(c) requires that the product used, which does not come under Annex II to the Treaty, (in this case, sorbitol) be "derived from the processing of a product referred to in (a) or (b)" (in this case, the basic product). Secondly, ° and this is the aspect to which the national court' s uncertainties apply ° footnote 7 refers to "quantities ... of D-glucitol (sorbitol) ... obtained from sucrose". The question, which is raised in the same way by the two provisions, namely whether the sorbitol must have been derived directly from the basic product, without intermediate processing stages, must clearly, in my view, be answered in the negative.

27. In the first place, it should be noted that nowhere is it stated in the two passages from the instrument that the basic product should "actually have been used" to manufacture sorbitol. Consequently, the first sentence of Article 3(2), which provides that the products used unprocessed in the manufacture of (exported) goods are to be considered as actually used, cannot, of necessity, come into it. Likewise, neither can the second sentence of the first subparagraph of Article 3(2) be applied, whether for the purposes of the first indent of Article 3(1)(c) or for the purposes of footnote 7 to Annex C. That provision, which is referred to in the Finanzgericht' s argument, provides as follows:

"Where, during one of the stages of manufacture of [the exported] goods, a basic product is itself processed into another more elaborate basic product used at a later stage, only the latter basic product shall be considered as actually used."

28. The Commission has rightly pointed out that that provision covers only the case where a basic product is processed into another basic product. But glucose is not a basic product for the purposes of Regulation No 3035/80.

29. Secondly, the interest which the Community has in principle in granting subsidies for the exportation of products listed in Annexes B and C of Regulation No 3035/80, which are processed products covered by the same common market organization as the basic product, does not depend on the number or the identity of the intermediate products not intended to be marketed which arise in the course of processing. Rather, from the point of view of the market organizations ° a point of view which takes account of competition with products on the world market which, for their part, are manufactured using (cheaper) products on the world market °, exportation remains exportation of basic products "in the form of" processed products (see, for example, Article 19 of Regulation No 1785/81). Where the manufacturer opts for an unusual process, which seems to be the case here, that does not mean that an export refund has to be refused for that reason, but only that possibly the correctness of the proposed calculation method should be questioned, a matter to which I shall return forthwith.

30. Here I shall simply mention the fact that, by virtue of Annex A to Regulation No 2727/75, glucose is a product falling within the common organization of the market in cereals. In my view, that does not mean that the exportation becomes as a result an exportation of cereals (or of cereal starch) in a modified form, but it remains an exportation of sugar (processed into other products eligible for refunds under Annex I to Regulation No 1785/81).

31. 3. Admittedly, I am unable, without more precise knowledge of the chemical details, to establish positively whether in the case of the particular process chosen by the applicant the conversion formula set out in footnote 7 produces correct results. However, there is no evidence to suggest that the results are incorrect; not even the defendant seems to claim that this is the case.

32. But, even if distorted results were to be obtained on the basis of the calculation set out in footnote 7 owing to the peculiarities of the manufacturing process, that would probably not be capable in principle of causing the grant of export refunds to be refused. At the most, consideration should be given to placing a narrow interpretation on the reference made in Article 3(1)(c) to Article 3(3) and hence to the aforementioned footnote. In such case, it would be the quantity of the basic product "established by the competent authorities in accordance with Article 8(1)" see the end of the first sentence of Article 3(1)(c) which would be taken.

33. 4. As regards the wording of the reply to the national court' s question, reference should not be made to the fourth paragraph of Article 2 of Regulation No 3035/80, which is mentioned in the question, since it is not applicable and the conclusions reached with regard to the claim to refunds consequently are not based on the interpretation of that provision.

C ° Conclusion

34. For all the above reasons, I propose that the Court should reply to the question referred by the Finanzgericht Hamburg as follows:

Article 3(1), (2) and (3) of Regulation No 3035/80 in conjunction with footnote 7 to Annex C, which was added to that regulation by Regulation No 2223/86, must be interpreted as meaning that they do not prevent the grant of export refunds for vitamin C (ascorbic acid) obtained from sorbitol at the rates of refund laid down in respect of sugar where the sorbitol is obtained from glucose, which itself is produced from white sugar.

(*) Original language: German.

(1) ° Council Regulation of 30 June 1981 (OJ 1981 L 177, p. 4); since Regulation No 2306/88 (OJ 1988 L 201, p. 65), Annex I to Regulation No 1785/81 no longer refers specifically to ascorbic acid, but generally to Chapter 29 of the Common Customs Tariff.

(2) ° Council Regulation of 11 November 1980 laying down general rules for granting export refunds on certain agricultural products exported in the form of goods not covered by Annex II to the Treaty, and the criteria for fixing the amount of such refunds (OJ 1980 L 323, p. 27).

(3) ° German version as corrected by corrigendum in OJ 1981 L 322, p. 42.

(4) ° Council Regulation of 14 July 1986 amending Regulation (EEC) No 3035/80 laying down general rules for granting export refunds on certain agricultural products exported in the form of goods not covered by Annex II to the Treaty, and the criteria for fixing the amount of such refunds (OJ 1986 L 194, p. 1).

(5) ° German version as corrected by corrigendum in OJ 1981 L 322, p. 42.

(6) ° Council Regulation of 29 October 1975 on the common organization of the market in cereals (OJ 1975 L 281, p. 1), which has in the meantime been replaced by Council Regulation (EEC) No 1766/92 of 30 June 1992 (OJ 1992 L 181, p. 21).

(7) ° Commission Regulation of 24 January 1989 amending Regulation (EEC) No 2727/75 on the common organization of the market in cereals (OJ 1989 L 20, p. 16).

(8) ° See Article 1(2)(a) of Regulation No 1785/81.

(9) ° German version as corrected by corrigendum in OJ 1986 L 272, p. 35.

(10) ° My emphasis.

(11) ° See section 11, above.