OPINION OF MRS ADVOCATE GENERAL ROZES

DELIVERED ON 18 FEBRUARY 1982 ( 1 )

Mr President,

Members of the Court,

A reference for a preliminary ruling has been submitted to the Court by the Bundesfinanzhof [Federal Finance Court] concerning refunds on exports of “pearled grains of barley”.

The facts are as follows:

At the beginning of 1966, on 4 March and 9 and 13 April, the company Ludwig Wünsche & Co. obtained the approval of the Bundesanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets, hereinafter referred to as “the Federal Office”] for the grant of refunds on exports of pearled barley to nonmember countries. That benefit was provided for by the Community provisions in force at that time on the progressive establishment of a common organization of the market in cereals (Article 20 (2) of Regulation No 19 of the Council; Article 5 (1) of Regulation No 141/64/EEC of the Council of 21 October 1964; Regulation No 164/64/EEC of the Commission of 29 October 1964; Regulation No 11/66/EEC of the Commission of 3 February 1966).

At that suge of the progressive alignment of the markets, it was left to the Member States to decide whether it was appropriate to pay refunds and to determine the amount thereof and they were subsequently reimbursed on the basis of what came to be called the lowest average refund.

The refund might take the form of either a payment in cash in respect of cereal products exported to nonmember countries or, in the case of products imported from a nonmember country and intended for re-export from the Community after processing (processing traffic), the importation free of levy of the same tonnage of unprocessed barley as that used to manufacture the processed product. In this case, the latter method, namely a refund in kind, was adopted. In respect of 100 kg of pearled grains of barley (processed product), Wünsche had secured the right to import 220 kg of unprocessed barley (basic product) free of levy.

This system had been introduced in the Federal Republic of Germany by an order of 24 November 1964 (Paragraph 6).

The amount of the refund depended on the quality of the processed product. A processing undertaking qualified for the maximum benefit only if the processed product conformed exactly to the then applicable criteria — which, moreover, were determined by reference to the national processing undertakings with the lowest output — otherwise the conversion rate for calculation of the amount of the basic product would have been distorted to the advantage of the processing undertaking.

Relying on the official analysis reports, the Federal Office considered that the product actually exponed by Wünsche was not pearled barley and accordingly in two cases it withdrew the authorization granted to that company so that ultimately a less favourable conversion rate was applied, namely 160 kg of unprocessed barley per 100 kg of processed product.

Relying on reports drawn up by its own experts acting under oath, Wünsche challenged the decisions withdrawing the authorizations. The matter ultimately came before the Bundesfinanzhof which has asked this Court, essentially, to define the scope of the expression “pearled grains of barley (or grains of pearled barley) having an ash-content expressed as a percentage of the dry matter of more than 1%”, an expression which is used in Regulation No 11/66 of the Commission; more specifically, it wishes to know whether an ash-content of less than 1% necessarily implies that the product in question is pearled grains of barley. If that is not the case, the Bundesfinanzhof also asks whether, for a product to fall within the concept of “grains of pearled barley”, it is sufficient that it has been established that more than 50% of the grains have had practically the whole pericarp removed and have been rounded at both ends, as provided for in the Explanatory Notes to the Customs Cooperation Council Nomenclature, and whether that proportion must be based on the weight or the number of the grains.

Under Article 177 it is not for the Court either to classify the goods in question or to say that, as Wünsche maintains, the consignments in question were in fact made up of “pearled grains of barley” as provided for in subheading 11.02 B III (a) (now 11.02 C III) of the Common Customs Tariff. On the other hand, the task of the Court of Justice is to give the national court all relevant information to enable it to decide the case before it.

I —

The following description is taken from the Explanatory Notes to the Customs Cooperation Council Nomenclature (known as the Brussels Nomenclature) No 10.03):

“Barley has a fleshier grain that that of wheat. It is mainly used for the manufacture of malt and, when polished or pearled, for the preparation of soups or cooked foods.

Bracteiferous varieties of barley differ from most other cereals in that their husks (or hulls) become fused to the grain kernel in the course of growth and therefore cannot be separated by simple threshing or winnowing. Barley grain of this kind, which is straw-yellow in colour and pointed at the ends, falls within the heading only if imported complete with husk (or hull). When this husk or hull has been removed bracteiferous barley grains are excluded (heading 11.02) ; this removal requires a milling process which sometimes also removes part of the pericarp.”

The parties to the main proceedings both acknowledge that the ash-content in the samples taken, expressed as a percentage of the dry matter, was lower than 1%.

However, the Federal Office maintains that the official reports showed that the samples of barley analysed were not homogeneous. As well as grains which were inconiestably classifiable as “pearled” there were others which had been processed to a lesser extent (or which in some cases still had their husks) and had therefore to be regarded at most as husked or hulled.

The above-mentioned Explanatory Notes, in the July 1976 version, state as follows regarding tariff heading 11.02, “Cereal groats and cereal meal; other worked cereal grains (for example, rolled, flaked, polished, pearled or kibbled, but not further prepared) ...

This heading covers all unprepared milling products of cereals, except flour and residues ...

The products covered by the present heading are: ...

(3) Grain from which the pericarp (the skin beneath the husk) has been partially removed. Grains of the bracteiferous varieties of barley are also classified in this heading if their husks (or hulls) have been removed; generally the floury kernel is then visible. (The husks can be removed only by grinding since they adhere too firmly to the grain kernel to be separated by mere threshing or winnowing) ...

(4) Pearled grains (principally barley); that is, grain from which practically the whole pericarp has been removed; these are more rounded at the ends.”

A notice of 15 April 1966, which appeared in the Bundesanzeiger [Federal Gazette] No 73 of 19 April 1966, stated, with regard to the distinguishing features of pearled barley, that:

“To be classified as pearled barley the product must not have an ash-content, expressed as a percentage of the dry matter, which exceeds 1% by weight (without talcum) and must be hulled and rounded by polishing, so that the grains do not display deep grooves or well defined awns or germs or remains of husks, and the aleurone cells must have been eliminated to an extent sufficient to allow more than half of the starch cells to be visible throughout the surface of the grain. The product must exhibit a uniform range of grain sizes and the width of the grains (distance between the sides) must not display differences greater that 0.5 mm in the case of at least 70% of the grains or 1 mm in any case (this is verified by granulometrie analysis using a sieve with round perforations or by measuring 200 grains).”

It is true, as Wünsche maintains, that the ash-content provides an indication of how far the product has been processed, since the mineral constituents and the raw cellulose which give rise to the ash are mostly found in the seed envelope (husks, pericarp) and in the germ. The ash-content of the grain as a whole, expressed as a percentage of the dry matter, amounts to roughly 2.6 to 2.8%.

But although it is necessary to refer to the criterion of ash-content, that reference is not alone sufficient.

Originally that criterion was introduced into Community law with regard to flours (Article 4 of Regulation No 91 of the Commission of 25 July 1962).

It was also adopted by Regulation No 5/63 of the Council of 28 January 1963 which lays down the method for calculation of the variable component of the levy applicable to the importation of brans with a view to the prevention of fraud.

It is applied in the case of grains of pearled barley, as well as in that of flours and flakes, to limit the amount of the maximum refund calculated on the basis of the variable component of the levy granted on the exportation of such grains (Regulation No 11/66 of the Commission of 3 February 1966).

But the criterion of ash-content, thus extended to grains of barley by Regulation No 11/66 which was still in force at the material time, does not oust the other condition which must be respected by the Member Sutes to distinguish pearl barley from barley which has merely been hulled, a condition laid down in the Explanatory Notes to the Customs Cooperation Council Nomenclature.

That criterion, which may be described as “visual” since it refers to the appearance of the grain, seems moreover to be applicable by reason of the very name of the products in question. In that respect, the German text is more precise than the French text.

Where the French text speaks of grains as “décortiqués” [husked], “pelés” [peeled] “mondés” [hulled] or “perlés” [pearled], the German text uses “entpelzt”, “geschält”, “geschliffen” or “periförmig geschliffen”, which latter, translated literally, means “polished in the form of a pearl”. Against the use of the criterion relating to the form and dimension of the grains, Wünsche advances two arguments:

1. In the first place it claims that the Explanatory Notes to the Customs Cooperation Council Nomenclature are of a date later than the material date. But the Court has held on several occasions (15 December 1971, Case 21/71, Brodenen [1971] ECR 1069; 8 April 1976, Case 106/75, Merkur [1976] ECR 531) that, in so far as agricultural regulations fail to define or incompletely define the products to which they apply, it is lawful to have recourse to the definitions contained in the Common Customs Tariff, to the methods of interpretation followed in customs matters and to the clarifications provided by its own case-law, even if the latter were not given until after the exportation in question had taken place. In particular, in so far as the Common Customs Tariff headings have not been the subject of explanatory notes prepared within the framework of the Community, the Explanatory Notes to the Customs Cooperation Council Nomenclature provide an authoritative and valuable means of interpreting them. The fact that at the time in question only the English and French versions of those notes existed is insufficient to create a “legitimate expectation” on the part of the traders concerned on the pretext that they had no knowledge of them (8 December 1970, Case 14/70, Bakeli [1970] ECR 1001; 14 July 1971, Case 12/71 Henck [1971] ECR 743, and more recently Case 159/80, Wünsche,16 July 1981).

2. In the second place, Wünsche claims that those notes were prepared by persons who were not qualified and that the further requirement of the visual criterion is contradictory to or duplicates the criterion relating to ash-content. Removal of the husks, it states, is normally sufficient to ensure that the ash-content does not exceed 1%. There is no advantage in having the product undergo a supplementary treatment, in view of the fact that removal of the pericarp results in the removal of a part of the kernel with a concomitant loss of nutritive value of the product. For grains to be regarded as pearled, it is sufficient if practically the whole of the pericarp has been removed, whereas to enable them to be regarded as hulled the pericarp must have been removed in its entirety. In fact, after the amendment made in January 1978, the Explanatory Notes to the Customs Cooperation Council Nomenclature define as hulled grains those grains which have been “worked to remove wholly or partially the pericarp ...”. Since the grains have at least been hulled, they would automatically and necessarily be pearled. It seems to me that this partial overlap between hulled and pearled grains is accounted for by the fact that, as far as barley is concerned, no distinction is made between removal of the husks and hulling. The husks of barley are in part fused with the pericarp; if the hulling is not carried out in an intensive manner the great majority of the husks are removed, and nothing else; if on the contrary the hulling is intensive, part of the pericarp is also removed. As regards the nutritive value of the product, the Court has held (Case 159/80, Wünsche,16 July 1981, paragraph 21 of the decision) that “the food value of a product is merely one of the factors which may be taken into consideration in classifying a product in a particular heading of the Common Customs Tariff”. It seems to me that reference to the form and dimensions of the grain is relevant in the case of bracteiferous, pointed or elongated grains such as barley, oats or rice, which must be husked in order to remove their fibrous envelope; oats must additionally be clipped. Accordingly, there is a difference between barley which has been husked, merely by hulling, and barley which has been hulled and also pearled. Consequently, an ash-content of less than lo/o clearly indicates that a part of the pericarp has been removed but that fact does not prove in all cases that practically all of it has been removed or that the ends of the grains have been rounded. Yet that requirement is clearly laid down in the Explanatory Notes which I have cited. The Commission and the Federal Office are therefore correct in their view that, even if the ash-content of the product in question is directly related to the more or less complete removal of the pericarp and the more or less pronounced rounding of the ends of the barley grains, there are no grounds for assuming, if the ash-content is less than 1%, that the product in question necessarily comprises grains of pearl barley as referred to in the Community provisions.

3. Finally, the interpretation of a tariff heading must, if any doubt exists, take into account both the function of the Customs Tariff in view of the needs of the system of organization of the markets and its purely customs function (judgment of 14 July 1971, Case 12/71 Henck [1971] ECR at p. 751, paragraph 9). It must not be forgotten that the exportation of the other products obtained from the processing of barley grains (germs in particular) may qualify for refunds and that they were not therefore in any sense lost. At a time when the system of refunds on exports to nonmember countries was still largely a matter for the national authorities, the object of the refund was to compensate for the variance between the prices of the basic products inside the exporting Member Sute and the prices applied on the world market. It was therefore legitimate for the Member Sutes to impose stria requirements for the grant of the refunds. That requirement was maintained by the Community when the refund system became the responsibility of the Community and the “visual” criterion was formally adopted. Regulation No 821/68 of the Commission of 28 June 1968 on the definition, applicable to the granting of export refunds, of hulled grains and pearled grains of cereals contains the following recital: “... the expon refund should take into account the quality of the product processed from cereals which qualifies for it lest public funds contribute to the export of goods of inferior quality ...” Moreover, it was necessary to ensure that competition between producers in the Member States was not distorted on the world market. Agricultural products from nonmember States processed by undertakings in a Member Sute were not to be placed in a more advantageous position than products originating in the Community itself. Regulation No 11 /66 of the Commission is also clearly intended to limit the amount of the maximum refund, calculated on the basis of the variable componen: of the levy granted in respect of the exportation of grains of pearled barley: “The quantity of raw material actually used for the manufacture of certain products may vary considerably according to the final use of each product; ... moreover, refunds relating to the various products obtained from the same processing operation may be added together ...; the application of a maximum amount (to be refunded) ... might facilitate exports to nonmember countries at pnces lower than those applied on the world market...”

II —

The Bundesfinanzhof has submitted an alternative question: what proportion of grains, in any panicular consignment, renders the mixture classifiable as pearled barley?

The German agency considers that the product is classifiable as pearled barley where, from the numerical point of view, nearly all the grains in a panicular consignment conform to the “visual” criterion and that, if a proponion of over 50% suffices, that percentage should refer to the weight and not to the number of the grains.

It is physically impossible for nearly all the grains in a panicular consignment to display the required characteristics. However, there is always the possibility that subterfuges may be resorted to in order to bring the product just within the prescribed requirements and obtain the maximum refund by mixing pearled barley with barley which has merely been hulled.

It might be conceded that General Rule 3 (b) for the Interpretation of the Common Customs Tariff Nomenclature should apply by analogy; according to that rule “When ... goods are prima fade classifiable under two or more headings ... mixtures ... shall be classified as if they consisted of the material ... which gives them their essential character ...”. It is therefore sufficient if there is a preponderance of pearled grains, that is to say if they represent a proponion of more than 50% of the consignment in question.

That proportion should not however refer to the number of grains, since it would be easy to obtain more than 50% of grains of pearled barley by admixing grains conforming to the prescribed requirements with grains not so conforming. The product must therefore conform to those conditions as regards more than 50% by weight of the dry matter.

In reply to the questions submitted, I propose that the Court should rule as follows :

For the purposes of the advance grant in March and April 1966 of the refunds provided for by Regulations Nos 19 and 141/64 of the Council in respect of pearled barley, it was necessary for more than 50% by weight of the dry matter of the consignment to be made up of grains conforming to the conditions laid down in the Explanatory Notes to the Customs Cooperation Council Nomenclature in respect of heading 11.02 of the Common Customs Tariff.

( 1 ) Translated from the French.