2.

In addition to Telefunken and the Commission, the Italian and French Governments have submitted observations in this case. It appears to be common ground that, as the Bundesfinanzhof stated, the goods should not be classified under the same heading merely because they were presented for customs clearance together. Separate classification would be ruled out only if it appeared from the Common Customs Tariff that for tariff classification purposes the music centre and the loudspeakers should be regarded as a single product and must therefore fall under a single tariff heading. Three different solutions have been proposed. According to Telefunken and the Italian Government, the goods should be classified separately: the music centre under tariff Heading No 85.15 and the loudspeakers under Heading No 85.14. Telefunken draws attention to the progress in the field of modern electronics and in particular to an important development in modular design which makes possible the progressive acquisition of the individual units; as a result, such units have become separate goods for the purposes of the Common Customs Tariff. The loudspeakers, which are not incorporated in the music centre, cannot in its view be considered to be components of it, since they do not perform a single function but can be used with other apparatus. The Italian Government maintains in particular that the loudspeakers do not constitute components of the music centre and that, since they can be used with different types of apparatus, they do not form part of a ‘functional unit’. The French Government, on the other hand, considers that the goods should be regarded as a set and that it is therefore unnecessary to have recourse to the functional unit principle mentioned by the national court. It refers to General Rule A 3 (b), which concerns the tariff classification of goods put up in sets. That rule provides as follows: ‘Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.’ The French Government concludes that, since the music centre gives the goods their essential character, they should be classified together under tariff subheading 85.15 A III. The Commission considers that the goods, which are presented together for the purposes of customs clearance and sale, constitute a functional unit within the meaning of the Customs Cooperation Council's Explanatory Notes relating to Note 3 to Section XVI of the CCT. Note 3 provides as follows: ‘Unless the headings otherwise require, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.’ The Explanatory Notes relating to that note state as follows: ‘... Note 3 does not apply when a machine or appliance consists of separate components which are designed to contribute together to a single clearly defined function described by one of the headings in Chapter 84 or, more frequently, Chapter 85. The whole then falls to be classified in the heading appropriate to that function, whether the various components are joined together or (for convenience or other reasons) remain separate and are merely interconnected by ... electric cables.’ According to the Commission, it should be possible to employ the functional unit principle to interpret a tariff heading in Chapters 84 and 85. That principle must however be applied restrictively, because it is defined narrowly in the aforesaid Explanatory Note. The loudspeakers are solely intended to make audible the impulses received from one of the components of the music centre, and the apparatus as a whole has the sole function of reproducing sound from a receiver (tuner) incorporating a sound recorder (cassette recorder) or reproducer (record-player). All the goods in question therefore fall under tariff subheading 85.15 A III. It is immaterial that individual components of that unit can function with another apparatus, provided that those components cannot be used for a different function described by another tariff heading and they are packed together in the same container. At the sitting, the Commission's representative stated that the goods would still constitute a functional unit if the loudspeakers were imported separately from the music centre but were intended to supplement it. He added that, should the Court decide that the goods do not constitute a functional unit, the Commission would recommend that General Rule A 3 (b) be applied, as proposed by the French Government. The concept of a set of goods is slightly wider than that of a functional unit and covers the case where a combination of goods is necessary in order to satisfy a particular demand or to perform a specific function.