On April 14, the ECJ provided its judgment in joined cases C-288/09 and C-289/09. Further to the references for a preliminary ruling from the First Tier Tribunal in the UK, the ECJ was asked to provide clarity in respect of the tariff classification of certain specific decoders with a hard disk drive.

In accordance with the Explanatory Notes (EN) to the Combined Nomenclature (CN), the local Customs Authorities in the UK classified the Sky+ Box, a set-top box with a communication function, containing a hard disk drive and allowing the user to record television programs, as a recording apparatus, subject to a 13.9 percent customs duty rate. British Sky Broadcasting Group Plc., the importer of record in this case and the manufacturer of the set-top box, Pace Plc, disputed this decision, arguing the Sky+ Box should be classified as a set-top box with a communication function subject to a zero percent customs duty rate.

The cases were brought before the UK Court that referred the cases to the ECJ to obtain answers to prejudicial questions that would allow the UK Court to determine the appropriate classification of the Sky+ Box. Although all four prejudicial questions are very interesting, the first question regarding the actual classification of the settop box at hand and the second question regarding the possible violation of the Information Technology Agreement (ITA) by the European Union (EU) in case a set-top box such as the one at hand would be subject to a 13.9 percent duty rate when imported into the European Union were of special interest to many companies in the consumer electronics industry. On April 14, the ECJ answered the prejudicial questions. The ECJ provided some interesting considerations.

The main prejudicial question as asked by the UK Court related to the classification of a set-top box with a communication function and a hard disk drive. Is such a set-top box to be classified as a set-top box with a communication function or, in line with the EN CN, as a recording device as a result of the incorporated hard disk drive? In line with the General Rules for Interpretation of the CN and existing case law, the ECJ confirms that to determine the correct classification of electrical apparatus that have several functions and as a result could be classified in different categories of the CN, are to be classified according to the principal function of the apparatus.

After careful consideration of the various objective characteristics and specifications of the set-top box, the ECJ ruled that the communication function is the principal function of the Sky+ Box. In this respect, especially the fact that the Sky+ Box is sold to television service-providers, such as British Sky Broadcasting, who make them available to their customers to enable them to access the programs they offer is a very important factor. The ECJ considers:

“ 79. It therefore seems that consumers subscribe to service-providers such as Sky principally in order to be able to access the television programs offered and that, in order to do so, they must obtain a set-top box such as a Sky+ box. The television programme recording function which is, in addition, available on that model, is merely an additional service that it offers.

80. The interaction between the functions of the Sky+ box described in paragraph 75 of this judgment, which makes the recording function dependent on the reception of television signals, shows that consumers who choose that product are seeking, primarily, not a recording function, but rather a function of decoding television signals, although their choice may be influenced by the fact that it has a recording function or the number of hours of programming that can be recorded.

81. It follows from all those considerations that the Sky+ box is principally intended to be used to receive television signals and that function is inherent to that apparatus. It therefore constitutes its principal function and the recording function is only secondary.

82. Consequently, since the Explanatory Notes to the CN contradict the CN on that point, they must be disregarded.”

As a result, the intended use of the product is once more considered to be a decisive objective criterion for classification of the set-top box in these cases by the ECJ. Something that is in many other cases still not honored by local Customs Authorities when brought forward in classification disputes. As, further to the ECJ, the Commission now also acknowledged that it is necessary to take into account what consumers would consider to be the principal function of an apparatus, it is expected that the intended use of a product will become a more prominent part of classification discussions in the consumer electronics industry, especially if it can be demonstrated that the intended use is inherent to the product.

Unfortunately, the ECJ does not go into detail on the prejudicial question on the possible violation of ITA by the EU if the set-top box at hand would be subject to a 13.9 percent duty rate instead of a zero percent duty rate as provided for under ITA to which the EU committed. In view of the answer give to the first question, which leads to a zero percent duty rate for the set-top box at hand, the ECJ sees no need to answer this question.

Nevertheless, the ECJ provides for an interesting and important consideration in paragraph 83 of the judgment. The ECJ states that “even though the provisions of a treaty such as the ITA are not such as to create rights upon which individuals may rely directly before the courts under European Union law, where the European Union has legislated in the field in question, the primacy of international agreements concluded by the European Union over provisions of secondary Community legislation means that such provisions must, so far as is possible, be interpreted in a manner that is consistent with those agreements.”

Here, the ECJ appears to follow the standpoints of the WTO Panel in the ITA dispute between the EU and the U.S., Japan and Chinese Taipei1 and to provide a strong hint to the Commission that the EU should honor its obligations as committed to under ITA. With a view to the EU confirmation to implement the rulings and recommendations of the WTO Panel in the ITA dispute by June 30, it will be interesting to see exactly how the EU will interpret its ITA obligations and how the EU will truly comply with its ITA obligations.