Introduction

The new draft of the Combined Nomenclature’s (“CN”) Explanatory note for multifunctional devices with mobile phone function (subheading 8517 12 00) was recently presented at the 2nd meeting of the Customs Code Committee (“CCC”) held in Brussels. In addition, a draft Regulation relating to three particular products with a mobile phone function was also presented by the Chair of the CCC.

The Chair of the CCC commenced by explaining that the exclusions contained in the previous version of the draft CN Explanatory note, which removed certain ‘sophisticated’ phones from the Information Technology Agreement’s zero tariff status into a dutiable customs category, had disappeared due to the strong opposition of the Member States of the European Union (“Member States”).

However, during the 2nd meeting of the CCC, remarks were still made by Member States to introduce exclusions for the GPS and television reception functions from the essential characteristics of a mobile phone. The adoption of these exclusions could entail that mobile phones with increased functionality, such as GPS receivers and mobile TV would face a tax of up to 14% upon entry to the European Union.

In the end, it follows from the summary report of 2nd meeting of the CCC that a consensus has yet to be reached on the wording, legal reasoning and aim of the new presented draft texts of the CN Explanatory note and Regulation for multifunctional devices with mobile phone function. This is to be derived from the following issues which were raised during the meeting.

The new draft CN Explanatory note: Multifunctional devices with mobile phone function

With regard to the wording of the new presented draft text of the CN Explanatory note, suggestions were made as to introducing the exact dimensions of what “pocket-size” is for nomenclature purposes as these dimensions already exist in the current nomenclature.

As to the definition of a mobile phone, several Member States considered the wording in the new draft of what constitutes the principal function to be unhelpful as it does not state when and under what conditions the mobile telephony function has priority over the other functions; on the contrary, it rather gives the impression that any product with a mobile telephony function remains a mobile phone independently of the number and quality of the other functions present in the product. In this respect, it was suggested to state that the principal function is due to the fact that incoming calls are notified irrespective of the other functions used. It was further explained that a specific function cannot constitute an objective characteristic of a product and that therefore a separate paragraph, reflecting the legal reasoning, should be introduced in the draft Explanatory note in relation to the product's principal function.

Moreover, if the aim of the new draft CN Explanatory note is to classify any device with mobile telephony function as a mobile phone, one Member State asked what are the objective characteristics of the products on which such classification is based as there is no legal text giving precedence to heading 8517 over other headings in the CN.

As to the functions of a mobile phone, one Member State suggested including the PDA function to the other functions that can be performed by a “pocket-size” device with mobile telephony function. On the other hand, one Member State argued that the GPS and television reception functions should be taken out from the essential characteristics of a mobile phone as according to that Member State they would influence the classification of the device. This Member State suggested introducing exclusions for these 2 competing headings in the current draft. This would entail that mobile phones with GPS and mobile TV functions would face a tax of up to 14% upon entry to the European Union.

The draft Regulation: Multifunctional devices with mobile phone function

As to the draft Regulation relating to three particular products, the legal reasoning of the draft Regulation was the main focus of attention for many Member States.

Several Member States asked further clarification on the reasons for giving the mobile telephony function precedence over the other function of the apparatus. It was explained that by deciding that a device equipped with a SIM card is a mobile phone, the draft regulation is giving an overall precedence to heading 8517 without any consideration of the other functionalities present in the device or the quality of these functionalities.

Moreover, one Member State also underlined that the draft Regulation was not providing any guidance as to the classification of other multifunctional devices performing without an activated SIM card or without a mobile telephony function.

As to the GPS function of a mobile phone, Member States could not agree as to whether a mobile phone having both the antenna and GPS module should be classified under heading 8517 or be moved into a dutiable customs category.

Conclusion

Overall, a clearer wording and legal reasoning of the draft text of the CN Explanatory note and Regulation were asked for by the Member States. On the other hand, Member States were asked to reflect and provide the Customs Code Committee with other criteria supporting classification of mobile phones under heading 8517. The Customs Code Committee will now reflect upon the comments made during the meeting and a measure for vote will be presented at a future meeting.

The proposed measure might state that ‘sophisticated’ mobile phones are to be moved into a dutiable customs category in the CN. This would entail that mobile phones with increased functionality, such as GPS receivers and mobile TV, would face a tax of up to 14% upon entry into the European Union.

If the European Union decides to go ahead with a duty rate of up to 14% for ‘sophisticated’ mobile phones, the decision might be perceived by other World Trade Organisation (“WTO”) members as being in total contradiction to the European Union’s commitments under the Information Technology Agreement, signed by WTO members in 1996, which requires duty-free treatment for most information technology products. (Please see as a reference Trade&Customs newsalert of May 2009)