The European Commission has recently determined the classification of telephones for cellular networks or other wireless networks (“mobile phones”) in the Combined Nomenclature (“CN”) by publishing Commission Regulation (EC) No 717/2009 (“Regulation 717/2009”). The adoption of Regulation 717/2009 was preceded by the publication of the concerning Explanatory Note clarifying the characteristics for mobile phones with increased functionality, such as GPS receivers and mobile TV. With that regard, the Explanatory Note and Regulation 717/2009 determine that the defining characteristic for classifying a mobile phone (with increased functionality) under CN Code 8517 12 00, prescribing an import tax of 0 percent, is the ‘mobile phone function’, meaning that the telephony function needs to take precedence over all other functions including when incoming calls are normally notified to the user regardless of secondary functions used.

Introduction

The final outcome of the new Explanatory Note and CN Code for mobile phones (with increased functionality) has been awaited by the technology industry as well as World Trade Organisation (“WTO”) members. With that regard, a different outcome may have led to a WTO dispute if the European Commission had determined that a mobile phone with increased functionality were to be classified in a dutiable customs category in the CN, prescribing an import tax of 14 percent. This would have been seen 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 June 2009).

However, the European Commission has decided that mobile phones with increased functionality can still benefit from the zero rate, prescribed by CN Code 8517 12 00, provided that “the principal function of the apparatus (…) is considered to be that of mobile phone communication over a cellular network”. The characteristics and criteria to be taken into account in order to classify a “mobile phone” under CN Code 8517 12 00 are further stated in the Explanatory Note and Regulation 717/2009.

Explanatory Note for “mobile phones”

The Explanatory Note for CN subheading 8517 12 00 is to include “mobile phones” having the following characteristics:

- they are "pocket-sized", i.e. they are of dimensions that do not exceed 170 mm x 100mm x 45mm, when measured in their most compact form;

- they are capable of operating without an external source of electric power;

- they have both a microphone, and an earphone and/or a loudspeaker, either in the same unit or in the form of a detachable headset presented together with the "mobile phone", for the transmission and reception of voice enabling voice communication;

- they incorporate other components such as an amplifier and an antenna for telephony, which provide for dual-way short-range transmission of voice within a network consisting of base stations of subheading 8517 61 and using mobile telephony frequency bands;

- they are able to do telephony communication using cellular networks when equipped with a SIM (Subscriber Identity Module) of various types (physical or software) that has been activated. They may provide that emergency calls may be made without the SIM.

In addition, "mobile phones" may also have other functions such as sending and receiving SMS (Short Message Service) and MMS (Multimedia Messaging Service) messages, emails, packet switching for access to the Internet, sending and receiving positioning signals, navigating, routing, maps, instant messaging, VOIP (voice over Internet Protocol), PDA (Personal Digital Assistant), gaming, receiving radio or television signals, capturing, recording and reproducing sound and images.

Regulation 717/2099

Regulation 717/2009 sets out three particular models of mobile phones with various functions that are classified under CN Code 8517 12 00. In short, the characteristics of the models can be summarised as handheld, battery-operated, foldable apparatus, having an alpha-numeric keyboard of a kind used in cellular phones, with a colour display of the liquid crystal device (LCD) type, and including other various functions which can be performed in addition to the mobile telephony function.

However, the principal function for classification of a “mobile phone” under CN Code 8517 12 00 is, assuming that the apparatus is equipped with an activated SIM, that of mobile phone communication over a cellular network which means that the mobile telephony function takes precedence over all the other functions of the apparatus.

It should also be mentioned that the national customs authorities will treat the descriptions of the three models in Regulation 717/2009 as examples of the kind of devices that fall under CN Code 8517 12 00, analysing each time whether the principal function of the device is that of mobile phone communication over a cellular network. With that regard, a reference can be made to the European Court of Justice ruling (C-130/02) stating that “the application by analogy of a classification regulation, (…), to products similar to those covered by that regulation facilitates a coherent interpretation of the CN and the equal treatment of traders”.

Binding Tariff Information (BTI)

In addition, Regulation 717/2009 stipulates that BTI’s which have been issued by the national customs authorities of Member States of the European Union in respect of the CN classification but which are not in accordance with Regulation 717/2009 can, for a period of three months, continue to be invoked by the BTI holder.

Regulation 717/2009 is in force as of 27 August and is being applied by the national customs authorities of the Member States of the European Union.