Deal opens EU market to foreign-made smartphones

Under strong pressure from Scandinavian member states, the European Commission has decided to abandon plans to introduce EU-wide duties on the latest generation of mobile phones, embedded with GPS readers and TVs. Manufacturers and consumers welcomed the deal, which is likely to favour further relocation outside Europe of the EU telecoms industry.

“The Commission decided to not pursue a new classification of the existing mobile phones,” Maria Assimakopoulou, spokesperson for fiscal matters at the EU executive, told EURACTIV.

Assimakopoulou added that this had not solved the problem of customs duties (see ‘Background’), instead postponing the issue until the next generation of mobile phones is on the market. “Nobody knows what functions they will carry, and therefore nobody can prevent their customs duty classification,” she said, anticipating possible trade battles.

At stake is duty-free access to the EU market for smartphones produced abroad, particularly in East Asia. Handsets entering the EU equipped with simple telephony functions are not subject to duties, but GPS readers are taxed instead. 

The question thus arises: What is the duty on a mobile phone equipped with a GPS reader?

In countries like Germany and the Netherlands, the answer is that a handset with extra functions automatically becomes another device, subject to different duty regimes. The two countries have been pushing for an EU-wide application of 3.7% entry duties on mobile phones with GPS readers, and a duty of 14% on handsets capable of receiving TV signals.

When the Commission proposed last year to extend this classification to the entire European internal market, countries which host the main EU handset manufacturers strongly condemned the move. Finland, home of the giant Nokia, and Sweden, on behalf of Sony Ericsson, began intense lobbying campaigns supported by the industry (EURACTIV 11/12/08).

With the start of the Swedish EU Presidency last week and after a long and complex diplomatic battle, the Commission has withdrawn its plans. A text agreed with all EU member states reads: “Mobile phones may also have other features such as sending and receiving SMS and MMS; emails; packet switching for access to the Internet; sending and receiving positioning signals; navigating, routing, maps, instant messaging, VOIP; gaming; receiving radio or television signals; capturing, recording and reproducing sound and images. Irrespective of such additional features, the mobile telephony function is generally the principal function of mobile phones.” This means that smartphones will be able to enter the entire EU market for free.

The only concession made was that the above definition should apply only “when the telephony function takes precedence over all other functions,” reads the document. In other words, if a phone call cannot be received because the user is watching TV on his mobile phone, the handset cannot be classified as a telephone.

The industry welcomed the deal. “It is a good decision for consumers, manufacturers and employees,” DigitalEurope’s director of public affairs, Leo Baumann, told EURACTIV. Indeed, it will also prevent similar protectionist moves by other extra-EU countries, Baumann argued.

However, after the compromise, relocating the production of mobile phones increasingly appears to be the easiest solution for European manufacturers, which will now have a stronger interest in producing their handsets in Asia, even in their more sophisticated versions.

DigitalEurope, which represents mobile phone manufacturers such as Nokia, Sony Ericsson, Siemens and Motorola, dismissed this risk. “In some cases handsets are produced in Eastern European countries. Duties on the import of parts, which are assembled in the EU, would have therefore affected the European industry. That is why, this decision is good for employees, and not only for employers,” stressed Baumann.

Last year, the European Commission proposed to review the fiscal classification of mobile phones in order to take into account new functions of third-generation handsets, including GPS readers and TV receivers.

According to the EU customs duty classification, mobile phones can be imported to the EU market free of charge. On the other hand, GPS receivers are subject to a 3.7% duty rate, rising ro as much as 14% for TV reception apparatus.

The Commission reckons that the new classification affects only 1% of the products currently available on the market. Its proposals have encountered fierce opposition from manufacturers.

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