C-175/87

MATSUSHITA v COUNCIL

OPINION OF MR ADVOCATE GENERAL MISCHO delivered on 13 December 1990 *

Mr President, and (10)(c) of the basic regulation Members of the Court, (concerning comparison of the normal value with the export price). In the present Opinion I therefore refer, in part, to my Opinions in those two other cases and, for the rest, confine myself to expressing my views on Matsushita's specific arguments in which it draws attention to the particular 1. Apart from the submission alleging the features which distinguish it from other incompatibility of Article 2(10)(c) of Japanese exporters concerned either by the Council Regulation (EEC) No 2176/84 contested regulation or by the regulation (hereinafter referred to as 'the basic regu­ concerning electronic typewriters (here­ lation') 1 with the 1979 GATT Anti- inafter referred to as 'ETW'), the 2 Dumping Code, none of the submissions application for the annulment of which was made by Matsushita Electric Industrial Co. dismissed by the judgments of the Court of 4 Ltd (hereinafter referred to as 'MEI') and 5 October 1988. Moreover, the submission Matsushita Electric Trading Co. Ltd alleging infringement of Article 190 of the (hereinafter referred to as 'MET') in EEC Treaty (lack of an adequate statement support of their application for the of reasons) is closely linked with the annulment of Council Regulation (EEC) submission as to miscalculation of the 3 No 535/87 (hereinafter referred to as 'the normal value, in so far as the Council is definitive regulation' or 'the contested regu­ accused of not having sufficiently explained lation') is really new. the manner in which it applied Article 2(3) and (7) of the basic regulation in the present case.

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A — Determination of the normal value from the judgments in the ETW cases cited earlier that:

4. Matsushita makes three criticisms the manner in which the Council determined (i) in order to establish the normal value, the normal value. For a details of the Article 2(3)(a) must be used primarily, arguments submitted I refer you to the Article 2(3)(b) being merely 5 Report for the Hearing. subsidiary;

(ii) where the prices paid by the first inde­ 1. Infringement of Article 2(3) and (7) of the pendent purchaser of the product may basic regulation, in so far as the prices charged be regarded as the prices actually paid to the first independent purchasers were used for the product in the exporting in order to determine the normal value country or country of origin in the ordinary course of trade, they must be used pursuant to Article 2(3)(a) in pref­ 6 erence to any other factor;

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entit / necessarily to extend to a case where the selling price of a product where the sale the manufacturer itself sells some of its is made by an internal sales department of products directly to independent customers, the manufacturing organization are not left through an internal sales department, and out of account where the same selling others through one or more distribution activity is carried out by a company which, companies. On the other hand, however, it despite being financially controlled by the 11 cannot be deduced from that wording that manufacturer, is a legally distinct entity". the Court wished to limit application of the For that purpose, it must be applied not 'single economic entity" theory to those only where all the sales functions are cases where the manufacturer itself carries discharged by a company which, although out no sales functions and where all the legally distinct, is financially controlled by functions relating to sales, which are the manufacturer, but also where the manu­ normally the responsibility of an internal facturer has entrusted only some of those sales department, are carried out exclusively functions to such a company and carries out through one or more related sales the remainder through an internal companies. The theory of the 'single department. economic entity" is thus applicable where there is a

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MATSUSHITA V COUNCIL

intended to promote sales of Matsushita department, it claims that the normal value products — sales not to the related sales should include only MEI's costs, and not, companies but to the customers of the therefore, those incurred by the related sales related sales companies. companies.

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view, since those costs relate to distinct Industrial Sales Division is responsible for tasks, which all relate to sales on the marketing policy for industrial products and domestic market, the inclusion of only one accordingly determines, in particular, in set of costs would not have been sufficient cooperation with the OED, PPC pricing to ensure the incorporation in the normal policy, including the principles governing value of all the costs which manifestly form the grant of discounts (see paragraph 19 of part of the selling price where the selling the application). It also seems to me to be activities are carried out exclusively either significant that Matsushita has not based by an internal sales department of the any argument on the fact that it held less manufacturer or by a company which, than half the capital in some of its sales although legally distinct from the manu­ companies. Indeed, it refers to that fact only facturer, is financially controlled by it. incidentally in a footnote in its reply, where it claims that the internal transfers within the group are in fact real sales, even though they are between related parties (see paragraph 8 of the reply).

19. I conclude from the foregoing that, since all the sales to independent purchasers on the domestic market are made by MEI's related sales companies, the fact that MEI 2. Infringement of Article 2(3)(a) of the basic has not entrusted all the sales functions regulation on the ground that the main-unit relating thereto to those sales companies but trade-in discount was included in 'the ... price carries out some of them itself (in particular actually paid or payable' used for the normal support activities) does not mean that MEI value and its sales companies cannot be regarded as constituting a 'single economic entity'for the purposes of determining the normal value.

does not seem to me to be relevant in this 24. Furthermore, none of the facts which, context since the institutions did not have to according to Matsushita, show that the make an evaluation of the specific profit trade-in discount does not correspond to a which each of the various manufacturers value transferred by dealers to the related obtains from the withdrawal of its used sales companies is relevant in that regard. PPCs from the market but simply added to The fact that independent dealers did not the net prices paid or payable by their (always) return to the related sales customers the real amount of the reduction companies the second-hand traded-in PPCs granted by way of trade-in discount. and did not forward to them (any) income arising from their being scrapped or re-sold is no basis for saying that Matsushita did not obtain any advantages of the kind indicated by the Council from their removal from the market. On the contrary, the fact that Matsushita only rarely recovered the 22. The specific arguments which traded-in machines or did not itself benefit Matsushita has put forward in support of its from (any) income deriving from their being claim that the trade-in discounts granted by scrapped or re-sold gives the impression the sales companies to their independent that, by granting the trade-in discount, it customers are ordinary discounts in all cases sought specifically to benefit from those and should not have been included in the advantages which are not linked with the normal value likewise cannot be upheld. recovery or re-sale value of the traded-in machines. Moreover, in Matsushita's case in particular, the Council has certainly not overlooked the fact that in certain cases the grant of the discount was not legally (by virtue of an agreement or arrangement) 23. In the first place, the purpose of conditional upon withdrawal of the old granting the discount without proof of any PPCs from the market. It is in fact trade-in having to be produced and without Matsushita which is referred to in the Matsushita's checking whether a trade-in penultimate paragraph of recital 13 of the has taken place is precisely to enable dealers contested regulation where it is stated that selling Matsushita PPCs to effect trade-ins one exporter and to withdraw the traded-in PPCs from the market. Having regard to the other discounts granted by Matsushita, namely the main-unit discount, the cash discount and the discount to meet competition (see chapter I. B of the Report for the Hearing) and to the sometimes hesitant or indeed 'argued that, in its case, dealers were not contradictory statements made by required to prove that the machines were Matsushita at the various stages of the removed from the market before qualifying proceedings (see paragraphs 55 to 77 of the for the trade-in payment'. Council's defence), it is also difficult to understand why Matsushita grants discounts which it calls 'main-unit trade-in discounts' if they are not intended — besides promoting the sale of new PPCs — to encourage the trading in of used PPCs. Finally, according to Matsushita itself, there The Council's reply, in the last paragraph of are trade-ins in 90% of cases. the same recital, was that

'the fact that there is virtually no 25. As regards, finally, the Council's deter­ second-hand market for PPCs in Japan mination of the value of the main-unit shows that almost without exception the trade-in discount, I am of the opinion that dealers remove the machines from the the Council cannot be accused of market and that consequently this exporter committing a manifest error of appraisal by obtained intentionally or otherwise the same including in its calculation of the value of benefit as all other PPC producers in Japan' the trade-in discount the 'main-unit discount' granted by all Matsushita's sales companies other than its subsidiary Osaka N. O. A. In fact, it was only in respect of the latter company that the applicant and that provided any evidence to distinguish that discount from the 'trade-in discount'. Since the sales of Osaka N. O. A. represented only about 22.5% of the total sales made 'no convincing evidence was supplied by the during the period of the investigation, the exporter concerned to suggest the contrar/. Council cannot be criticized for applying the figures for Osaka to the 58 other related sales companies, for which Matsushita had provided only a single figure covering both discounts. Thus, in the almost total absence of a second-hand PPC market in Japan, Matsushita enjoyed the same advantages as the other manufacturers which did not lodge objections (see the second paragraph of recital 13) or whose trade-in 3. Infringement of Article 2(3)(b)(ii) of the basic regulation, in that a manifestly excessive n amount of SGA expenses was included in the constructed normal value for sales to 'payments were described in every case as 14 OEMs being for traded-in machines and were conditional almost without exception on the machines being removed from the market' (see the fourth paragraph of the same recital). 26. It will be remembered that the Council took account of the differences of costs and profits between manufacturers' own-brand Since Matsushita itself acknowledges that in sales and sales to OEMs by adopting for the Japan 'the second-hand PPC market has latter a flat-rate profit of 5% instead of now practically disappeared' (see paragraph the — higher — profit margin achieved by 31 of the application), I consider that the manufacturers on sales under their own Council was entitled to take the view that brand-name. the withdrawal of used PPCs from the market was the usual practice and that in 13 — An abbreviation for the selling, administrative and other general expenses referred to in Article 2(3)(b)(ii) of the those circumstances it was of no importance basic regulation. that the trade-in discount was not formally 14 — This abbreviation stands for Original Equipment Manu­ made conditional upon withdrawal or proof facturers. It is used, paradoxically, for suppliers of PPCs which sell under their own brand-name products manu­ of withdrawal from the market. factured by others.

30. In the second place, I believe that the 28. Matsushita claims in particular that the institutions were fully entitled not to take following items were wrongly included in into consideration the two agreements the constructed normal value: which Matsushita produced in order to prove that although, in its case, there had been OEM sales in Japan, they were made directly by MEL Matsushita did not in fact reveal either the identity of the OEM (1) the SGA expenses of the related sales purchasers concerned or the nature of the companies, since if sales to OEMs had products in question, so that the institutions taken place on the Japanese market they were unable to verify whether the would have been made directly by the agreements were representative. Moreover, manufacturer, MEI; even if the sales had been made directly by MEI and not, as in the case of the sales under Matsushita's brand-name, by its related sales companies, they would have (2) the expenses of, inter alia, advertising required sales efforts additional to those and promotion which it incurred for normally allowed by MEI and would sales under its own brand-name and therefore have involved SGA expenses which, in the case of OEMs, would be additional to and higher than those already borne by the OEMs themselves; incurred by MEI for its sales under the Matsushita brand-name: those expenses would also have to have been included in the normal value. (3) the main-unit trade-in discounts, even though it is obvious that a manufacturer would never grant a discount to an OEM purchaser with a view to enabling 31. As regards the evidence concerning the him to undertake trade-ins. costs of, inter alia, advertising and promotion, to which Matsushita referred, it all relates to sales to OEMs in the Community. And as I have already stated in 29. In that context, however, it is necessary my Opinion in Case C-172/87, Mita, in to take account in general terms of the fact constructing the normal value the that, in the absence of any OEM sales on institutions are not obliged to adopt data the Japanese market, the institutions made relating to any market other than the

36. I can dispose of that argument very briefly. As Matsushita itself began to apprehend in its reply, which was lodged B — The comparison some three months after judgment was delivered in the ETW cases,

35. In the alternative, in case it should be 'if the Council was right to treat the related found that the Council was entitled to treat sales companies as performing the functions MEI and its related sales companies as of a mere internal sales department, then no constituting a 'single economic emit / for difference in level of trade arises between the purpose of determining the normal the ex-factory export price and the value, Matsushita claims that it did not, on ex-related-sale-company normal value'.

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'if Article 2(10)(c) of the Anti-Dumping 39. That being so, it is unnecessary to Regulation entitles the Council to refuse to express any view concerning Matsushita's make allowances even though normal value interpretation of Article 2(9) and (10)(c) of and export price are not on a comparable the basic regulation or of the relationship basis as regards level of trade, then Article between those two paragraphs. The 2(10)(c) is illegal as being contrary to the argument that Article 2(9) required the Community's obligations under the 1979 Council to make allowances to take account Anti-Dumping Code, and cannot be applied to the applicant' (see the title of the 15 — See in particular the judgment in Canon v Council, above, paragraph 41 at [1988] ECR 5805. applicant's fifth submission).

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Consequently, the definitive regulation, in D — The injury so far as it is based on that provision, should be declared void.

E — The Community interest 41. However, in the first place, that objection of illegality can be of no help to Matsushita in the present case since, as we have just seen, the Council compared the normal value and the export price at the same level of trade. Secondly, it is based on a false assumption, namely that the basic F—Calculation of the anti-dumping duty regulation authorizes the Council to make the comparison between those two items at different levels of trade. But Article 2(9) expressly provides that

43. For the reasons given in my Opinion in Case C-174/87 Ricoh, the submissions concerning errors in the determination of 'they shall normally be compared at the the injury, in the evaluation of the same level of trade, preferably at the Community interest and in the calculation ex-factory level... ' of the anti-dumping duty, which Matsushita made in common with the applicants in Case C-174/87 {Ricoh), Case C-176/87 (Konishiroku), Case C-177/87 (Sanyo) and Case C-179/87 (Sharp), must also be dismissed. and Article 2(10)(c) provides that allowances are to be made to take account of differences of level of trade

45. Matsushita claims in the first place that second-hand market proved that withdrawal the contested regulation does not give a was the rule and brought Matsushita the sufficiently clear or precise indication of the same advantages as those which accrued to reasons which prompted the Council to the other manufacturers. That expressly depart from the mandatory scheme laid follows from the last part of recital 13 of down by Article 2(3) and (7) of the basic the contested regulation. regulation for determination of the normal value in the case of an association between a manufacturer and its related sales companies. That argument is based on the premise that the Council erroneously applied to Matsushita the 'single economic 5 47. As regards Matsushita's third entity theory and that it should, in view of submission, that the contested regulation the fact that the sales by MEI to its related does not indicate the reasons of law or of sales companies do not constitute trans­ fact for the inclusion of certain costs actions in the ordinary course of trade, have incurred by it for sales under its own constructed the normal value in accordance brand-name and the trade-in discount in the with Anicie 2(3)(b)(ii) of the basic regu­ constructed normal value for sales to OEMs lation. Since that premise has proved or the reasons for which the Council unfounded, that first submission must be considered that sufficient account would be dismissed. Moreover, recital 7 of the taken of the cost and profit differences provisional regulation, expressly confirmed between sales to OEMs and sales under its in recital 6 of the definitive regulation, own brand-name by applying to the former clearly indicates the reasons for which the a profit margin of only 5%, it must be institutions used the prices charged to inde­ pointed out in the first place that the pendent purchasers in order to determine adjustment thus made to the profit margin the normal value and refused to apply takes account of the cost and profit Article 2(7) of the basic regulation. differences without distinction, and thus also of (possible) differences in advertising or promotion costs, to which Matsushita makes special reference. Secondly, it is clear from recital 11 of the contested regulation that because of the absence of any OEM sales on the Japanese market during the reference period,

49. Since, therefore, none of Matsushita's submissions can be upheld, its application must be dismissed and it must be ordered to pay the costs, including those of the interveners.

16 — The question whether those costs might possibly have been included and whether the adjustments could properly be flat-rate and uniform are matters of substance. The first was examined in Chapter A.3 of the present Opinion and the second in paragraph 12 of my Opinion in Case C-172/87 Mita.

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