C-26/88

OPINION OF MR VAN GERVEN —CASE C-26/88

OPINION OF MR ADVOCATE GENERAL VAN GERVEN delivered on 16 March 1989 *

Mr President, presumption that the object of the Members of the Court, diversion is to circumvent the applicable provisions on anti-dumping duty?'

1. The Hessisches Finanzgericht (Finance Court, Hessen) has referred the following questions to the Court for a preliminary Reference is made to the Report for the ruling under Article 177 of the EEC Treaty: Hearing for the facts of the case and the proceedings before the national court.

* Original language: Dutch. 1 — OJ L 163, 22.6.1985, p. 1.

BROTHER INTERNATIONAL v HAUTTZOLLAMT GIESSEN

relation to the importation of electronic 2. The Community rules on origin are typewriters originating in Taiwan. Those contained in Regulation No 802/68. Article anti-dumping proceedings were terminated 1 of Regulation No 802/68 provides: by the Commission Decision of 23 May 3 1986 on the ground that the goods did not originate in Taiwan. In the Commission's view the cost of the operations carried out in Taiwan was insufficient for those oper­ 'This regulation defines the concept of the ations to be regarded as the last substantial origin of goods for purposes of: process as required by Regulation (EEC) 4 No 802/68 of the Council to confer Taiwanese origin on the products. An application by Brother Industries Ltd, Taiwan Brother Ltd and Brother Interna­ tional Europe Ltd for annulment of that (a) the uniform application of the Common decision of 23 May 1986 and a memo­ Customs Tariff, of quantitative randum dated 5 June 1986 from the Direc­ restrictions, and of all other measures torate-General for External Relations adopted, in relation to the importation concerning imports of electronic typewriters of goods, by the Community or by originating in Taiwan was rejected as inad­ Member States; missible by Order of the Court of 30 September 1987 in Case 229/86 [1987] ECR 3757.

(b) the uniform application of all measures adopted, in relation to the exportation of goods, by the Community or by Member States;

It is also necessary to consider the territorial field of application of Regulation No 'A product in the production of which two 802/68. Under Article 2 there may be dero­ or more countries were concerned shall be gation from the regulation regarded as originating in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and 'by agreements which derogate from the resulting in the manufacture of a new most-favoured-nation clause . . . and in product or representing an important stage particular those establishing a customs union of manufacture.' or free-trade area'.

stage of manufacture') is not in issue. Thus the subject occupy an important place in the first question in fact relates solely to the those observations but they are interpreted first part of the sentence in Article 5 and in differently. Different theories are put particular to the interpretation of the words forward. Without wishing to overestimate 'last substantial process or operation that is the significance of those theories, I should economically justified ... in an undertaking like nevertheless to describe them briefly as equipped for that purpose'. follows: (1) the theory that there should be a technical or technological test based on the characteristics of the product (see point 5 et seq. below), (2) the theory that there should be an added value test, or, in broader terms an economic test (see point 6 below); and (3) some other theories of lesser importance including one referring to the criterion of classification in another subheading of the customs tariff (see point 5 below). In this The first question submitted to the Court is opinion I shall first of all cite the case-law in fact even more specific: the parties to the of the Court, then I shall briefly mention main proceedings hardly touched on the the different conclusions which the parties question whether the assembly was draw from it and finally I shall give my own 'economically justified' and whether view. Brother's factory in Taiwan was 'an under­ taking equipped for the purpose'. The second part of the sentence is mentioned in connection with the second question submitted to the Court (see point 16 below). The specific question submitted to The case-law of the Court the Court is thus whether and, if so, subject to what conditions, an assembly may be a substantial process or operation such that it may determine the origin of the product.

Customs Tariff has been conceived to fulfil furthermore, the quality control by grading special purposes and not in relation to the to which the ground product is subjected determination of the origin of products; and the manner in which it is packaged relate only to the requirements for marketing the product and do not affect its substantial properties'. on the contrary, in order to meet the purposes and requirements of Regulation (EEC) No 802/68, the determination of the origin of goods must be based on a real and objective distinction between raw material and processed product, depending funda­ In that judgment the Court clearly rejected mentally on the specific material qualities of the point of view, which had sometimes each of those products; been put forward hitherto, that classification under a different heading of the Common Customs Tariff might be used as a criterion for the purposes of Article 5. On the (point 6) therefore, the last process or contrary, that judgment adopted a technical operation referred to in Article 5 of the criterion relating to the specific charac­ regulation is only 'substantial' for the teristics of the product: to be substantial, purposes of that provision if the product the process or operation must result in a resulting therefrom has its own properties product which has its own specific prop­ and a composition of its own, which it did erties and composition which it did not have not possess before that process or operation; before; the modification must affect more than just the 'presentation'.

substantial process or operation must be which are of no use in themselves unless interpreted as being constituted by the they are incorporated into a whole, would combination of operations (c), (d), (e) and amount to a repudiation of the very 7 (f) resulting in the manufacture of a new objective of the rules on the determination and original product which, in contrast to of origin; each of the basic products, is a linking element which can be separated over and over again and is used to join objects, in particular pieces of fabric; the Commission has therefore by that very fact exceeded its power under Article 14(3) of Regulation No 802/68'.

OPINION OF MR VAN GERVEN — CASE C-26/88

in paragraph 11(2) and in the part of the 8. In its judgment of 23 February 1984 in sentence beginning with the word 'even' in Case 93/83 Zentrag v Hauptzollamt Bochum paragraph 12(2) of the decision: the low [1984] ECR 1095, which concerns an cost of the slider and its little value to the implementing regulation in relation to meat, consumer, compared with the cost and value the Court held: of the slide fastener, are such as to show that the slider does not determine the origin.

'Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 must be 7. In the judgment of 23 March 1983 in interpreted as meaning that the processing Case 162/82 Cousin [1983] ECR 1101, of the meat derived from beef quarters by concerning the validity of another boning, trimming, drawing the sinews, Commission implementing regulation and a cutting into pieces and vacuum-packing question regarding Article 30 of the EEC does not confer upon it the origin of the Treaty, the Court stated: country where those operations are carried out'.

BROTHER INTERNATIONAL v HAUPTZOLLAMT GIESSEN

in the time for which the meat will keep and a slowing down in the maturing process do not constitute a sufficiently pronounced qualitative change in substance to satisfy the requirements mentioned above. Finally, Interpretation given by the parties while the market value of a whole beef quarter which undergoes the operations at issue is increased, according to the calcu lations supplied by Zentrag at the hearing, by 22 %, that fact is not in itself of such a nature as to enable those operations to be

law. From that judgment it should be noted that operations which do not bring about a significant qualitative change in the prop erties and composition of the meat, since they involve only a division according to quality and an alteration in the presentation, do not constitute the manufacture of a new In Brother's view it is clear from the product or an important stage of manu case-law of the Court that it is necessary to facture (once again there is application of a make an objective technical comparison technical criterion). 8A significant increase between the product (or products) before in the commercial value of the goods, that is and after processing. By way of illustration: to say significant added value (namely 22%) in Case 49/76, the product casein was was not sufficient 'in itself', as the Court ground to various degrees of fineness, but it was already casein before being so ground. 8 — In this case the criterion is used to determine whether the Case 93/83, the other case in which the operations under consideration ted to the manufacture of a operations in question did not alter the new product or constituted an important stage of manu- facture and thus amounted to a substantial operation Tfiat origin, was concerned with quarters of beef shows that the interpretation of the different parts of the which were processed into pieces of beef sentence in Article !> overlaps and is determined to a large extent aicording to the same criteria It is, however, individually packaged and ready for different in the present case (see point 3 above), because the national court has rightly assumed that in this case the

OPINION OF MR VAN GERVEN — CASE C-26/88

Does that mean that criteria of a more economic nature, such as the input of capital, provide no indications? Brother would not go as far as that, as became clear at the hearing. 10. Before coming to my own assessment I should like to point out that both Brother and the Commission rightly reject the condition of an independent intellectual element in the assembly operation. Great importance had been attached to that condition by the national court, which, according to Brother's uncontradicted statement, relied on the German rules prior

In parts of which it is composed? Such a addition, it would be a very difficult contention would be hard to make out in the light of the judgment of the Court of 31 9 — The criterion of 'work done and material expenditure' is an accountancy approach in terms of cost. The 'added value', January 1979 (see point 6 above). Another that is to say the value added by the processor, refers to the possibility, ruled out by the same judgment, difference herween the sale price of the finished product and the purchase price of the raw material, energy and, if is the contention that the most characteristic necessary, rent and so forth. Theoretically the latter part determines the origin of a product. criterion differs from the first in two respects: apart from payment for labour, it also includes capital and real That point of view, which was rejected in property costs, two production factors which are missing in relation to the slider of the slide fastener, is the calculation of the 'work done and material expenditure' and it is based on the market prices arising from the contrary to the terms of Article 5 under interplay of supply and demand. In practice those differences are of little importance: the first difference is which origin is determined not by the most slight and foreseeable (and may be replaced by a flat rate), substantial process or operation but by 'the no doubt in view of the relative importance of the production factors as part of the total cost or the added last substantial process or operation'. The value of the final product; the second difference is purely Commission sees the following general theoretical in many cases and certainly in the present case, for there is no sufficiently wide and transparent market for thread as running through the case-law the various separate (Brother) components for electronic of the Court: for an assembly to be typewriters. In the absence of such a market it is necessary to have recourse to the approach based on cost. 'substantial', regard must be had to two 10 — See, for example, Bail/Schädel/Hutter:

BROTHER INTERNATIONAL v HAUPTZOLLAMT GIESSEN

criterion to apply since it is not easy to countries have taken part in the production assess whether or not any intellectual of the goods, the origin of the goods shall content or creativity is involved. be determined according to the 'substantial transformation' criterion (Rule 3). In that respect, Rule 6 which was accepted by the European Economic Community, provides:

Simple or substantial assemblies Operations which do not contribute or which contribute to only a small extent to the essential characteristics or properties of the goods, and in particular operations confined to one or more of those listed below, shall not be regarded as constituting substantial manufacturing or processing:

11. As I have said (see point 3 above) the question put by the national court is essen­ tially whether and in what circumstances is (a) operations necessary for the preser­ an assembly a substantial operation or vation of goods during transportation or process such that (if it is also the last econ­ storage; omically justified operation or process) it may determine the origin for the purposes of Article 5 of Regulation No 802/68.

(b) operations to improve the packaging or the marketable quality of the goods or to prepare them for shipment, such as breaking bulk, grouping of packages, sorting and grading, repacking;

a narrow field of application it does In the first place 'substantial' has a technical nevertheless serve, in my opinion, to support meaning which the Court has hitherto the answer which is called for. generally applied. Understood in that sense, an operation or process is substantial when it involves an alteration of substance, that is to say of the specific characteristics or composition of the product which is the subject of the operation or process. A product which in its finished state after a It is clear from that international convention final operation or process is ready for use is that under Regulation No 802/68 simple fundamentally different from the product or assembly operations cannot be regarded as its components which were not ready for substantial and accordingly as determining use before such operation or process. In this origin, for they 'do not contribute case the last operation was a substantial one or ... contribute to only a small extent to in view of the present finished and ready- the essential characteristics or properties of for-use state of the product: it funda­ the goods'. It seems to me that the reference mentally altered the product. In the case of to the essential characteristics of the goods the consumer goods in question, 'ready for is to a technical criterion whereas the use' means ready for use without any smallness of the contribution is reference to 'professional' intervention, that is to say an economic criterion (see below). without any intervention other than what the normal consumer can carry out with simple tools. In the present case the national court could, in my opinion, easily conclude that the assembly in question created the essential functional qualities of the typewriter and for that reason was 12. It remains necessary to define what substantial according to the technical assemblies are not simple assemblies but criterion. substantial operations. To answer that question it is necessary to take as a basis the terms of Article 5 of Regulation No 802/68 in its various versions. The process or operation is described as 'ingrijpende' in Dutch, 'substantielle' in French, 'wesent­ liche' in German, 'sostanziale' in Italian and 'substantial' in English.

present in the unprocessed product or in its refer to the significance of 'the means of components or at least could not easily have production applied'. been obtained from them. Thus, for example, it is not possible to classify as substantial from the technical point of view the assembly of an easily put-together bookcase (of the kind which is often also sold in knock-down form to consumers who have the few tools needed) for in the eyes of the consumer the functional characteristics of the final product are already present in 13. In concrete terms, the combined the 'do-it-yourself' kit in an easily accessible application of a main technical criterion and form. an ancillary economic criterion leads to the following approach: a technically substantial operation or process, as defined above, which involves only a small increase in value and / or only relatively small costs is not a substantial operation or process within the meaning of Article 5. If the national court is convinced by the Commission's contentions in the present case that the assembly operations in Taiwan increase the value of the product by much less than 15 10%, it must in my opinion necessarily Does that technical criterion suffice? I do conclude that such assembly operations are not think so. In addition to the technical not 'substantial' even if, from the technical criterion, the Court has always applied, point of view, a new product results from when necessary, an economic test as a the assembly which is ready for use. 1 subsidiary criterion. 4The Dutch words for 'substantial', 'ingrijpend' and above all 'substantieel', also have the non-technical and more general economic meaning of 'considerable' or 'financially significant'. In my opinion the economic criterion must therefore be taken into account, not as the main criterion, the sole criterion or even just the first criterion, but as a complement and, In that respect I would emphasize that in if necessary, a qualification to the my opinion the national court should not aforementioned technical criterion. As I reach such a conclusion in reliance on the have already pointed out (see point 9 above allegedly low intellectual content of the and the footnote thereto) the economic tasks carried out in Taiwan, for the question criterion must be understood both in terms whether the production in Japan of the of cost and from the market aspect of printed circuits exported to Taiwan is not 'added value'. Considered together they also mechanical mass-production with little intellectual content has not in fact been 14 — Sec Mr Advocate General Warner's Opinion in the considered. On the other hand, the fact that judgmeni of 26 January 1977 Gesellschaft fürÜberseehandel case, [1977] ECR 61; paragraphs II and 12 of the the production process in Taiwan as pan of judgment of 31 January 1979 cited above in point 6 and (for a rebuttal of the view that the economic criterion should be the main criterion) the last sentence of paragraph 15 — Thus it is substantially less than the 22% referred to by the 14 of the judgment of 23 February 1984, cited above in Court in paragraph 14 of the judgment of 23 February point 8. 1984, cited above in point 8.

'The mere assembly of imported, previously manufactured parts into a new article cannot constitute a substantial process or operation which determines origin within the meaning of Article 5 of Regulation That criterion is also consistent with the (EEC) No 802/68 of the Council of 27 wording of Article 5 in so far as it mentions June 1968 on the common definition of the the 'last' substantial process or operation concept of the origin of goods (Official and not 'the most' substantial process or Journal, English Special Edition 1968 (I), operation; in many circumstances differing p. 165) if the assembly represents only a from those in the present case it is possible relatively insignificant proportion of the that three or four successive operations production cost or the added value of the carried out in three or four different new product.' countries each make a not inconsiderable economic contribution. However it is only 16 — See the last two sentences of paragraph 12 of the judgment the last, which from an economic point of of 31 January 1979 cited above in point 6 and the Opinion of Advocate General Sir Gordon Slynn, [1983] ECR 1128 view need not necessarily be the most and 1129 in the Cousin case, cited above in point 7.

BROTHER INTERNATIONAL v HAUPTZOLLAMT GIESSEN

17. I therefore propose that the following reply be given to the national court :

'If the mere assembly of previously manufactured parts determines the origin for the purposes of Article 5 of Regulation ( EEC ) No 802 / 68 , Article 6 thereof cannot be interpreted as meaning that the mere fact that exports are diverted using existing manufacturing premises justifies the presumption that the object of the diversion is to circumvent the applicable provisions (on anti-dumping duty ) ' .