C-105/90

O P I N I O N OF MR VAN GERVEN — C A S E C-105/90

O P I N I O N OF M R ADVOCATE GENERAL VAN GERVEN delivered on 14 N o v e m b e r 1991 *

Mr President, Korea and abroad. During. the reference Members of the Court, period (1 June 1986 to 31 May 1987) Goldstar sold five models of compact disc players in Korea and in the Community, namely models GCD 603, GCD 605, GCD 606, GCD 613 and GCD 616. The first three models — which Goldstar ceased to 1. In the case now before the Court produce in 1985 — were sold in Korea and Goldstar Co. Ltd ('Goldstar'), a company in the Community exclusively under its own incorporated under Korean law, seeks the brand. The last two models were sold in the annulment of Council Regulation (EEC) Community both under its own brand and N o 112/90 of 16 January 1990 imposing a to original equipment manufacturers definitive anti-dumping duty on imports of (OEMs), 3 but were put on the market in certain compact disc players originating in Korea exclusively under its own brand. Japan and the Republic of Korea and collecting definitively the provisional duty ('the definitive regulation'), ' in so far as that regulation relates to the applicant. In support of its application Goldstar puts forward three submissions which are based primarily on the alleged infringement of Article 2(3)(b) of Council Regulation (EEC) 3. In June 1987 the Committee of Mechop- N o 2423/88 of 11 July 1988 on protection tronics Producers and Connected Techno- against dumped or subsidized imports from logies ('Compact') submitted a complaint to countries not members of the European the Commission, on behalf of manufacturers Economic Community ('the basic regu- accounting for the bulk of the production of lation'). 2 compact disc players in the Community, concerning the importation into the Community of compact disc players origi- nating in Japan and the Republic of Korea.

provisional regulation') 4 of a provisional The number of units of this model sold on anti-dumping duty on imports of certain the domestic market during the reference compact disc players originating in Japan period amounted to less than 5% of the and the Republic of Korea. The provisional volume of exports of the same model to the anti-dumping duty on imports of Goldstar's Community. For that reason the products was fixed by the Commission at Commission determined its normal value on 32.5% of the net free-at-Community- the basis of the constructed value calculated frontier price. The rate of that provisional in the manner described in paragraph 48 of duty was connected with the normal value the provisional regulation, that is to say on of the products imported by Goldstar, the basis of the weighted averages of the which was determined by the Commission costs incurred and profits realized by separately for each model. In the provisional Goldstar on the GCD 603, GCD 605, GCD regulation the Commission determined the 606 and GCD 616 models sold on the normal value, according to the quantities Korean market. sold on the domestic market and the manner of sale (under its own brand or to OEMs), by applying the following three methods : (c) As regards the GCD 613 and GCD 616 models sold only to OEMs in the Community

extent with those raised by Goldstar in the GCD 603, GCD 605, GCD 606 and GCD procedure which led to the adoption of the 616 models amounted for each model to provisional regulation. The Council, like the more than 5% of the volume of exports to Commission, rejected Goldstar's objections. the Community. Furthermore, it accepts the It determined the normal value of the practice of the Community institutions not models concerned by the same methods as to use sales on the domestic market as a those described above and fixed the basis for determining the normal value definitive anti-dumping duty on imports of where the number of sales on that market Goldstar's products at 26.1% (instead falls below the 5% threshold, and to use the of 32.5%) of the net free-at-Community- constructed value instead. Goldstar frontier price. maintains, however, that the institutions are obliged to construct the normal value even where the 5% threshold is exceeded if, as in this case, the volume of sales of the models concerned on the domestic market is minimal in absolute terms (I shall not The first submission disclose the exact figures on account of their confidential nature). Goldstar further considers that the total size and charac- teristics of the domestic market should also be taken into account. In the circumstances the total size of the Korean market is 5. Goldstar claims that the Council incor- negligible (it estimates the total volume of rectly determined the normal value of sales of compact disc players in Korea models G C D 603, GCD 605, GCD 606 and during the reference period at approxi- G C D 616, sold both in Korea and in the mately 5 000 units) which, amongst other Community under its own brand, on the things, is attributable to the fact that during basis of domestic prices. According to that period very few Korean productions Goldstar, those models were not sold on the had been recorded on compact discs. Korean market during the reference period Goldstar therefore alleges that the Council in the ordinary course of trade and did not applied the 5% threshold indiscriminately, permit a proper comparison, with the result that is to say without taking account of that the Council should, in accordance with either the overall number of units sold by Article 2(3)(b) of the basic regulation, have Goldstar on the Korean market or the total determined the normal value on the basis of size and characteristics of that market. On the constructed value. In support of that the same grounds, Goldstar maintains that contention, Goldstar puts forward a number the Council also failed to discharge its duty of arguments which may be divided into to state reasons. two groups.

Article 2(3)(a) of the basic regulation defines the normal value primarily as 7. In accordance with the latter provision, it is necessary to distinguish between two situ- ations. To begin with, there is the situation where 'there are no sales of the like product 'the comparable price actually paid or in the ordinary course of trade' on the payable in the ordinary course of trade for domestic market. As is clear from the the like product intended for consumption example set out in the fourth consideration in the exporting country or country of in the preamble to the basic regulation, this origin.' refers to cases in which sales viewed in themselves do not represent the ordinary course of trade, in particular where a product is sold at prices which are lower than the costs of production, or where Other factors, referred to in subparagraph transactions take place between parties (b)(i) and (ii), may be used as the normal which are associated or which have a value only compensatory arrangement. Goldstar has neither alleged, nor by any means demon- strated, that its sales on the Korean market are not in themselves in the ordinary course 'where there are no sales of the like product of trade. It cannot therefore deduce from in the ordinary course of trade on the that passage in Article 2(3)(b) of the basic domestic market of the exporting country or regulation any grounds for departing from country of origin, or when such sales do not the rule which takes precedence, namely permit a proper comparison'. that the normal value must be determined on the basis of domestic prices.

carried out on the domestic market must which it used to reject the allegation that reflect normal consumer behaviour and the the market of a reference country for the normal formation of prices in overall terms purposes of Article 2(5) of the basic regu- as well. Only in those circumstances do lation is unrepresentative. In its recent domestic prices permit a proper comparison judgment in Nolle11 the Court added that with export prices. the mere fact that the volume of production of the reference country amounts to less than 5% of the volume of exports to the

The Council case of the product concerned to less than and the Commission are both in agreement 5% of the volume of exports of that with that view, contrary to what Goldstar product to the Community cannot be taken seems to suggest. The need to take other into account as a basis for determining the factors into account as well is apparent from normal value. In its judgment in Canon (at the fourth recital in the preamble to the paragraphs 13 to 15), as in the judgment in basic regulation, according to which a Brother* (at paragraphs 11 to 13), the Court constructed normal value must be applied rejected the applicants' objections to the 5% where domestic prices do not 'for any threshold and acknowledged that the reason' form a proper basis for determining threshold may be applied for each model the existence of dumping. (with its own characteristics). 9 In its later judgment in Neotype Techmashexport10 (at paragraph 31), moreover, the Court deduced an argument from the 5% threshold discussed in Canon and Brother It seems to me, however, that since the Community institutions have of themselves, 7 — Commission Regulation (EEC) No 3643/84 of as a minimum guarantee that prices are 20 December 1984 (OJ 1984 L 335, p. 43), in particular the ninth recital in the preamble, and Council Regulation representative and in order to ensure legal (EEC) No 1698/85 of 19 July 1985 (OJ 1985 L 163, p. 1), in particular the fifth recital in the preamble. certainty as such, imposed a 8 — Judgment of 5 October 1988 in Case 250/85 Brother v guideline — which, however, they may not Council [1988] ECR 5683. apply indiscriminately — they can and must 9 — See the judgment in Canon, cited in footnote 5, at

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That does not mean, however, that the 12. Apart from the size of the Korean Community institutions should, in addition market as a whole, on the one hand, and its to the aforesaid relative threshold below own sales figures for each model, on the which sales should be disregarded, fixed at other, Goldstar does not rely on any other 5% and calculated for each model, still be special circumstances in challenging the required to apply an absolute threshold as view that domestic prices are representative. well. It makes little sense to establish an In particular, Goldstar does not deny that absolute minimum threshold in general since the Korean market is 'fairly competitive', a the value of an absolute figure depends too feature which the Court took into account closely on the nature of the product. in its judgments in Brother and Silver Seiko Accordingly, it is necessary to determine, in considering whether prices were for each product or model, whether there representative. More particularly, in that are sufficient sales on the market at stable connection the applicant has not alleged, prices, so that the average price calculated still less has it demonstrated, that domestic on that basis is sufficiently representative. prices would have been lower if the volume Apart from a general assertion to the effect of sales and competition on the domestic that the number of sales on the domestic market had been greater. Instead it is market is minimal, however, Goldstar has apparent from the documents before the not advanced any arguments demonstrating Court 14 that Goldstar consciously decided as that the average price applied is not part of its strategy to sell compact disc representative. 13 players in Korea as luxury goods for rela- tively high domestic prices (and, conse- quently, profit margins).

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GOLDSTAR v COUNCIL

from the principle that the normal value is 14. Finally, I consider that the argument determined primarily on the basis of the deduced by Goldstar from the fact that domestic prices actually charged. production of the GCD 603, GCD 605 and GCD 606 models was discontinued before the commencement of the reference period is also unfounded. As is clear from the wording of Article 2(3)(b) of the basic regu- lation it is necessary to take account of 13. On the basis of the foregoing 'sales' on the domestic market. That considerations, therefore, I have come to provision draws no distinction between the conclusion that the Council was right to products according to whether or not they consider that the number of units sold by are still being manufactured. The fact that Goldstar on the Korean market and the the models sold are no longer produced total size of that market do not constitute does not, therefore, in itself constitute a grounds for rejecting domestic prices as an ground for rejecting the domestic prices of unsuitable basis for comparison. those models as unsuitable. A different decision could lead to a situation in which the normal value of comparatively novel products such as compact disc players, new models of which are constantly being brought onto the market, can be determined It also follows that the Community on the basis of domestic prices only by way institutions were entitled to rely on the '5% of exception. threshold' guideline and that the argument based on Article 190 of the EEC Treaty concerning the absence of a statement of reasons must therefore be rejected. Paragraph 21 of the definitive regulation refers to paragraph 27 of the provisional 15. In the light of the foregoing considera- regulation, which states as follows: tions, therefore, I am of the opinion that Goldstar's first submission must be rejected.

Goldstar during the reference period on its The second argument, on the other hand, domestic sales of other models, namely the deserves closer attention. Since the Court's GCD 603, GCD 605, GCD 606 and GCD judgment in Nakajima16 (in particular at 616 units (for reasons of confidentiality I paragraphs 26 to 32), it has been clear that shall not disclose that average, which is producers may challenge the validity for expressed as a percentage of the cost of legal purposes of an anti-dumping regu- production). As stated earlier (paragraph 5 lation on the basis of the provisions of the above) Goldstar accepts that in the case of a Anti-dumping Code. product such as the GCD 613 model, sales of which were beneath the relative threshold below which domestic sales are to be disre- garded, fixed at 5% of the volume of exports, the Community institutions were entitled (and obliged) to take a constructed value into account. 15 According to Goldstar, however, the average profit on sales of those other models is unsuitable for two reasons. To begin with, it is calculated on the basis of sales on the domestic market which were not made in the ordinary course of trade and/or which did not permit a 18. According to Article 2(3)(b)(ii) of the proper comparison. Furthermore, Article basic regulation, the constructed value is to 2(4) of the Anti-dumping Code describes be determined by adding a reasonable the profit made by an individual exporter on amount for profit to the cost of production. the domestic market as not suitable for use To that end the provision prescribes three where, as in this case, it exceeds the profit methods which, as the Court stated in normally realized on sales of like products Nakajima (at paragraph 61), must be on the domestic market. applied in succession.17 The amount for profit must therefore be calculated primarily by reference to the profit made by the producer on profitable sales of like products on the domestic market. Only if the data concerning such profit are unavailable, unreliable or not suitable for use is the amount for profit to be calculated by reference to the profit realized by other producers in the country of origin on profitable sales of the like product. If neither of those two methods can be applied, the amount for profit is to be 17. I do not need to consider the first calculated by reference to the sales made by argument, having come to the conclusion in the producer or other producers in the same connection with my examination of the first business sector in the country of origin or submission that own-brand sales of the on any other reasonable basis. GCD 603, GCD 605, GCD 606 and GCD 616 models on the domestic market were 16 — Judgment of 7 May 1991 in Case C-69/89 Nakajima AU made in the ordinary course of trade and Prensioni Coxnci/[1991] ECR 1-2069. 17 — Since Goldstar does not contest the calculation of the permitted a proper comparison. production costs including an amount for expenses, I shall refer henceforth only to the provisions of that article which relate to the determination of the amount to be 15 — In its view this should also have been done for the other added for profit. For the sake of brevity, I shall confine models, a contention which I have rejected above. myself to producers, and not to exporters.

19. Goldstar maintains that the first method referred to therein must normally be of calculation provided for in the basic realized. That does not mean, however, that regulation is 'not suitable for use' where the it necessarily refers to the average profit profit which the producer concerned realized by all producers together on sales of realizes on domestic sales of a like product like products on the domestic market. The is greater than the profit normally realized wording also bears the interpretation that on sales of like products on the domestic the addition for profit may not be higher market. That contention is based on the last than the profit normally realized by the sentence of Article 2(4) of the Anti-dumping producer concerned on sales of like products Code, which reads as follows: on the domestic market. Such an interpre- tation is more in keeping with the aim of establishing a constructed value. As the Court has repeatedly stated, 18 the purpose of constructing the normal value is to 'As a general rule, the addition for profit determine the selling price of a product as it shall not exceed the profit normally realized would be if that product were sold in its on sales of products of the same general country of origin or in the exporting category in the domestic market of the country. The most accurate method of country of origin.' determining that price consists in ascer- taining the constructed value on the basis of sales of like products on the domestic market by the producer concerned himself. Furthermore, the Commission has rightly Goldstar apparently proceeds on the pointed out that, as is clear from Article assumption (i) that the words 'profit 8(2) of the Anti-dumping Code, preference normally realized' must be understood as is given in that code as well to an individual referring to the average profit realized rather than an overall approach. collectively by producers of the country of origin on sales of like products on the domestic market and (ii) that the first method of calculation provided for in Article 2(3)(b)(ii) of the basic regulation, which does in fact refer to the profit realized by the producer concerned, is Moreover, the Court has already stated in contrary to the last sentence of Article 2(4) general terms, in its judgment in Nakajima of the Anti-dumping Code as understood (at paragraph 37), that the methods of above. calculation 'embodied' in Article 2(3)(b)(ii) of the basic regulation are compatible with Article 2(4) of the Anti-dumping Code:

the Anti-dumping Code in so far as, without separate normal value for sales to OEMs. 2 0 disregarding the rationale behind the latter As stated in paragraph 22 of the definitive provision, the first provision merely regulation, the Council accepted embodies, as regards the different situations which may arise in practice, the reasonable methods of calculating the constructed normal value.' 19 'that these customers had functions which were clearly distinct from those of other categories of unrelated purchasers and that these different functions were clearly reflected, for the markets concerned, in the quantities sold and in the pattern of prices Finally, I would remind the Court that charged.' Goldstar fixed its domestic prices as part of a conscious strategy to sell compact disc players in Korea as luxury goods. Goldstar can no more rely on its deliberate policy of fixing prices as a special circumstance which has the effect of making its domestic prices Goldstar alleges that the Council infringed unrepresentative (see paragraph 12 above), Article 2(3)(b)(ii) of the basic regulation in than on the fact that the high profit margins so far as it determined the constructed value resulting from the fixing of prices may not of the GCD 613 and GCD 616 models sold be taken into account in determining the to OEMs for export to the Community by constructed value of the GCD 613 model. reference to a profit margin amounting to 30% of the profit which the applicant realized on sales of those models under its own brand on the domestic market. In support of that submission Goldstar relies on the following four grounds:

(d) the Council has contravened the in Nakajima), Article 2(3)(b)(ii) of the basic principle of equality. regulation confers on the Community institutions a broad discretion in deter- mining the 'reasonable amount' for costs and profits which must be included in the constructed normal value.

22. Before Goldstar's arguments are considered, it must be borne in mind that, as stated earlier, the purpose of constructing the normal value is to determine the selling price of a product as it would be if that product were sold in its country of origin or in the exporting country. In a case such as this, in which a separate normal value was established for sales to OEMs, this means (a) The connection between O E M sales and that the selling price for the product must own-brand sales be determined as if that product were sold to OEMs operating on the domestic market.

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charge an O E M customer operating on the It seems to me that, in so doing, the same market as himself a price which, taken Community institutions did not overstep the as a whole, will enable him to realize a limits of their discretion, all the more so as higher profit than if he were to sell on that that modus operandi is in keeping with an market exclusively under his own brand. established practice, as is apparent from Hence there is undoubtedly a connection three other anti-dumping procedures relied between the determination of prices and upon by Goldstar (plain paper photo- profits for sales to OEMs operating on the copiers, 21 video cassette recorders 22 and domestic market and the determination of small screen colour television receivers 23 ). prices and profits for own-brand sales on In those procedures the institutions also that market. However, it is difficult to determined the constructed value of express that connection in figures on an (similarly non-existent) O E M sales on the abstract plane where there have been no domestic market on the basis of the data O E M sales on the domestic market, and the concerning (actual) own-brand sales on that Community institutions must therefore be market, although the amount for profit was allowed to exercise a certain discretion in established on the basis of a uniform rate of that respect. 5% for all producers. Apart from the differences discussed below concerning the method of calculation of the amount for profit in this case (paragraph 25 below), it is clear that in all those procedures the premise was the same, namely that by taking into consideration a smaller profit margin for O E M sales than that for domestic sales all possible differences in costs and profits between OEM sales and other sales had been taken into account.

connection in this case between OEM sales I am not swayed by Goldstar's argument and own-brand sales. Moreover, in its that here too the Council should, in keeping judgment in Nashua (at paragraph 33; see with its previous practice, have taken into paragraph 28 below) the Court implicitly consideration a uniform profit rate for all recognized the establishment of such a producers of compact disc players operating connection as valid. on the Korean market rather than an indi- vidual rate for each producer, in this case Goldstar. I have already pointed out (paragraph 20, above) that the most accurate method of establishing a constructed value is to do so with the aid of the sales made by the producer concerned on the domestic market. Since in the circumstances there were no O E M sales on the domestic market, it was for the Community institutions to establish the constructed value of (non-existent) O E M (b) Was the Council's approach contrary to sales by reference to (actual) own-brand previous practice? sales, and in so doing they were entitled to give preference to individual data relating to (actual) own-brand sales made by each of the producers concerned. The institutions were thus under no obligation to use a uniform profit rate.

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profit on own-brand sales on the Korean operating on the Japanese market as well. It market. By fixing that ratio at 30% the is apparent from that data that the profit on Community institutions did not, in my view, the O E M sales in question amounts to exceed the limits of their discretion. It is approximately one-third of the profit on clear from the following three factors that own-brand sales. 30% is not an arbitrary estimate.

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(d) Has the Council contravened the amount for profit into consideration for principle of equality? each Korean producer.

This argument must also be rejected. As stated earlier, Goldstar's profit on its domestic sales was greater than that of the other Korean producers. The method 29. Finally, Goldstar claims that all Korean adhered to by the Community institutions of producers are in a similar situation since calculating the constructed value of the none of them has sold its products to OEM products sold to OEMs takes account of purchasers on the domestic market. In the those differences in profits, with the result light of the principle of equality, therefore, that no breach of the principle of equality the Council should have taken the same can be alleged.

30. In the light of the foregoing considerations I propose that the Court dismiss the action and order the applicant to pay the costs, including those of Compact's intervention. Under the first paragraph of Article 69(4) of the Rules of Procedure, as amended on 15 May 1991, the Commission, must bear the costs of its inter- vention.

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