Repon for the Hearing delivered in Case 250/85

I — Facts and procedure

The age of electronic typewriters began in 1978 when the first model of an electronic typewriter manufactured by Olivetti was launched on the market. Until then, the market had been dominated by typewriters of the traditional variety, that is to say mechanical and later electromechanical typewriters.

The spectacular breakthrough achieved by the new product completely overturned the structure of the market in typewriters. Within a very short time sales of mechanical and electromechanical typewriters plunged to the lowest level ever recorded, whilst sales of electronic typewriters soared.

In 1982 European manufacturers of electronic typewriters (Olivetti, Olympia and Triumph-Adler) began to feel the evergrowing pressure exerted by Japanese competition which, in their view, was undercutting prices. According to the European manufacturers, Japanese companies were exporting ever-increasing quantities of electronic typewriters at dumping prices in order to take over the European market in that product and to drive out European undertakings.

In order to contend with what they call the Japanese dumping conspiracy, European manufacturers formed an association known as the Committee of European Typewriter Manufacturers (hereinafter referred to as Cetma) which, on 15 February 1984, submitted a complaint to the Commission requesting the latter to initiate an antidumping proceeding against Japanese exporters.

The proceeding initiated by the Commission on the basis of Council Regulation (EEC) No 2176/84 of 23 July 1984 on protection against dumped or subsidized imports from countries not members of the European Economic Community (Official Journal 1984, L 201, p. 1) culminated in the adoption by the Commission of Regulation (EEC) No 3643/84 of 20 December 1984 (Official Journal 1984, L 335, p. 43). That regulation imposed a provisional antidumping duty on imports of electronic typewriters manufactured by a number of companies including Brother Industries Ltd, Canon Inc., Sharp Corporation, Silver Seiko Ltd, Tokyo Electric Company Ltd (TEC), Tokyo Juki Industrial Company Ltd and Towa Sankiden Corporation, and terminated the proceeding with regard to Nakajima All Co. Ltd on the ground that the dumping margin established for that company was negligible.

On 19 June 1985 the Council adopted Regulation (EEC) No 1698/85 imposing a definitive antidumping duty on imports of electronic typewriters originating in Japan (Official Journal 1985, L 163, p. 1), which imposed a definitive antidumping duty on all the undertakings that were already subject to provisional antidumping duty. That measure was contested by all the parties concerned.

By Regulation (EEC) No 113/86 of 20 January 1986 (Official Journal 1986, L 17, p. 2), the Council declared Regulation No 1698/85 inapplicable to Tokyo Juki as from the date of its entry into force.

On 12 August 1985 Brother Industries Ltd (hereinafter referred to as Brother), on which Regulation No 1698/85 had imposed a definitive antidumping duty of 21%, brought an action against the Council, in which it sought the annulment of that regulation in so far as it concerned Brother, and the award of damages against the Council and the Commission for manifestly infringing the provisions of the basic antidumping regulation, Regulation No 2176/84, and the general principles of Community law.

By an application for the adoption of interim measures lodged at the Court Registry on 29 August 1985, Brother sought an order suspending the application to it of Regulation No 1698/85 until the Court had given judgment on the main application. The interlocutory application was dismissed by order of the President of the Court of 18 October 1985.

On 19 August 1985 the Commission of the European Communities raised an objection of inadmissibility against the application in so far as it was directed against the Commission, and requested the Court, in the event of its objection being upheld, for leave to intervene in the proceedings in support of the Council's conclusions. By decision of 23 October 1985, the Court reserved its decision on the objection for the final judgment.

By letter of 8 April 1986 Brother informed the Court that it was waiving its claim for damages against the Council and the Commission for the injury which it had suffered.

By order of 16 May 1986, the Court removed the application from the Register, in so far as it was directed against the Commission, and granted the latter leave to intervene in the proceedings in support of the Council's conclusions.

By order of 15 January 1986 the Court granted Cetma leave to intervene in the proceedings in support of the defendant's conclusions.

On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to assign the case to the Fifth Chamber and to open the oral procedure without any preparatory inquiry. However, it requested the parties to provide it with certain information and to answer a number of questions. The parties complied with that request within the prescribed period.

II — Conclusions of the parties

Brother claims that the Court should:

The Council contends that the Coun should:

The Commission of the European Communities and Cetma support the Council's conclusions and contend that the applicant should also be ordered to pay the costs incurred by them in their capacity as interveners.

III — Submissions and arguments of the parties

A — Submissions alleging a breach of the provisions of Regulation No 2176/84

Calculation of the normal value

1. Infringement of Article 2 (3) (a) of Regulation No 2176/84 inasmuch as the Community institutions compared prices on markets with totally different patterns of supply and demand, which therefore precluded a fair comparison

2. Infringement of Article 2 (3) (a) inasmuch as the domestic prices that were used relate to insufficient quantities

3. Infringement of Article 2 (3) (b) inasmuch as the normal value of the majority of the exported models was calculated at the level of the resale price of the related distributor in Japan

4. Infringement of Article 2 (3) (b) (ii) inasmuch as the constructed value of certain models was calculated at the level of the resale price of the related Japanese distributor

5. Infringement of Article 2 (3) (b) (ii) inasmuch as the profit calculated was abnormal

Calculation of the export price

6. Infringement of Article 2 (8) (b) inasmuch as the cost of credit to customers was deducted twice over when the export price was constructed

Comparison between the normal value and the export price

7. Infringement of Article 2 (9) inasmuch as the export prices constructed at the ex-factory level were compared with a normal value determined at the level of the product leaving the exclusive distributor Brother submits that, according to Article 2 (9), the export price and the normal value must be compared, for the purposes of a fair comparison, at the same level of trade, preferably the ex-factory level. According to the Community institutions, that is the level at which the product ceases to belong to the manufacturer or an apparently related undertaking and becomes the property of an independent purchaser. According to the applicant, however, that concept must be assessed having regard to the economic realities of the situation.

8. Infringement of Article 2 (10) (c) on account of the refusal to make allowances in order to offset the differences affecting price comparability

9. Infringement of Article 2 (10) (c) on account of the refusal to deduct from the resale prices of the exclusive distributor, BSL, a proportion of the general expenses at least equal to the proportion of general expenses incurred by Brother's subsidiaries in the Community

10. Breach of the principles of equal treatment and non-discrimination

11. Breach of the principle of legal certainty

Determination of injury

12. The method used to determine the existence of injury was unreasonable; infringement of the rights of the defence

13. Discrimination between exporters inasmuch as the allowances made between different models were unreasonable

14. Taking account, in the calculation of the extent to which prices were being undercut, of target prices relating to models sold by the complainants but originating in nonmember countries

15. Incorrect appraisal of the interests of the Community

B — Arguments put forward in the observations common to the applicants in Case 250/85, Joined Cases 260/85 and 106/86, Joined Cases 273/85 and 107/86, Joined Cases 277 and 300/85, and Case 301/85, and in response to those observations

1. Observations common to the applicants

The applicants in the aforesaid cases, including Brother, have advanced in their replies a number of arguments common to all of them which highlight what they consider to be one of the most fundamental defects in the findings of the existence of dumping made by the Commission in this case, namely the fact that the export price and the normal value were not put on a comparable basis. According to the applicants, the high dumping margins attributed to them by the Community institutions are to a large extent the result of the unfair comparison between the export price and the normal value made by the Commission and are inconsistent with both Regulation No 2176/84 and the GATT Anti-Dumping Code on which that regulation is based.

The joint observations are divided into two parts; the first part describes the procedure followed by the Commission, and merely taken over by the Council, to calculate the dumping margin, whilst the second part seeks to show that the comparison made by the Commission is inconsistent with Regulation No 2176/84 and the GATT Anti-Dumping Code.

In their general description of the manner in which a finding of the existence of dumping is made, the applicants emphasize, in particular, the difference between the approach taken by the Community institutions, according to which the calculation of the normal value and of the export price are two separate exercises to which different methodologies should apply, and their own point of view, namely that the purpose of those two calculations is to arrive at two figures, comparison of which must be fair according to Regulation No 2176/84.

Next, the applicants observe that the Commission followed a radically different approach according to whether it was calculating the export price or the normal value. In the first case, it took care to ensure that the export price did not include any expenses incurred in the Community and, in the case of imports made through related sales companies, it deducted all the costs incurred by those companies plus a profit margin. In the latter case, a substantial part of the expenses and an element for the profit related to distribution in Japan were included in the normal value.

In other words, the Commission did not exclude from the normal value any such distribution costs incurred in Japan which were of a kind corresponding to distribution costs incurred in Europe that were not included in the export price with which the normal value was generally compared.

That methodology necessarily yields a high apparent dumping margin even though the exporter sells his products, at the same level of trade, at a higher price in the Community than in Japan and makes the same profit on his export sales as on his domestic sales.

The applicants submit that in adopting that methodology the Community institutions infringed the fundamental requirement that the export price and normal value should be put on a comparable basis, contrary to the provisions of Article 2 of Regulation No 2176/84, which are based on those of Article VI of GATT and of the GATT 1979 Anti-Dumping Code to which the second recital in the preamble to that regulation expressly refers. That requirement is fundamental because it is obvious that a finding that the export price is less than the normal value is justified only if it is based on a fair comparison between the two.

Contrary to what is contended by the Community institutions, the unfair comparison between export prices and domestic market prices made in this case is neither required nor permitted by Article 2 (10) of Regulation No 2176/84.

That provision lays down that due allowance shall be made in each case, on its merits, for differences affecting price comparability and indicates the guidelines which are to be applied for the purpose of determining the necessary allowances.

It would appear from the wording of the provisions of Regulation No 2176/84, of GATT and of the GATT 1979 Anti-Dumping Code that the aforesaid provision is intended to ensure a fair comparison between the export price and the normal value.

To begin with, the Community institutions misinterpreted the expression conditions and terms of sale in Article 2 (10) (c). The reference in that provision to commissions or salaries paid to salesmen shows that the expression conditions and terms of sale cannot be as limited in scope as the Council maintains and cannot refer only to the obligations which may be laid down in the contract of sale or in the general conditions of sale but must also cover the factual conditions of, and surrounding, the sale in question.

Hence the restrictions contained in the aforesaid provision were, according to the applicants, misinterpreted by the Community institutions.

The limitation of allowances to differences which bear a direct relationship to the sales under consideration and the exclusion of any allowances for differences in overheads and general expenses are designed to relieve the Commission, in general terms, of the burden of allocating between domestic trade and exports the general costs of a single organization that is concerned with both domestic and export trade. However, neither of those restrictions applies to a case such as this, where the dispute centres on the failure to allocate to domestic trade the indirect costs of organizations, specifically the Japanese sales companies, that were concerned exclusively with domestic trade.

With regard to differences which bear a direct relationship to the sales under consideration, it should be emphasized that selling the products in Japan entails certain costs that are specifically attributable to the distribution of those products in that country.

Similar considerations apply in the case of overheads and general expenses. A differential allocation of common overheads is irrelevant in the present case.

Further, the expression differences in the level of trade in Article 2 (10) (c) of Regulation No 2176/84 has been misinterpreted, inasmuch as all local marketing and distribution costs were excluded from the export price, whilst significant costs of that kind were included in the normal value. Accordingly, the export price and the normal value were not compared at the same level of trade.

The guidelines should not be applied where their application would lead to an unfair comparison and the list set out therein is illustrative, not exhaustive. It is clear that the first two sentences of Article 2 (10), which require due allowance to be made in each case, on its merits, for differences affecting price comparability, are of a general nature, whereas the guidelines referred to in the third sentence can in no way be regarded as exhaustive. Admittedly, those guidelines apply prima facie, but if their application, on the facts of a particular case, would conflict with the basic principle of fair comparison, there is no doubt that it would be impossible to reject a claim solely on the ground that the case does not fall within one of those guidelines.

The Commission was also wrong in including in the constructed normal value an amount for selling expenses in connection with distribution by related sales companies in Japan.

If the Community institutions had not included in the cost of production the expenses incurred by the exporters' Japanese sales companies, the normal value and the export price would have been on a comparable basis and no question of allowances would have arisen.

The applicants' analysis has the advantage that the likelihood of an exporter being found guilty of dumping will not vary according to whether (i) the normal value is based on actual domestic prices or is constructed, or (ii) export prices are based on actual export prices or are constructed. The principle is always the same: so far as practicable, material elements that are not included or reflected in the export price should not be included or reflected in the normal value.

Moreover, the Community institutions erroneously inflated the constructed value with abnormally high profit margins. The profit margins which the Commission established for certain producers, and the loss established in respect of Tokyo Juki, are simply the result of the Commission's failure properly to allocate costs incurred in connection with the distribution of electronic typewriters.

In determining the profit margin for undertakings selling their products on the domestic market, the Commission took no account of the fact that the advertising costs incurred by those undertakings in connection with their sales of electronic typewriters in Japan were much higher than the advertising costs incurred in relation to their overall turnover.

The loss established for Tokyo Juki stems from the fact that the Commission has disregarded verified accounting data for that company, which showed that Tokyo Juki's domestic sales were profitable. However, the Commission allocated to sales of electronic typewriters an unreasonable amount of Tokyo Juki's distribution expenses for unrelated products or product lines.

The profits used for the determination of the constructed value are thus based on gross errors in the allocation of the relevant costs.

In conclusion, the high dumping margins that have been established are to a large extent the result of an unfair and legally improper comparison rather than any objectively unfair trade practice which exporters may have engaged in.

2. The Council's response

Before replying to the joint observations of the applicants, the Council considers it appropriate to make two preliminary points.

In the first place the Council recalls that for each of the three main elements used for determining whether dumping is being practised (normal value, export price and a comparison between the two), there are precise, distinct and separate rules. It challenges the applicants' assertion that the GATT Anti-Dumping Code requires allowances to be made for all differences affecting price comparability. Apart from the fact that the code does not use the word all' as the applicants allege and that the provisions of GATT have never been regarded as directly applicable, as the Court has confirmed in its case-law, it is clear from the text of the code itself that the code represents a compromise, the result of which is a text which is deliberately imprecise and which leaves a considerable margin of discretion to the legislature of each contracting party to decide exactly what allowances should be made.

The second preliminary point concerns the hypothetical example given by the applicants to show that the methodology adopted by the Commission necessarily leads to the establishment of a dumping margin. According to the Council, that example has certain fundamental flaws which render it unusable. It is based on the internal transfer prices between the manufacturing company and its subsidiaries in Japan or the Community, which are inherently unreliable and always subject to manipulation. It omits completely both the expenses and profits of the corporate headquarters company. It considers the domestic sales company as a separate entity, whereas it was found to be an integral part of the corporate structure. It fails to deduct Common Customs Tariff duties. It is incorrectly based on the assumption that the sales price to independent purchasers in Japan is always below the price in the Community. Finally, it does not refer to the constructed normal value.

Next, the Council observes that the applicants' first argument seeks to show that the requirement of a comparable price or of a fair comparison between the normal value and the export price is fundamental, and that the words in Article 2 (10) concerning a fair comparison should override the other conflicting words in that provision. That is contrary to two basic principles of interpretation, namely:

The Council observes that the phrase conditions and terms of sale should be interpreted in the light of the rest of Article 2 (10) (c), which shows that that phrase applies only to differences in terms and conditions which are capable of bearing a direct relationship to specific sales. The only costs which may bear a direct relationship to a sale are those which may be mentioned specifically in a contract of sale and which are likely to influence the mind of the buyer. In a normal contract of sale, it would be unusual to find any clause concerning Overheads and general expenses', but not for there to be a clause concerning, for instance, credit and delivery terms.

The price charged in the exporting country and the export price may have different payment, credit, delivery and guarantee terms attached to them. Those prices should be brought on to a comparable footing by means of the operation described in Article 2 (10). That operation is not designed not to compare costs, but to compare prices, and the cost element is used only when it is necessary to iron out different conditions attached to prevailing prices. However, even if there were no specific reference to overheads and general expenses, it is clear that such expenses would not bear a direct relationship to specific sales. That interpretation is confirmed by the last clause in Article 2 (10) (c) which is worded as follows: the amount of these allowances shall normally be determined by the cost of such differences to the seller, though consideration may also be given to their effect on the value of the product; that shows that Article 2 (10) (c) is concerned only with costs to the seller which are likely to affect the price of the product on the open market, or with advantages to the buyer which may vary for different purchases of the same type of goods.

The applicants rely more specifically on the expression commissions or salaries paid to salesmen. According to the Council, commissions are clearly expenses directly related to sales. The legislature has added salaries paid to salesmen simply in order to avoid different treatment depending solely on the legal form of the relationship between the manufacturer and the sales staff. Therefore that derogation, made for a very specific and legitimate reason, does not justify the general conclusions which the applicants seek to derive from it.

According to the Council, the applicants' second argument is based on two clauses in Article 2 (10) (c) which they do not contest but which, in their view, are intended only to make it unnecessary to allocate, as between domestic trade and exports, overheads and general expenses of a company's headquarters. The clauses in question read as follows:

According to the Council, those clauses do not have the meaning attributed to them by the applicants. The Commission has already explained in its intervention the reasons why it is often inappropriate or impossible to attempt to allocate overheads as between domestic sales and export sales.

With regard to the statement that the general expenses of a domestic sales company can never be included, even partly, in the general expenses allowed for in the normal value, the Council makes the following comments on the points raised by the applicants in their joint observations:

On the question of the level of trade, the applicants have contended that significant local marketing and distribution costs were included in the normal value and that the resulting level of trade was therefore not before any local marketing and distribution as it was in the case of the export price. The Council observes that the applicants give no reason for the suggestion that the phrase in Article 2 (9) which lays down the principle of comparison at the same level of trade should override Article 2 (10), which provides that no allowances are normally made for overheads and general expenses. Moreover, the applicants' argument rests on a misunderstanding of the expression level of trade. Where two companies sell to both wholesalers and end-users, they should be regarded, unless each category represents very different proportions of the total sales of the two companies, as selling at the same level of trade.

The applicants' argument that the Community institutions should have taken into consideration overheads and general expenses not directly related to sales solely on the ground that the Japanese sales were made by separate sales companies cannot be accepted. It is quite clear that, if the same sales had been made by sales departments, the applicants' argument would be contrary to Article 2 (10) (c) and the important findings that the sales companies formed integral parts of the same economic units or enterprises as their parent companies, and that their functions were similar to those of sales departments, have not been challenged by the applicants.

Next, the Council challenges the applicants' contention that in order to reject a claim, either the institutions must be satisfied that allowance of the claim is not necessary to enable a fair comparison to be made or they must point to something in the regulation which specifically permits them to reject the claim even though it is or may be so necessary.

The Council observes that the general principle of a fair comparison may not be relied upon in order to override the specific terms of Article 2 (10) (c), especially because those terms are the result not of imprecise drafting but of a carefully considered policy for dealing with an inherently difficult problem. Moreover, the applicants do not suggest that these cases are in any way special or unusual. They take the view that their arguments should apply in every case in which the domestic sales were made by a separate company.

Contrary to the applicants' contention, the difference between the ways in which the export price and the normal value are calculated is the natural and intended result of the express wording of Regulation No 2176/84 and does not inherently have any necessarily protectionist effect.

The applicants' argument to the effect that Article 2 (10) (c) is not applicable to a constructed normal value is incorrect for several reasons. In the first place, a comparison between normal value, however arrived at, and export price always has to be made in any antidumping case and in making such a comparison it is always necessary to decide whether allowances need to be made. The applicants' argument is wrong also because it may be necessary to calculate the reasonable amount for selling, administrative and other general expenses on the basis of the real costs of a sales department or sales company selling the same or a similar product in the exporting country at a price containing allowable and non-allowable cost elements. If Article 2 (10) were not applicable, no allowances at all would be possible, and that clearly runs counter to the applicants' argument.

Finally, the constructed normal value would be unaffected by any change in the relative proportions of costs and profit in Japan since the total of the two elements is included in the constructed normal value. The applicants complain about the use of the lower figure for costs only in the calculation of the profit to be used in constructing the normal value. Even if they were right, their argument would lead to an increase in the costs which would be precisely equivalent to the reduction in the profit based on those costs.

3. The Commission's observations

The Commission observes that, under the rules in force, the normal value includes selling expenses in addition to an element for general expenses, that is to say, expenses which do not bear a direct relationship to sales of the product in question. That rule can be justified by arguments of a general nature, including the fact that any effort to relate general expenses to particular sales is likely to be arbitrary.

In the special context of dumping investigations, a further point to be made is that all enquiries by the Commission outside the Community depend on the voluntary cooperation of the companies concerned and that if it were necessary to allocate overheads and general expenses within the headquarters of an exporting company in a nonmember country that would probably raise great difficulties even if adequate information were made available by the exporter to the antidumping authority.

An allocation of overheads in proportion to current sales would require the manufacturer's cooperation and might, moreover, be inappropriate as there is not necessarily a relationship between the proportion of research and development spending or advertising costs and current sales on different markets. No solution has been found so far in the discussions which took place within GATT, both because it was impossible to reach agreement on certain principles and because any rule must, in many situations, inevitably rest on subjective considerations.

Following those preliminary considerations, the Commission considers the treatment of the general expenses of a manufacturing company when the normal value is based on the domestic price. It points out in the first place that, in the case of a manufacturing company which sells on its domestic market only to independent buyers, the normal value is based on the domestic price, with the result that the normal value generally includes overheads and general expenses since Article 2 (10) (c) provides that no allowance will be made for overheads, research and development costs or advertising costs attributable to domestic sales even if they are higher than those attributable to export sales to the Community. The principle that general expenses are not allocated was adopted on practical grounds in view of the huge difficulties involved in allocating overheads satisfactorily.

The problem which arises in this case is how to deal with the companies which sell on their domestic market only through a related sales company (not necessarily a wholly-owned subsidiary), in view of the fact that, in the Commission's view, transfer prices between a company and its subsidiary cannot be regarded as being in the ordinary course of trade.

There is nothing in Regulation No 2176/84 which suggests that the prices charged by a sales company cannot be used at all as a basis for determining the normal value. If it is decided that a proper comparison is possible, the domestic price in the exporting country should be used in preference to either of the alternatives provided for in Article 2 (3) (b). Regulation No 2176/84 gives priority to that criterion, provided that it permits a proper comparison to be made, regardless of whether that comparison is perfect or easier to make than a comparison based on other criteria.

Once it has been established that domestic prices may be used as a basis for calculating the normal value, the question arises of what deductions should be made from the prices charged by the Japanese sales companies.

According to the Commission, the general expenses of a sales company in the exporting country should be treated as far as possible in the same way as the general expenses of a manufacturing company which has a sales department. The formal difference in the corporate structure should not affect the result, if the sales company is effectively controlled by the manufacturing company and if it is fulfilling essentially the same function as a sales department. The Commission established that the Japanese sales companies formed integral parts of the same economic units as the manufacturing companies and that their functions were similar to those of sales departments. On the basis of those findings the Commission concluded that the general expenses of such companies should also be treated in the same manner as those of a sales department. That does not rule out the possibility that in certain cases a sales company might have functions different from those of a sales department. In those circumstances, for instance, many of the expenses would probably be directly related to sales and consequently they would be allowable. In any event, every situation should be dealt with on its own facts.

The Commission considers that similar considerations apply with regard to the profits of sales companies. It would be intolerable if a manufacturing company which exports its products could effectively reduce the normal value which the Community institutions could arrive at under Regulation No 2176/84 merely by having its sales to independent buyers handled by a sales company rather than a sales department. Admittedly, if a sales company also sold goods produced by other manufacturing companies or if it handled distribution down to and including the operation of retail outlets, it would be necessary to apportion its profits. In order to do so, however, reliable information would have to be made available by other companies in the same industry showing the profit margins made by distributors from sales to independent buyers on the domestic market.

In conclusion, the Commission considers that when the normal value is based on the prices of domestic sales companies it must include both an element of general expenses and an element of profit, just as it would where it is based on the domestic prices of a manufacturing company's sales department. There is nothing in that approach which necessarily leads to a normal value which is higher for producers distributing their products through related companies than it is for those marketing their products through a sales department.

The Commission then deals with the problem of ascertaining what profit margin is reasonable when the normal value is constructed in accordance with Article 2 (3) (b) (ii).

The Commission considers that when interpreting and applying that provision no rule should be adopted which would be likely to lead to the calculation of normal values different from those which would be arrived at by using domestic prices. The word reasonable does not have a fixed meaning, nor does it refer to a percentage which should always be the same; instead, it is necessary to consider the circumstances of the market. More particularly, it is necessary to take into account any findings which the Community institutions have made in connection with domestic prices.

The desirability of ensuring that the two methods of calculating the normal value lead to parallel results makes it permissible, and even necessary, to use any findings concerning general expenses and profit on the domestic market for the purpose of interpreting and applying the term reasonable when constructing the normal value. It would be not only undesirable but also wrong in principle if the establishment of a dumping margin were to depend on which method of calculating the normal value was chosen.

The Commission goes on to consider the applicants' argument to the effect that the Community institutions have contravened the principle of legal certainty by applying Regulation No 2176/84 in a manner which is unforeseeable and which prevents the undertakings concerned from ascertaining what export price needs to be fixed in order to avoid dumping.

The Commission points out, in the first place, that an exporter cannot in any case expect to know with confidence whether dumping will cause injury to Community industry or whether the Community institutions will conclude that it is in the interest of the Community to impose an antidumping duty; no objection can be made on grounds of legal certainty. Nor can the exporter rely on that principle with regard to the methods of calculating the normal value or the export price. The basic antidumping regulation confers on the Community institutions a considerable discretion with regard to the application of the rules which it lays down in particular situations which, as is the nature of things, cannot all be foreseen precisely.

Next, the Commission considers the argument that it is contrary to the principle of legal certainty for the constructed normal value to include an element of profit or of the general expenses which is not based on the individual exporter's own activities because that element cannot be predicted or anticipated by the exporter. According to the Commission, that argument amounts to a denial of the right of the Community institutions to use accurate confidential information available to them and, in practice, a denial of their power to determine what is reasonable in the light of the circumstances of the industry concerned and to use anything other than a standard low rate of profit unless, by coincidence, suitable information is published.

The Commission goes on to consider the problem of the reasonable profit margin to be attributed to a related sales company in the Community under Article 2 (8) (b) of Regulation No 2176/84.

The first question which arises is whether any profit margin should be attributed to a sales company in the Community. The answer to that question should be in the affirmative. The profit margin referred to in the aforesaid provision cannot be that of the exporter because it would not be appropriate to deduct it in order to calculate the export price; nor can it be the independent buyer's profit margin, which would not affect the price to that buyer. The next question is how the Community institutions should decide what constitutes a reasonable profit margin. According to the Commission, the term reasonable does not refer to a profit margin which is fixed and unchanging irrespective of the circumstances, but rather to one which is appropriate to the circumstances of the industry and the market.

The purpose of deducting a profit margin is to reduce the price charged by a related sales company to a level at which it is equivalent to the price which would be charged to independent importers. That is the only correct solution.

To that end, therefore, it is necessary to examine the profit margins of independent importers, if there are any. There is no authority for the view that the maximum profit margin to be attributed to the related sales company is the profit margin based on the transfer price to that company. If independent importers make a large profit margin in the Community, there would be no justification for attributing a small margin to a related sales company merely because its manufacturing parent company had chosen to absorb a large proportion of the profit made by the group in the exporting country.

With regard to the arguments put forward by the applicants in connection with the level of trade, the Commission observes that these cases actually raise three issues:

Unfortunately, the activities of companies do not fall into clearly defined levels of trade. Some companies sell both to wholesalers and to end-users. In that case, unless each category of customer accounts for very different proportions of the total sales of two companies, they should be regarded as being at the same level of trade. The fact that the applicants have not seriously argued that specific allowances should be made may mean that the slight differences between the different categories of customers did not justify any significant allowance.

IV — Answers given by the parties to questions put to them by the Court

In its answer of 21 April 1987, Brother stated its views concerning a number of points on which the Court had sought an explanation from it.

In the first place, it stated that its aggregate sales of electronic typewriters in Japan corresponded to 3.31% of its global exports, excluding the Community, but it did not give a breakdown of that figure, model by model. It reiterated that its profit on sales of electronic typewriters was approximately 11% if Brother and BSL are treated, as they have been by the Community institutions, as one and the same entity.

With regard to the percentage of turnover relating to sales of electronic typewriters as against sales of other products, Brother pointed out that sales of electronic typewriters accounted for 17.26% of its turnover during the reference year.

It denied taking part in any agreement or concertation with a view to penetrating the markets by means of predatory practices, as is clear from the fact that it made substantial profits on exports to the Community. Those profits show that the prices charged by Brother are in no way predatory and therefore constitute the best proof that there was no concertation with a view to penetrating the Community market.

According to Brother, the function and powers of the Japanese Ministry of International Trade and Industry are no greater than those conferred on the public authorities of market-economy countries in general. Similarly, the role of the Japan Business Machine Makers Association is limited to that of any trade organization.

When asked to state the reasons that prompted it to set up distribution subsidiaries rather than sell its products directly to independent purchasers, Brother explained that this system made it possible to achieve the best possible transparency of the group's operations, and thus to ensure better group management. The group also became more efficient as a result.

Finally, on the question why it opposed taking into consideration the global sales figure for electronic typewriters in calculating the profit margin, although it had accepted that method in connection with the calculation of the production costs, Brother states that its objection is less to the overestimation of the profit than to the use of two different denominators.

In response to the question put to it by the Court, the Council indicated the dumping margin, the level of injury established and the rate of duty imposed on the applicant.

In answering the questions put to it, the Commission first states that even if the most correct method of calculating the profit for the purpose of computing of the constructed normal value would have been to deduct from the price charged by the sales subsidiaries in Japan the costs of manufacturing and distributing electronic typewriters in Japan, that approach would none the less have yielded the same results as that which was selected, since higher selling expenses would then have been allocated to domestic transactions.

The Commission also points out that it did not deduct the advertising expenses of the Japanese sales subsidiary in order to obtain the normal value based on the domestic prices because those prices are necessarily fixed by the subsidiaries concerned at a level which enables them to pay those expenses, as the latter form part of the general expenses which must be met in one way or another and which are normally paid out of revenue from domestic sales.

Where the normal value is constructed, a reasonable amount should be included for selling expenses, overheads and other general expenses. That amount should also include advertising expenses, as they are general expenses.

With regard to the question why the Community institutions took the view that the figures published in the applicant's balance sheet are not conclusive, the Commission points out that the balance sheets and profit and loss accounts of an undertaking cover all its activities and do not therefore provide, in the case of a company which produces and markets a wide range of products, sufficient details concerning the costs of production of each product taken individually. In Brother's case, sales of electronic typewriters accounted, for instance, for only 3.6% of its sales in the Community and 17% of its global sales. In addition, any commercial transaction within a group such as Brother is based on internal transfer prices and the balance sheets of an undertaking within the group naturally reflect those prices as opposed to market prices or market costs. It follows that the figures set out in the applicant's balance sheet cannot be relied on for the purposes of calculating the normal value.

With regard to the dumping margin calculated for a product whose selling price in Japan seemed, according to Brother's figures, to correspond to the selling price in the Community, the Commission produced figures which instead revealed a substantial difference between the export price and the domestic price. The costs which must be borne by a Japanese undertaking in order to sell its products on the Community market (transport, customs duties, general expenses, storage, insurance and so on) are fairly substantial, with the result that, if the domestic price and the selling price charged by a subsidiary in the Community were more or less the same, it would almost certainly indicate the existence of dumping.

The last questions put to the Commission were whether it shared the applicant's view that the selling prices to large accounts (government ministries, hospitals and so on) are necessarily higher than the selling prices to a normal buyer, notwithstanding the reduction in costs which should at first sight be the result of selling large quantities of electronic typewriters to a single buyer, and, if so, for what reasons, and whether it had taken account of the specific characteristics of sales to large accounts.

In its answer the Commission stated that, in its view, sales on a large scale normally entailed lower costs and that selling prices to large accounts, or to any other buyer for that matter, in fact depend on all the terms and conditions in the contract.

In the case of Olivetti, which sells to large accounts, the additional maximum costs attributable to those sales constitute approximately 3 to 4% of the price charged, The impact on the target price of the additional costs relating to sales to large accounts is therefore much less than 1% and may thus be regarded as negligible.

1 Language of the Case: French.

2 As Brother inserted in its reply certain observations which it drew up jointly with the applicants in Joined Cases 260/85 and 106/86, Joined Cases 273/85 and 107/86 Joined Cases 277 and 300/85, and Case 301/85, it is appropriate to summarize those observations under a separate heading which also includes the Council's response to those observations. All those arguments will be set out in Section III (B) of this report.

3 In this case, the arguments summarized below were put forward by the Commission in the defence it had submitted before Brother withdrew its application in so far as it was directed against the Commission. Those arguments correspond by and large to the arguments put forward by the Commission in its submissions as intervener in the other cases.