Report for the Hearing in Case C-172/87

I — The applicant's business

The applicant, Mita Industrial Co., Ltd (hereinafter referred to as Mita) is engaged principally in the manufacture and sale of plain paper photocopiers (hereinafter referred to as PPCs).

Mita is a leading supplier of PPCs to Original Equipment Manufacturers (importers which sell imported products under their own brand names, hereinafter referred to as OEMs). More than 50% of its export sales to the Community have been to OEMs, particularly Gestetner (its main European customer), Océ, Triumph-Adler, Utax, Olympia and Develop. It has no OEM sales on its domestic market.

In Japan Mita sells PPCs exclusively under the Mita brand to dealers and end-users through its own sales branches.

II — Facts and procedure

A — The facts

In July 1985, the Committee of European Copier Manufacturers (CECOM) lodged a complaint with the Commission that imports of certain PPCs from Japan were being dumped and were causing injury to the Community industry.

The five companies in whose names the complaint was lodged — Develop, Océ, Olivetti, Tetras and Rank Xerox — have imported PPCs manufactured in Japan into the Community for many years. Three of the companies — Develop, Océ and Tetras — imported PPCs manufactured by Mita on an OEM basis.

The antidumping procedure initiated by the Commission on the basis of Council Regulation 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) led to the imposition by Commission Regulation No 2640/86 of 21 August 1986 (Official Journal 1986 L 239, p. 5) of a provisional antidumping duty of 15.8% for all exporters save three; Mita was one of the latter and the duty imposed on it was 13.7%.

On 23 February 1987 the Council, on a proposal from the Commission, adopted Regulation No 535/87 imposing a definitive antidumping duty of 12.6% on imports of PPCs manufactured in Japan by Mita (hereinafter referred to as the contested regulation).

Mita states that there were numerous exchanges of information between it and the Commission on the matters in question in these proceedings.

B — Written procedure and conclusions of the parties

Mita's application was received at the Court Registry on 9 June 1987.

By orders of 3 February 1988 the Court granted leave to the Commission and CECOM to intervene in support of the defendant's conclusions and to Gestetner to intervene in support of the applicant's conclusions.

The written procedure followed the normal course. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided, pursuant to Article 95(1) of the Rules of Procedure, to assign the case to the Fifth Chamber and to open the oral procedure without any preparatory inquiry. The Council was asked to given written replies to a number of questions and did so within the time-limit set.

The applicant claims that the Court should:

Gestetner, intervening, claims that the Court should:

The Council claims that the Court should:

CECOM, intervening, claims that the Court should :

III — Submissions and arguments of the parties

A — Determination of the normal value for the purpose of a comparison with Mita's export sales to OEMs

Mita states in the first place that in OEM sales the OEM importer incurs all of the often significant selling, general and administrative expenses associated with the subsequent sale, promotion and distribution of the product in the Community and that Mita incurs lower costs and receives lower profits in OEM sales that in its other sales transactions. In domestic sales in Japan, Mita has no sales to OEM companies nor any equivalent to such sales but sells its product under the Mita brand to dealers and end-users and itself incurs all the selling, general and administrative expenses associated with the sale, promotion, distribution and servicing of the product in Japan.

Mita then observes that in the contested regulation the institutions recognized that there is a difference between sales of a manufacturer's own brand product and sales to OEMs (recital 11) and that that difference had to be included in the determination of Mita's normal value in order to make it comparable with Mita's OEM export sales. For that purpose they decided to establish normal values for OEM export sales on the basis of constructed value.

In determining that constructed value under Article 2(3)(b)(ii) of Regulation No 2176/84, the institutions took the abovementioned fundamental difference into account only partially. They correctly took account of the lower profit margin achieved in OEM sales — 5% — but failed to make any allowance for the substantial difference between the costs incurred in OEM sales and in domestic sales of branded products (second sentence of recital 12 to the contested regulation). Instead, the institutions established a constructed value with respect to Mita's OEM sales which included all the distribution, promotion and servicing costs which Mita incurs in its domestic market but not in its OEM sales.

Mita states that the amount of sales, general and administrative expenses which the institutions added to the costs of production cannot be considered reasonable under Article 2(3)(b)(ii) because it includes a large number of expenses of a type which are not included in OEM sales, as the Commission and the Council have themselves recognized. Mita showed in its letter of 26 March 1986 to the Commission (Annex 3 — confidential — to the application) that the costs involved in the sale of OEM products are substantially lower than those involved in the sale of Mita-branded products in the domestic market.

In reply to the argument of the Commission and the Council that the exporters were unable to show to the Commission's satisfaction what the cost differences to OEMs on the domestic market would be and that no domestic sales to OEMs existed for reference in determining that difference (recitals 23 and 24 to the contested regulation), Mita observes that it in fact provided the Commission with extensive and documented information on those cost and profit differences (Annex 3 — confidential — to the application).

It considers that, contrary to what the Council suggests, the fact that the evidence submitted by Mita is based on data relating to export sales to OEM buyers in the Community cannot justify the institutions' refusal to take that evidence into account. Firstly, Article 2(3)(b)(ii) requires the institutions to use the available information to construct the normal value. The evidence submitted by Mita, which was confirmed by the OEM importers, was the only information available to the institutions. Secondly Mita refers to the judgment of 1 December 1988 of the Court of International Trade, American Permac Inc. v United States (No 85-01-00050, Slip Op. 88-164) according to which the requirement that a foreign manufacturer provide, in support of an application for adjustment, information on costs which the authorities knew to be nonexistent was manifestly unreasonable. In Mita's view that reasoning applies to the present case.

Moreover, the institutions cannot argue that the absence of domestic OEM sales on the domestic market prevents them from constructing OEM-level costs since it is precisely in the absence of such sales that the constructed value under Article 2(3)(b)(ii) is used. Furthermore, they were able to determine the relevant OEM value for the reasonable margin of profit.

Finally, Mita considers that the method used by the Council to construct the normal value for sales to OEM buyers is discriminatory. The same 5% profit margin was included in the constructed normal value for sales to OEM buyers by all the Japanese exporters concerned, instead of the actual profit margin realized by those exporters on sales of own-brand products. The adjustment effectively granted for differences in costs and profits amounts to the difference between the actual profit margin realized and the 5% profit margin. That method favours those exporters which incur low costs and realize a high profit margin on domestic sales of own-branded products.

Gestetner supports Mita's argument that the normal value for Mita's OEM export sales was incorrectly determined: the inclusion of a lower profit margin was insufficient to cover the difference in terms of both profit and cost between Mita's own-brand and OEM sales. It claims that Annex 2 to its observations shows that certain costs (distribution, promotion, servicing) are not incurred by a manufacturer in the case of an OEM sale but are incurred by the OEM buyer.

The Council states that the normal value of sales to OEMs was constructed because there were no sales to OEMs on the Japanese market. Having recognized a difference between sales of own-brand products and sales to OEMs, the Commission, in constructing normal value on the basis of the available information, evaluated possible differences in both costs and profit and decided to take account of them in a single element, as is clear from recital 11 to the contested regulation. That enabled the institutions to compare the export prices which were constructed (Article 2(8)(b) of Regulation No 2176/84) with the constructed normal value in Japan, which took account of the difference, if any, between Mita's sales to OEMs and sales to other customers. No further adjustment was required in respect of those elements under Article 2(9) and (10) of Regulation No 2176/84.

In response to Mita's argument that the abovementioned margin is reasonable to cover profits but not the SGA expenses, the Council observes that the evidence available to the institutions indicates that the real profit margin for OEM sales in Japan tends to be considerably higher than 5%. That is supported by the fact that the Japanese market for OEM sales of electronic office equipment (for example, dot matrix printers) is structured differently compared with the Community market for OEM sales. In Japan OEM customers are numerous and are generally treated in the same way as customers buying own-brand products. One would expect to find a similar pattern if PPCs were sold to OEMs in Japan.

As regards the inclusion of certain expenses in constructing the normal value for OEM sales, the Council contends that Mita provided figures only for sales in the Community. Costs of sales to end-users are in general significantly higher in Japan than in the Community and the difference between costs (and profit) on own-brand sales to end-users and sales to OEMs in Europe would not be likely to correspond to the corresponding differences between own-brand sales to end-users and to OEMs in Japan, if the latter had occurred. In addition, the figures presented by Mita were based on its own arbitrary allocation of cost elements between OEM and own-brand sales.

Contrary to what Mita claims (Annex 3 to the application), data for actual costs relating to OEM sales on the Japanese market were simply not available because no sales to OEMs were made there. The reference to the American Court of International Trade is irrelevant.

Finally, with respect to Mita's argument that the method of constructing normal value for OEM sales was discriminatory, the Council contends that, under Article 2(3)(b) of Regulation No 2176/84, it must assess the normal value of the goods in question, which invariably involves an element of generalization. In assessing the adjustment rate the institutions paid due regard to the differences both in costs and in profits between the individual companies concerned. Mita focuses its attention only on differences in profit while neglecting the fact that higher profits may correspond to lower costs. It was therefore reasonable for the institutions to fix a single adjustment rate.

B — Determination of the export price for Mita's export sales to independent purchasers

Mita states in the first place that more than 70% of its export sales to the Community are made to independent importers, most of them to independent OEM importers which buy PPCs from Mita for resale under their own brands.

Under internal corporate arrangements in the Mita group, all those sales are invoiced by Mita Europe, a wholly owned subsidiary of Mita based in Amsterdam. Mita Europe is not involved in the importation into the Community of the Mita products sold to independent purchasers in the Community but merely maintains a bonded customs warehouse in the Netherlands from which Mita products are shipped to customers in Europe, the Middle East and Africa.

In the case of Mita's sales to OEM importers, the product never passes through Mita Europe's bonded customs warehouse. For Gestetner, the products are delivered by Mita to Gestetner's forwarding agent in Japan — Cornes — and Gestetner, which obtains title to the products in Japan, arranges on its own for their exportation outside Japan. For all the other OEM customers, the products are delivered to the customer on a FOB basis in Japan.

In the case of sales to independent importers of Mita branded products, Mita alleges that the Council wrongly applied Article 2(8)(b) of Regulation No 2176/84 and deducted allowances of respectively 6% for the costs incurred by Mita Europe and 5% for a profit margin, that is, a total allowance of 11% of the export sale price invoiced to the independent importers for PPCs sold under the Mita brand. In the case of sales to independent OEM importers, Mita claims that the Council determined the export price by applying Article 2(8)(a), then deducting a hypothetical agent's commission for Mita Europe, whereas Regulation No 2176/84 provides no legal basis for such a deduction.

In the case of export prices for sales of Mita PPCs to independent importers, Mita considers that the prices paid to Mita Europe are arm's-length prices and therefore that Article 2(8)(a), according to which the export price shall be the price actually paid or payable for the product sold for export to the Community should have been applied. In fact, the Commission itself recognized (in recital 16 to Regulation No 2640/86) that the price paid for the product by the independent importer should be the export price within the meaning of that article.

With respect to the export price for sales to independent OEM importers, Mita observes that both the Commission and the Council recognize that the prices charged to OEM customers are the actual export prices within the meaning of Article 2(8)(a) (recitals 18 and 16 of Regulation No 2640/86 and Regulation No 535/87 respectively). According to Mita, the reference in recital 18 to Commission Regulation No 2640/86 (the latter's views being confirmed by the Council in recital 16 to the contested regulation) to an adjustment to the export prices to those customers (OEM) clearly shows that that adjustment was not made pursuant to Article 2(8)(b) in order to determine the export price for sales to OEMs but that the export price to independent OEM buyers had already been determined when the adjustment was made.

Moreover, in recital 92 to the contested regulation, the Council observes, on the question whether OEM buyers could be treated as exporters for the purpose of the adoption of antidumping measures, that such an approach would be inappropriate because it is clear that even if the OEM physically exports the product, the product is sold to the OEM for export and consequently the price paid for export to the Community is the price paid by the OEM to the Japanese producer concerned. As regards independent OEM buyers, the export price was therefore determined pursuant to Article 2(8)(a) and not Article 2(8)(b).

Mita maintains that the export price should not have been constructed pursuant to Article 2(8)(b) for sales to independent importers of Mita-branded products and that, in any event, that provision was inapplicable to sales to OEMs. It is apparent both from the purpose and from the mechanism for constructing the export price under that provision that it is not applicable in the present case.

The purpose of Article 2(8)(b) is to prevent manipulation of the export price where there is a relationship between the exporter and the importer or between the exporter and a third party beyond the importation stage. That risk of manipulation — whereby export prices are made artificially high and resales are made at a loss in the Community — does not exist where the importer is independent from the exporter and does not resell the product to a third party which is associated or has a compensatory arrangement with the exporter. Under such circumstances, any artificial increase in the export price will necessarily come out of the independent importer's or the third parry's pocket.

In the present case, with the exception of sales to Mita subsidiaries within the Community, the product concerned is actually imported by Mita's independent customers (in the case of sales to OEM buyers, the product is delivered in Japan and imported into the Community by the OEM buyer itself) and Mita Europe, which is economically an integral part of Mita, neither imports nor resells the products in the Community. There is thus no risk of the price charged by Mita, through Mita Europe, to independent importers in the Community being manipulated through an association or compensatory arrangement between Mita and importers in the Community.

The methodology for construction of the export price set out in Article 2(8)(b) also shows that that provision is inapplicable to determination of the export price for sales to independent importers, whether OEM or not. That methodology is inapplicable where neither the exporter nor any company related to it resells the product in the Community. In the case of exports to independent importers under the Mita brand and to OEM buyers, Mita Europe neither imports nor resells the products concerned in the Community — they are imported into the Community by independent importers and are resold in the Community to buyers unrelated to Mita. Therefore, the costs incurred by Mita Europe, and more generally the Mita group, between importation and resale in the Community are bound to be zero. Those costs are in fact borne by the independent importers which purchase from Mita, not by Mita.

According to Mita, as a result of the application of Article 2(8)(b) to export sales to independent importers under the Mita brand (and to OEM buyers, as the Council now contends) the export price to those customers was determined by making a double deduction of profit. The Council deducted from the export price a resale profit (or in the case of sales to OEM buyers a commission) of 5%, ignoring the fact that the product will be imported and resold with a normal profit by independent importers and OEM buyers in the Community.

Mita also claims that the Council's theory that Article 2(8 )(b) applies to export sales to independent importers in the Community is based on a formal approach and is not supported by economic reality. It challenges in particular the following arguments put forward by the Council: (a) that an invoice was issued by Mita Japan to Mita Europe in the context of those transactions; (b) that Mita Europe should be treated as an importer in the Community because it processes orders from and invoices independent customers in the Community and incurs costs allegedly typical of an importer; and (c) alternatively, Mita Europe is a company related to Mita Japan which incurs costs in the Community.

Mita states that the Council, in claiming that invoices were addressed to Mita Europe by Mita Japan — which constitutes an internal arrangement within the Mita group — disregarded the economic reality, namely the fact that the independent customers and OEM buyers to which the product was invoiced are independent importers. If Mita Japan had itself directly invoiced the independent customers and OEM buyers or if it had treated Mita Europe as a branch with no separate legal personality, with the effect that all invoices issued by Mita Europe would have formally emanated from Mita Japan directly, then the export price would be the price paid by the independent customers and the OEM buyers without any deduction.

An approach which makes results dependent upon legal form rather than economic reality is wrong and is inconsistent with the principles laid down by the Court (Case 170/83 Hydrotherm v Compact [1984] ECR 2999, at 3016; Case 15/74 Centrafarm v Sterling Drug [1974] ECR 1147; Case 30/87 Bodson v Pompes Funèbres des Régions Libérées [1988] ECR 2479). It is also inconsistent with the principles followed by the institutions and approved by the Court in other cases raising similar issues (in particular, Council Regulation No 1698/85 of 19 June 1985, Official Journal 1985 L 163, p. 1, paragraph 8, and the judgment in Joined Cases 260/85 and 106/86 Tokyo Electric and Others v Council [1988] ECR 5855, paragraphs 28 and 29).

As regards the role played by Mita Europe in transactions between independent importers and OEM buyers and the Mita group, Mita states in the first place that the functions discharged by Mita Europe are precisely those typical of an exporter. Mita considers it particularly contradictory to contend, as the Council does, that Mita performs functions which are typical of an importer, above all in the case of OEM products of which the Mita group loses control within Japan.

Moreover, the fact that Mita Europe allegedly incurs costs typical of an importer cannot justify the application of Ankle 2(8)(b) to export sales to independent importers, that provision being inapplicable in particular because Mita Europe neither imports nor resells the imported products in the Community. According to Mita, the rules governing the adjustment to be made to the export price in order to take account of Mita Europe's involvement are those laid down in Article 2(10) of Regulation No 2176/84.

Mita also contests the Council's argument that if Mita Europe cannot be treated as the importer in the Community then it should be regarded as a third party within the meaning of Article 2(8)(b), which is associated with the exporter, Mita Japan. The third party to which that article refers is the purchaser of the imported product to which an independent importer in the Community resells it. Furthermore, even if Mita Europe were to be regarded as a related third party within the meaning of that provision, the latter would not justify the deduction of costs incurred by Mita Europe since those costs are not incurred between importation and resale

Finally, Mita maintains that the approach followed by the Council in the present case is inconsistent with that followed in other antidumping investigations, in particular in the Iron or Steel Sheets and Plates case (Commission Decision 2247/87 ECSC of 28 July 1987, Official Journal 1987 L 207, p. 21, paragraph 10, and Commission Decision 3499/87 ECSC of 19 November 1987, Official Journal 1987 L 330, p. 42, paragraph 3) in which an exponer in Mexico was, for practical reasons, exporting to the Community through a wholly owned subsidiary in the United States. In that case the Commission used the actual prices charged by that subsidiary as the export price within the meaning of Article 2(8)(a).

Mita considers that there is no reason to apply Article 2(8)(b) on the mere ground that the invoicing subsidiary is based in the Community rather than in a third country.

The export prices used for determining the dumping margin were consequently calculated incorrectly and the antidumping duty determined on that erroneous basis should therefore be annulled.

Gestetner shares Mita's view that Article 2(8)(b) is not applicable in the present case. As regards sales of its products, Gestetner claims that the Council cannot possibly justify the deduction since it does not relate to anything occurring between importation and resale and is incompatible with the international rules on sale and purchase, which are based on the places of delivery and the passing of title (and in Gestetner's case, both took place in Japan). Moreover, since they were arm's-length transactions between independent companies there is no reason to doubt that the price paid by the actual importer is the price of the product sold for export to the Community.

According to Gestetner, either the Mita and Gestetner groups should have been treated as distinct economic entities, in which case the export price would have been that paid by the Gestetner group to the Mita group, or else the companies comprised in the two groups should have been considered separately, in which case the supposed activities of Mita Europe on behalf of Mita Japan were irrelevant because the PPCs were in fact exported to the Community by Gestetner's subsidiary GIL.

Finally, Gestetner claims that there is no conceivable justification for making a deduction from the price accepted to be the price actually paid on exportation to the Community in order to take account of the amount that is supposed to represent commission for an exporter's agent; and neither the Council nor the Commission found in the regulations that Mita Europe was or acted as an importer on behalf of Gestetner and other OEMs. The kind of activities that, according to the Commission, are performed by Mita Europe for the Mita group are performed by GIL for the Gestetner group.

The Council contends in the first place that it did not consider that the prices charged by Mita Europe to the OEM buyers constituted actual export prices within the meaning of Article 2(8)(a) of Regulation No 2176/84.

In the case under consideration, the Community institutions considered that the export price to the EEC was the price paid by Mita Europe to Mita, but that that price could not serve as a reference because of the relationship between Mita and Mita Europe. The Council had found that for all the sales for export to the Community Mita had invoiced to, and was paid by, Mita Europe, which had in turn invoiced to, and been paid by, the independent customers in the Community, whether OEM or other. In those circumstances, the export price had to be constructed under Article 2(8)(b) of Regulation No 2176/84. The Council took the price actually paid to Mita Europe by the first independent customer (whether OEM or other) and, as the regulation provided, deducted as costs incurred between importation and resale the costs and profit of Mita Europe in an amount of 5% for OEM sales and 11% for other sales.

If in the case of an independent importer all the costs incurred and the profit made after the goods pass the Community frontier concern that importer then the same principle must apply, in the Council's view, if an exporter group chooses to bear some of the costs normally paid by an independent importer within the Community, by setting up a company which coordinates the export sales and invoices to the customers and in turn is invoiced by the exporter. Thus all such costs — which effectively reduce the amount which the exporter group receives for the product sold for export, at the Community frontier — must be deducted from the price paid by the first independent buyer, whatever the details may be, otherwise Article 2(8)(b) would be deprived of its real meaning.

That provision takes account of the economic reality and in this case Mita Europe acted as a coordination centre by processing order forms and actually invoicing certain independent customers in the EEC for goods delivered, thus performing functions and bearing costs typical of an importer. In view of the objectives pursued by the antidumping regulations, someone who acts in that way should not be treated any differently from the person who finally presents the documents to the customs authorities and acts as the formal importer.

Finally, the Council argues that the arm's-length relationship between the independent customers and the Mita group does not mean that Article 2(8)(a) must automatically apply and that Article 2(8)(b) cannot be used for determining the export price. There is no price paid directly by the independent customers — OEMs or other — to Mita for the product sold for export to the EEC which could be taken as the export price under Article 2(8)(a).

Moreover, the existence of an association between the exporter and the formal importer is not a requirement for the application of Article 2(8)(b); the latter also applies if there is such an association or a compensatory arrangement between the exporter and a company within the exporter group which bears the costs incurred in the Community. That was the reason why the interpretative note to Article VI of the GATT allows the construction of expon prices in such situations. Thus, even if Mita's European subsidiary were not to be treated as an importer for the purposes of Article 2(8)(b), that provision would still apply owing to the association between Mita and Mita Europe.

The Council also rejects Mita's argument that the application of Article 2(8)(b) is not in accordance with the purpose of that article, in so far as it is based on the view that that article may be applied only to resales of products already imported. The Council is of the opinion that the question whether the product is resold before or after it is actually imported into the Community is not decisive for the reconstruction of export prices under Article 2(8)(b) of Regulation No 2176/84. Mita Europe resold within the Community the PPCs which were sold to it by Mita for export to the Community and the institutions based their reconstruction of export prices only on resales of PPCs which were actually imported into the Community.

According to the Council, the purpose of Article 2(8)(b) of Regulation No 2176/84 is to arrive at the CIF Community frontier price as if it had been charged by the exporter to an independent importer. Whatever the sales conditions, the price paid to Mita Europe by independent purchasers cannot be taken as the export price under Article 2(8)(a) since it is the price for resale within the Community. The export price is the price paid for export to the Community by Mita Europe, as shown above.

The Council therefore concludes that it was right to deduct from the price paid by independent customers to Mita Europe an amount of 5% in the case of OEMs and 11% in the case of sales to other independent customers, which amounts may be treated as Mita Europe's cost and profit or as commission.

The Council contests Mita's argument that the export price was calculated by deducting profit at two stages. It contends that Mita is confusing the allowance of 5% deducted from the resale price charged by Mita Europe for the hypothetical agent's commission in the case of sales to OEM importers and the deduction of Mita Europe's costs plus a 5% profit in the case of sales to independent importers.

Finally, the Council considers, contrary to Mita's assertion, that the application of Article 2(8)(b) of Regulation No 2176/84 is comparable with the practice followed by the institutions and previous decisions of the Court. As is apparent from the cases cited by Mita, Mita confused the method employed in constructing a normal value and the different methods employed in reconstructing an export price.

IV — The Council's replies to the questions put to it by the Court

In its reply of 23 May, the Council expressed its views on the following points.

Question A. State the level of profit achieved on OEM sales and own-brand sales as regards impact matrix printers in Japan.

The Council states that those profit levels are expressed as a percentage of dot matrix printer turnover on a weighted average basis.

Question B. State the level and nature of SGA expenses for OEM sales and own-brand sales to dealers as regards impact matrix printers in Japan.

The Council states that the nature of the SGA expenses for OEM sales and own-brand sales in the Japanese market is similar.

However, given certain differences in selling methods and the fact that different types of customers may be involved, there is a much higher proportion of direct selling expenses involved in selling own-brand products to dealers as against OEM products which are primarily sold at the distributor level. Those direct selling expenses are of course deducted as allowable expenses in accordance with Article 2(10)(c) of Regulation No 2176/84. The levels of SGA expenses were as follows:

In computing those percentages, account has been taken of the deductible expenses for both OEM and own-brand sales. That, together with the fact that the figures are now expressed as a percentage of turnover and not of cost accounts for the differences in the figures supplied to Nakajima in the dot matrix printer investigation (Case 69/89 — Commission letter dated 6 March 1989).

Question C. State in the case of the manufacturers of impact matrix printers who effected both internal sales and sales for export to the Community on an OEM basis whether the nature of the SGA expenses for OEM sales for export to the Community differed from that of SGA expenses for internal OEM sales.

In the Council's view, the nature of OEM sales for export and for OEM domestic sales is similar. In this context, it should be noted that one exporter which accounted for more than 70% of the total sales to OEMs of dot matrix printers in Japan did not claim any allowance for cost differences, which affected price comparability, between sales to OEMs domestically and for export to the Community. However, given the disparities of market conditions in the EEC and Japan and, in particular, the relative distribution structures, the levels of those expenses may differ in general and are different for different companies, and for any one company from time to time. Any such differences which fall within the provisions of Article 2(9) and (10) will be allowable.

The fact that there was a relatively large number of OEMs purchasing dot matrix printers on the domestic market in Japan confirmed the Council's view as expressed in recitals 12, 23 and 24 of Regulation No 535/87. As can be seen from the figures in the answer to Question B, the SGA costs incurred in selling to OEMs can hardly be considered minimal even if they are less than the costs incurred in own-brand sales. In any event, the differences in SGA expenses resulted mainly from the respective levels of direct selling expenses included in the SGA. Those direct selling expenses are of course deductible under Article 2(10)(c).

The Council also recognized that an additional cost difference would exist and took account of it by adjusting the profit level as described in the regulation in question. The recognition of this cost difference arose from the fact that OEMs in general carry out certain of the functions (and therefore incur the costs) which are normally carried out by the producers, for example advertising. The adjustment in percentage terms regarding PPCs is very close to the actual difference found in the dot matrix printer case. In this context, it is interesting to note that, had there been no OEM sales of dot matrix printers on the Japanese market and had the PPC approach to establish normal value in such circumstances been applied, the figures on SGA and profit for OEM sales would have been 14.7% and 5% respectively, that is to say 19.7% in total. The figures based on actual sales were 10.2% and 12.1%, that is to say 22.3% in total. The institutions' estimation can therefore be seen to be not only fair and reasonable but relatively accurate.

1 Language of the case: English.