Report for the Hearing in Case C-175/87

I — The applicant's business

Matsushita is the world's largest producer of consumer electronic goods.

Matsushita Electric Industrial Co. Ltd (hereinafter referred to as MEI) manufactures and sells consumer electronic and electrical products, industrial equipment and electronic components. It is divided into more than 30 divisions, one of which — the Office Equipment Division — is responsible for the manufacture and sale of plain paper photocopiers (PPCs). Matsushita Electric Trading Co. Ltd (hereinafter referred to as MET) is MEI's trading affiliate and is responsible for the export of PPCs to, inter alia, the Community. On 1 April 1988 MEI and MET merged to form a single company.

The companies Panasonic Deutschland GmbH, Panasonic UK Ltd and Panasonic Industrial UK Ltd, Panasonic France SA and Panasonic Belgium NV are wholly owned subsidiaries of MET or MEI or both and import inter alia PPCs into the Member States of the Community in which they are established.

The applicants Matsushita Electric Industrial Co. Ltd and Matsushita Electric Trading Co. Ltd (hereinafter referred to as Matsushita) consider that it is important to take account, for the purposes of their application, of the following observations concerning (a) the distribution channel for PPCs in Japan, (b) the distribution channel for the export of PPCs to the Community and sales of PPCs there and (c) with respect to sales to Original Equipment Manufacturers (OEMs) the status of OEMs in general and the functions of Community OEMs and of Matsushita.

A — The distribution channel for the sale PPCs Japan

MEI is not simply a manufacturer of PPCs but also performs a number of sales functions. These functions are mainly performed by the Office Equipment Division, assisted by MEI's Industrial Sales Division and Industrial Sales Offices.

The Office Equipment Division (hereinafter referred to as the OED) sells PPCs under the Panasonic brand to 59 companies (affiliated to MEI and to other companies of the Matsushita group, hereinafter referred to as related sales companies) which act as regional distributors selling to unrelated dealers which sell to end users.

The main task of its sales department is to assist related sales companies in their sales activities. They organize exhibitions, fairs, sales contests amongst related companies and dealers and they take purchase orders from related sales companies. In addition, the OED's service department provides technical assistance to related sales companies and to dealers. Finally, the OED is also in charge of the advertising of PPCs in Japan assisted by MEI's Industrial Sales Division and Industrial Sales Offices.

MEI's Industrial Sales Division, which employs about 150 people, is responsible for the marketing policy for industrial products, including PPCs in Japan. For example, in conjunction with the OED it determines PPC pricing policy, including the principles governing the granting of discounts to related sales companies. It is also responsible for the advertising and promotion of PPCs on a national scale.

MEI's 27 Industrial Sales Offices are responsible for the implementation of the marketing policy and are involved in advertising and promotion at regional level. They are also responsible for the collection of payments for sales made by the OED to related sales companies located within their territory.

The performance of all those sales functions by the OED, the Industrial Sales Division and the Industrial Sales Offices gives rise to substantial sales costs incurred by MEI (corresponding to a percentage of the sales price charged by MEI to related sales companies).

The related sales companies (in which the equity interest held by MEI and other companies in the Matsushita group varies from 12.5% to 100%) are responsible for the sale of PPCs to dealers established in their territories. Their activities involve not only the supply of PPCs but also the transport, advertising and promotion of PPCs, after-sales service and, where possible, the repair of PPCs sold to end users.

During the period of the investigation, the selling costs incurred by related sales companies for sales to unrelated dealers amounted to a percentage of the net invoice price charged to dealers.

B — The distribution channel for the export of PPCs to the Community and sales of PPCs there

During the period of the investigation, PPCs were exported by MET and imported by the abovementioned Panasonic companies and by other companies in the Community.

MET fulfils the sales contracts with the importers in the Community. It bears the costs of handling, storage, loading, transport and insurance of PPCs from the factory to the place of delivery specified in the sales contracts and makes financial contributions to importers' advertising and sales promotion expenses.

The functions relating to the sale of PPCs on the Community market are performed by the importers and include the determination and implementation of marketing policy (prices, discounts and so forth), technical assistance to wholesalers and retailers, as well as advertising and sales promotion.

C — Sales to OEMs

Matsushita states in the first place that OEM agreements on the one hand enable a manufacturer to achieve economies of scale and to sell products without having its own distribution network and, on the other hand, it enables the OEM to benefit from low production costs or from advanced technology developed by the manufacturer, while distributing the product under its own brand name and through its own distribution network and sales forces. In most cases the OEMs carry out all servicing and after-sales activity. They also advertise the products themselves.

During the period of the investigation, Matsushita sold PPCs on an OEM basis to four companies in the Community: Roneo France, Roneo UK, Roneo Belgium and the German office equipment manufacturer Olympia AG.

Sales to the Roneo companies were made directly by MET on an FOB Japan basis, the latter having incurred no advertising costs for such sales. The sales to Olympia AG were made by Matsushita's German subsidiary, Panasonic Deutschland GmbH, which incurred no advertising costs for such sales — the costs incurred by it were entirely attributed to the sales of Panasonic PPCs. That applies also to direct selling and personnel expenses, for which the methods of allocation (costs attributed to retail sales of Panasonic PPCs and costs attributed to sales to Olympia and other non-retailers) were accepted by the Commission when determining Matsushita's export price.

Matsushita states that there were no sales of PPCs on an OEM basis on the Japanese market during the investigation period. As regards the general policy followed on the Japanese market regarding OEM sales of similar products, Matsushita produced by way of example two OEM agreements which, it points out, were concluded direct between MEI and the OEM purchaser and provided for orders to be placed with MEI directly and for MEI to make delivery pursuant thereto.

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 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% on the PPCs exported by Matsushita.

Matsushita states that the Panasonic companies replied to the questionnaires for importers sent to them by the Commission. Matsushita also submitted a complete reply to the questionnaire for producers and exporters which the Commission sent to it.

The information contained in the Panasonic Deutschland GmbH's reply was verified in the course of a visit to its premises by Commission officials. Similarly, a verification of Matsushita's reply was carried out in Osaka at MEI's premises.

On 23 February 1987 the Council, on a proposal from the Commission, adopted Regulation No 535/87 imposing a definitive antidumping duty of 20% on imports of PPCs manufactured in Japan by Matsushita (hereinafter referred to as the contested regulation).

B — Written procedure and conclusions of the parties

Matsushita'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.

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 applicants claim that the Court should:

The Council claims that the Court should:

CECOM, intervening, claims that the Court should:

Ill — Submissions and arguments of the parties

III.1 — Admissibility

According to Matsushita, to the extent to which Regulation No 535/87, in which it is specifically named, contains findings concerning it, in particular the finding of dumping of 36.1% and the finding of injury, and results in the imposition of antidumping duties on products manufactured and exported by it, it is a decision in the form of a regulation which is of direct and individual concern to it within the meaning of the second paragraph of Article 173 of the EEC Treaty (see Case 258/84 Nippon Seiko KK v Council [1987] ECR 1923).

The Council makes no observations concerning admissibility.

III.2 — The substance

A — Determination of normal value

Matsushita claims that the Council infringed Regulation No 2176/84 when it determined the normal value.

According to Matsushita, (1) Article 2(3) and (7) of Regulation No 2176/84 was infringed in so far as the normal value was determined on the basis of the prices charged to independent dealers by related sales companies; (2) Article 2(3)(a) was infringed in so far as the Council decided that the trade-in discount for the main unit was not a discount and that the invoiced price should be increased by the amount of that discount in order to obtain the normal value; and (3) Article 2(3)(b)(ii) was infringed in so far as the Council included a manifestly excessive amount of general costs and administrative expenses in the constructed normal value for OEM sales.

1. Determination of the normal value on the basis of the prices charged to independent dealers by related sales companies

2. Inclusion in the normal value of the main-unit trade-in discount

3. Determination of normal value for sales to OEMs: inclusion of an excessive amount for general and administrative expenses in the constructed normal value

B— The comparison

Matsushita claims, in a submission subsidiary to the claim for annulment in respect of the determination of normal value, that the Council infringed Article 2(9) and (10) of Regulation No 2176/84 by refusing to grant additional allowances for differences in levels of trade.

The need to make adjustments to normal value in order to take account of differences in level of trade arises as a result of the Council's erroneous amalgamation of MEI and its related sales companies into a single economic unit and the consequent inclusion in normal value of the related sales companies' SGA expenses, which caused a false comparison to be drawn between an export price which is effectively at the ex-factory level and a normal value which is effectively at the regional distributor level.

According to Matsushita, when the export price and the normal value were compared, certain allowances were made pursuant to Article 2(10)(c) for differences in costs directly related to export or domestic sales. However, after those allowances were granted, a difference in level of trade remained owing to the fact that the export price included only the costs incurred by Matsushita in making PPCs available to importers at its premises, whereas the normal value included not only the expenses incurred by Matsushita on sales to related sales companies but also the costs incurred in making PPCs available to dealers at the related sales companies' premises.

In its view, the notion of level of trade implies that sales are made by a person to a defined category of customers and that stage must be determined by reference to the costs incurred by the seller in performing certain functions which define his position within the manufacturing and distribution process.

In order to satisfy the requirement of a fair comparison under Article 2(9), the Council was under an obligation to make additional adjustments other than those made for the factors listed in Article 2(10) in order to take account of remaining differences in level of trade, even if those differences did not satisfy the conditions under Article 2(10). That is because Article 2(9) constitutes a ground for the granting of allowances for differences in the level of trade which is distinct from and additional to Article 2(10).

Having failed to do so, the Council should have granted the requested allowances under Article 2(10)(c). On the one hand, there remained a difference in the level of trade. On the other, the requirement of a direct relationship between costs and sales could not prevent the granting of such allowances, for three reasons: (a) if no allowance could be made to take account of the only costs (which are general expenses) remaining in the normal value and export price which can cause comparison to be made at different levels of trade, it would not have been necessary to provide specifically for differences in the level of trade; (b) allowances may be made for such expenses in special circumstances — Article 2(10)(c) provides that generally no allowance will be made for general expenses; and (c) the application of the guidelines laid down in Article 2(10) for the implementation of the principles laid down in Article 2(9) cannot possibly lead to a situation which deprives that principle of its effect.

Finally, Matsushita claims that Article 2(9) and (10)(c) must be interpreted in accordance with the 1979 Anti-Dumping Code, which forms an integral part of Community law and requires the normal value and the export price to be compared at the same level of trade.

The Council contends that there is no difference in level of trade. The related sales companies, which performed functions of a sales department, in fact were selling at the same level of trade as Matsushita itself, if there had been any direct sales by Matsushita to independent buyers. Thus, the level of trade of which it took account both for the normal value and for the export price was the first level of trade in the chain of distribution. If one were to look at the sales which were made for which normal value and export price had been determined, the Commission had found that such sales were generally to the same category of customers and thus at the same level of trade.

In addition, the Council submits that even if there was a difference in the level of trade, Matsushita still failed to show that any alleged difference affected price comparability after the other adjustments under Article 2(10) had been made. Nor did it show to what extent, if any, prices would have been different from those established on the Japanese market if the category of customers in Japan had been exactly the same as that in the Community market.

As regards the differences in administrative and general expenses, Article 2(10)(c) clearly provides that normally no adjustment is to be made for such expenses.

Finally, the Council does not share Matsushita's view as to the manner in which the level of trade should be determined. The antidumping regulation is not concerned with comparing costs, but with the comparison of prices. Therefore it is clearly stated that only differences which affect price comparability can be taken into account, as is evident from Article 2(10) of Regulation No 2176/84.

With respect to the refusal to grant the adjustments requested in respect of trade-in discounts, the Council states that the costs of running a trade-in payment scheme form part of the SGA expenses and cannot therefore be allowed as an adjustment under Article 2(10)(c). In addition, there was a value received in return for the trade-in payment (recital 13 to the contested regulation).

The benefit received by MEI is that which results from the used machine being removed from use. MEI and all the other manufacturers of PPCs selling in Japan enjoy the cumulative benefit which results from the certainty that the traded-in machines will no longer be used by anyone, which guarantees that there will be a regular and complete replacement of all the PPCs in use within a specific period (corresponding to the average period for which the first user is willing to retain a new PPC). The trade-in payments therefore have the effect of artificially reducing the working life of PPCs in Japan. The result is that manufacturers collectively increase their sales of new PPCs.

The Commission received no satisfactory evidence to allow it to conclude that the trade-in payment or discount was merely an ordinary discount granted in addition to the various other types of discount for which the sole benefit was the sale under consideration. The burden of proof in that respect clearly falls on the party claiming the allowance.

C — Illegality of Article 2(10)(c): incompatibility with the 1979 Anti-Dumping Code

Matsushita claims that Article 2(6) of the Anti-Dumping Code imposes a clear, unequivocal and unconditional obligation to compare the normal value and the export price, and requires the comparison to be equitable; it is therefore a provision which has direct effect.

It follows that, in accordance with previous decisions of the Court, Matsushita may treat Article 2(10)(c) as void in the event of that provision being interpreted as authorizing the Council to refuse to grant adjustments, even though the normal value and the export price are not comparable as regards level of trade.

The Council replies that in the first place, as the Court has held (in Joined Cases 21 to 24/72 International Fruit Company NV and Others v Produktschap voor Groenten en Fruit [1972] ECR 1219; Case 9/73 Carl Schlüter v Hauptzollamt Lörrach [1973] ECR 1135; Joined Cases 267 to 269/81 Amministrazione delle Finanze dello Stato v Società Petrolifera Italiana and Others [1983] ECR 801), the rules of the General Agreement on Tariffs and Trade, and in particular Article VI thereof, are not directly applicable in the Community and do not confer rights on individuals. The Council submits that the same principle applies to the 1979 Anti-Dumping Code.

It also states that in its judgment in Case 240/84 (NTN Toyo Bearing [1987] ECR 1809), the Court based its entire findings solely on the interpretation of Council Regulation No 3017/79 and therefore clearly indicated that the issue to be decided is limited to the question whether the contested regulation is in compliance with the basic Community antidumping regulation, without its being necessary to refer to Article VI of the General Agreement or the Code (referred to by the applicants).

In any event, the Council considers that Regulation No 2176/84 is in full accordance with the Code. First, the Code left the contracting parties a considerable margin of discretion as to the way to implement it in national legislation and, secondly, the Code does not give any guidance as to what the term fair comparison means or how level of trade should be interpreted.

Regulation No 2176/84 defines in a rather precise way how the purpose of fair comparison is to be achieved and properly solved the problem of the level of trade.

Matsushita's arguments on this point are therefore without merit.

D — The injury

1. The concept of Community industry

Matsushita states that, in view of the numerous imports from Japan by the three principal complainants (Rank Xerox, Océ and Olivetti), the latter come within the scope of Article 4(5) and Article 5(1) of Regulation No 2176/84, the purpose of which is, inter alia, to prevent European undertakings from seeking the adoption of antidumping measures relating to exports which they themselves have encouraged or required from their suppliers. Matsushita also states that general considerations of fairness preclude undertakings which have benefited for a considerable period from Japanese exports from declaring that they are victims of such exports. Rank Xerox cannot be permitted both to depend on exports from Japan and at the same time to complain about them. Similar reasoning applies also to Océ and Olivetti in so far as they imported from Japan, albeit from unrelated suppliers, finished copiers which they resold profitably under their own brand name.

According to Matsushita, another purpose of Article 4(5) is to ensure that the examination of the alleged injury is not distorted by the inclusion, in the category of Community producers, of importers of allegedly dumped products. The exclusion of a related firm might be motivated either by a concern that its relationship puts it in a better position than its unrelated competitors or by a concern that disentangling whether it had benefited or been damaged by imports in question was hopelessly difficult and should not be pursued.

Matsushita considers that the Commission should have followed its approach in the Figure-skating boots case (Commission Decision 85/143 of 18 February 1985, Official Journal 1985 L 52, p. 48), in which it excluded the complainant from the Community industry because it was the main importer in a Member State of products from a given country, it purchased them at the lowest prices and its imports were increasing continuously.

Matsushita does not claim that there is no European production of photocopiers. It observes, however, that there was only Community production in the market for large machines and that Community production of small machines was small or nonexistent and, in any event, the companies that claimed to engage in it were estopped from complaining about Japanese exports of small machines because they were linked to the exporters and profited from the exports. That is why, in Matsushita's opinion, there was no Community industry eligible to complain about injury in respect of imports of small photocopiers from Japan.

It is inappropriate to minimize the extent of Rank Xerox's links with Japan, contrary to the contentions of the Council and CECOM. Rank Xerox, 51% of whose shares belong to Rank Xerox Corporation, owns 50% of the shares in Fuji Xerox, which it regards as its principal associated company (see page 15 of its 1985 Annual Report). It was from Fuji Xerox that Rank Xerox procured large quantities of products in the form of finished PPCs bearing the Rank Xerox label (OEM supplies), kits and components, as well as technical and design assistance.

According to Matsushita, in view of the link between Fuji Xerox and Rank Xerox and the latter's financial interest in the subsidiary whose products it purchases, the Commission should have realized that it was impossible to make a reliable assessment of the injury, having regard to the uncertainty surrounding the effect on Rank Xerox of imports from Japan. If it bought from Fuji Xerox, it made a profit as a 50% shareholder and it could influence the transfer price to itself for the finished copiers and for components. It is unclear whether the Commission tried to examine whether the supposedly low profits of Rank Xerox on sales of photocopiers which it made were influenced by the prices charged for technical assistance and components by its affiliates in other countries.

As to the price of components, Rank Xerox had an interest, as an assembler and reseller, in low prices, but also an interest, as a shareholder, in high prices. If Rank Xerox paid a low price to Fuji Xerox for finished copiers bearing the Rank Xerox label, it could sell them in Europe with opportunities for greater profits.

Matsushita then states that in earlier decisions the institutions did not act in the same way as in the present case (Commission Regulation No 757/84 of 22 March 1984, Electronic Weighing Scales, Official Journal 1984 L 80, p. 9; Commission Regulation No 163/83 of 21 January 1983, Official Journal 1983 L 23, p. 9; Commission Decision No 83/428 of 26 August 1983, Camping Caravans, Official Journal 1983 L 240, p. 12; Commission Regulation No 2684/88 of 26 August 1988, Video Cassette Recorders from Japan and Korea, Official Journal 1988 L 240, p. 5; Commission Regulation No 1500/83 of 9 June 1983, Outboard Motors', Official Journal 1983 L 152, p. 18; Commission Decision No 85/143 of 18 February 1985, Figure-Skating Boots, Official Journal 1985 L 52, p. 48; Commission Regulation No 2936/82 of 28 October 1982, Copper Sulphate from Yugoslavia, Official Journal 1982 L 308, p. 7; Council Regulation No 3339/87 of 4 November 1987, Urea from Libya and Saudi Arabia and other countries, Official Journal 1987 L 317, p. 1; Commission Regulation No 997/85 of 18 April 1985, Glycine from Japan, Official Journal 1985 L 107, p. 8).

It also compares the institutions' treatment of certain Rank Xerox production facilities with the treatment of other factories dependent on components from Japan, referring to Article 13(10) of Regulation No 2176/84, the anti-circumvention provision of the antidumping regulation which provides for the imposition of duties on products made in European screwdriver factories. In determining whether circumvention has occurred, the Commission pays attention to the relative values of the components entering the factory and determines that circumvention has occurred if the value of the parts from the country of exportation exceeds 50% of the value of all parts. Matsushita considers it highly likely that, on the basis of the added value numbers given by the institutions, the low-volume operations of Rank Xerox would have been deemed an unfair means of circumventing antidumping duty.

Thus, where Rank Xerox imports the majority of its components of a particular copier from Japan, but has concrete plans for increasing its European content, this entitles it to be counted as part of the Community industry and, as such, to be protected against imports from Japan. But when a Japanese-owned factory does the same thing, its operations are said to be a circumvention of Community policy.

Having regard to the foregoing, Matsushita observes that Rank Xerox should have been excluded from the Community industry. Océ and Olivetti, which were also importers of Japanese PPCs and whose imports represented 35 to 40% of their sales and rentals of new machines, should also have been properly excluded from the definition of Community industry.

The Council states that the concept of Community industry involves two distinct issues: whether the complaint was admissible on the ground that it was supported by a major proportion of Community industry and whether the established Community industry was correctly defined for the purpose of determining the injury. The Council points out that the purpose of defining Community industry in Article 4 of Regulation No 2176/86 is to determine clearly what companies may complain about unfairly priced imports and in respect of what companies injury must be determined. Whilst it may be appropriate to accept a complaint which is also supported by a producer having links with the dumping exporters, it may be necessary to exclude that producer from the Community industry in the assessment of injury if it has inflicted injury upon itself.

With respect to the admissibility of the complaint, the Council submits that if Rank Xerox were to be excluded, Océ, Olivetti and Tetras, which held only small market shares, would still constitute a major proportion of Community production and would therefore be taken into consideration in determining the admissibility of the complaint.

As to whether the established Community industry was correctly defined for the purposes of determining injury, the Council states in the first place that Matsushita misrepresents the previous practice of the institutions in that field. In particular, the facts of the case now before the Court differ considerably from those of the Ice Skates case referred to by Matsushita.

According to the Council, the Ice Skates case refers to specific circumstances, which were that the complainant was the largest importer of the goods from one country into one Member State, it was buying at the lowest prices and its imports were continually increasing. It was therefore excluded from the Community industry. By contrast, in the present case imports by Community producers were generally small in volume and value and, with regard to components, were decreasing rather than increasing (recitals 55, 57, 58, 66 and 71 of the contested regulation).

In Electronic Weighing Scales (Commission Regulation No 757/84, Official Journal 1984 L 80, p. 9), the Commission excluded two Community producers from the complaining Community industry because of technical cooperation links which those companies had with Japanese importers. That decision did not, however, affect the outcome since the remaining producers still represented 72% of Community production. The situation in that case was different from that in the present case.

In Copper Sulphate from Yugoslavia (Commission Regulation No 2936/82, Official Journal 1982 L 308, p. 7), a producer which also imported the dumped product was not excluded from the Community industry since its primary interest lay in domestic production and it had been forced to import the unfairly priced products in order to maintain its market share. The facts are substantially similar to those of the photocopier cases.

The Council states that the various aspects which led it to conclude that each of the Community producers which supported the complaint should be considered as part of the Community industry are set out in recitals 55 to 77 of the contested regulation and none of the arguments submitted by Matsushita would suffice to reach a different conclusion.

The Council observes that Article 4(5) of Regulation No 2176/84 empowers the institutions to decide whether or not a company should be excluded and that Community producers must, in general, be treated as part of the Community industry unless there is a reason to exclude a particular producer.

The Council states in the first place that the company in question considers itself entitled to protection under Regulation No 2176/84 and that it applied for action by the institutions. The institutions must therefore have good reasons to show that, despite the exercise of the procedural right, the relation necessitates an exclusion.

The Council then observes that when determining whether to exclude Rank Xerox, which had made use of the procedural right conferred on it by Article 5(1) of Regulation No 2176/84, from the Community industry, the institutions applied the self-inflicted injury test. It is the position of the institutions that a Community producer related to an exponer which considers itself injured and supports a complaint against dumped imports will be excluded from the Community industry if the producer has caused injury to itself, since no protection against self-inflicted injury should be granted under Regulation No 2176/84.

In that connection, the Council contends in the first place that it is necessary to look at the companies' operations globally. In doing so, the smallness of the Rank Xerox-Fuji Xerox link becomes apparent, relative to the overall size of Rank Xerox's European operations. Transfer sales between Rank Xerox and Fuji Xerox comprised only 7% in volume of Rank Xerox's total sales between 1981 and 1985. The Council then submits that Rank Xerox's corporate relationship with Fuji Xerox did not have an impact on the commercial link between the two companies sufficient to justify the exclusion of Rank Xerox and that the benefits Rank Xerox derived from its corporate relationship with Fuji Xerox, for example dividends, are insignificant when assessed against the injury caused to Rank Xerox by dumping by other producers (recitals 61 to 67 of the contested regulation).

With respect to the previous decisions cited by Matsushita, the Council considers that they do not support its argument that Rank Xerox should be excluded from the Community industry. None of the cases indicates at what point a structural or commercial link between a Japanese and a European company is so strong that the institutions are compelled to exclude the European company from being part of the Community industry. The issue here is what maximum criteria are admissible for a company still to be considered as part of the Community industry even if there is a direct relationship between the two companies and if certain products and components were imported.

A clear distinction should be made between Japanese companies owning subsidiaries in Europe and the present case, where a European company owns a substantial part of a Japanese company. Such ownership may facilitate supply with Japanese components or equipment but it does not mean that the European parent company can no longer be considered as part of the Community industry. Rank Xerox is a longstanding producer in the Community, with a long-term commitment to investment and employment within the Community.

According to the Council, it is improper to compare the proportion of components required for individual products to be European with the maximum degree of links permitted to still include its producer within the Community industry. The Council also observes that assembly operations by Japanese exporters in the Community were started or substantially increased after the opening of the antidumping investigation; Rank Xerox's plant in the United Kingdom was operational over a long period before the investigation and its use of European-sourced parts increased, whereas the assembly of Fuji Xerox components had not significantly increased since the opening of the antidumping investigation.

Finally, the Council maintains that there is no indication in the institutions' decision of any manifest error of appraisal or misuse of powers.

CECOM states that none of its members may be excluded from the Community industry as being a producer related to the exporters of the dumped products (Article 4(5) of Regulation No 2176/84). Under the definition of the word related it is understood that a domestic producer is considered to be related to an exporter or importer only if one of them controls the other, or if they jointly control or are controlled by a third person, and there are grounds for believing that the effect of the relationship is such as to cause the domestic producer to behave differently from those domestic producers who are not related. According to CECOM, Rank Xerox and Fuji Xerox are not related companies within that definition. Rank Xerox does not control Fuji Xerox, in which it has a 50% shareholding equivalent to that of its joint venture partner Fuji Photo Film Co. Ltd, and management control of the joint venture is vested in Fuji Photo. Moreover, the other European copier manufacturers forming CECOM are not controlled by Japanese companies either in such a way as to behave differently from unrelated domestic copier manufacturers.

CECOM considers that there is no reason to exclude European manufacturers of PPCs from the Community industry on the ground that they have imported and still import PPCs from Japan.

Therefore, in CECOM's view, the partial dependence of European photocopier manufacturers on a Japanese supply for small copiers was a last resort, a self-defence measure in the face of massive dumping from Japan and by no means an autonomous choice of the European industry. In consequence of such dumping and displacing strategy by the Japanese companies, CECOM members were not able to attain the prices they had calculated for low-volume and medium-volume copiers of their own production and the feasible prices would not achieve the return on investments required. The investments of European copier manufacturers have therefore mainly been concentrated on higher-volume models which still yield a minimum profit. In order to offer a full line of PPCs on the market, those manufacturers were obliged to continue and partially even enlarge supplies of lower-volume models from Japan.

CECOM states that none of its members inflicted injury upon itself by importing dumped Japanese copiers, since they all sold the imported models at prices corresponding to their own prices and therefore did not benefit from such imports. The injury suffered by the European PPC manufacturers was inflicted by Japanese imports at dumped prices.

CECOM then analyses the situation of each of the four European photocopier manufacturers.

It maintains in the first place that Rank Xerox purchased from Fuji Xerox and imported PPCs and copier components originating in Japan in order to complete the range of models offered in the Community market and thus acted with a view to self-protection. Rank Xerox's decision to buy low-end copiers from Fuji Xerox in Japan was primarily a question not of quickness on the market (recital 65 to the contested regulation) but of lack of profitability in the case of an own production in the Community. It also considers that the imports of a Fuji Xerox model by Rank Xerox did not cause injury to Rank Xerox or indeed to other Community manufacturers because the market price was set by the flood of other earlier Japanese imports. Thus, when Rank Xerox sold copiers of a model sourced from Fuji Xerox and also produced by Rank Xerox in the Community the prices were the same for both and were calculated to make profit. This demonstrates that the injury suffered by Rank Xerox as a member of the Community industry was inflicted upon that company by the Japanese dumping practices, without enabling Rank Xerox to benefit from the sale of dumped Fuji Xerox copiers in the common market.

In the case of Océ and Olivetti, CECOM states that those two companies purchased certain copier models in Japan primarily or exclusively in order to offer a full range of models to their customers. They did not succeed in developing and marketing a fuller range of their own manufactured models owing to the depressed prices in the European copier market set by Japanese exports at dumped prices. The Community authorities concluded that Océ and Olivetti had not inflicted injury on themselves through their pricing policy (recital 71 to the contested regulation) and, according to CECOM, although they had to follow the low prices set by the Japanese exporters, their limited imports from Japan did not have detrimental effects on the prices of their own and other Community producers' PPCs.

Finally, with regard to Tetras, CECOM states that when that European photocopier manufacturer was about to introduce a personal photocopier known as Attaché I, Canon started a very aggressive price undercutting campaign in France for its PC 10 and PC20 models. This confirms that the Japanese competitors reacted with substantial price undercutting when European manufacturers started to develop, produce and market PPCs at the low end of the copier market.

CECOM concludes that the foregoing arguments show that the Council's decision to regard Rank Xerox, Olivetti, Océ and Tetras as the Community industry within the meaning of Article 4(5) of Regulation No 2176/84 is lawful and was the only possible decision in the exercise of its discretionary power. The members of CECOM represent more than 80% of total Community copier production and they are primarily in the position of producers, having financed research and development in the Community. Their share of imports in relation to own production is low and the dumped imports were mainly due to unfair Japanese trading practices.

2. The concept of like product

With respect to the definition of what must be regarded as like products, Matsushita states, referring to recital 31 to the contested regulation, that the physical differences and the unlikeness between photocopiers in adjoining segments are particularly striking if personal copiers and copiers in segment la are considered. It states in particular that the price per copy and the relative utility of a personal copier diminish as copy volume increases, so that a buyer of a segment 1 copier is unlikely to buy a personal copier even though the initial investment may be lower.

Matsushita also states that the Commission Directorate-General for Competition, in its decision of 22 December 1987 concerning the Canon/Olivetti joint venture (Official Journal 1988 L 52, p. 51), defined three relevant markets: low-volume copiers (personal photocopiers up to Dataquest segment 2), mid-volume copiers (segments 3 and 4) and high-end copiers (segments 4 to 6). The Directorate stated that each of the markets embraced interchangeable copiers in terms of their characteristics, use and price and that the definition did not preclude a certain interchangeability between the three markets.

According to Matsushita, each of the categories defined above constitutes a group of like products. In its view it cannot be contended that all photocopiers are like products by virtue of the fact that consumers have a choice between a centralized system and a decentralized system. In Matsushita's view, the degree of substitution — and thus the competition— between different market segments is less than that within individual segments, which shows that there is real segmentation and that it is not possible to treat all the combined segments as a single market and all products as like products.

The Council observes that in considering what should be treated as the like product within the meaning of Article 2(12) of Regulation No 2176/84, the institutions had found that all PPCs, in adjoining segments at least, from the smallest personal photocopier to segment 5 of the Dataquest classification, should be considered like products (recital 28 et seq. of the contested regulation).

According to the Council, all the surveys (for example that of Dataquest and the Info-Markt survey, the latter having been carried out at the Commission's request to determine which PPCs compete in the Community market and to facilitate comparison between the various models) recognize overlaps between adjoining segments. Furthermore, the Commission was supplied during the course of the investigation with evidence demonstrating that machines in different segments competed with each other (offers for contracts showing that suppliers were offering models in different Dataquest segments to satisfy specified customer demands) and the Info-Markt survey confirms that customers have a real choice between centralized facilities (large photocopiers) and decentralized facilities (smaller copiers down to personal copiers). According to the Council, there is also evidence that certain Japanese exporters market and promote their products in such a way as to encourage the impression that they compete with larger models.

Finally, the Council observes that the findings of Directorate-General IV cited by Matsushita do not contradict the Council's position since DG IV states that each of the relevant markets embraced substantially interchangeable photocopiers and adds that market definition and the definition of the like product are two separate issues.

With respect to personal photocopiers, the institutions acknowledged that their development helped expand the market for PPCs but also that it increased competition at the bottom end of the market. The fact that there is competition is witnessed by the evidence on cross-segment competition and the Info-Markt survey and the overlap in copy volume and speed classification is also shown in the Dataquest classification for those products. According to the Council, the difference regarding maintenance (disposable cartridges for certain components of personal photocopiers and servicing of segment 1 copiers by technicians) and the fact that costs vary and the price per copy may be different from one model of PPC to another does not mean that those products cannot be regarded as like products.

The Council considers that the fact that there is allegedly a limited number of small PPCs produced in the Community is irrelevant. The table in Annex 1 to its defence shows that Community-produced models existed in all segments in the reference period and the marginal distinguishing characteristics between Community-produced and Japanese models with regard to certain precise technical features do not affect the like product question.

Finally, in response to Matsushita's argument that the PPCs developed by Japanese manufacturers were entirely novel in concept, design and engineering and that they offered improved reliability, in so far as it is a like product argument, the Council observes that Community producers manufacture products which are broadly as advanced as any on the market and have the same basic physical characteristics and functions as the Japanese-made competing products.

The Council therefore concludes that the like product was correctly determined and that Matsushita's arguments are without merit.

According to CECOM, all copiers within the total range of PPCs must be regarded as like products, in particular personal photocopiers and copiers in segment la, specifically mentioned by the applicant. It adds that all PPCs belong to the total market, even those with a speed range exceeding 75 copies per minute. Moreover, the Council decision that definitive antidumping duties could not apply to machines classified in Dataquest segments 5 and 6 is not in conformity with the position taken by CECOM in the administrative procedure.

In CECOM's view, even if, in terms of size and function, the machines are not alike in all respects, all the PPCs have the same characteristics and functions and technical performances which are more or less on the same level. In that connection CECOM cites Joined Cases 260 and 106/86 Tokyo Electric Company v Council, concerning antidumping duties on electronic typewriters and in particular the Opinion of the Advocate General of 8 March 1988 to the effect that the existence of separate markets for compact and professional machines was not self-evident and that, whilst weight was a factor which might allow a distinction to be drawn, the functions performed by the machines must also be at least as important a factor. In those cases, the applicant had not shown that there would be any substantial difference between the functions of compact and professional typewriters. In CECOM's view the same appraisal is valid for the single market of copiers.

Regarding the existence of Community production of small copiers, CECOM states that during the reference period Community producers also manufactured and sold small copiers (Rank Xerox and Olivetti) and that the low share of CECOM's members in the lower end of the market was due to the displacing competition of Japanese photocopier manufacturers.

3. The injury elements

Matsushita contests the Commission's determination of the injury on the basis of the following factors: low profitability, inability to attain economies of scale, price undercutting, increase in volume of Japanese exports and increase in the market share held by the Japanese exporters.

Low profitability

Matsushita states that the Commission was wrong to rely exclusively, in considering the profitability of the complainants' activities, on their sales of small and medium-sized photocopiers of their own manufacture. According to Matsushita, it should have taken account of (a) profits which the complainants obtained from photocopiers imported by them from Japan, (b) the high profits obtained from the sale of related products and other items, which brings all suppliers of photocopiers, especially small photocopiers, similar or higher profits than those from the sale of machines, and (c) the profitability of the complainants' activities in relation to all photocopiers, not merely small ones.

Matsushita considers that the profitability was thus artificially lowered and that the statement contained in recital 82 to the contested regulation does not validly apply to Rank Xerox, Océ and Olivetti. Those companies have more than sufficient income to finance the development of new products.

Inability to attain economies of scale

Matsushita claims that the complainants' limited economies of scale were due to their quite late commencement of manufacturing. They had financial resources which would have been sufficient to enable them to penetrate that market if they had had the technical capacity, and they were not prevented from doing so by financial difficulties attributable to Japanese exports.

Price undercutting

Matsushita states that the allegedly low profitability and other difficulties suffered by the complainants were attributed to the low prices of Japanese products. It refers to recitals 48 and 49 to the contested regulation in support of its view that those products were not less expensive than those sold by the complainants, but that they were technically superior.

The study by Info-Markt, an independent market research company commissioned to prepare a survey of competitive models in the German marketplace, suggests that the price of Community models should have generally been higher than that of comparable Japanese models because Community models are often designed for the rental market and consequently generally have a longer life cycle. Matsushita observes in that connection that the Commission compared longer-lasting Community models against otherwise comparable Japanese models and still found little price difference. If there was any price undercutting, it was on the part of Community manufacturers.

According to Matsushita, the institutions' argument seems to confirm that the success of the Japanese models depended on developing and manufacturing attractive models at competitive prices. It is stated in recital 86 to the contested regulation that the success of the Japanese small copiers was not demonstrably due to their quality except in respect of multiple features. The Japanese photocopiers were not more expensive but were technically superior and therefore more attractive in the marketplace. Thus, there was competition, not undercutting.

Matsushita also states that it is apparent from the table prepared by Office Technology Research that the prices of PPCs in the Community have been relatively stable for about ten years by comparison with other electronic office products whose prices have fallen much more sharply, which contradicts the view that the prices of small PPCs could have been kept low in the 1970s — the reason for which Océ decided not to develop its own model.

Inaease in the volume of Japanese exports

Matsushita claims that the expansion in the volume of Japanese exports did not constitute injury because it was largely coextensive with the expansion of the new market for small photocopiers and that that very expansion offered an opportunity for profitable sales to European producers which they would not otherwise have had.

Increase in the market share held by Japanese exporters

As regards the increase in the market share held by Japanese exporters, Matsushita considers that it reflects their continued success in the market for small photocopiers, which was a function of quality and not of price.

The Council contends in the first place, on the question of the Community producers' profitability, that what is relevant is the profits or losses on their production and sale of PPCs and not their overall situation as a result of their production and sales of other products. The Basic Regulation requires the effects of dumping to be assessed in relation to Community production of the like product, not on other products or operations as a whole, and therefore it is unnecessary to take account of other factors that do not concern the like product.

With regard to the prices of dumped imports, the institutions had found that there was price undercutting which had caused injury (recitals 41 to 49 to the contested regulation) but that the undercutting could not be sufficiently quantified to be taken into account in calculating the duty necessary to remove the injury (recital 110 to the contested regulation). The Council had stated clearly that price undercutting was widespread and practised by all exporters without exception (recitals 47 and 49 to the contested regulation). It was also generally transient in nature, not because the Japanese-made models were sold at higher prices but because prices for Community-made models were lowered to compete with Japanese-made models. Finally, price undercutting was generally not greater than 10%, but the Council notes that continuous and widespread undercutting of prices inevitably has as its consequence a depression of prices and makes it impossible for the competitor to maintain the price level that would otherwise have existed.

The Council considers that the charging of a price for a technically superior product or a more richly featured model which is the same price at which a less-featured but otherwise comparable model is being sold constitutes price undercutting within the meaning of Regulation No 2176/84. If the initial list prices of two products are the same, that is not conclusive evidence that there is no price undercutting — the two models would have to be comparable in all respects in order to allow such a conclusion. In the Council's view, where the practice of charging a lower price for the same model or the same price for a better model is a consequence of dumped imports, it is considered as unfair competition, the effects of which must be evaluated in determining the elements of injury under Regulation No 2176/84.

The Council observes that Matsushita does not dispute that there was an increase of market share for Japanese-made PPCs and that that increase coincided with a decrease in the market share of European-made PPCs, despite growth in demand.

The Council then contests Matsushita's assertion that Japanese exporters helped create the market for low-volume PPCs, which would otherwise not have existed. According to the Council, Rank Xerox produced for a long time a low-volume segment 1 photocopier, the 660 model, and other Community producers have also produced and supplied the market with low-volume PPCs (Tetras from 1985, Olivetti from 1979/80 and Develop from 1980/81).

With regard to the smallest models, or personal photocopiers, the Commission had acknowledged that they had developed a new market but also that they increased competition at the low end of the market. Even if the institutions had treated the personal photocopier as a separate like product, the fact would nevertheless remain that there was still Community production. Tetras, a Community producer, developed a personal photocopier in 1984/85 to compete with Canon machines.

CECOM considers that the European production of photocopiers, representing a strategic product in the field of office automation, was targeted by several Japanese photocopier manufacturers and therefore that all the other factors outlined in Article 4 of Regulation No 2176/84 for the evaluation of injury are of minor importance.

With respect to price undercutting, CECOM considers that owing to the large-scale dumping over a long period and a Japanese market share of about 85%, the Japanese competitors could easily apply the method of selective price undercutting, enabling certain special models of certain competitors to be attacked in specific markets.

According to CECOM, no evidence has been given for an allegedly better technology or higher effectiveness of Japanese photocopiers. It is also incorrect to claim that Community-produced models have a longer life and are designed for the rental market. Finally, a price comparison between European and Japanese-made photocopiers, taking into account feature-related price undercutting, would have shown substantial undercutting margins despite the existence of price depression.

CECOM claims that dumping, by definition, relates to machine sale prices and that profitability therefore has to be assessed in relation to the Community production of the like product, in conformity with Article 4(4) of Regulation No 2176/84, not in relation to business as a whole. Dumping impairs the profitability of Community producers either by preventing a sale completely or by rendering sales possible only at unfairly reduced returns. Profits made on after-sales business are a separate matter and rental profitability was taken into account in the Commission's calculations.

Finally, one of the main effects of the low profitability of Community photocopier manufacturers was the inability to benefit from increased economies of scale (recital 83 to the contested regulation), which was caused by dumping on the part of Japanese manufacturers, not by the late commencement of Community production — the latter in fact commenced before Japanese manufacture.

4. The causal link between the injury and the dumped imports

Matsushita claims in the first place that the development of the European photocopier market shows clearly that the principal cause of the modest level of activity of the three complainants in manufacturing small photocopiers was their decision not to commence manufacture. Matsushita states that in the 1960s and 1970s the Xerox Corporation and its European affiliate Rank Xerox, which were leaders in the market for office photocopiers, and likewise other manufacturers established in Europe concentrated on making larger and faster photocopying machines in the belief that market demand would be concentrated on that sector and that there would be little demand for small PPCs suitable for small offices or decentralized large offices. In the late 1970s and early 1980s, however, a new market emerged for small PPCs, whilst the market for large machines remained strong.

In response to Japanese business needs in the 1970s, in particular the need for communications in the form of physical reproductions of manuscript originals, the Japanese manufacturers developed an entirely new generation of small PPCs of exceptional quality and reliability, which had no counterpart made in the Community. By offering those technical innovations in an attractive way, they largely created a market in the Community for smaller PPCs.

Until the emergence of the new generation of copiers in Japan, European customers had to choose between a large, fast PPC, a small, inferior, coated-paper copier or a slow PPC like the Rank Xerox 660 which gave poor quality copies but did use plain paper and had an extensive service network to back it up.

In those circumstances, there was a ready demand in the Community in so far as European companies considered it necessary to have a number of low-volume copiers offering good-quality reproduction, which did not need regular maintenance and were offered for sale on more favourable terms that the leasing conditions applied by Rank Xerox.

The low level of activity of European producers in bringing out new models of small copiers from 1968 to 1978 and the fact that Japanese manufacturers launched about 15 models from 1975 to 1978 are apparent from Table A (annexed).

During the reference period (according to the Dataquest classification) there was virtually no Community production of photocopiers in segment 2 and below. In segment 3 Japanese suppliers were dominant, although there was some European production in the larger range in that segment. In segment 4 there was limited Japanese competition, and there was none in segment 5. There was no Community production in segment 6.

The expansion of the market for photocopiers between 1970 and 1980 was overwhelmingly due to enhanced demand in the small copier sectors, following the emergence of the new Japanese photocopiers. This is shown in particular by the following table, which shows changes in the population of PPCs (number of machines installed at users' premises) in Germany:

The total population of all PPCs in Europe rose from about 1000000 in 1979 to about 2978000 in 1984.

If the criterion is adopted of new placements of machines (calculated by adding net sales and rentals), it will be seen that they have increased each year, going from about 450000 in 1981 to about 800000 in 1984, the increase consisting essentially of small Japanese-made photocopiers.

In the case of personal photocopiers which, according to Matsushita, provide an example of the market's readiness for small machines and Japanese technological leadership, the following table gives figures for placements, the total population and the Japanese share:

Finally, to demonstrate Japanese domination in the field of small models during the reference period, Matsushita also provides the following table of figures for sales of new machines in the German market:

The Community producers of large photocopiers reacted to those market developments by making purchases from Japanese manufacturers. Thus, Rank Xerox, while continuing to concentrate on larger copiers, decided that it should also offer for sale in the Community small copiers of the requisite quality and it chose to do so by buying from its affiliated company in Japan, Fuji Xerox, either finished OEM models or sets of components to be assembled in the Community. Océ and Olivetti bought and resold OEM models procured from unrelated Japanese suppliers. According to Matsushita, reliance on imported OEM models was a profitable, sensible, commercial strategy and those imports avoided the cost and technological difficulty of developing new models independently. Commercial and technical reasons and not low prices were therefore the main causes of the limited manufacturing activity of Rank Xerox and the other companies in the field of small photocopiers. The complainants' situation during the reference period was a direct consequence of the decisions taken with respect to the manufacture of the machines in question.

The Council states that the institutions analysed with great care the impact of the dumped imports on the Community industry and the other possible causes for the injury elements determined (recital 81 et seq. to the contested regulation). In particular it analysed the difficulties encountered by Rank Xerox in launching a new low-volume product on to the market and concluded that those difficulties, due at least in part to problems internal to the Xerox group, had been resolved by a number of changes made in management and product lines and thus could no longer be relied on in determining the injury caused to the company.

The Council observes in the first place that the institutions found a constant pressure on prices resulting from price undercutting by Japanese exporters. Price depression led to a drop in the profitability of Community companies and coincided with an increase in the Japanese market share. In those circumstances, it is not wrong to conclude that the depressed prices had as their consequence an increase in sales and an increase in the market share of Japanese-made products — an increase which coincided with a decrease in the Community producers' market share. Therefore, the dumped imports should be regarded as a cause of the injury elements found.

As regards the other factors mentioned by Matsushita as a cause of the injury elements, the Council rejects the argument that the Community industry neglected the low-volume copier market in the 1970s and thus experienced problems arising from its decision not to manufacture copiers of that type. Rank Xerox continued to produce a low-volume copier (its 660 model) in the Community until 1978 and the fact that subsequently low-volume machines were supplied by Fuji Xerox or manufactured by Rank Xerox on the basis of parts from Fuji Xerox is indicative of the fact that Rank Xerox did not in any sense abandon its interest in the low-volume market. Olivetti developed a low-volume model in 1978 and Océ made major efforts to do so but abandoned them, citing depressed prices as the main reason for its decision.

The Council also rejects the view that Japanese low-volume copiers created a new market; although Japanese marketing concepts helped expand the market, that does not show that imports of such low-volume copiers at low, dumped prices were not a cause of the injury suffered by the Community industry.

As regards the arguments concerning alleged technological superiority, Japanese technical leadership in innovations and reliability, the Council observes that all Community producers were producing PPCs which were broadly as advanced as any on the market. Moreover, the list of alleged innovations by Japanese manufacturers is no proof that the injury caused by the low-priced imports is attributable to other causes. Finally, with regard to the reliability of Japanese PPCs as compared with Community-made PPCs, there is no evidence that Community-made PPCs are inferior in quality or require more servicing. The appraisal of all the elements and possible causes of injury led to the conclusion that low-priced dumped imports were in fact a cause of injury.

With respect to the entirely new generation of photocopiers claimed by Matsushita to have been developed by Japanese manufacturers, CECOM observes that the basic technologies of PPCs were invented in the United States of America and in Europe and that all the European copier manufacturers either had their own development of small PPCs or were able to manufacture that product. They were discouraged from manufacturing them because in the long run there was no prospect of covering their costs and gaining a reasonable profit.

There is no proof that the European manufacturers faced technical and technological barriers in the manufacture of PPCs and that the success of the new generation of small Japanese photocopiers was due primarily to their quality. On the contrary, the European producers have manufactured and are able to manufacture all models within the total range of PPCs at least of the same quality as Japanese-made photocopiers.

The only barrier which exists is the lack of profitability owing to large-scale dumping on the part of numerous Japanese manufacturers.

E — The Community interest

Matsushita concedes that the institutions enjoy a wide margin of discretion in deciding whether photocopiers in adjoining segments may be regarded as like products and whether products compete with each other but it claims that the institutions cannot deny that there is very limited Community production of small photocopiers and that the range of products offered in the field of small photocopiers is very narrow.

It claims that only Tetras produced personal copiers — and then very few — during the reference period, holding about 1% of that market. Moreover, in the next three smallest segments, disregarding Rank Xerox assembly operations, only one model was offered on the German market, the Olivetti Copia 1050, which had about 2% of the relevant Western European market.

In those circumstances, even assuming that the like product criterion was satisfied, Matsushita considers that the Commission's conclusions as to the Community interest are incorrect in so far as it did not take account of the burden imposed on buyers of many products in order to protect the makers of a very few products.

Matsushita then asserts that the appraisal of the Community interest in the present case was vitiated by the inclusion in the Community industry of the three principal complainants which were dependent on and benefited from Japanese imports.

In its opinion, Rank Xerox should certainly have been excluded and it would have been impossible for the Council to contend that the antidumping measures were in conformity with the Community interest. Océ and Olivetti, whose imports accounted for 35 to 40% of their sales and rentals of machines, should also have been excluded from the Community industry. And even if they were to be regarded as part of the Community industry, the Council should have set their interest against that of the OEM importers such as Gestetner, Agfa-Gevaert and others. Although they held only a very small share of the Community market in small photocopiers (not above 3% in 1985 even if Tetras were to be regarded as a Community manufacturer) the abovementioned OEM importers employed a very large number of people and were very active in the field of small photocopiers.

The Council observes that if only a relatively small proportion of the total industry within the Community were considered as Community industry after applying the test of Article 4(5) of Regulation No 2176/84, the institutions would have to consider very carefully whether the adoption of antidumping measures would be in the interest of the Community. The need to take account of that interest does not however imply that if Rank Xerox were excluded from the Community industry the interests of OEMs would have to be given priority over the interests of the remaining Community producers. In the Council's view, it would be in the interest of the Community to protect a small, weak Community industry in order to avoid total dependence on foreign imports.

F — The caladation of the antidumping duty

Matsushita claims that the duty level of 20% violated Article 13(3) of Regulation No 2176/84, according to which the amount of any antidumping duty may not be higher than what is necessary to eliminate the injury. Matsushita is of the opinion that the 12% margin considered necessary to ensure a reasonable profit or return on the sale of photocopiers is excessive. Small photocopiers are always sold at a lower level of profit than total photocopier operations and the Commission was therefore mistaken when it tried to make photocopier sales profitable to an extremely generous degree. Matsushita then observes that the duty was calculated on the basis of how much of a price increase would be necessary to eliminate the supposed undercutting. For the reasons already stated, there was no undercutting. Finally, Matsushita considers that the precise description of how the duty was calculated contained in recital 107 to the contested regulation is incomprehensible. The Commission should have set forth the methodology chosen for calculation of the duty in a clear way so that the Court can exercise appropriate judicial supervision.

The Council states first of all, with respect to the question whether the 12% profit margin considered necessary for Community producers was too high, as contended by Matsushita, that it confirms the viewpoint taken by the Commission that if PPCs were sold at low rates of profit, or even at a loss, with a positive return being achieved only through subsequent sales of supplies, there would be little or no incentive to manufacture photocopiers. In recitals 101 to 106 to the contested regulation the detailed reasoning is set out as to why the Community institutions accepted the Community producers' arguments with regard to the need for profitability of PPC machine sales and it maintains that for Community producers to be able to continue production of machines it is essential for them to have an appropriate rate of return on investment.

The profit rate chosen by the Commission, which was heavily contested both by Japanese producers, which submitted that it was too high, and by Community producers, which submitted that it was too low, was regarded as a reasonable compromise.

With regard to the level of duty, Matsushita's argument that there was no price undercutting is contradicted by recitals 108 and 110 to the contested regulation.

Finally, in response to Matsushita's argument that the method of calculation is incomprehensible, the Council observes that comprehensive details of the method of calculation were supplied to all parties to the proceeding on 2 December 1986 and an opportunity to comment on them was given. Moreover, the contested regulation states all the elements on which the calculation was based, which allowed Matsushita to defend its rights and the reasons given are sufficiently precise to allow the Court to review the legality of the calculation.

CECOM claims that Matsushita's argument does not show that the Community institutions obviously violated the broad margin of discretion which they have in assessing the injury threshold. It also observes that in the antidumping proceedings concerning electronic typewriters the Advocate General refuted Canon's argument (page 53 of the Opinion of 8 March 1988, Joined Cases 277/85 and 300/85 Canon v Council) that the level of profit margin used in calculating the target price was excessive due to lack of substantiation.

G — Infringement of Article 190 of the EEC Treaty

Matsushita considers that the Council failed to fulfil its obligation under Article 190 of the EEC Treaty by departing from the compulsory scheme provided for in Article 2(3) and (7) of Regulation No 2176/84 in determining the normal value in this case, in so far as it decided that, notwithstanding the separate legal identity of the related sales companies, they should be regarded as forming part of Matsushita's corporate structure because they perform the functions of an MEI sales department. According to Matsushita, that reason does not adequately justify the Council's decision.

Similarly, the contested regulation is incompatible with Article 190 of the EEC Treaty in so far as the Council's statement that Matsushita perhaps unintentionally obtained the benefit resulting from the lack of a secondhand market does not logically support its decision to include the main-unit trade-in discount in the normal value. As the Court held in its judgment in Case 2/56 Geitling v High Authority [1957 and 1958] ECR 3, Article 190 requires that the reasoning underlying an act of the Community institutions be logically compatible with the decision adopted.

Finally, Matsushita contends that Article 190 was infringed in so far as the reasons for the decision to include certain costs and the main-unit trade-in discount in the constructed normal value for sales to OEMs were not stated, since the Council did not indicate in the contested regulation any reasons of law or fact for its decision or the reason for which it considered it appropriate to apply a profit margin of 5% of the production cost to take account of the difference in costs and profits between sales to OEMs and sales of PPCs under the Matsushita brand.

Where, as in the present case, the Council has to assess a hypothetical situation and thus enjoys a wide margin of discretion, the requirement of clear and unequivocal reasoning should be enforced all the more strictly. In his Opinion in Case 113/77 NTN Toyo Bearing Company Limited and Others v Council [1979] ECR 1185, in particular at p. 1259, the Advocate General pointed out that the very fact... that the discretion is so wide makes it imperative that the procedural safeguards afforded by the law to those who may suffer through its exercise should be strictly observed.

According to the Council, the contested regulation clearly indicates how the normal value was calculated in relation to Article 2(3) and (7) of Regulation No 2176/84. Similarly, recitals 11 and 12 of the contested regulation show clearly how the normal value for sales to OEMs was constructed, and recitals 13 and 14 of the contested regulation clearly indicated that the institutions treated the trade-in payments as a general expense and consequently included such payments in the constructed normal value. The principles and the reasoning in the respective recitals of the contested regulation are clear and consequently there was no failure to provide sufficient reasons and Article 190 of the EEC Treaty was not infringed.

Annex

1 Language of the case: English.

2 Tetras models, made in tiny volumes owing to technical difficulties.