Opinion of Mr Advocate General Van Gerven
Mr President,
Members of the Court,
1. In the case now before the Court Goldstar Co. Ltd (Goldstar), a company incorporated under Korean law, seeks the annulment of Council Regulation (EEC) No 112/90 of 16 January 1990 imposing a definitive antidumping duty on imports of certain compact disc players originating in Japan and the Republic of Korea and collecting definitively the provisional duty (the definitive regulation), in so far as that regulation relates to the applicant. In support of its application Goldstar puts forward three submissions which are based primarily on the alleged infringement of Article 2(3)(b) of Council Regulation (EEC) No 2423/88 of 11 July 1988 on protection against dumped or subsidized imports from countries not members of the European Economic Community (the basic regulation).
Background
2. Goldstar is a member of the Lucky Goldstar group. It produces electrical and electronic appliances which is sells both in Korea and abroad. During. the reference period (1 June 1986 to 31 May 1987) Goldstar sold five models of compact disc players in Korea and in the Community, namely models GCD 603, GCD 605, GCD 606, GCD 613 and GCD 616. The first three models — which Goldstar ceased to produce in 1985 — were sold in Korea and in the Community exclusively under its own brand. The last two models were sold in the Community both under its own brand and to original equipment manufacturers (OEMs), but were put on the market in Korea exclusively under its own brand.
3. In June 1987 the Committee of Mechoptronics Producers and Connected Technologies (Compact) submitted a complaint to the Commission, on behalf of manufacturers accounting for the bulk of the production of compact disc players in the Community, concerning the importation into the Community of compact disc players originating in Japan and the Republic of Korea.
4. During the procedure which led to the adoption of the definitive regulation, Goldstar raised objections to the methods employed by the Commission in determining the normal value of the models sold by it. Those objections tally to a large extent with those raised by Goldstar in the procedure which led to the adoption of the provisional regulation. The Council, like the Commission, rejected Goldstar's objections. It determined the normal value of the models concerned by the same methods as those described above and fixed the definitive antidumping duty on imports of Goldstar's products at 26.1% (instead of 32.5%) of the net free-at-Community-frontier price.
The first submission
5. Goldstar claims that the Council incorrectly determined the normal value of models GCD 603, GCD 605, GCD 606 and GCD 616, sold both in Korea and in the Community under its own brand, on the basis of domestic prices. According to Goldstar, those models were not sold on the Korean market during the reference period in the ordinary course of trade and did not permit a proper comparison, with the result that the Council should, in accordance with Article 2(3)(b) of the basic regulation, have determined the normal value on the basis of the constructed value. In support of that contention, Goldstar puts forward a number of arguments which may be divided into two groups.
6. I am not swayed by Goldstar's arguments.
7. In accordance with the latter provision, it is necessary to distinguish between two situations. To begin with, there is the situation where there are no sales of the like product in the ordinary course of trade on the domestic market. As is clear from the example set out in the fourth consideration in the preamble to the basic regulation, this refers to cases in which sales viewed in themselves do not represent the ordinary course of trade, in particular where a product is sold at prices which are lower than the costs of production, or where transactions take place between parties which are associated or which have a compensatory arrangement. Goldstar has neither alleged, nor by any means demonstrated, that its sales on the Korean market are not in themselves in the ordinary course of trade. It cannot therefore deduce from that passage in Article 2(3)(b) of the basic regulation any grounds for departing from the rule which takes precedence, namely that the normal value must be determined on the basis of domestic prices.
8. The other situation is where sales on the domestic market do not permit a proper comparison. As is clear from Article 2(4) of the Antidumping Code, it is necessary to ascertain whether transactions which are in themselves in the ordinary course of trade have to be left out of account because of the particular market situation. Transactions carried out on the domestic market must reflect normal consumer behaviour and the normal formation of prices in overall terms as well. Only in those circumstances do domestic prices permit a proper comparison with export prices.
9. Goldstar is right in stating that where the volume of domestic sales is greater than 5% of the volume of exports to the Community, it does not necessarily mean that domestic prices permit a proper comparison (any more than that is the case, as is apparent from the aforesaid judgment in Nolle, where the volume of sales is lower). The Council and the Commission are both in agreement with that view, contrary to what Goldstar seems to suggest. The need to take other factors into account as well is apparent from the fourth recital in the preamble to the basic regulation, according to which a constructed normal value must be applied where domestic prices do not for any reason form a proper basis for determining the existence of dumping.
10. What constitutes special circumstances of that kind? I agree with Goldstar that the characteristics and, in particular, the total size of the domestic market may constitute such circumstances. The Court has implicitly confirmed that view in its judgments in Brother (at paragraph 10) and in Silver Seiko (at paragraph 11). In those cases the applicants also contended that the number of electronic typewriters sold on the Japanese domestic market, as compared with the Community market, was too small. The Court did not reject that argument as such but considered that there was no factual basis for it since some tens of thousands of typewriters were sold annually on the Japanese market and, furthermore, that market was fairly competitive. In those circumstances the Court considered the prices on the Japanese market to be comparable with those on the Community market.
11. Goldstar further relies on the — in its view — minimal share (which I shall not disclose on grounds of confidentiality) of domestic sales per model of the GCD 603, GCD 605, GCD 606 and GCD 616 compact disc players. Let me begin with a preliminary remark. The argument, which is in itself correct, that for domestic prices to be comparable there must be a sufficient volume of sales in absolute terms on the domestic market stems from the fact that domestic prices may differ from one sales outlet to another. Furthermore, prices may fluctuate in the course of a single reference period. For that reason the Community institutions usually apply, as they have done in this case, a price corresponding to the weighted average of all sales of the product concerned to independent customers. In order to be representative that weighted average must be based on a minimum number of sales.
12. Apart from the size of the Korean market as a whole, on the one hand, and its own sales figures for each model, on the other, Goldstar does not rely on any other special circumstances in challenging the view that domestic prices are representative. In particular, Goldstar does not deny that the Korean market is fairly competitive, a feature which the Court took into account in its judgments in Brother and Silver Seiko in considering whether prices were representative. More particularly, in that connection the applicant has not alleged, still less has it demonstrated, that domestic prices would have been lower if the volume of sales and competition on the domestic market had been greater. Instead it is apparent from the documents before the Court that Goldstar consciously decided as part of its strategy to sell compact disc players in Korea as luxury goods for relatively high domestic prices (and, consequently, profit margins).
13. On the basis of the foregoing considerations, therefore, I have come to the conclusion that the Council was right to consider that the number of units sold by Goldstar on the Korean market and the total size of that market do not constitute grounds for rejecting domestic prices as an unsuitable basis for comparison.
14. Finally, I consider that the argument deduced by Goldstar from the fact that production of the GCD 603, GCD 605 and GCD 606 models was discontinued before the commencement of the reference period is also unfounded. As is clear from the wording of Article 2(3)(b) of the basic regulation it is necessary to take account of sales on the domestic market. That provision draws no distinction between products according to whether or not they are still being manufactured. The fact that the models sold are no longer produced does not, therefore, in itself constitute a ground for rejecting the domestic prices of those models as unsuitable. A different decision could lead to a situation in which the normal value of comparatively novel products such as compact disc players, new models of which are constantly being brought onto the market, can be determined on the basis of domestic prices only by way of exception.
15. In the light of the foregoing considerations, therefore, I am of the opinion that Goldstar's first submission must be rejected.
The second submission
16. Goldstar alleges in its second submission that the Council infringed Article 2(3)(b)(ii) of the basic regulation by determining the constructed value of model GCD 613 sold under its own brand on the domestic market and in the Community, and more particularly the amount for profit to be added to the production costs, by reference to the average profit realized by Goldstar during the reference period on its domestic sales of other models, namely the GCD 603, GCD 605, GCD 606 and GCD 616 units (for reasons of confidentiality I shall not disclose that average, which is expressed as a percentage of the cost of production). As stated earlier (paragraph 5 above) Goldstar accepts that in the case of a product such as the GCD 613 model, sales of which were beneath the relative threshold below which domestic sales are to be disregarded, fixed at 5% of the volume of exports, the Community institutions were entitled (and obliged) to take a constructed value into account. According to Goldstar, however, the average profit on sales of those other models is unsuitable for two reasons. To begin with, it is calculated on the basis of sales on the domestic market which were not made in the ordinary course of trade and/or which did not permit a proper comparison. Furthermore, Article 2(4) of the Antidumping Code describes the profit made by an individual exporter on the domestic market as not suitable for use where, as in this case, it exceeds the profit normally realized on sales of like products on the domestic market.
17. I do not need to consider the first argument, having come to the conclusion in connection with my examination of the first submission that own-brand sales of the GCD 603, GCD 605, GCD 606 and GCD 616 models on the domestic market were made in the ordinary course of trade and permitted a proper comparison.
18. According to Article 2(3)(b)(ii) of the basic regulation, the constructed value is to be determined by adding a reasonable amount for profit to the cost of production. To that end the provision prescribes three methods which, as the Court stated in Nakajima (at paragraph 61), must be applied in succession. The amount for profit must therefore be calculated primarily by reference to the profit made by the producer on profitable sales of like products on the domestic market. Only if the data concerning such profit are unavailable, unreliable or not suitable for use is the amount for profit to be calculated by reference to the profit realized by other producers in the country of origin on profitable sales of the like product. If neither of those two methods can be applied, the amount for profit is to be calculated by reference to the sales made by the producer or other producers in the same business sector in the country of origin or on any other reasonable basis.
19. Goldstar maintains that the first method of calculation provided for in the basic regulation is not suitable for use where the profit which the producer concerned realizes on domestic sales of a like product is greater than the profit normally realized on sales of like products on the domestic market. That contention is based on the last sentence of Article 2(4) of the Antidumping Code, which reads as follows:
20. Goldstar's approach is based, in my view, on a misinterpretation of the Antidumping Code.
The third submission
21. Goldstar's third submission is connected with the Council's decision to determine a separate normal value for sales to OEMs. As stated in paragraph 22 of the definitive regulation, the Council accepted
22. Before Goldstar's arguments are considered, it must be borne in mind that, as stated earlier, the purpose of constructing the normal value is to determine the selling price of a product as it would be if that product were sold in its country of origin or in the exporting country. In a case such as this, in which a separate normal value was established for sales to OEMs, this means that the selling price for the product must be determined as if that product were sold to OEMs operating on the domestic market.
(a) The connection between OEM sales and own-brand sales
23. In general the argument that there is no connection between the costs and profits for OEM sales on the domestic market and those for own-brand sales on that market is untenable. OEMs which sell on the domestic market are in competition with a producer selling on that market under his own brand. In a situation of that kind, it is obvious that the producer concerned will sell to OEMs only if, in so doing, he can clearly raise his profits. Therefore, in establishing the OEM selling price, he must, in addition to the production costs which are the same for both categories, also take account of a number of other factors such as: the higher turnover which he can achieve as a result of OEM sales, the lower costs connected with OEM sales inter alia as regards advertising, but also the increased competition from OEMs on the domestic market and the resultant pressure on the level of prices for the products sold by the producer on the same market under his own brand. In brief, a producer will reasonably charge an OEM customer operating on the same market as himself a price which, taken as a whole, will enable him to realize a higher profit than if he were to sell on that market exclusively under his own brand. Hence there is undoubtedly a connection between the determination of prices and profits for sales to OEMs operating on the domestic market and the determination of prices and profits for own-brand sales on that market. However, it is difficult to express that connection in figures on an abstract plane where there have been no OEM sales on the domestic market, and the Community institutions must therefore be allowed to exercise a certain discretion in that respect.
24. In this case the Community institutions considered that the said connection enabled them to establish the constructed value of (nonexistent) OEM sales on the Korean market on the basis of the weighted average of the costs incurred and the profits realized by the same producer on his (actual) own-brand sales on that market, on the understanding that only a portion (30%) of the profit realized on those sales by the producer concerned would be taken into account. In other words, by taking a proportionately smaller profit margin into consideration, the institutions believed they were taking account of all possible differences in costs and profits between OEM sales and own-brand sales by the producer concerned.
(b) Was the Council's approach contrary to previous practice?
25. Goldstar points out that in the three other antidumping procedures referred to earlier, the Community institutions applied a uniform profit rate for all producers in establishing the constructed value of (nonexistent) OEM sales on the domestic market in relation to (actual) own-brand sales on that market, whilst in this case they have applied a profit rate for OEM sales which is also related to own-brand sales but is based on the individual data of each individual producer. In this case, that anomalous method led, in Goldstar's view, to an unreasonably large profit rate, namely y% (see footnote 24) of Goldstar's production costs, being taken into account.
26. In that connection it must be pointed out that in Case C-172/87 Mita Industrial v Council, which is still pending before the Court, Mita's standpoint is precisely the reverse of that adopted by Goldstar in this case. Mita alleges that the Council discriminated against it by establishing in the antidumping regulation concerning plain paper photocopiers the constructed value of (nonexistent) OEM sales on the domestic market with the aid of a uniform profit rate, with the result that exporters with large profits on their domestic sales were favoured. In paragraph 12 of his Opinion of 13 December 1990 in that case, Advocate General Mischo proposes that the Court should reject that allegation inter alia having regard to the Council's discretion in that regard.
(c) Is the 30% rate arbitrary?
27. In the light of the Community institutions preference for establishing in this case the constructed value for OEM sales on the basis of (Goldstar's) individual data, and given the absence of genuine profit figures in view of the fact that there were no sales of compact disc players to OEMs on the domestic market and also that at the time any experience with regard to domestic OEM sales in other procedures was lacking, the institutions had no choice but to estimate as far as they could the ratio between the profit on OEM sales and the profit on own-brand sales on the Korean market. By fixing that ratio at 30% the Community institutions did not, in my view, exceed the limits of their discretion. It is clear from the following three factors that 30% is not an arbitrary estimate.
28. For the sake of completeness, allow me briefly to mention that in Nashua as well the applicant contended that the Community institutions had taken an arbitrary profit rate (5%) into account in establishing the constructed value of the products sold to OEMs (see paragraphs 32 to 34 of the judgment). The applicant considered that that profit rate took insufficient account of the differences between OEM sales and own-brand sales. The Court rejected that submission not by reference to the discretion of the institutions but on the ground that the applicant had been unable to substantiate its contention. Goldstar in these proceedings has been no more successful than Nashua in demonstrating that if it had made sales to OEMs on the domestic market its prices would have been lower than the constructed value established by the institutions.
(d) Has the Council contravened the principle of equality?
29. Finally, Goldstar claims that all Korean producers are in a similar situation since none of them has sold its products to OEM purchasers on the domestic market. In the light of the principle of equality, therefore, the Council should have taken the same amount for profit into consideration for each Korean producer.
30. In the light of the foregoing considerations I propose that the Court dismiss the action and order the applicant to pay the costs, including those of Compact's intervention. Under the first paragraph of Article 69(4) of the Rules of Procedure, as amended on 15 May 1991, the Commission, must bear the costs of its intervention.
1 Original language: Dutch.
2 OJ 1990 L 13, p. 21. In Case C-104/90 Matsushita Electric Industrial also seeks the annulment of Regulation No 112/90 but on grounds other than those relied upon by Goldstar.
3 OJ 1988 L 209, p. 1.
4 In its judgments of 14 March 1990 in Joined Cases C-133/87 and C-150/87 Nashua Corporation v Commission and Counal [1990] ECR I-719, at paragraph 3, and in Case C-156/87 Gestetner Holdings v Council and Commission [1990] ECR I-781, at paragraph 3, the Court described an OEM as a supplier under its own brand of products manufactured by other undertakings.
5 OJ 1989 L 205, p. 5.
6 Judgment of 5 October 1988 in Joined Cases 277 and 300/85 Canon v Council [1988] ECR 5731.
7 Agreement on implementation of Article VI of the General Agreement on Tariffs and Trade, adopted on behalf of the European Economic Community by Council Decision 80/271/EEC of 10 December 1979 concerning the conclusion of the Multilateral Agreements resulting from the 1973 to 1979 trade negotiations (OJ 1980 L 71, p. 1).
8 Commission Regulation (EEC) No 3643/84 of 20 December 1984 (OJ 1984 L 335, p. 43), in particular the ninth recital in the preamble, and Council Regulation (EEC) No 1698/85 of 19 July 1985 (OJ 1985 L 163, p. 1), in particular the fifth recital in the preamble.
9 Judgment of 5 October 1988 in Case 250/85 Brother v Council [1988] ECR 5683.
10 See the judgment in Canon, cited in footnote 5, at paragraph 14.
11 Judgment of 11 July 1990 in Joined Cases C-305/86 and C-160/87 Neotype Techmashexport v Commission and Council [1990] ECR I-2945.
12 Judgment of 22 October 1991 in Case C-16/90 Nolle v Hauptzollamt Bremen-Freihafen [1991] ECR I-516 at paragraph 22.
13 Judgment of 5 October 1988 in Joined Cases 273/85 and 107/86 Silver Seiko v Counal [1988] ECR 5927.
14 In response to a question from the Court concernine the appropriate level of an absolute figure, Goldstar's representative at the hearing stated that 50 units was a fair criterion.
15 See, in particular, paragraph 21 of Annex VI to Goldstar's application.
16 In its view this should also have been done for the other models, a contention which I have rejected above.
17 Judgment of 7 May 1991 in Case C-69/89 Nakajima AU Prensioni Coxnci/[1991] ECR I-2069.
18 Since Goldstar does not contest the calculation of the production costs including an amount for expenses, I shall refer henceforth only to the provisions of that article which relate to the determination of the amount to be added for profit. For the sake of brevity, I shall confine myself to producers, and not to exporters.
19 See Brother (at paragraph 18), Canon (at paragraph 26), Silver Seiko (at paragraph 16) and Nakajima (at paragraph 64).
20 Unofficial translation.
21 For a definition of an OEM, see footnote 3.
22 Council Regulation (EEC) No 535/87 of 23 February 1987 imposing a definitive antidumping duty on imports of plain paper photocopiers originating in Japan (OJ 1987 L 54, p. 12).
23 Council Reguládon (EEC) No 501/89 of 27 February 1989 imposing a definitive antidumping duty on imports of certain video cassette recorders originating in Japan and the Republic of Korea and definitively collecting the provisional duty (OJ 1989 L 57, p. 55).
24 Commission Regulation (EEC) No 3232/89 of 24 October 1989 imposing a provisional antidumping duty on imports of small screen colour television receivers originating in the Republic of Korea (OJ 1989 L 314, p. 1).
25 The uniform rate used in the three procedures mentioned above amounts to 5% of the average production costs for the products concerned. The rate used in this case amounts to 30% of x% (being Goldstar's profit rate on domesuc own-brand sales, which I shall not disclose on grounds of confidentiality) of Goldstar's producüon costs, namely (30% of x% =) y%.
26 Counril Regulation (EEC) No 3651/88 of 23 November 1988 imposing a definitive antidumping duty on imports of serial-impact dot -matrix printers originating in Japan (OJ 1988 L 317, p. 33).
27 See paragraph 40 of the definitive regulation.