Report for the Hearing in Case C-104/90
I — Facts and administrative procedure
1. The Matsushita Group
1. By its own account, Matsushita is the world's largest producer of consumer electronic goods. Nine members of the Matsushita group were involved in the antidumping proceeding concerning compact-disc players (hereinafter CDPs). The applicant, Matsushita Electric Industrial Company (hereinafter MEI) is one of those companies and is divided into more than 30 divisions responsible for manufacture and sales, one of which, the Hi-Fi Audio Division (hereinafter HAD), is responsible for the manufacture and sale of CDPs.
2. According to the applicant, HAD manufactures CDPs and sells them in Japan under the Technics brand to 77 related companies and two unrelated companies which act as regional distributors, selling to unrelated dealers who sell to end users. The applicant states that HAD has its own sales force which visits related and unrelated distributors and unrelated retailers. HAD also provides technical assistance to distributors and retailers and is responsible, in close cooperation with MEI's Advertising Division, for promoting CDPs in Japan.
3. The distributors' activities include supply to dealers, transport, advertising and the servicing and, where possible, repair of CDPs. The 77 companies in question (hereinafter related sales companies or related distributors) are wholly or partly owned by MEI or other companies in the Matsushita Group. In its application the applicant mentions that the promotion undertaken by the distributors is limited to strictly local campaigns.
2. The legal background
4. The regulation providing the basis for the antidumping procedure at issue, which the applicant alleges has been infringed, is 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 (OJ 1988 L 209, p. 1, hereinafter the antidumping regulation). The origin of that regulation is Article VI of the General Agreement on Tariffs and Trade (hereinafter the GATT) and the Agreement on Interpretation and Application of Article VI of the ( GATT (hereinafter the 1979 Anti-Dumping Code).
5. Article 2(2) of the antidumping regulation provides as follows:
6. Article 2(3) and (7) of the antidumping regulation provides as follows:
3. The antidumping procedure
7. After receiving a complaint from the Committee of Mechoptronics Producers and Connected Technologies (hereinafter Compact) on behalf of manufacturers accounting for the bulk of Community production of CDPs, the Commission initiated an antidumping proceeding regarding exports to the Community of CDPs originating in Japan during a period of inquiry from 1 June 1986 to 31 May 1987 (Opinion published in OJ 1987 C 187, p. 7). A questionnaire intended for producers and exporters was addressed to the applicant, who was also given an opportunity to submit observations.
8. During the administrative procedure, the applicant argued that normal value had to be determined in accordance with Article 2(3)(a) of the antidumping regulation on the basis of the price paid to it by the sales companies, since the sales between MEI and those companies had been made in the ordinary course of trade. MEI's policy was to apply identical terms and conditions of sale to all its customers, whether related or unrelated.
9. The applicant maintained that MEI was not only a production company but also had its own sales departments. The applicant stated that the related sales companies constituted independent legal entities of a regional nature. Sales between MEI and the related companies were actual transactions and Article 2(7) of the antidumping regulation had to be applied. If the Community authorities were of the opinion that those sales did not take place in the ordinary course of trade, no account should be taken of total sales on the domestic market and the normal value should be determined in accordance with Article 2(3)(b) on the basis of either the export price to a third country or a constructed normal value. As regards the constructed normal value, the applicant asked that sales costs, general and administrative expenses and the profit margin of related sales companies should not be included. Only the costs borne by MEI for manufacture and sale in Japan and a reasonable profit margin for MEI should be included.
10. However, the Commission found that MEI and the distributors constituted a single economic entity, to which Article 2(7) could not apply. The Commission also took the view that sales between the manufacturing company and related distributors could not be considered as being in the ordinary course of trade within the meaning of Article 2(7). It therefore considered that it was appropriate to determine the normal value on the basis of the price paid to the related distributors by independent purchasers. By Regulation (EEC) No 2140/89 of 12 July 1989 (OJ 1989 L 205, p. 5), the Commission imposed a provisional antidumping duty of 33.9% on CDPs exported by the applicant. That point of view was confirmed by the Council in 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 (OJ 1990 L 13, p. 21). The definitive rate applicable to MEI amounted to 26.3%.
II — Written procedure and forms of order sought by the parties
11. MEI's application was lodged at the Court Registry on 17 April 1990.
12. By orders of 20 September 1990 and 5 December 1990, leave was granted to the Commission and Compact respectively to intervene in support of the forms of order sought by the Council.
13. By the aforementioned order of 5 December 1990, the Court acceded to MEI's request for confidentiality and decided that Compact would receive only a non-confidential version of the application. It also ordered the parties not to communicate to Compact information which had been categorized as confidential.
14. MEI, the applicant, claims that the Court should:
15. The Council, the defendant, contends that the Court should:
16. The intervener, Compact, supports the forms of order sought by the Council.
17. Upon hearing the Report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry and to assign the case to the Sixth Chamber.
III — Pleas in law and arguments of the parties
Admissibility
18. The applicant maintains in limine that, as it was named in the complaint submitted prior to the commencement of the antidumping investigation and in the regulation imposing a definitive antidumping duty of 26.3% on its exports of CDPs, it is directly and individually concerned within the meaning of the second paragraph of Article 173 of the EEC Treaty.
19. The Council has no observations to make on the admissibility of the application.
Substance
20. The plea in law contained in the application is based on the claim that the definitive regulation is unlawful in so far as the Council infringed the EEC Treaty and the rules of law relating to its implementation. The applicant further alleges that Article 190 of the Treaty has been infringed.
21. The plea to the effect that Article 2(3) and (7) of the antidumping regulation was infringed in so far as the normal value was determined on the basis of prices charged by related distributors and the reasons stated in relation thereto were insufficient and equivocal.
22. For the reasons already given during the administrative procedure, the applicant maintains that the Council's view that the related sales companies fulfil the functions of a sales department of MEI is wrong in fact and in law. The applicant alleges that, according to the antidumping regulation, the normal value must be determined by way of priority on the basis of Article 2(3)(a). Where a manufacturer and its customers are associated, Article 2(7) should apply, which may cause the conclusion to be reached that the transactions between them are in the ordinary course of trade and, accordingly, Article 2(3)(a) applies. If the conclusion is reached that the transactions were not in the ordinary course of trade, Article 2(3)(b) will apply. The applicant adds that, since the methods for determining normal value provided for in Article 2(3)(a) and (b)(ii) are alternatives, the fact that only costs incurred by the producer may be included in the constructed normal value necessarily means that where the conditions laid down in Article 2(3)(a) are fulfilled, the normal value must be determined on the basis of the purchase price paid to the producer. There is only one situation where resale to an independent operator may be used as the basis for determining a price, namely the situation mentioned in Article 2(8)(b) of the antidumping regulation. However, the applicant considers that only the rules governing export prices make such provision, whilst the rules governing the determination of normal value do not lay down the same approach.
23. The applicant also maintains that whilst Article 2(7) does not apply to transfers within a single undertaking, it is applicable to transactions between two separate undertakings. In the absence of a single economic entity, sales between related parties will normally be covered by Article 2(7). If that were not the case, the Community institutions would be free to determine the normal value on the basis of the retail price where the producer had a fully integrated distribution organization in its domestic market.
24. The applicant maintains that the definition of an economic entity is a functional definition. It must include all the costs normally associated with the marketing of a product by a producer but must be limited to those costs. The applicant maintains that the fact that sales to unrelated distributors were actually made by HAD, proves that MEI was structurally capable of selling to independent purchasers without the intervention of related distributors. Thus the system provided for in Article 2(3) and (7) could have worked effectively in the applicant's case.
25. Lastly, the applicant alleges that Article 190 of the EEC Treaty was infringed in so far as the Community institutions deviated from the full system set out in the antidumping regulation in determining the normal value without providing an appropriate statement of reasons.
26. For its part, the Council argues that there has been no infringement of the antidumping regulation. It has not been proved that the applicant sold significant quantities of compact-disc players to independent customers. HAD is essentially a manufacturing department whose sales functions are limited and ought logically to be centralized. The Council therefore alleges that the related sales companies fulfil the functions of a commercial service of the applicant. The products are sold for the first time in the ordinary course of trade when the related sales companies sell to independent purchasers and it is those sales which should have been used in order to determine the normal value in accordance with Article 2(3)(a).
27. The Council refers to the judgments in the typewriter cases (Case 250/85 Brother Industries Ltd v Council [1988] ECR 5683; Joined Cases 260/85 and 106/86 Tokyo Electric Company Ltd and Others v Council [1988] ECR 5855; Joined Cases 273/85 and 107/86 Silver Seiko Ltd and Others v Coimcil [1988] ECR 5297; Case 301/85 Sharp Corporation v Council [1988] ECR 5813) and states that it is necessary to base oneself on economic reality as far as the existence of a single economic entity is concerned. The only valid criterion is who actually sells the product to the first independent buyers. If all or almost all sales are made by related companies then those companies form an entity with the producing unit. The Council states that, in the present case, the sales costs were split between the applicant and its subsidiaries, which are different parts of the same economic unit. The Council considers that the combined functions exercised by the applicant and the related sales companies are all necessary to make sales to the first independent customer. The Council observes that the essential selling activity to the first independent purchasers was borne solely by the related sales companies.
28. The Council alleges that the applicant has a misconception of the theory of the single economic entity and its relationship with Article 2(7). The purpose of the concept of the single economic entity is to allocate the costs necessary to make sales to a first independent customer to the entity which in reality incurs them. Article 2(7) stipulates under which conditions a price charged between associated parties may none the less be used for the purposes of determining normal value. The function of that provision is completely unaffected by the concept of the single economic entity.
29. The applicant wrongly accuses the institutions of inconsistency with regard to the concept of the single economic entity. The Council considers that that argument is unfounded: each case is analysed objectively and the undertakings in question have been treated identically.
30. The Council claims therefore that the applicant has failed to show that the institutions have violated any limitations with regard to the concept of the single economic entity as such.
31. The Council considers that there is no reason for it to address the question of the relationship between paragraphs (3) and (7) of Article 2. Since the applicant and its related sales companies formed a single economic entity, the prices charged by and paid to that entity were prices paid in the ordinary course of trade within the meaning of Article 2(3)(a) and in such a case Article 2(7) does not apply. Nevertheless, the Council responds to the applicant's arguments on that point. Article 2(3)(b) expressly provides that that paragraph applies only where there are no sales ... in the ordinary course of trade on the domestic market or when such sales do not permit a proper comparison. Neither is the case here. What is more, if Article 2(7) applies it is not compulsory to apply Article 2(3)(b). When Article 2(7) applies, normal value can be determined according to the rules set forth in Article 2(3)(a) or (b), whichever is more appropriate.
32. Even if normal value had to be constructed, it is clear that, for such a constructed value, real cost data must be used. The normal value thus constructed should be virtually identical to that based on prices in the ordinary course of trade to the first independent customer. Moreover, the application of Article 2(3)(a) and (b) is not limited to the manufacturing level but may also concern resale.
33. As regards the applicant's argument based on Article 2(8)(b) of the antidumping regulation, the Council observes that exporters often have subsidiaries which act as importers. It may be inferred therefrom that if such a situation exists on the domestic market the same approach should be adopted and resale prices used to determine normal value.
34. As regards the infringement of Article 190 of the EEC Treaty, the Council alleges that the requirements of that provision are satisfied if the reasons given by the institutions make it possible to determine whether they were right or wrong. The Council considers that it satisfied that condition.
35. According to the intervener, Compact, the previous case-law of the Court is sufficient in itself for the application to be dismissed. The Court has made it clear that the theory of the single economic entity must make it possible to ensure that costs which manifestly form part of the selling price of a product where the sale is made by an internal sales department of the manufacturing organization are not left out of account where the same selling activity is carried out by a company which, despite being financially controlled by the manufacturer, is a legally distinct entity' (Joined Cases 273/85 and 107/86 Silver Seiko and Others v Coimai, cited above, paragraph 14). Compact further maintains that the applicant claims that it performs a substantial number of sales activities' without, however, maintaining that it performs all the functions of a sales department. Compact alleges that the distributors merely execute the sales policies ordered by MEI.
36. According to Compact, the applicant has not provided the information necessary in order to know exactly the position of the independent distributors. It concludes that the Community institutions were not misled by the applicant, whose sole purpose is to lower normal value by shifting costs to the distribution companies, resulting in a reduced dumping margin which has no relation to economic reality.
The judgment in Case C-175/87
37. The issue of the determination of normal value was raised in the judgment of the Court of 10 March 1992 in Case C-175/87 (Matsushita v Coimai [1992] ECR I-1409). In that case also, Matsushita argued that the Community institutions had committed a manifest error by determining normal value on the basis, not of the prices charged by MEI to related sales companies through which it marketed its products in Japan, but on that of the prices charged by those companies to unrelated dealers. However, the Court considered that the fact that the institutions took the prices paid by the first buyer who was independent of the related sales companies is justified, given that those prices may quite properly be regarded as the prices actually paid or payable in the ordinary course of trade within the meaning of Article 2(3)(a) of Regulation No 2176/84 (paragraph 16). The Court accepted the existence of a single economic entity in that case.
38. In its reply, the applicant maintains that although the Court rejected its application in Case C-175/87, it left important legal issues open, concerning in particular the proper interpretation of Article 2(3), (7) and (8) of the antidumping regulation. The applicant does not contest the Court's case-law according to which a manufacturer's related sales companies must be treated as part of the same economic entity where they in fact perform the functions of an internal sales department. The question is when must legally distinct companies be considered as equivalent to internal sales departments. The practice of the Community institutions seems to consist in considering that whenever sales are made solely via related sales companies that is sufficient to justify the existence of a single economic entity. The applicant would obtain clarification on that point.
39. The applicant alleges that the Community institutions do not themselves take the real facts into account but start out from a purely formal criterion, namely a shareholding by the manufacturer in the distributors to which it sells. In addition, the Council considers the sales to two unrelated companies as insignificant. According to the applicant, the existence of those sales demonstrates that MEI had the structural capacity to make sales to unrelated purchasers. The applicant admits that the resale price may be used for the purpose of determining normal value but only where it is first established that a single economic entity actually exists.
40. In its rejoinder, the Council alleges that the applicant is seeking to change the principles established in the case-law of the Court. The Council stresses, however, that the Court stated explicitly in its judgment in Case C-175/87 (cited above) that the fact that all the sales are performed by related sales companies is evidence that the sales functions carried out by the manufacturer's sales department are merely complementary to those performed by the related sales companies. The Council recalls that the Court confirmed once again that normal value must primarily be determined on the basis of a price actually paid. The possibilities indicated in Article 2(3)(b) are merely subsidiary.
41. The Council alleges that the applicant distorts the approach of the institutions to the concept of the single economic entity. The Council states that the Community institutions refer to a single economic entity only if the sales companies have or complete the same functions or tasks as a normal sales department. The question who is the first independent buyer is not the sole issue for limiting the application of the principle of the single economic entity.
42. The Council emphasizes that sales to a few independent companies are not sufficient to take the applicant outside the concept of the single economic entity. It is necessary to have proof that it has structural capacity to sell to independent purchasers. The Council adds that the applicant never contended that any sales activities were performed twice.
1 Language of the case: English.