JUDGMENT OF 31. 1. 1979 — CASE 114/78 YOSHIDA v INDUSTRIE- UND HANDELSKAMMER KASSEL
In Case 114/78 REFERENCE to the Court under Article 177 of the EEC Treaty by the Verwaltungsgericht Kassel for a preliminary ruling in the action pending before that court between
THE COURT composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), A. M. Donner, P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate General: F. Capotorti Registrar: A. Van Houtte
gives the following
JUDGMENT
Facts and Issues
The facts of the case, procedure, conclusions and submissions and arguments of the parties may be summarized as follows:
I — Facts and procedure
The plaintiff in the main action is a subsidiary of the Yoshida Kogyo K. K. undertaking in Tokyo. In its factory in Wenkbach-Marburg it produces slide fasteners which it assembles from parts imported from Japan or the raw materials for which are imported from Japan. It sells the slide fasteners thus manufactured on the German market and to third countries.
For certain sales, in particular so as to avoid a quantitative restriction on exports, it requires for its products a certificate known as a certificate of origin certifying that its products are of German origin or possibly of Community origin. Whereas these certificates have hitherto been granted under Article 5 of Regulation (EEC) No 802/68 of 27 June 1968 on the common definition of the concept of the origin of goods in so far as the value of the raw materials used in the manufacture of the slide fasteners of Japanese origin or originating in another third country did not exceed 40 % of the value of the selling price of the final product, by decision of 17 November 1977 and in consideration of Commission Regulation (EEC) No 2067/77 the defendant refused to grant the certificate of origin applied for on 7 November 1977 for exports to Belgium, Yugoslavia, Austria and Poland. The defendant rejected the complaint lodged against that decision by letter of 18 November 1977.
On 30 November 1977 the plaintiff in the main action brought proceedings against that decision before the Verwaltungsgericht Kassel which, after making an order on an application for the adoption of interim measures on 3 February 1978, made an order staying the proceedings and referred to the Court of Justice the following question:
‘Does Commission Regulation (EEC) No 2067/77 of 20 September 1977 (Official Journal L 242 of 21 September 1977, p. 5) conflict with Article 5 of Regulation No 802/68 of 27 June 1968 (Official Journal, English Edition 1968 (I), p. 165) and Articles 30 and 110 of the EEC Treaty and with other provisions or principles of Community law, in particular essential procedural requirements, in that it refuses to recognize that the production of slide fasteners by the plaintiff determines the origin of the goods if sliders originating in a third country (in the present instance, Japan) are used?’
Regulation (EEC) No 2067/77, whose validity is thus called in question, is based on Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 (Official Journal, English Special Edition 1968 (I), p. 165) which provides as follows:
‘A product in the production of which two or more countries were concerned shall be regarded as originating in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture.’
The recitals of the preamble to Regulation (EEC) No 2067/77 provide as follows:
‘Whereas a slide fastener consists essentially of two parallel tapes, scoops or other interlocking elements, slider and end pieces; whereas the operation of assembling a slide fastener from its constituent parts neither constitutes a substantial process or operation nor results in the manufacture of a new product or represents an important stage of manufacture within the meaning of Article 5; Whereas the processes or operations which may together “be considered as the last substantial process or operation and which result in the manufacture of a new product or represent an important stage of manufacture consist of the forming and placing of the scoops or other interlocking elements onto the tapes and the manufacture of the slider by processes such as stamping or moulding; whereas the manufacture of the end pieces does not constitute a substantial process or operation within the meaning of Article 5; Whereas, in the absence of an opinion from the Committee on Origin, the Commission has not been able to adopt the provisions which it envisages, in accordance with Article 14 (3) of Regulation (EEC) No 802/68; whereas the Commission has applied Article 14 (3) (b) and has submitted to the Council a proposal with regard to the provisions to be adopted; Whereas, at the end of the period of three months after the Council had been informed, the Council had not adopted the proposition.”
For this reason Regulation No 2067/77, under the heading “Working or processing that confers the status of originating products when the following conditions are met”, states as follows:
“Assembly including placing of the scoops or other interlocking elements onto the tapes accompanied by the manufacture of the slider and the forming of the scoops or other interlocking elements.”
The order of 27 April 1978 of the Verwaltungsgericht Kassel was entered in the Court Register on 11 May 1978.
Observations were submitted under Article 20 of the Protocol on the Statute of the Court of Justice on behalf of the plaintiff in the main action by Messrs Ehler, Feldmann and Wiemann, Advocates at the Cologne Bar, on behalf of the defendant in the main action by Mr Biederbech, President of the Industrie- und Handelskammer, Kassel (Chamber of Commerce and Industry of Kassel), assisted by Mr Vigener, Principal Director, on behalf of the Commission of the European Communities by Mr Beschel, acting as Agent, on behalf of the Government of the Federal Republic of Germany by Mr von Borries, acting as Agent, and on behalf of the Government of the Italian Republic by Mr Maresca, acting as Agent, assisted by Mr Favara, Avvocato dello Stato.
The Court, after hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to open the oral procedure without any preparatory inquiry.
II — Summary of the written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice
A. Observations submitted by the plaintiff in the main action
Yoshida (Deutschland) GmbH puts forward eight points :
the facts;
the general significance of the case;
the part played by the rules applicable with regard to origin;
formal defects affecting Regulation No 2067/77;
the infringement of Article 5 of Regulation No 802/68;
the infringement of Articles 30 and 34 of the Treaty;
the infringement of Article 110 of the Treaty; and
misuse of powers.
1. The facts
Yoshida (Deutschland) GmbH is one of the European subsidiaries of an undertaking in Tokyo. It distributes slide fasteners which are the result of its own production and of parts imported from Japan, including the sliders. This division of the manufacturing operations is customary in this industry. The result of the vertical integration of the Yoshida group has been that sliders in Europe were supplied first from Japan then, as a result of the adoption of Regulation No 2067/77, from Italy, where an undertaking of its own has been set up. There are three types of slide fasteners (with metal teeth, with plastic teeth and with spirals). This industry supplies, according to their intended uses, a large number of varieties of fastener. The German factory in Wenkbach supplies principally the Federal Republic of Germany but also exports in particular to the countries of Eastern Europe.
The importation of slide fasteners is subject, under Regulation (EEC) No 646/75 (Official Journal L 67 of 14 March 1975, p. 21), to Community surveillance. Previously the certificates of Community origin were granted without difficulty by the Industrie- und Handelskammer Kassel for the products manufactured by the plaintiff in the main action, in application of Article 5 of Regulation No 802/68, if the parts of Japanese origin did not exceed 40 % of the price of the finished product. In this field as in others the grant of certificates of origin by the competent trade organizations, if necessary after obtaining the opinion of the Oberfinanzdirektionen (Principal Finance Boards), did not give rise to any difficulties. However, this situation changed after the entry into force of Regulation No 2067/77; that regulation was adopted, as shown by the observations of the Commission in the parallel case, Case 34/78, because of the increase in imports of slide fasteners from third countries other than Japan; Yoshida was never informed of this by the Commission; the preparation of that regulation gave rise to difficulties which prevented both the Committee on Origin and the Council from taking action and led to the adoption of a Commission regulation in accordance with Article 14 (3) (c) of Regulation No 802/68.
The adoption of those rules, which were produced by the Commission alone, damaged the plaintiff in the main action since it received all its sliders from the parent company in Japan and the fasteners manufactured in Germany with those sliders could no longer acquire Community origin even if much of their manufacture had taken place in the German factory. The damage suffered is not to imports but to sales on the German market and the Community market and to exports to third countries; the plaintiff in the main action supplies some examples of this.
Thus the defendant in the main action refused under Regulation No 2067/77 the certificate of origin for exports of certain types of slide fastener to Poland, Yugoslavia, Belgium and Austria and the present dispute and that which gave rise to the parallel case, Case 34/78, arose.
2. The general significance of the case
First of all, in relation to a technical product such as slide fasteners the interpretation and the application of Article 5 of Regulation No 802/68 are primarily at issue and there is no question in this case either of adopting the solution reached in the judgment of 26 January 1977 in the casein case, Case 49/76 [1977] ECR 41, in an agricultural matter, or of considering the regulation in question merely as a special application of Regulation No 802/68.
Secondly, rules on origin which are neutral from the point of view of commercial policy are of pressing interest to the European exporting, manufacturing and processing industry which operates according to the principle of the international division of labour. Restrictive rules on origin cannot fail to have the effect of a precedent and necessarily have a negative effect on external trade.
Finally, rules on origin which restrict international trade are among obstacles to trade which are not tariffs. Such obstacles are prohibited under Article III (1), VII (1) c) and XI (1) of the General Agreement on Tariffs and Trade. A special committee is engaged in eliminating them within the context of the Tokyo Round and has been active for several years. The Commission, which advocates free world trade, should not undermine that freedom again by prohibitive detailed rules.
3. The part played by the rules on origin
The objective of the rules on origin must not be that of commercial protection; they assume an auxiliary function in the sense that they must enable the Common Customs Tariff and the Community measures adopted within the customs union to be applied uniformly. They must therefore be based on objective criteria because they come within a system which is neutral as regards commercial policy.
For this reason the regulations issued in implementation of Article 5 of Regulation No 802/68 and adopted on the basis of Article 14 of that regulation are in danger of being particularist and rigid. They should not be adopted except in special cases.
4. Formal defects affecting Regulation No 2067/77
The plaintiff in the main action claims first of all that the Commission had no power to adopt Regulation No 2067/77. It was not “necessary” within the meaning of Article 14 (1) of Regulation No 802/68 to adopt special measures for the implementation of Article 5 since the competent trade organizations were in a position to ensure that it was observed. In this case it is possible a fortiori to apply the spirit of the judgment given in the Kaufhof case (Case 29/75 [1976] ECR 431), all the more since differences in application, although relied upon by the Commission, have not been proved by the latter.
Secondly, the plaintiff in the main action accuses the Commission of having infringed Article 14 (3) (c) of Regulation No 802/68; the Commission should have the burden of proving that the regulation in question finally adopted by it corresponds to the proposal which it submitted to the Council.
Thirdly, the plaintiff in the main action complains that the Commission did not itself elucidate the facts sufficiently and objectively or make the necessary inquiries. The Commission, basing itself on biased evidence or opinions given by the government departments of the Member States which may be incorrect should at least, before taking a decision, have informed itself also of the actual procedure for the manufacture of slide fasteners in a factory owned by the undertakings belonging to the Yoshida group, as it was invited to do several times.
Fourthly, the plaintiff in the main action claims that there has been a breach of Articles 1 and 14 of Regulation No 802/68 and of Article 189 of the EEC Treaty. The linguistic versions vary since the English text is wider than the others as it includes spiral slide fasteners. This difference prevents the provision in question from being applied uniformly.
Fifthly, it complains that the Commission did not state the reasons for the need for the sliders themselves to be manufactured in the Community.
All these reasons should, according to the plaintiff in the main action, lead to a declaration that the regulation in question is null and void for infringement of essential procedural requirements.
5. Infringement of Article 5 of Regulation No 802/68
The Commission, which is bound by the legal framework outlined by the superior rule laid down in Article 5 of Regulation No 802/68, has no discretion when it applies that provision concretely (see the judgment in the above-mentioned casein case). The four conditions for the determination of origin are laid down by Article 5 itself. However it is not sufficient, according to the judgment of the Court of 26 January 1977 [1977] ECR 53, paragraph 5 of the decision, to deduce the criteria for the determination of the origin of the goods from the tariff classification of the processed producs. It is necessary for the determination of the origin to be based on an objective distinction which can actually be shown between the initial products and the product resulting from the processing of them. In this respect it is necessary to concentrate on the specific characteristic features of the nature of each of those products.
The work carried out in the German factory of the plaintiff in the main action is “economically justified” and does not aim to evade the provision. The undertaking's equipment and the operations which it enables are sufficient to prove this. Even if the judgment in the abovementioned casein case is not directed towards the relationship of value between the basic products and the final product, such relationships of value may constitute an indication as to the origin of the finished product above all where the last process or operation results from a complex manufacturing process which all requires kinds of capital expenditure, a process forming a whole of which the Commission has no clear idea since it artificially isolates the stages thereof. The successive texts of its draft regulations show that the Commission intended in reality for all the parts to be manufactured in the Community. Even if the sliders are imported in their primary state the method of manufacture and inspection of the slide fasteners as well as their cost price and the complexity of the operations carried out in the manufacture show that in relation to those sliders the slide fasteners are a new product with its own specific characteristics manufactured in the Community, whether they are metal slide fasteners or plastic slide fasteners.
The plaintiff in the main action compares the regulation in question with those which the Commission has adopted in other fields (radio and television receivers, tape recorders and certain textile products) and states that the Commission has used a particularly severe yardstick in the case of slide fasteners, as regards both the percentage of the value of the raw materials of Community origin and the importance of the processes which the imported raw materials undergo.
Finally, the plaintiff in the main action complains that the slide fasteners which it manufactures have, as a result of the regulation in question, “no origin” since they can no longer be considered to be of Japanese origin as the Japanese slider represents only 3.1 to 13.3 % of their total value, nor can they be considered to be of Community origin. This problem has been settled in other fields (see Regulation No 2632/70 on the origin of radio and television receivers) but the lack of any solution in the case of slide fasteners is another ground for the illegality of Regulation No 2067/77.
6. Infringement of Articles 30 and 34 of the Treaty
The application of the regulation in question results in quantitative restrictions on imports and exports in intra-Community trade or in measures having equivalent effect. This is clear for example in the case of exports to Italy and Belgium because of the existence of import quotas or of the possibility of protective measures for goods which are allegedly of Japanese origin.
7. Infringement of Article 110 of the Treaty
Article 110 contains a fundamental principle of commercial policy which is directly applicable (see the judgment in Case 5/67 W. Bens GmbH & Co. v Hauptzollamt München [1968] ECR 83 and the judgment in Case 5/73, Balkan-Import-Export GmbH v Hauptzollamt Berlin-Packhof [1973] ECR 1091at 1113 ). A measure which forms an obstacle to the free movement of goods in trade with third countries is illegal because it infringes Article 110. However, third countries (for example Poland, Yugoslavia and, in general, Eastern European countries) require a certificate of origin guaranteeing that the goods are of German origin; this certificate is however refused on the basis of Regulation No 2067/77. This is damage self-inflicted by the Community through a Commission regulation.
8. Misuse of powers
There would be misuse of powers if it were acknowledged that the Commission had a discretion, because in exercising that power the Commission has, by failing to acquaint itself with the situation, not acted properly; this fact is shown by the conduct of the Committee on Origin, the Council, the Chambers of Commerce and Industry and the Advisory Committee on Customs Matters which was, to say the’ least, reserved.
The fact that it followed the suggestion made by Orgalime that an additional obstacle to trade should be set up with regard to the slide fasteners manufactured in the Common Market by the Yoshida subsidiaries is a misuse or rather an abuse of powers. The indications in this connexion are the part played by Orgalime, the absence of sufficient elucidation of the situation, the difference in treatment in relation to other comparable sectors and the very wording of Article 1 of the regulation in question which speaks of ‘assembly’.
The fact that the Commission derogated precipitously from its previous practice with regard to the rules on origin and adopted purely fictitious rules which have the result of completely depriving certain goods of origin is a misuse of powers.
For these reasons the plaintiff in the main action suggests that the following reply should be given to the Verwaltungsgericht Kassel:
‘Commission Regulation No 2067/77 of 20 September 1977 concerning the determination of the origin of slide fasteners is invalid because it infringes essential procedural requirements and Article 5 of Regulation (EEC) No 802/68 and Articles 30, 34 and 110 of the EEC Treaty.’
B. Observations submitted by the defendant in the main action
The Industrie- und Handelskammer Kassel, the defendant in the main action, states the factual and legal situation and explains that it would infringe a rule of Community law in force if it continued, as previously, when the regulation was not yet in force, to grant the plaintiff certificates of origin on the basis of those circumstances.
It had previously granted the plaintiff in the main action certificates of origin in accordance with Article 5 of Regulation (EEC) No 802/68 where the percentage of primary products from third countries did not exceed 40 % of the value of the ex-works selling price of the finished slide fasteners. This criterion of 40 % was however only an indication. The fact that only imported sliders (from Japan) were used for the manufacture of the slide fasteners did not in principle constitute for the defendant a specific criterion for refusing certificates of origin. Although it is true that the manufacture of metal sliders constitutes a very important stage in production it was not however realistic for the defendant in the main action to consider that that manufacturing process as an essential stage of manufacture for the production of slide fasteners was determining with regard to the place of origin. On the contrary, the defendant in the main action considered that it was essential for the plaintiff in the main action to stamp in its undertaking at Wenkbach, which is remarkably well equipped and has modern machines and a large staff, the metal teeth and to fix them, together with end pieces, onto the woven tapes which are also of Community origin and that only very many production operations carried out in this factory owned by the plaintiff resulted in the completed manufacture of metal slide fasteners.
In view of the very low percentage of the value of the slider in relation to the final price of a slide fastener the Industrie- und Handelskammer Kassel had no objections to granting certificates of Community origin on the basis of the earlier Regulation No 802/68 since the process and the operation were carried out in Germany in an undertaking equipped for the purpose, were economically justified and resulted, through a last substantial operation, in the manufacture of a new product. The Industrie- und Handelskammer Kassel had to refuse the further applications of the Yoshida undertaking solely on the basis of the regulation in question.
C. Observations submitted by the Commission
The Commission gives a summary of the facts and the procedure before the Verwaltungsgericht Kassel and refers for the remainder to its document produced in the parallel case, Case 34/78.
The legal problems which have arisen in the case may, the Commission considers, in fact be summarized by the two following questions:
1) Was Commission Regulation No 2067/77 lawfully adopted?
2) Is the content of Commission Regulation No 2067/77 lawful or does it infringe Article 5 of Regulation No 802/68 of the Council and Articles 30 and 110 of the EEC Treaty, as well as other provisions and principles of Community law?
In reply to the first question, the Commission recalls the procedure for the adoption of Regulation No 2067/77, emphasizing that it started to take action after it received information that the Member States were interpreting differently the concept of origin of slide fasteners on the basis of Article 5 of Regulation No 802/68. It was therefore, according to the Commission, ‘necessary’ to adopt a regulation. In so doing, the Commission ‘scrupulously’ adhered to the procedural rules laid down in Article 14 of Regulation No 802/68. Interested parties were not heard, as is normal in administrative matters, because it was a legislative procedure; that procedure provides for different guarantees, such as the participation of national experts under Article 14 of Regulation No 802/68. This did not in fact prevent the plaintiff in the main action from putting forward its point of view to the Commission and the national governments, as it itself admits. It is therefore impossible to speak of an infringement of the fundamental procedural principles in this respect. Nor is there any infringement with regard to the alleged differences in the wording and meaning of the various linguistic versions. The national experts were consulted on this point and the general meaning and purpose of the regulation may be deduced from all the versions including the English version in respect of which it has not been shown that it could lead to a different application from that of the other versions.
In reply to the second question, the Commission makes a distinction between the various complaints :
With regard to the complaint that Article 5 of Regulation No 802/68 has been infringed, the Commission recalls that the determination of origin presents no difficulties except where the manufacturing process is divided among several countries because of the international division of labour. In this case, Article 5 of Regulation No 802/68 lays down criteria of a general nature the practical application of which may in cetain cases lead to different solutions within the Community in particular when it is for independent bodies, in particular the Chambers of Commerce and Industry, to apply them. For this reason Article 14 of Regulation No 802/68 enables implementing provisions to be adopted, the validity of which is subject to the condition that they keep within the legal framework laid down by Article 5, in other words that they are based on the objective criteria set out in that article. It is therefore not important whether another solution is conceivable but whether the solution chosen by the legislature is in accordance with the legal basis contained in Article 5. In this respect the only question which arises is whether the regulation in question constitutes an objectively correct concrete application of the concept of ‘last substantial process or operation’. According to the Commission, this is the case; the final assembly of a slide fastener is a relatively simple operation which does not represent an important stage in the manufacturing process as a whole; moreover, the manufacture of the tapes is an earlier production process and that of the end pieces is not an important production stage so that only the manufacture of the slider and that of the scoops remains to be considered. In this respect it is important to take into account the fact that, on the one hand, to a considerable extent the manufacture of the scoops, at least in their final form, takes place at the same time as their placing onto the tapes and, on the other, that both operations, the manufacture of the slider and the manufacture of the scoops, are of approximately the same value so that the designation of one of those two operations may constitute discrimination against a manufacturer who carries out the other operation in his manufacturing process. Besides, the Commission has serious doubts as to whether it is possible to speak of substantial process or operation in a case in which the effect of establishing the origin of the goods was attributed to one of the manufacturing operations in conjunction with the final assembly. These considerations led the Commission to classify both production operations as a whole, together with the assembly, as last substantial process and to take the corresponding legislative measures. Regulation No 2067/7, thus justified, in no way constitutes an arbitrary obstacle to trade and, even if its result does not correspond to the economic interests of the Yoshida undertaking, is nevertheless based on objective criteria. The validity of the regulation cannot be called in question because that undertaking would profit more from the use of other criteria (such as the percentages of the invoice price) as the basis.
With regard to the complaint of infringement of Articles 30 and 110 of the Treaty, the Commission refers to its document in Case 34/78. It specifies that the question of the direct effect of Article 110 does not arise in connexion with the compatibility of certain provisions of Community law with other provisions of Community law; in any case, the margin of discretion granted by that article has not been exceeded by the adoption of Regulation No 2067/77. Since Article 5 of the basic regulation, Regulation No 802/68, is lawful, an implementing provision of secondary law which does not affect the legal content of that provision cannot be contrary to the Treaty. It is true that Articles 30 and 110 of the Treaty require objective criteria to be taken into consideration even in the adoption of implementing provisions; the Commission considers however that it has shown that such criteria were adhered to. For this reason the Commission suggests that the following answer should be given to the Verwaltungsgericht Kassel:
1) The rules laid down in Article 1 of Commission Regulation (EEC) No 2067/77 of 20 September 1977, according to which slide fasteners cannot be considered as originating in the Community unless in particular the sliders are manufactured in the Community, is compatible with Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968.
2) Examination of the question referred to the Court of Justice has disclosed no factor of such a kind as to affect the validity of Commission Regulation (EEC) No 2067/77.
D. Observations submitted by the Government of the Federal Republic of Germany
According to the Government of the Federal Republic of Germany, the question referred to the Court of Justice by the Verwaltungsgericht Kassel must be answered in the affirmative in so far as the Commission regulation does not take into consideration the value of the parts and the process or operation which they undergo in the Community.
The Government of the Federal Republic of Germany takes the view that Article 1 of Commission Regulation (EEC) No 2067/77 of 20 September 1977 concerning the determination of the origin of slide fasteners (Official Journal L 242 of 21 September 1977, p. 5) goes beyond the framework laid down in Article 5 of Regulation No 802/68 of the Council. According to that provision, the origin of the slide fasteners is determined in fact not according to the country in which the last substantial process or operation which is economically justified is caried out but according to the origin of the sliders and the scoops. Where therefore sliders and scoops manufactured in a third country (for example in Japan) are used, the regulation excludes Community origin from the outset without its being relevant whether the manufacture of the final product still requires further operations in the Community or what percentage of the total value (invoice price) of the final product the above-mentioned parts represent.
Rules such as those laid down by the Commision would at most be justifiable if the parts from third countries represented generally a very high percentage of the total value of the finished product and if their assembly constituted a simple operation of putting together the parts. However, so far as the Government of the Federal Republic of Germany knows, this is not so in the case of the sliders.
The German Government takes the view that the rules concerning the determination of origin must be laid down neutrally from the point of view of commercial policy and that they must not be used as an instrument of commercial policy. Article 5 of Regulation No 802/68 of the Council provides no basis for measures with such objectives. However, contrary to this the rules on the origin of slide fasteners laid down by the Commission have the effect of restricting trade.
According to the Government of the Federal Republic of Germany, Commission Regulation No 2067/77 is not compatible with the prohibition on measures having an effect equivalent to quantitative restrictions on intra-Community trade either, in particular in the case of exportation to other Member States (Articles 30 and 34 of the EEC Treaty), whereas that prohibition must be observed not only by the Member States but also by the Community itself. In fact to refuse, on the basis of that regulation, to grant certificates of origin certifying that the slide fasteners are of Community origin leads indirectly to a restriction on intra-Community trade in those products whenever the proof of Community origin is important, as for example in the case of protective measures within the meaning of Article 115 of the EEC Treaty.
According to the German Government, Commission Regulation No 2067/77 is not compatible with Article 110 of the EEC Treaty either, which requires the Community to contribute to the abolition of restrictions and to refrain from creating new restrictions on international trade and to apply a cosmopolitan commercial policy.
In the view of the Government of the Federal Republic of Germany provisions adopted by the Commission within the field of commercial policy which go beyond the framework laid down by the Council infringe Article 110 of the EEC Treaty. In the present case, the Commission went beyond the rules, which were neutral from the point of view of commercial policy, adopted by the Council in Regulation No 802/68.
Consequently, the Government of the Federal Republic of Germany proposes that the following answer should be given to the question referred to the Court of Justice by the Verwaltungsgericht:
‘Commission Regulation (EEC) No 2067/77 of 20 September 1977 is not compatible with Article 5 of Regulation (EEC) No 802/68 of the Council or with Articles 30, 34 and 110 of the EEC Treaty in so far as it excludes Community origin in the case of slide fasteners where sliders and scoops from third countries are used without taking into consideration the value of those parts and the processes or operations which they have undergone in the Community.’
E. Observations submitted by the Government of the Italian Republic
As in Case 34/78, the Italian Government observes that Regulation No 2067/77 does not aim to prevent the sale in Europa of what is objectively ‘Japanese’ but is intended only to prevent goods which are objectively Japanese from being able to disguise themselves as European goods.
It also states that that regulation is not contrary to Article 5 of Regulation No 802/78.
Under Article 5 it is necessary, for the purpose of establishing the place of origin of goods, to take into account the place in which a ‘process or operation’ defined as follows has taken place:
a) It must be a process or operation which results in the manufacture of a new product;
b) It must be the ‘last’ process or operation;
c) It must be a ‘substantial’ process or operation;
d) It must be a process or operation ‘that is economically justified’; and
e) It must be a process or operation ‘carried out in an undertaking equipped for the purpose’.
There are therefore five discretionary judgments coming within the power of the Community institutions and Regulation No 2067/77 makes certain of those judgments, specifying in detail what the ‘new product’ is and what the ‘last’, ‘substantial’ and ‘economically justified’ process or operation is.
The discretionary judgment made by the Commission cannot be the subject-matter of judicial review; in the present case that judgment is in any case completely rational since the manufacture of the sliders constitutes the process of the greatest economic importance and involves an important change in the basic products.
The Italian Government adds that an anti-dumping procedure has been initiated against Yoshida K.K.. This procedure was hindered by insufficient information as to the business methods of YKK and ended in a notice of termination in view of the guarantees given by that company in the form of an undertaking to increase its export prices to Europe and the fixing of a ceiling in respect of its exports to Italy. Community surveillance was established by Regulation No 646/75 of the Commission and extended by Regulation No 1268/77 until the end of 1978. The fear that YKK might, by importing products manufactured by its factories set up in other countries in the Middle East, evade these rules, caused European producers to ask the Community to regulate the determination of the origin of slide fasteners by means of provisions adopted in implementation of the principles laid down in Article 5 of Regulation No 802/68. Thus Regulation No 2067/77 came into being. It is valid: it must be observed in this connexion that all regulations on this subject always state clearly that ‘simple assembly of parts of products to constitute a complete product’ is insufficient to confer the status of originating product (see for example Article 3 (f) of Regulation No 3200/76).
In fact, mere ‘assembly’ or ‘putting together’ is always considered to be a process or operation which is not ‘substantial’ and therefore always an operation which does not give to the resulting product ‘its own properties and a composition of its own which it did not possess’ previously (judgment of the Court of 26 January 1977 in Case 49/76). Moreover, the procedure of ‘putting together’ several constituent parts presupposes that those parts are already manufactured and consequently constitutes by definition a procedure other than a ‘process’ or the bestowal of a new ‘composition’.
In these circumstances the Italian Government asks the Court to rule in the present case that:
Article 1 of Regulation (EEC) No 2067/77 must be interpreted as meaning that within the context of Community law a slide fastener with metal scoops or nylon spirals is classified as originating in the Community or in a third country according to whether at least the operations described in the third column of the table in that article have been carried out in the territory of the Community or of the third country; in this connexion it is necessary to take into account the fact that in the case of slide fasteners with nylon spirals the procedure of the forming of the scoops does not apply.
Regulation (EEC) No 2067/77 is valid in substance as it does not infringe either Article 5 of Regulation (EEC) No 802/68 or Articles 30 or 110 of the EEC Treaty, the statement of the reasons upon which it is based is correct and rational and it is not vitiated on the ground of misuse of powers.
III — Oral procedure
The hearing took place on 15 November 1978. Yoshida and the Commission set out in detail and explained the arguments contained in their written observations and replied in addition to questions put by the Court. The Advocate General delivered his opinion at the hearing on 13 December 1978.
Decision
1. By order of 27 April 1978 received at the Court Registry on 11 May 1978 the Verwaltungsgericht Kassel referred to the Court of Justice under Article 177 of the EEC Treaty the question of the validity of Commission Regulation (EEC) No 2067/77 of 20 September 1977 concerning the determination of the origin of slide fasteners (Official Journal L 242 of 21 September 1977, p. 5).
2. This question has been raised within the context of a dispute between a German subsidiary of the Japanese Yoshida Kogyo K.K. group, which owns a factory in Wenkbach-Marburg in which it manufactures slide fasteners by assembling products from materials imported partly from Japan and parts which are partially manufactured in Japan, such as the sliders, and the Industrie- und Handelskammer Kassel which refused, in application of Regulation No 2067/77, to grant it a certificate of origin certifying that the slide fasteners are of German or Community origin on the ground that the sliders used in the manufacture of the slide fasteners had not been manufactured in the territory of the Federal Republic of Germany.
3. Until the entry into force of that regulation these certificates of origin, which are necessary for the plaintiff for the purpose of obtaining the benefit of certain advantages reserved to Community products where they are exported to third countries, were granted without difficulty by the defendant under Article 5 of Regulation (EEC) No 802/68 of the Council of 27 June 1968 on the common definition of the concept of the origin of goods (Official Journal, English Special Edition 1968 (I), p. 165). In these circumstances the national court referred the following question to this Court:
‘Does Commission Regulation (EEC) No 2067/77 conflict with Article 5 of Regulation No 802/68 and Articles 30 and 110 of the EEC Treaty and with other provisions or principles of Community law, in particular essential procedural requirements, in that it refuses to recognize that the production of slide fasteners by the plaintiff determines the origin of the goods if sliders originating in a third country (in the present instance, Japan) are used?’
4. The first problem to be solved is whether the Commission has not, in adopting Regulation No 2067/77, exceeded the powers conferred upon it by the Council for the implementation of the rules which it had laid down in Regulation No 802/68 and, more precisely, whether the specific criteria of origin laid down by the Commission regulation conform to the objective criteria laid down in Article 5 of the Council regulation which is the legal basis of Regulation No 2067/77 and the source of the powers exercised by the Commission in adopting it.
5. Under Article 5 of Regulation No 802/68, ‘a product in the production of which two or more countries were concerned shall be regarded as originating in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture’. It is clear from the file and in particular from the observations of the defendant in the main action that there is no doubt that the final assembly of the slide fasteners constitutes an ‘operation that is economically justified’ and is carried out in an undertaking which is ‘remarkably well-equipped and which has modern machines and a large staff’. Thus the problem is essentially whether the provisions of Regulation No 2067/77 conferring on goods the status of products orginating in the country in which assembly took place including placing of the scoops or other interlocking elements onto the tapes accompanied by the manufacture of the slider and the forming of the scoops or other interlocking elements do not exceed the limits of the discretion of the Commission to adopt implementing provisions in this field under Article 14 of Regulation No 802/68.
6. To reply to this question it is necessary to inquire as to the circumstances in which Regulation No 2067/77 came into being and was then drawn up and finally to interpret it having regard to the technical operations resulting in the manufacture of slide fasteners.
7. In 1975 the Commission found that imports into the Community of slide fasteners, particularly of Japanese origin, had increased considerably in recent years and that those developments threatened to cause injury to Community producers of like products and therefore introduced on 13 March 1975 Regulation No 646/75 establishing Community surveillance over imports of slide fasteners (Official Journal L 67 of 14 March 1975, p. 21). This regulation had been preceded by the initiation, in accordance with the provisions of Regulation No 459/68 of the Council of 5 April 1968 on protection against dumping or the granting of bounties or subsidies by countries which are not members of the European Economic Community, of an anti-dumping/anti-subsidies procedure concerning zip fasteners exported by Yoshida Kogyo, Tokyo, (Japan) (Official Journal C 51 of 30 June 1973, p. 2). This procedure was terminated ‘having regard to the development of the situation’ by a notice published in Official Journal C 63 of 1 June 1974, p. 1.
8. In accordance with Article 14 of Regulation No 802/68, the Commission submitted to the Committee on Origin set up by Article 12 of Regulation No 802/68 and consisting of representatives of the Member States with a representative of the Commission acting as Chairman, a draft of the provisions to be adopted which did not obtain the required qualified majority. The Commission then applied the provisions of Article 14 (3) (b) and submitted to the Council a proposal which received no reply. At the end of the period of three months after the Council had been informed of the proposal it had not acted; the Commission therefore, in accordance with Article 14 (3) (c), regularly adopted Regulation No 2067/77, Article 1 of which states that slide fasteners coming within tariff heading 98.02 of the Common Customs Tariff originate in the country in which the following operations took place: ‘Assembly including placing of the scoops or other interlocking elements onto the tapes accompanied by the manufacture of the slider and the forming of the scoops or other interlocking elements’.
9. It is necessary therefore to examine whether those operations correspond to the requirements laid down in Article 5 of Regulation No 802/68 and may be interpreted as constituting the last substantial process or operation resulting in the manufacture of the slide fastener or representing an important stage of manufacture. This is a question of a technical nature which must be examined having regard to the definition of a slide fastener and to the various operations which result in its formation.
10. The characteristic feature of the finished product known as a slide fastener is that two flexible tapes to which scoops or other interlocking elements are attached in parallel staggered formation can be opened or closed by means of the action of a slider. It follows from the file that the process of the manufacture of the slide fasteners which takes place at the undertaking in Wenkbach-Marburg is composed of the following main operations: (a) the weaving of the tapes and where necessary the trimming and dyeing of them; (b) the stamping of the metal scoops or the production of the spirals from nylon thread; (c) the attaching of the metal scoops or the nylon spirals to the tapes and the subsequent joining of the tapes; (d) the attaching of bottom stops and top stops; (e) the insertion and where necessary the colouring of the sliders ; (f) the drying and cleaning of the slide fasteners followed by the cutting of them to make individual slide fasteners.
11. It follows from the examination of these various operations that the last substantial process or operation must be interpreted as being constituted by the combination of operations (c), (d), (e) and (f) resulting in the manufacture of a new and original product which, in contrast to each of the basic products, is a linking element which can be separated over and over again and is used to join objects, in particular pieces of fabric. The slider constitutes only a particular part of this whole, the price of which cannot moreover have an appreciable influence on the final cost of a slide fastener and which, although it is a characteristic feature thereof, is however of no use unless it is combined in a harmoniously assembled whole.
12. The Commission, in taking the view that it had to go back beyond the last process to the process of the manufacture of the slider and make that a binding condition for the grant of a certificate of origin, relied upon an operation which is extraneous to the objectives of Regulation No 802/68 which requires a real and objective distinction between raw material and processed product depending fundamentally on the specific material qualities of each of those products. The requirement that virtually all components of a product must be of Community origin, even those of little value which are of no use in themselves unless they are incorporated into a whole, would amount to a repudiation of the very objective of the rules on the determination of origin. The Commission has therefore by that very fact exceeded its power under Article 14 (3) of Regulation No 802/68.
13. Consequently, without its being necessary to examine whether the provisions of Regulation No 2067/77 are compatible with Articles 30 and 110 of the EEC Treaty and with other provisions and principles of Community law or essential procedural requirements, it is necessary to state that Article 1 of Commission Regulation No 2067/77 of 20 September 1977 concerning the determination of the origin of slide fasteners is invalid.
Costs
14. The costs incurred by the Commission and by the Governments of the Federal Republic of Germany and Italy which submitted observations to the Court are not recoverable and since the proceedings are, as far as the parties to the main action are concerned, a step in the action pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT in answer to the question referred to it by the Verwaltungsgericht Kassel by order of 27 April 1978, hereby rules: