JUDGMENT OF THE COURT OF 31 JANUARY 19791

Yoshida GmbH v Industrie- und Handelskammer Kassel (preliminary ruling requested by the Verwaltungsgericht Kassel)

"Slide fasteners"

Case 114/78

1. Goods — Slide fasteners — Origin — Determination thereof — Criteria — Commission Regulation (EEC) No 2067/77, Art. 1 — Invalid

In adopting Regulation (EEC) No Regulation (EEC) No 802/68 of the 2067/77 concerning the determination of Council. Article 1 of Regulation No the origin of slide fasteners, the 2067/77 is therefore invalid. Commission exceeded its power under

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

Yoshida GmbH, Mainhausen (Federal Republic of Germany)

and

Industrie- und Handelskammer Kassel

on the validity of Commission Regulation (EEC) No 2067/77 concerning the determination of the origin of slide fasteners (Official Journal L 242 of 21 September 1977, p. 5),

1 — Language of the Case: German.

151 JUDGMENT OF 31. 1. 1979 — CASE 114/78

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, origin certifying that its products are conclusions and submissions and of German origin or possibly of arguments of the parties may be Community origin. Whereas these certi• summarized as follows: ficates have hitherto been granted under Article 5 of Regulation (EEC) No I — Facts and procedure 802/68 of 27 June 1968 on the common definition of the concept of the origin of The plaintiff in the main action is a sub• goods in so far as the value of the raw sidiary of the Yoshida Kogyo K. K. materials used in the manufacture of the undertaking in Tokyo. In its factory in slide fasteners of Japanese origin or orig• Wenkbach-Marburg it produces slide inating in another third country did not fasteners which it assembles from parts exceed 40% of the value of the selling imported from Japan or the raw price of the final product, by decision of materials for which are imported from 17 November 1977 and in consideration Japan. It sells the slide fasteners thus of Commission Regulation (EEC) No manufactured on the German market 2067/77 the defendant refused to grant and to third countries. the certificate of origin applied for on 7 November 1977 for exports to For certain sales, in particular so as to Belgium, Yugoslavia, Austria and avoid a quantitative restriction on Poland. The defendant rejected the exports, it requires for its products a complaint lodged against that decision certificate known as a certificate of by letter of 18 November 1977.

152 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL

On 30 November 1977 the plaintiff in assembling a slide fastener from its the main action brought proceedings constituent parts neither constitutes a against that decision before the Verwal• substantial process or operation nor tungsgericht Kassel which, after making results in the manufacture of a new an order on an application for the product or represents an important stage adoption of interim measures on 3 of manufacture within the meaning of February 1978, made an order staying Article 5; the proceedings and referred to the Whereas the processes or operations Court of Justice the following question: which may together "be considered as the "Does Commission Regulation (EEC) last substantial process or operation and No 2067/77 of 20 September 1977 which result in the manufacture of a new (Official Journal L 242 of 21 September product or represent an important stage 1977, p. 5) conflict with Article 5 of of manufacture consist of the forming Regulation No 802/68 of 27 June 1968 and placing of the scoops or other (Official Journal, English Edition 1968 interlocking elements onto the tapes and (I), p. 165) and Articles 30 and 110 of the manufacture of the slider by the EEC Treaty and with other processes such as stamping or moulding; provisions or principles of Community whereas the manufacture of the end law, in particular essential procedural pieces does not constitute a substantial requirements, in that it refuses to process or operation within the meaning recognize that the production of slide of Article 5; fasteners by the plaintiff determines the Whereas, in the absence of an opinion origin of the goods if sliders originating from the Committee on Origin, the in a third country (in the present Commission has not been able to adopt instance, Japan) are used?" the provisions which it envisages, in Regulation (EEC) No 2067/77, whose accordance with Article 14 (3) of Regu• validity is thus called in question, is lation (EEC) No 802/68; whereas the based on Article 5 of Regulation (EEC) Commission has applied Article 14 (3) No 802/68 of the Council of 27 June (b) and has submitted to the Council a 1968 (Official Journal, English Special proposal with regard to the provisions to Edition 1968 (I), p. 165) which provides be adopted; as follows: Whereas, at the end of the period of "A product in the production of which three months after the Council had been two or more countries were concerned informed, the Council had not adopted shall be regarded as originating in the the proposition." country in which the last substantial For this reason Regulation No 2067/77, process or operation that is economically under the heading "Working or justified was performed, having been processing that confers the status of orig• carried out in an undertaking equipped inating products when the following for the purpose, and resulting in the conditions are met", states as follows: manufacture of a new product or "Assembly including placing of the representing an important stage of manu• scoops or other interlocking elements facture." onto the tapes accompanied by the manu• The recitals of the preamble to Regu• facture of the slider and the forming of lation (EEC) No 2067/77 provide as the scoops or other interlocking follows: elements."

"Whereas a slide fastener consists essentially of two parallel tapes, scoops or other interlocking elements, slider and end pieces; whereas the operation of

153 JUDGMENT OF 31. 1. 1979 — CASE 114/78

The order of 27 April 1978 of the — the infringement of Articles 30 and Verwaltungsgericht Kassel was entered 34 of the Treaty; in the Court Register on 11 May 1978. — the infringement of Article 110 of the Observations were submitted under Treaty; and Article 20 of the Protocol on the Statute — misuse of powers. of the Court of Justice on behalf of the plaintiff in the main action by Messrs 1. The facts Ehler, Feldmann and Wiemann, Advocates at the Cologne Bar, on behalf Yoshida (Deutschland) GmbH is one of of the defendant in the main action by the European subsidiaries of an under• Mr Biederbech, President of the taking in Tokyo. It distributes slide Industrie- und Handelskammer, Kassel fasteners which are the result of its own (Chamber of Commerce and Industry of production and of parts imported from Kassel), assisted by Mr Vigener, Japan, including the sliders. This division Principal Director, on behalf of the of the manufacturing operations is Commission of the European Com• customary in this industry. The result of munities by Mr Beschel, acting as Agent, the vertical integration of the Yoshida on behalf of the Government of the group has been that sliders in Europe Federal Republic of Germany by Mr von were supplied first from Japan then, as a Borries, acting as Agent, and on behalf result of the adoption of Regulation No of the Government of the Italian 2067/77, from Italy, where an under• Republic by Mr Maresca, acting as taking of its own has been set up. There Agent, assisted by Mr Favara, Avvocato are three types of slide fasteners (with dello Stato. metal teeth, with plastic teeth and with The Court, after hearing the report of spirals). This industry supplies, according the Judge-Rapporteur and the views of to their intended uses, a large number of the Advocate General, decided to open varieties of fastener. The German factory the oral procedure without any in Wenkbach supplies principally the preparatory inquiry. Federal Republic of Germany but also exports in particular to the countries of Eastern Europe. II — Summary of the written The importation of slide fasteners is observations submitted subject, under Regulation (EEC) No under Article 20 of the 646/75 (Official Journal L 67 of 14 Protocol on the Statute of March 1975, p. 21), to Community sur• the Court of Justice veillance. Previously the certificates of Community origin were granted without A. Observations submitted by the plaintiff difficulty by the Industrie- und Handels• in the main action kammer Kassel for the products manu• factured by the plaintiff in the main Yoshida (Deutschland) GmbH puts action, in application of Article 5 of forward eight points : Regulation No 802/68, if the parts of — the facts; Japanese origin did not exceed 40% of the price of the finished product. In this — the general significance of the case; field as in others the grant of certificates — the part played by the rules of origin by the competent trade organ• applicable with regard to origin; izations, if necessary after obtaining the — formal defects affecting Regulation No 2067/77; — the infringement of Article 5 of Regu• lation No 802/68;

154 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL opinion of the Oberfinanzdirektionen [1977] ECR 41, in an agricultural (Principal Finance Boards), did not give matter, or of considering the regulation rise to any difficulties. However, this in question merely as a special situation changed after the entry into application of Regulation No 802/68. force of Regulation No 2067/77; that Secondly, rules on origin which are regulation was adopted, as shown by the neutral from the point of view of observations of the Commission in the commercial policy are of pressing parallel case, Case 34/78, because of the interest to the European exporting, manu• increase in imports of slide fasteners facturing and processing industry which from third countries other than Japan; operates according to the principle of the Yoshida was never informed of this by international division of labour. the Commission; the preparation of that Restrictive rules on origin cannot fail to regulation gave rise to difficulties which have the effect of a precedent and prevented both the Committee on Origin necessarily have a negative effect on and the Council from taking action and external trade. led to the adoption of a Commission Finally, rules on origin which restrict regulation in accordance with Article 14 international trade are among obstacles (3) (c) of Regulation No 802/68. to trade which are not tariffs. Such The adoption of those rules, which were obstacles are prohibited under Article III produced by the Commission alone, (1), VII (1) c) and XI (1) of the General damaged the plaintiff in the main action Agreement on Tariffs and Trade. A since it received all its sliders from the special committee is engaged in parent company in Japan and the eliminating them within the context of fasteners manufactured in Germany with the Tokyo Round and has been active those sliders could no longer acquire for several years. The Commission, Community origin even if much of their which advocates free world trade, should manufacture had taken place in the not undermine that freedom again by German factory. The damage suffered is prohibitive detailed rules. not to imports but to sales on the German market and the Community 3. The part played by the rules on origin market and to exports to third countries; the plaintiff in the main action supplies The objective of the rules on origin must not be that of commercial protection; some examples of this. they assume an auxiliary function in the Thus the defendant in the main action sense that they must enable the Common refused under Regulation No 2067/77 Customs Tariff and the Community 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 inter• pretation 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

155 JUDGMENT OF 31. 1. 1979 — CASE 114/78

measures adopted within the customs procedure for the manufacture of slide union to be applied uniformly. They fasteners in a factory owned by the must therefore be based on objective undertakings belonging to the Yoshida criteria because they come within a group, as it was invited to do several system which is neutral as regards times. commercial policy. Fourthly, the plaintiff in the main action For this reason the regulations issued in claims that there has been a breach of implementation of Article 5 of Regu• Articles 1 and 14 of Regulation No lation No 802/68 and adopted on the 802/68 and of Article 189 of the EEC basis of Article 14 of that regulation are Treaty. The linguistic versions vary since in danger of being particularist and rigid. the English text is wider than the others They should not be adopted except in as it includes spiral slide fasteners. This special cases. difference prevents the provision in question from being applied uniformly. 4. Formal defects affecting Regulation Fifthly, it complains that the Commission No 2067/77 did not state the reasons for the need for the sliders themselves to be manu• The plaintiff in the main action claims first of all that the Commission had no factured in the Community. power to adopt Regulation No 2067/77. All these reasons should, according to It was not "necessary" within the the plaintiff in the main action, lead to a meaning of Article 14 (1) of Regulation declaration that the regulation in No 802/68 to adopt special measures for question is null and void for the implementation of Article 5 since the infringement of essential procedural competent trade organizations were in a requirements. position to ensure that it was observed. In this case it is possible a fortiori to 5. Infringement of Article 5 of Regu• apply the spirit of the judgment given in lation No 802/68 the Kaufhof case (Case 29/75 [1976] The Commission, which is bound by the ECR 431), all the more since differences legal framework outlined by the superior in application, although relied upon by rule laid down in Article 5 of Regulation the Commission, have not been proved No 802/68, has no discretion when it by the latter. applies that provision concretely (see the Secondly, the plaintiff in the main action judgment in the above-mentioned casein accuses the Commission of having case). The four conditions for the infringed Article 14 (3) (c) of Regulation determination of origin are laid down by No 802/68; the Commission should have Article 5 itself. However it is not the burden of proving that the regulation sufficient, according to the judgment of in question finally adopted by it the Court of 26 January 1977 [1977] corresponds to the proposal which it ECR 53, paragraph 5 of the decision, to submitted to the Council. deduce the criteria for the determination

Thirdly, the plaintiff in the main action of the origin of the goods from the tariff 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

156 YOSHIDA v INDUSTRIE- UND HANDELSKAMMER KASSEL classification of the processed producs. It Commission has used a particularly is necessary for the determination of the severe yardstick in the case of slide origin to be based on an objective fasteners, as regards both the percentage distinction which can actually be shown of the value of the raw materials of between the initial products and the Community origin and the importance of product resulting from the processing of the processes which the imported raw them. In this respect it is necessary to materials undergo. concentrate on the specific characteristic Finally, the plaintiff in the main action features of the nature of each of those complains that the slide fasteners which products. it manufactures have, as a result of the The work carried out in the German regulation in question, "no origin" since factory of the plaintiff in the main action they can no longer be considered to be is "economically justified" and does not of Japanese origin as the Japanese slider aim to evade the provision. The under• represents only 3.1 to 13.3% of their taking's equipment and the operations total value, nor can they be considered which it enables are sufficient to prove to be of Community origin. This this. Even if the judgment in the problem has been settled in other fields abovementioned casein case is not (see Regulation No 2632/70 on the directed towards the relationship of origin of radio and television receivers) value between the basic products and the but the lack of any solution in the case final product, such relationships of value of slide fasteners is another ground for may constitute an indication as to the the illegality of Regulation No 2067/77. origin of the finished product above all where the last process or operation 6. Infringement of Articles 30 and 34 of results from a complex manufacturing the Treaty process which all requires kinds of The application of the regulation in capital expenditure, a process forming a question results in quantitative whole of which the Commission has no restrictions on imports and exports in clear idea since it artificially isolates the intra-Community trade or in measures stages thereof. The successive texts of its having equivalent effect. This is clear for draft regulations show that the example in the case of exports to Italy Commission intended in reality for all and Belgium because of the existence of the parts to be manufactured in the import quotas or of the possibility of Community. Even if the sliders are protective measures for goods which are imported in their primary state the allegedly of Japanese origin. method of manufacture and inspection of the slide fasteners as well as their cost 7. Infringement of Article 110 of the price and the complexity of the Treaty operations carried out in the manu• facture show that in relation to those Article 110 contains a fundamental sliders the slide fasteners are a new principle of commercial policy which is product with its own specific charac• directly applicable (see the judgment in teristics manufactured in the Com• Case 5/67 W. Bens GmbH & Co. v munity, 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

157 JUDGMENT OF 31. 1. 1979 — CASE 114/78

Hauptzollamt München [1968] ECR 83 certain goods of origin is a misuse of

and the judgment in Case 5/73, Balkan- powers. Import-Export GmbH v Hauptzollamt For these reasons the plaintiff in the Berlin-Packhof [1973] ECR 1091 at main action suggests that the following 1113). A measure which forms an reply should be given to the Verwaltungs• obstacle to the free movement of goods gericht Kassel: in trade with third countries is illegal "Commission Regulation No 2067/77 of because it infringes Article 110. 20 September 1977 concerning the However, third countries (for example determination of the origin of slide Poland, Yugoslavia and, in general, fasteners is invalid because it infringes Eastern European countries) require a essential procedural requirements and certificate of origin guaranteeing that the Article 5 of Regulation (EEC) No goods are of German origin; this certi• 802/68 and Articles 30, 34 and 110 of ficate is however refused on the basis of the EEC Treaty." Regulation No 2067/77. This is damage self-inflicted by the Community through a Commission regulation. B. Observations submitted by the defendant in the main action 8. Misuse of powers The Industrie- und Handelskammer There would be misuse of powers if it Kassel, the defendant in the main action, were acknowledged that the Commission states the factual and legal situation and had a discretion, because in exercising explains that it would infringe a rule of that power the Commission has, by Community law in force if it continued, failing to acquaint itself with the as previously, when the regulation was situation, not acted properly; this fact is not yet in force, to grant the plaintiff shown by the conduct of the Committee certificates of origin on the basis of those on Origin, the Council, the Chambers of circumstances. Commerce and Industry and the It had previously granted the plaintiff in Advisory Committee on Customs the main action certificates of origin in Matters which was, to say the' least, accordance with Article 5 of Regulation reserved. (EEC) No 802/68 where the percentage The fact that it followed the suggestion of primary products from third countries made by Orgalime that an additional did not exceed 40% of the value of the obstacle to trade should be set up with ex-works selling price of the finished regard to the slide fasteners manu• slide fasteners. This criterion of 40% was factured in the Common Market by the however only an indication. The fact Yoshida subsidiaries is a misuse or rather that only imported sliders (from Japan) an abuse of powers. The indications in were used for the manufacture of the this connexion are the part played by slide fasteners did not in principle Orgalime, the absence of sufficient eluci• constitute for the defendant a specific dation 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

158 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL criterion for refusing certificates of The legal problems which have arisen in origin. Although it is true that the manu• the case may, the Commission considers, facture of metal sliders constitutes a very in fact be summarized by the two important stage in production it was not following questions: however realistic for the defendant in the (1) Was Commission Regulation No main action to consider that that manu• 2067/77 lawfully adopted? facturing process as an essential stage of (2) Is the content of Commission Regu• manufacture for the production of slide lation No 2067/77 lawful or does it fasteners was determining with regard to infringe Article 5 of Regulation No the place of origin. On the contrary, the 802/68 of the Council and Articles defendant in the main action considered 30 and 110 of the EEC Treaty, as that it was essential for the plaintiff in well as other provisions and the main action to stamp in its under• principles of Community law? taking at Wenkbach, which is remarkably well equipped and has In reply to the first question, the modern machines and a large staff, the Commission recalls the procedure for the metal teeth and to fix them, together adoption of Regulation No 2067/77, with end pieces, onto the woven tapes emphasizing that it started to take action which are also of Community origin and after it received information that the that only very many production Member States were interpreting operations carried out in this factory differently the concept of origin of slide owned by the plaintiff resulted in the fasteners on the basis of Article 5 of completed manufacture of metal slide Regulation No 802/68. It was therefore, fasteners. according to the Commission, In view of the very low percentage of the "necessary" to adopt a regulation. In so value of the slider in relation to the final doing, the Commission "scrupulously" price of a slide fastener the Industrie- adhered to the procedural rules laid und Handelskammer Kassel had no down in Article 14 of Regulation No 802/68. Interested parties were not objections to granting certificates of heard, as is normal in administrative Community origin on the basis of the matters, because it was a legislative earlier Regulation No 802/68 since the procedure; that procedure provides for process and the operation were carried different guarantees, such as the par• out in Germany in an undertaking ticipation of national experts under equipped for the purpose, were Article 14 of Regulation No 802/68. economically justified and resulted, This did not in fact prevent the plaintiff through a last substantial operation, in in the main action from putting forward the manufacture of a new product. The its point of view to the Commission and Industrie- und Handelskammer Kassel the national governments, as it itself 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.

159 JUDGMENT OF 31. 1. 1979 — CASE 114/78 admits. It is therefore impossible to speak case; the final assembly of a slide of an infringement of the fundamental fastener is a relatively simple operation procedural principles in this respect. Nor which does not represent an important is there any infringement with regard to stage in the manufacturing process as a the alleged differences in the wording whole; moreover, the manufacture of the and meaning of the various linguistic tapes is an earlier production process and versions. The national experts were that of the end pieces is not an important consulted on this point and the general production stage so that only the manu• meaning and purpose of the regulation facture of the slider and that of the may be deduced from all the versions scoops remains to be considered. In this including the English version in respect respect it is important to take into of which it has not been shown that it account the fact that, on the one hand, could lead to a different application from to a considerable extent the manufacture that of the other versions. of the scoops, at least in their final form, takes place at the same time as their In reply to the second question, the Commission makes a distinction between placing onto the tapes and, on the other, that both operations, the manufacture of the various complaints : the slider and the manufacture of the With regard to the complaint that Article scoops, are of approximately the same 5 of Regulation No 802/68 has been value so that the designation of one of infringed, the Commission recalls that those two operations may constitute the determination of origin presents no discrimination against a manufacturer difficulties except where the manufac• who carries out the other operation in turing process is divided among several his manufacturing process. Besides, the countries because of the international Commission has serious doubts as to division of labour. In this case, Article 5 whether it is possible to speak of sub• of Regulation No 802/68 lays down stantial process or operation in a case in criteria of a general nature the practical which the effect of establishing the origin application of which may in cetain cases of the goods was attributed to one of the lead to different solutions within the manufacturing operations in conjunction Community in particular when it is for with the final assembly. These independent bodies, in particular the considerations led the Commission to Chambers of Commerce and Industry, to classify both production operations as a apply them. For this reason Article 14 whole, together with the assembly, as of Regulation No 802/68 enables last substantial process and to take the implementing provisions to be adopted, corresponding legislative measures. the validity of which is subject to the Regulation No 2067/7, thus justified, in condition that they keep within the legal no way constitutes an arbitrary obstacle framework laid down by Article 5, in to trade and, even if its result does not other words that they are based on the correspond to the economic interests of objective criteria set out in that article. It the Yoshida undertaking, is nevertheless 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

160 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL based on objective criteria. The validity D. Observations submitted by the of the regulation cannot be called in Government of the Federal Republic of question because that undertaking would Germany profit more from the use of other criteria (such as the percentages of the invoice According to the Government of the price) as the basis. Federal Republic of Germany, the question referred to the Court of Justice With regard to the complaint of by the Verwaltungsgericht Kassel must infringement of Articles 30 and 110 of be answered in the affirmative in so far the Treaty, the Commission refers to its as the Commission regulation does not document in Case 34/78. It specifies that take into consideration the value of the the question of the direct effect of parts and the process or operation which Article 110 does not arise in connexion they undergo in the Community. with the compatibility of certain The Government of the Federal Republic provisions of Community law with other of Germany takes the view that Article 1 provisions of Community law; in any of Commission Regulation (EEC) No case, the margin of discretion granted by 2067/77 of 20 September 1977 that article has not been exceeded by the concerning the determination of the adoption of Regulation No 2067/77. origin of slide fasteners (Official Journal Since Article 5 of the basic regulation, L 242 of 21 September 1977, p. 5) goes Regulation No 802/68, is lawful, an beyond the framework laid down in implementing provision of secondary law Article 5 of Regulation No 802/68 of the which does not affect the legal content Council. According to that provision, the of that provision cannot be contrary to origin of the slide fasteners is determined the Treaty. It is true that Articles 30 and in fact not according to the country in 110 of the Treaty require objective which the last substantial process or criteria to be taken into consideration operation which is economically justified even in the adoption of implementing is caried out but according to the origin provisions; the Commission considers of the sliders and the scoops. Where however that it has shown that such therefore sliders and scoops manu• criteria were adhered to. factured in a third country (for example For this reason the Commission suggests in Japan) are used, the regulation that the following answer should be excludes Community origin from the given to the Verwaltungsgericht Kassel: outset without its being relevant whether the manufacture of the final product still 1. The rules laid down in Article 1 of requires further operations in the Commission Regulation (EEC) No Community or what percentage of the 2067/77 of 20 September 1977, total value (invoice price) of the final according to which slide fasteners product the above-mentioned parts cannot be considered as originating in represent. the Community unless in particular Rules such as those laid down by the the sliders are manufactured in the Commision would at most be justifiable Community, is compatible with if the parts from third countries Article 5 of Regulation (EEC) No represented generally a very high 802/68 of the Council of 27 June percentage of the total value of the 1968. finished product and if their assembly 2. Examination of the question referred constituted a simple operation of putting to the Court of Justice has disclosed together the parts. However, so far as no factor of such a kind as to affect the Government of the Federal Republic the validity of Commission Regu• lation (EEC) No 2067/77.

161 JUDGMENT OF 31. 1. 1979 — CASE 114/78 of Germany knows, this is not so in the beyond the framework laid down by the case of the sliders. Council infringe Article 110 of the EEC

The German Government takes the view Treaty. In the present case, the Commission went beyond the rules, that the rules concerning the determi• which were neutral from the point of nation of origin must be laid down view of commercial policy, adopted by neutrally from the point of view of the Council in Regulation No 802/68. commercial policy and that they must not be used as an instrument of Consequently, the Government of the commercial policy. Article 5 of Regu• Federal Republic of Germany proposes lation No 802/68 of the Council that the following answer should be provides no basis for measures with such given to the question referred to the objectives. However, contrary to this the Court of Justice by the Verwaltungs• rules on the origin of slide fasteners laid gericht: down by the Commission have the effect "Commission Regulation (EEC) No of restricting trade. 2067/77 of 20 September 1977 is not According to the Government of the compatible with Article 5 of Regulation Federal Republic of Germany, (EEC) No 802/68 of the Council or with Commission Regulation No 2067/77 is Articles 30, 34 and 110 of the EEC not compatible with the prohibition on Treaty in so far as it excludes measures having an effect equivalent to Community origin in the case of slide quantitative restrictions on intra- fasteners where sliders and scoops from Community trade either, in particular in third countries are used without taking into consideration the value of those the case of exportation to other Member States (Articles 30 and 34 of the EEC parts and the processes or operations Treaty), whereas that prohibition must which they have undergone in the be observed not only by the Member Community." States but also by the Community itself. In fact to refuse, on the basis of that E. Observations submitted by the regulation, to grant certificates of origin Government of the Italian Republic certifying that the slide fasteners are of Community origin leads indirectly to a As in Case 34/78, the Italian restriction on intra-Community trade in Government observes that Regulation those products whenever the proof of No 2067/77 does not aim to prevent the Community origin is important, as for sale in Europa of what is objectively example in the case of protective "Japanese" but is intended only to measures within the meaning of Article prevent goods which are objectively 115 of the EEC Treaty. Japanese from being able to disguise themselves as European goods. 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 inter• national 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

162 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL

It also states that that regulation is not Community surveillance was established contrary to Article 5 of Regulation No by Regulation No 646/75 of the 802/78. Commission and extended by Regulation No 1268/77 until the end of 1978. The Under Article 5 it is necessary, for the fear that YKK might, by importing purpose of establishing the place of products manufactured by its factories origin of goods, to take into account the set up in other countries in the Middle place in which a "process or operation" East, evade these rules, caused European defined as follows has taken place: producers to ask the Community to (a) It must be a process or operation regulate the determination of the origin which results in the manufacture of a of slide fasteners by means of provisions new product; adopted in implementation of the (b) It must be the "last" process or principles laid down in Article 5 of Regu• operation; lation No 802/68. Thus Regulation No 2067/77 came into being. It is valid: it (c) It must be a "substantial" process or must be observed in this connexion that operation; all regulations on this subject always (d) It must be a process or operation state clearly that "simple assembly of "that is economically justified"; and parts of products to constitute a (e) It must be a process or operation complete product" is insufficient to "carried out in an undertaking confer the status of originating product equipped for the purpose". (see for example Article 3 (f) of Regu• lation No 3200/76). There are therefore five discretionary In fact, mere "assembly" or "putting judgments coming within the power of together" is always considered to be a the Community institutions and Regu• process or operation which is not "sub• lation No 2067/77 makes certain of stantial" and therefore always an those judgments, specifying in detail operation which does not give to the what the "new product" is and what the resulting product "its own properties and "last", "substantial" and "economically a composition of its own which it did not justified" process or operation is. possess" previously (judgment of the The discretionary judgment made by the Court of 26 January 1977 in Case Commission cannot be the subject-matter 49/76). Moreover, the procedure of of judicial review; in the present case "putting together" several constituent that judgment is in any case completely parts presupposes that those parts are 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 termi• nation in view of the guarantees given by that company in the form of an under• taking to increase its export prices to Europe and the fixing of a ceiling in respect of its exports to Italy.

163 JUDGMENT OF 31. 1. 1979 — CASE 114/78

already manufactured and consequently — Regulation (EEC) No 2067/77 is constitutes by definition a procedure valid in substance as it does not other than a "process" or the bestowal infringe either Article 5 of Regulation of a new "composition". (EEC) No 802/68 or Articles 30 or In these circumstances the Italian 110 of the EEC Treaty, the statement Government asks the Court to rule in the of the reasons upon which it is based present case that: is correct and rational and it is not — Article 1 of Regulation (EEC) No vitiated on the ground of misuse of 2067/77 must be interpreted as meaning that within the context of powers. Community law a slide fastener with metal scoops or nylon spirals is classified as originating in the Ill — Oral procedure Community or in a third country according to whether at least the operations described in the third The hearing took place on 15 November column of the table in that article 1978. Yoshida and the Commission set have been carried out in the territory out in detail and explained the of the Community or of the third arguments contained in their written country; in this connexion it is observations and replied in addition to necessary to take into account the questions put by the Court. The fact that in the case of slide fasteners Advocate General delivered his opinion with nylon spirals the procedure of at the hearing on 13 December 1978. the forming of the scoops does not apply.

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 Regu• lation (EEC) No 2067/77 of 20 September 1977 concerning the determi• nation 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 Regu• lation No 2067/77, to grant it a certificate of origin certifying that the slide

164 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL

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 pro• cedural 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 under• taking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture". It is clear from

165 JUDGMENT OF 31. 1. 1979 — CASE 114/78

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.

166 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL

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;

167 JUDGMENT OF 31. 1. 1979 — CASE 114/78

(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 sub• stantial 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 determi• nation of origin. The Commission has therefore by that very fact exceeded its power under Article 14 (3) of Regulation No 802/68.

168 YOSHIDA INDUSTRIE- UND HANDELSKAMMER KASSEL

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

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:

Article 1 of Commission Regulation No 2067/77 of 20 September 1977 concerning the origin of slide fasteners (Official Journal L 242 of 21 September 1977, p. 5) is invalid.

Kutscher Mertens de Wilmars Mackenzie Stuart Donner Pescatore

Sørensen O'Keeffe Bosco Touffait

Delivered in open court in Luxembourg on 31 January 1979.

A. Van Houtte H. Kutscher

Registrar President

169