62022TJ0246_RES
Case T‑246/22
PGTEX Morocco
v
European Commission
Judgment of the General Court (Tenth Chamber, Extended Composition) of 4 December 2024
(Subsidies – Extension of the definitive countervailing duty imposed on imports of certain woven or stitched glass fibre fabrics originating in China to imports of those products consigned from Morocco – Anti-circumvention investigation – Circumvention – Euro-Mediterranean Association Agreement EC-Morocco – Article 33(a) of Regulation (EU) 2016/1037 – Misuse of powers – Conditions which must be met in order to establish circumvention – Article 23(3) of Regulation 2016/1037 – Change stemming from a practice, process or work for which there is insufficient due cause or economic justification other than the imposition of the duty – Assembly operations – Completion operations – Concept of ‘value added’ – Like imported product or parts of that product continuing to benefit from the subsidy – Error of law – Manifest error of assessment – Principle of non-discrimination – Equal treatment – Principle of good administration – Article 28(1) and (3) of Regulation 2016/1037 – Use of the facts available)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Extension of countervailing duty – Definitive countervailing duty extended to imports consigned from a country which has concluded an association agreement with the European Union – Whether permissible – Conditions
(European Parliament and Council Regulation 2016/1037, recital 18 and Art. 23; Commission Regulation 2022/301)
(see paragraphs 37-39, 41-48)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Concept – Change in the pattern of trade between non-Member States and the European Union – Change stemming from a practice, process or work for which there is insufficient due cause or economic justification – Establishment of a production site, for a product similar to those to which countervailing duties relate, in a country other than the country of origin of that product – Coincidence in time between the initiation of the anti-subsidy investigation that led to the imposition of the duties and the establishment of that production site – Presumed intention to avoid the application of the countervailing duties in force – Burden of proof
(European Parliament and Council Regulation 2016/1037, Art. 23(3); Commission Regulation 2022/301, recital 67)
(see paragraphs 74-85)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Scope – Assembly operations – Included
(European Parliament and Council Regulations 2016/1036, Art. 13(1), fourth subpara., and 2016/1037, Art. 23(3), second subpara.; Commission Regulation 2022/301, recital 33)
(see paragraphs 106-116)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Assembly operation – Concept – Completion operation – Included
(European Parliament and Council Regulations 2016/1036, Art. 13(1), fourth subpara., point (d), and (2)(b), and 2016/1037, Art. 23(3), second subpara.; Commission Regulation 2022/301, recitals 76, 77 and 79)
(see paragraphs 131-138)
Common commercial policy – Protection against dumping – Circumvention – Assembly operation – Concept – Criteria for assessment
(European Parliament and Council Regulation 2016/1036, Art. 13(1), third subpara., and (2); Commission Regulation 2022/301, recitals 76, 77 and 79)
(see paragraphs 141, 142)
Common commercial policy – Protection against dumping – Circumvention – Assembly operation – Parts constituting 60% or more of the total value of the assembled product’s parts originating in the country subject to the measures – Exception – Value added to the parts brought in greater than 25% of the manufacturing cost – Concept of value added – Scope – Calculation – Manufacturing costs – Adjustment – Criteria – Taking into account of the actual production capacity utilisation rate
(European Parliament and Council Regulations 2016/1036, Arts 2(5) and 13(2)(b), and 2016/1037, Art. 23(3); Commission Regulation 2022/301, recitals 80 to 82, 85, 86 and 91 to 94)
(see paragraphs 171-179)
Common commercial policy – Protection against dumping – Circumvention – Assembly operation – Determination of the value added to the parts brought in – Adjustments of the manufacturing costs – Whether permissible – No adjustment of the production costs when determining the injury margin in the anti-dumping investigation – No breach of the principle of equal treatment
(European Parliament and Council Regulation 2016/1036, Arts 2(5) and 13(2)(b); Commission Regulation 2022/301, recitals 77 to 80, 82, 83, 88, 90 and 91)
(see paragraph 202)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Concept – Like imported product or parts of that product continuing to benefit from the subsidy – Legal presumption of pass-through of subsidies between related parties – Burden of proof
(European Parliament and Council Regulation 2016/1037, Art. 23(3); Commission Regulation 2022/301, recital 105)
(see paragraphs 225-229)
Common commercial policy – Protection against subsidisation practices of non-Member States – Circumvention – Course of the investigation – Use of the facts available where the undertaking refuses to cooperate – Conditions – Refusal of access to the necessary information
(European Parliament and Council Regulation 2016/1037, Arts 23(1) and 28(1) and (4); Commission Regulation 2022/301, recitals 38, 39 and 41 to 43)
(see paragraphs 244-247, 255-257)
Résumé
The General Court dismisses the action, which was brought before it by a Moroccan company belonging to the Chinese group PGTEX, seeking annulment of Implementing Regulation 2022/301 (
1
) extending the definitive countervailing duty on imports of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People’s Republic of China to imports of GFF consigned from Morocco. On this occasion, the Court provides clarification as to whether it is possible for the European Commission to extend countervailing duties imposed on the People’s Republic of China to imports of like products from a third country with which the European Union has signed an association agreement, where circumvention of the measures in force is taking place. In that context, the Court confirms, inter alia, that assembly operations may constitute circumvention capable of justifying an extension of countervailing duties under Article 23 of Regulation 2016/1037. (
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)
In 2020, following the anti-subsidy investigation carried out by its services, the European Commission adopted Implementing Regulation 2020/776 (
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) imposing a definitive countervailing duty on imports of certain GFF originating in the People’s Republic of China and Egypt.
In 2021, following a request lodged by Tech-Fab Europe eV, an association of GFF producers in the European Union, the Commission initiated an investigation concerning the possible circumvention of those countervailing measures through imports of the same product consigned from Morocco, whether declared as originating in that country or not. Following its investigation, the Commission adopted the contested implementing regulation.
By its action, the applicant, PGTEX Morocco, a Moroccan company producing and exporting GFF to the European Union, seeks the annulment of the contested implementing regulation, in so far as it concerns PGTEX Morocco. It alleges, inter alia, an infringement of the association agreement concluded between the European Union and the Kingdom of Morocco. (
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) The applicant also disputes the findings as to the lack of economic justification for the establishment of the applicant’s production site in Morocco other than the imposition of the countervailing duties, disputes the classification of the manufacturing process implemented by the applicant in Morocco as an ‘assembly operation’, and disputes the findings regarding the inclusion of such an assembly operation as one of the circumvention practices under Article 23 of the basic anti-subsidy regulation.
Findings of the Court
The association agreement and the possibility of applying the anti-circumvention rules laid down in Article 23 of the basic anti-subsidy regulation
In the first place, the Court examines whether the Commission was entitled to rely on the anti-circumvention rules laid down in Article 23 of the basic anti-subsidy regulation in order to extend the countervailing duties imposed on imports of GFF from China to imports of like products from Morocco, disregarding the fact that the European Union signed an association agreement with Morocco.
The association agreement and Article 23 of the basic anti-subsidy regulation are two instruments of EU trade policy with different aims and rationales. The first is an instrument of cooperation designed to promote the free movement of goods from Morocco within the European Union by eliminating, inter alia, customs duties and charges having equivalent effect. The second is a trade defence instrument designed to sanction unfair commercial practices liable to undermine the effectiveness of anti-subsidy measures already in force in relation to third countries by allowing the institutions, under certain conditions, to extend those anti-subsidy measures to imports of like products from, inter alia, another country, in order to prevent circumvention of the anti-subsidy measures.
In the present case, taking the view that the PGTEX Group had used the territory of Morocco in order to circumvent the countervailing duty imposed on Chinese imports of GFF, the Commission extended, by the contested implementing regulation, the countervailing duty to GFF consigned from Morocco. That duty thus extended, the sole purpose of which is to ensure the effectiveness of the countervailing duty imposed on the People’s Republic of China, cannot be distinguished from the latter duty, to which it is ancillary. Thus, by the contested implementing regulation, the Commission targets the Chinese undertakings in the PGTEX Group in order to prevent them from using the territory of Morocco to avoid the countervailing duty imposed on Chinese imports of GFF.
In that regard, the Court observes that the association agreement concluded between Morocco and the European Union does not prevent the latter from using anti-circumvention measures to counter conduct such as that described above, provided that all the conditions for the application of Article 23 of the basic anti-subsidy regulation are satisfied. A different reading would be liable to deprive the European Union of a trade defence instrument which is crucial for ensuring effective protection of EU industry and might transform Morocco into a ‘free zone’, in which commercial operators could carry out any kind of operations to circumvent anti-subsidy measures, which would be contrary to the mutual commitments made by Morocco and the European Union under that agreement.
Therefore, according to the Court, the Commission did not err in using the anti-circumvention rules laid down in Article 23 of the basic anti-subsidy regulation.
The assessment of the conditions for the application of Article 23 of the basic anti-subsidy regulation in the present case
In the second place, the Court notes that, in accordance with Article 23(3) of the basic anti-subsidy regulation, four conditions are necessary in order to establish the existence of circumvention. First, there must be a change in the pattern of trade between a third country and the European Union or between individual companies in the country subject to measures and the European Union. Second, that change must stem from a practice, process or work for which there is insufficient due cause or economic justification other than the imposition of the countervailing duty. Third, there must be evidence of injury to EU industry or that the remedial effects of the anti-subsidy duty are being undermined in terms of the prices or quantities of the like product. Fourth, the imported like product and/or parts thereof must still benefit from the subsidy.
In the present case, after finding that the increase in exports of GFF from Morocco to the European Union constitutes a change in the pattern of trade between them, the Commission analysed the second condition necessary to establish the existence of circumvention as regards the establishment of the applicant’s production site in Morocco.
In that regard, the Court finds, first, that the Commission did not err in concluding that there was insufficient due cause or economic justification for the establishment of a GFF production site in Morocco other than a desire to circumvent the countervailing duties in force.
The establishment of that production site was finalised in October 2019, that is, five months after the initiation of the anti-subsidy investigation which led to the imposition of countervailing duties on Chinese imports of GFF.
The existence of such a coincidence in time between the initiation of the anti-subsidy investigation and the establishment of the applicant’s production site in Morocco is, according to the case-law, capable of justifying the presumption that the purpose of the establishment of a production factory in the country from which the goods are exported is to avoid the application of trade policy measures.
Where there is such a coincidence in time, it is for the economic operator concerned to prove that there were reasonable grounds, other than a desire to avoid the consequences of the measures in question, for establishing a production site in the country from which the goods are exported. Thus, it was for the applicant to prove that there was a due cause and economic justification for the establishment of its production site in Morocco other than to avoid the anti-subsidy measures at issue; the applicant did not do in the present case.
Furthermore, the applicant is wrong to claim that the Commission failed to fulfil its obligation to examine carefully and impartially all the relevant aspects of the case, since the Commission carried out a correct analysis of the evidence adduced by the applicant and was fully entitled to find that that evidence did not succeed in calling into question the Commission’s conclusion.
Second, the Commission did not err or infringe Article 23 of the basic anti-subsidy regulation by including the assembly operations, referred to in the fourth subparagraph of Article 13(1) of Regulation 2016/1036, (
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) in the practice, process or work liable to constitute circumvention within the meaning of the second subparagraph of Article 23(3) of the basic anti-subsidy regulation, in order to assess whether, in the present case, circumvention of the anti-subsidy measures in force was taking place.
In that regard, the Court notes that assembly operations do not expressly appear in the second subparagraph of Article 23(3) of the basic anti-subsidy regulation, which, as with the fourth subparagraph of Article 13(1) of the basic anti-dumping regulation, defines possible circumvention practices. However, the lack of such a reference does not mean that the EU legislature intended to exclude assembly operations from the scope of that article.
That provision sets out a non-exhaustive list of possible circumvention practices. It therefore can also cover other circumvention practices which are not expressly listed in the article in question, such as assembly operations.
That interpretation is not only supported by the case-law according to which the fourth subparagraph of Article 13(1) of the basic anti-dumping regulation does not contain an exhaustive list of possible circumvention practices, but is also consistent with the underlying objective of that provision, namely to ensure the effectiveness of the anti-subsidy measures in force.
That being so, the Commission did not err or infringe Article 13 of the basic anti-dumping regulation in concluding that the GFF manufacturing process carried out in Morocco is a completion operation, which falls within the concept of ‘assembly operation’ within the meaning of that provision.
In the present case, the Court carries out a textual, contextual and teleological analysis of the provision concerned, in order to determine whether the concept of ‘assembly operation’ must, as the Commission argues, be given a broad interpretation capable of encompassing completion operations or, as the applicant suggests, be interpreted strictly, to the effect that completion operations do not fall within the concept of an ‘assembly operation’.
In that regard, the Court notes that the basic anti-dumping regulation does not define the concept of ‘assembly operation’ or that of ‘completion operation’. Nor does it specify whether the latter operations are included within the concept of ‘assembly operation’.
As regards the context, completion operations are not among the practice, process or work liable to constitute circumvention within the meaning of Article 13(1) of the basic anti-dumping regulation. However, Article 13(2)(b), (
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) which sets out the conditions under which an assembly operation is considered to circumvent the measures in force, refers to ‘completion’. Such a reference suggests that completion operations can be interpreted as being a type of assembly operations.
Such an interpretation is, first, consistent with the underlying objective of the EU rules on circumvention, namely to ensure the effectiveness of anti-subsidy measures adopted by the European Union and to prevent circumvention of those measures, and, second, is supported by the fact that the legislature left a broad margin of discretion to the EU institutions as regards the definition of circumvention operations.
Lastly, the circumstances referred to by the applicant, such as the complexity of the process of manufacturing GFF, have no bearing on the classification of the process of manufacturing GFF in Morocco as an assembly or completion operation. In order for an assembly operation to constitute circumvention, Article 13(2) of the basic anti-dumping regulation refers to the proportion of parts used originating in the country subject to measures, and refers to the value added to those parts by the operation in question.
Third, as regards the determination of the value added by the assembly operations, for the purposes of Article 13(2)(b) of the basic anti-dumping regulation, the Commission did not make a manifest error of assessment or infringe that provision by making adjustments to the depreciation costs, as calculated by the applicant, by taking into account the actual capacity utilisation rate during the reference period and by disregarding the three other methods for calculating the value added that were proposed by the applicant.
In that regard, the Court notes that it is apparent both from the context and from the objective of Article 13 of the basic anti-dumping regulation that, in order to determine the value added by the assembly operations, it is necessary to take into account only the costs which relate to the actual production of GFF, or only the depreciation and rental costs which relate to the operation of the machines that were actually used to produce the parts actually brought in during the reporting period.
In the present case, the applicant provided the Commission with depreciation costs calculated on the basis of the theoretical maximum operation of all its machines. Taking the view that those depreciation costs and the rental costs could not credibly reflect the value added to the parts brought in, the Commission made the necessary adjustments. To that end, it used the capacity utilisation rate as provided by the applicant and not disputed by the latter.
Since both the depreciation cost, calculated by the applicant on the basis of the theoretical maximum capacity of its machines, and the capacity utilisation were calculated on the basis of the same number of GFF machines, as if the latter had been in operation throughout the reporting period, using one to adjust the other does not constitute an error of fact.
As regards the other methods, for calculating the value added, which the applicant proposed to the Commission, the latter rightly considered that they would not have provided a more accurate reflection of the value added to the parts brought in.
Fourth, the Commission did not infringe the principles of non-discrimination and equal treatment by making the abovementioned adjustments to determine the value added, even though, when calculating the injury margin, it did not adjust the production costs of the Union industry, despite a finding that there had been a low level of production capacity utilisation.
The taking into account of the production costs in order to calculate the injury margin of the Union industry due to dumped imports and the taking into account of production costs in order to calculate the value added to the parts brought in during an assembly or completion operation, in order to ascertain whether anti-dumping measures are being circumvented, take place in a different context and for different purposes. The applicant should have explained how, by taking those costs into account differently, the Commission could have infringed the principles of non-discrimination and equal treatment; the applicant did not do in the present case.
Since the Commission examined carefully and impartially all the relevant aspects of the case and adjusted the costs by taking into consideration the applicant’s explanations concerning the use of the machinery and the rental costs, the Court also rejects the complaint alleging infringement of the right to good administration.
As regards the fourth condition, the Commission established that, since glass fibre rovings, namely the raw material for GFF, benefited from a number of subsidies in China and those rovings were assembled or completed in Morocco by the applicant in order to produce its own GFF, the GFF exported from Morocco to the European Union continued to benefit from the subsidies granted to Chinese producers of GFF.
In that regard, the Court finds, first of all, that the applicant cannot claim that the assessments made by the Commission when imposing countervailing duties on imports of GFF from China are valid only in so far as they concern those products and not the raw material used to produce them, since the Commission concluded, without being contradicted by the applicant, that the subsidies granted by the Chinese authorities benefited all of the production of the entire PGTEX Group, whether in respect of the GFF or their raw material.
Next, by the contested implementing regulation, the Commission seeks not to countervail subsidies granted by Morocco, but to ensure that the countervailing measures established in respect of Chinese imports of GFF are not circumvented.
Lastly, the Commission was fully entitled to rely on the legal presumption that subsidies are passed through where there are related companies, in particular when the downstream company assembled the final product and exported it to the European Union, in order to find that the fourth condition was met in the present case. The Commission demonstrated, first, that the raw material used in the production of GFF had been subsidised and, second, that the sales prices charged to the applicant were always lower than the sales prices charged to unrelated customers.
The use of the facts available
In the last place, the Court examines the plea by which the applicant complains that the Commission infringed Article 28 of the basic anti-subsidy regulation in that it used the facts available, even though the applicant had provided the information requested by the Commission.
In accordance with the first paragraph of that provision, the Commission may, during its anti-subsidy investigation, use the facts available to the detriment of the facts which are specific to one or more of the interested parties, in the event that an interested party refuses access to, or otherwise does not provide, necessary information or significantly impedes the investigation.
In the present case, it is apparent from the contested implementing regulation that the Commission used the data submitted by the applicant concerning sales and costs as a starting point for its analysis. It also used statistical data to rectify the unreliability of the information provided by the applicant as regards the volumes of export sales to the European Union and to determine whether there had been a change in the pattern of trade, which the applicant does not dispute. However, the Commission did not use the facts available to prove the existence of an assembly or completion.
Consequently, the Court rejected that plea as ineffective.
In the light of all of those considerations, the Court dismisses the action in its entirety.
(
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)	Commission Implementing Regulation (EU) 2022/301 of 24 February 2022 extending the definitive countervailing duty imposed by Implementing Regulation (EU) 2020/776 on imports of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People’s Republic of China (‘the PRC’) to imports of GFF consigned from Morocco, whether declared as originating in Morocco or not, and terminating the investigation concerning possible circumvention of the countervailing measures imposed by Implementing Regulation (EU) 2020/776 on imports of GFF originating in Egypt by imports of GFF consigned from Morocco, whether declared as originating in Morocco or not (OJ 2022 L 46, p. 31; ‘the contested implementing regulation’).
(
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)	Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union (OJ 2016 L 176, p. 55; ‘the basic anti-subsidy regulation’).
(
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)	Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/492 imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt (OJ 2020 L 189, p. 1).
(
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)	Euro-Mediterranean Agreement establishing an association between the European Communities and their Member States, of the one part, and the Kingdom of Morocco, of the other part (OJ 2000 L 70, p. 2), as amended (‘the association agreement’).
(
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)	Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (OJ 2016 L 176, p. 21; ‘the basic anti-dumping regulation’). The fourth subparagraph of Article 13(1) of that regulation defines the practice, process or work liable to constitute circumvention.
(
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)	Under that provision, an assembly operation in the European Union or a third country is considered to circumvent the measures in force where: ‘(b) the parts constitute 60% or more of the total value of the parts of the assembled product, except that in no case shall circumvention be considered to be taking place where the value added to the parts brought in, during the assembly or completion operation, is greater than 25% of the manufacturing cost’.