COMMISSION IMPLEMENTING REGULATION (EU) 2020/1428

of 12 October 2020

imposing a provisional anti-dumping duty on imports of aluminium extrusions originating in the People’s Republic of China

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to 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 (1) (‘the basic Regulation’), and in particular Article 7 thereof,

After consulting the Member States,

Whereas:

1. PROCEDURE

1.1. Initiation

(1) On 14 February 2020, the European Commission (‘the Commission’) initiated an anti-dumping investigation with regard to imports into the Union of aluminium extrusions originating in the People’s Republic of China (‘China’ or the ‘country concerned’) on the basis of Article 5 of the basic Regulation.

(2) The Commission initiated the investigation following a complaint lodged on 3 January 2020 (the ‘complaint’) by the association European Aluminium (the ‘complainant’). The complainant represented more than 25 % of the total Union production of aluminium extrusions. The complaint contained evidence of dumping and of resulting material injury.

(3) On this basis, the Commission considered that the complaint contained sufficient evidence to justify the initiation of the investigation.

1.2. Registration

(4) Following a request from the complainant supported by the required evidence, the Commission made imports of the product concerned subject to registration under Article 14(5) of the basic Regulation by Commission Implementing Regulation (EU) 2020/1215 (2).

1.3. Interested parties

(5) In the Notice of Initiation (3), the Commission invited interested parties to contact it in order to participate in the investigation. In addition, the Commission specifically informed the complainant, the known Union producers, the national aluminium associations of the Union, the known exporting producers, the authorities of China, the known importers, the known traders and users about the initiation of the investigation and invited them to participate.

(6) Interested parties had an opportunity to comment on the initiation of the investigation and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings. The parties who so requested were granted an opportunity to be heard.

1.4. Comments on initiation

(7) The Commission received comments from two importers (Airoldi and Kastens and Knauer) on initiation. The Commission considered all comments and addressed them in the sections below.

1.5. Sampling

(8) In its Notice of Initiation, the Commission stated that it might sample the interested parties in accordance with Article 17 of the basic Regulation.

1.5.1. Sampling of Union producers

(9) In its Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of the largest representative quantity of production and sales on the Union market which could be investigated within the time available. This sample consisted of the four largest Union producers in terms of production and sales. The selected sample produced and sold a very wide range of products, including the four basic product types (bars and rods, solid profiles, hollow profiles, pipes and tubes) and accounted for just under 10 % of production and sales on the Union market. The Commission invited interested parties to comment on the provisional sample.

(10) European Aluminium submitted that by basing the sample on the largest producers the full extent of the injury might not be identified. This claim was based on the fact that smaller producers represented the largest quantity of production and sales and these companies did not benefit from economies of scale like the largest producers. European Aluminium proposed two additional companies to be included in the sample, which it also claimed enabled a larger coverage of end-user markets.

(11) The Commission assessed the claim and decided to maintain its original sample. Although a few companies which could fulfil the legal criteria to be considered SMEs provided sampling information, they represented only a marginal proportion of production and sale in the Union. The smaller producers mentioned by European Aluminium were in fact too large to qualify as SMEs. Thus, the Commission had no objective reason to revise the sample or to include the two companies proposed by European Aluminium.

(12) Thus, the Commission considered that the sample was representative of the Union industry based on the information available on the case file.

1.5.2. Sampling of importers

(13) To decide whether sampling was necessary and, if so, to select a sample, the Commission asked unrelated importers to provide the information specified in the Notice of Initiation.

(14) Six unrelated importers provided the requested information and agreed to be included in the sample. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of two importers on the basis of the largest representative volume of sales of products under investigation originating from the People’s Republic of China during the investigation period. In accordance with Article 17(2) of the basic Regulation, all known importers concerned were consulted on the selection of the sample. The Commission received no comments in this respect.

(15) One importer (Airoldi Metalli S.p.A.) submitted that major importers, particularly from Germany, were not taking part in the investigation, which would mean that the market analysis performed by the Commission both concerning injury and dumping would not correspond to the economic reality of the industry.

(16) All importers were informed of the initiation of the investigation by the Notice of initiation published in the Official Journal of the European Union and were given the opportunity to cooperate and be sampled. Furthermore, although the cooperation of importers was low, there was co-operation from Germany, including one of the sampled importers.

(17) Therefore, the Commission considered that the sample was representative based on the sampling information available on the case file.

1.5.3. Sampling of exporting producers in China

(18) To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all exporting producers in China to provide the information specified in the Notice of Initiation. In addition, the Commission asked the Mission of the People’s Republic of China to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(19) Thirty-seven exporting producers in China provided the requested information and agreed to be included in the sample within the stipulated deadline. Two of those exporting producers provided the requested information after the stated deadline. Their replies were taken into account, but not included in the sample at the later stage, as they were not among the largest with regard to volume of exports. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of three cooperating groups of exporting producers on the basis of the largest representative volume of exports to the Union which could reasonably be investigated within the time available, representing 28,1 % of total exports.

(20) In accordance with Article 17(2) of the basic Regulation, the Commission consulted all known exporting producers of aluminium extrusions, and the authorities of China on the selection of the sample. The Commission did not receive any comment on its preliminary selection.

1.6. Individual examination

(21) Twenty-two exporting producers in China indicated their intention to request individual examination under Article 17(3) of the basic Regulation. However, only two exporting producers submitted completed questionnaires within the stipulated deadline. At this stage, given the time constraints, the Commission has not been able to consider those requests. Thus, it will decide whether to grant individual examination at the definitive stage of the investigation.

1.7. Replies to the questionnaire

(22) The Commission requested the following parties to provide a reply to questionnaire (4): Union producers — Constellium Decin s.r.o., Decin, Czechia — Hydro Extrusion Hungary k.f.t, Székesfehérvár, Hungary — Impol d.o.o., Slovenska Bistrica, Slovenia — ST Extruded Products GmbH, Vogt, Germany Association of Union Producers — European Aluminium, Brussels, Belgium Unrelated importers — Airoldi Metalli S.p.A. — mejo Metall Josten GmbH & Co. Exporting producers — The Liaoning Zhongwang Group, composed of two exporting producers: (i) Liaoning Zhongwang Group Co., Ltd.; and, (ii) Yingkou Zhongwang Aluminium Business Co., Ltd; — The Haomei Group, composed of two exporting producers: (i) Guangdong Haomei New Materials Co., Ltd.; and, (ii) Guangdong King Metal Light Alloy Technology Co., Ltd; and, — The Press Metal Group, composed of two exporting producers: (i) Press Metal International Ltd.; and, (ii) Press Metal International Technology Ltd.

(23) The Commission received questionnaire replies from the four sampled Union producers, the Union producers’ association, the two sampled unrelated importers, one user (Alstom Holdings), and two groups of exporting producers: the Haomei Group and the Press Metal Group.

(24) The Liaoning Zhongwang Group did not submit any reply to the questionnaire. In light of the above, on 1 April 2020, the Commission informed the Liaoning Zhongwang Group that it intended to apply the provision of Article 18 of the basic Regulation to it. In that letter, the Commission asked the Liaoning Zhongwang Group to submit its comments on the application of Article 18 no later than 13 April 2020. The Liaoning Zhongwang Group did not submit any comments. The sample was reduced to two groups of exporting producers representing 20,9 % of total exports.

1.8. Verification visits

(25) In view of the outbreak of COVID-19 and the confinement measures put in place by various Member States as well as by various third countries, the Commission could not carry out verification visits pursuant to Article 16 of the basic Regulation at provisional stage.

(26) The Commission remotely cross-checked all the information deemed necessary for its provisional determinations. The Commission carried out remote crosschecks (‘RCC’) of the following companies/parties: Association of European Producers: — European Aluminium, Brussels, Belgium Union producers: — Constellium Decin s.r.o., Decin, Czechia — Hydro Extrusion Hungary k.f.t, Székesfehérvár, Hungary — Impol d.o.o., Slovenska Bistrica, Slovenia — ST Extruded Products GmbH, Vogt, Germany Exporting producers in China: — The Haomei Group; and, — The Press Metal Group.

1.9. Claim for the suspension of the investigation

(27) Airoldi requested that, because of the COVID-19 outbreak, the investigation should be suspended until the situation had improved, as the confinement measures negatively impacted their rights of defence (for instance because they could not have access to their own records, or could not hold hearings with the Commission).

(28) This request could not be accepted. In particular, there is no legal basis in the basic Regulation allowing the Commission to suspend the investigation. In fact, the Commission is subject to binding deadlines to complete the investigation. Therefore, the Commission has no discretion to take such a decision. Recognising the serious difficulties faced by certain co-operating companies, the Commission issued a Notice on the consequences of the COVID-19 outbreak which provides for as much additional flexibility as possible on deadline extensions, taking into account the legal constraints and the need to comply with the applicable deadlines. Moreover, as described in the previous paragraph, the Commission remotely cross-checked the information provided by parties or held videoconference hearings with interested parties in a satisfactory manner. All these measures ensured that parties, including Airoldi, were able to fully exercise their right of defence and participate in the investigation.

1.10. Investigation period and period considered

(29) The investigation of dumping and injury covered the period from 1 January 2019 to 31 December 2019 (the ‘investigation period’ or the ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2016 to the end of the investigation period (the ‘period considered’).

1.11. Procedure for the determination of the normal value under Article 2(6a) of the basic Regulation

(30) In view of the sufficient evidence available at the initiation of the investigation pointing to the existence of significant distortions in China within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission considered it appropriate to initiate the investigation having regard to Article 2(6a) of the basic Regulation.

(31) Consequently, in order to collect the necessary data for the eventual application of Article 2(6a) of the basic Regulation, in the Notice of Initiation the Commission invited all exporting producers in China to provide the information requested in Annex III to the Notice of the Initiation regarding the inputs used for producing aluminium extrusions. Thirty-three Chinese exporting producers submitted the relevant information.

(32) In order to obtain information it deemed necessary for its investigation with regard to the alleged significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission also sent a questionnaire to the Government of the People’s Republic of China (the ‘GOC’). The GOC however did not reply to that questionnaire. Subsequently, the Commission informed the GOC that it would use facts available within the meaning of Article 18 of the basic Regulation for the determination of the existence of the significant distortions in China.

(33) In the Notice of Initiation, the Commission also invited all interested parties to make their views known, submit information and provide supporting evidence regarding the appropriateness of the application of Article 2(6a) of the basic Regulation within 37 days of the date of publication of the Notice of Initiation in the Official Journal of the European Union. Two exporting producers made comments on the existence of significant distortions. These comments are analysed in detail in recitals (74) to (89) below.

(34) In the Notice of Initiation, the Commission also specified that, in view of the evidence available, it might need to select an appropriate representative country pursuant to Article 2(6a)(a) of the basic Regulation for the purpose of determining the normal value based on undistorted prices or benchmarks.

(35) On 16 March 2020, the Commission published a first note to the file on the sources for the determination of the normal value (‘the Note of 16 March 2020’) seeking the views of the interested parties on the relevant sources that the Commission might use for the determination of the normal value, in accordance with Article 2(6a)(e) second paragraph of the basic Regulation. In that note, the Commission provided a list of all factors of production such as materials, energy and labour used in the production of the product concerned by the exporting producers. In addition, based on the criteria guiding the choice of undistorted prices or benchmarks, the Commission identified at that stage the following as possible representative countries: Brazil, Colombia, Ecuador, Islamic Republic of Iran, Kazakhstan, Malaysia, Mauritius, Mexico, Montenegro, Russian Federation, Serbia, Sri Lanka, Thailand and Turkey.

(36) The Commission gave all interested parties the opportunity to comment. The Commission received comments from two Chinese exporting producers, the complainant and an importer. The GOC did not provide any comments.

(37) The Commission addressed the comments received on the Note of 16 of March in the Second Note on the Sources for the Determination of the Normal Value of 25 June 2020 (‘the Note of 25 June 2020’). The Commission also established a provisional list of factors of production and concluded that, at that stage, it intended to use Turkey as the representative country under Article 2(6a)(a), first indent of the basic Regulation. The Commission invited interested parties to comment and it received comments from the complainant, one exporting producer group and an importer. These comments are analysed in detail in recitals (169) to (173).

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. Product concerned

(38) The product under investigation is bars, rods, profiles (whether or not hollow), tubes, pipes; unassembled; whether or not prepared for use in structures (e.g. cut-to-length, drilled, bent, chamfered, threaded); made from aluminium, whether or not alloyed, containing not more than 99,3 % of aluminium.

(39) The product under investigation, originating in China, is currently falling under CN codes ex 7604 10 10, ex 7604 10 90, 7604 21 00, 7604 29 10, 7604 29 90, ex 7608 10 00, 7608 20 81, 7608 20 89 and ex 7610 90 90 (TARIC codes 7604101011, 7604109011, 7604109025, 7604109080, 7608100011, 7608100080, 7610909010) (‘the product concerned’). These CN and TARIC codes are given for information only and have no binding effect on the classification of the product.

(40) The product concerned is commonly referred to as ‘aluminium extrusions’, referring to its most common manufacturing process even if it can also be produced by other production processes such as rolling, forging or casting.

(41) The following products are not covered by this investigation: (1) products attached (e.g. by welding or fasteners) to form subassemblies; (2) welded tubes and pipes; (3) products in a packaged kit with the necessary parts to assemble a finished product without further finishing or fabrication of the parts (‘finished goods kit’).

(42) The product concerned is used in a wide range of applications. The major end-use applications include: (1) Building and construction: windows, doors, railings, high-rise curtainwall, highway and bridge construction, framing members, other structures; (2) Transportation: automotive (cars, buses, trucks, trailer/van/container vehicles), heavy rail, light rail and other mass transit vehicles, recreational vehicles, aircraft, aerospace, marine; and (3) Engineered products: consumer and commercial products such as air conditioners, appliances, furniture, lighting, sports equipment, personal watercraft; electrical power units, heat sinks, coaxial cables, bus bars; machinery and equipment, food displays, refrigeration, medical equipment, display structures, laboratory equipment and apparatus.

2.2. Like product

(43) The investigation showed that the following products have the same basic physical and technical characteristics as well as the same basic uses: (1) the product concerned; (2) the product produced and sold on the domestic market of country concerned; and (3) the product produced and sold in the Union by the Union industry.

(44) The Commission decided at this stage that those products are therefore like products within the meaning of Article 1(4) of the basic Regulation.

(45) The Union market for the product under investigation consists of bars and rods, tubes, and solid and hollow profiles manufactured from various aluminium alloys. These products have various dimensions and some products are finished using several methods such as drawing, cutting, shaping etc. These products are all sold into various user industries. This main user industries are building and construction (around 50 %), transport (around 30 %), engineering (around 12 %) and consumer products (around 8 %). The products are either directly sold to the end-user industries, or via distributors.

(46) Imports from the country concerned also consists of the same basic product types, were made of a similar variety of aluminium alloys, dimensions and types of finishing. Price comparisons of the imported product types with those sold by the sampled Union producers showed that over 95 % of imported product types had a direct match to sales by the Union industry. It was therefore clear that competition between imported and Union industry sales was very high.

(47) Many imported and Union industry sales were made to individual specifications of the customer. However, although these products can be considered as bespoke, they all shared the same basic physical, technical and chemical characteristics and should be considered as one product for the present investigation.

2.3. Claims regarding product scope

2.3.1. Claims that the definition of the product scope is insufficiently clear

(48) Certain interested parties argued that the product under investigation was not clearly defined in the Notice of initiation. The following arguments made were: (1) the definition of the product under investigation should not be based on production methods; (2) the alleged extension of the product definition by the term ‘made from aluminium’ was not appropriate; (3) the term CN codes ‘given for information only’ was contested.

(49) The product under investigation has been defined based on physical, technical and chemical characteristics. The definition clearly states that all bars, rods, profiles tubes and pipes containing not more than 99,3 % aluminium are within the scope of the investigation.

(50) The Commission confirms that, contrary to the understanding of certain interested parties, the definition of the product under investigation was not based on production methods. While extrusion is indeed the most common production method, the products meeting the physical, technical and chemical characteristics of the product definition are covered irrespective of the production method.

(51) As regards the alleged extension of the product definition by the term ‘made from aluminium’, this stemmed from an incomplete reading of the product definition. Indeed, the relevant term reads ‘made from aluminium, whether or not alloyed’. This is merely a clarification of the condition ‘containing not more than 99,3 % of aluminium’, that products from both unalloyed aluminium and aluminium alloys are covered, as long as they contain not more than 99,3 % aluminium.

(52) As regards the fact that CN codes are given ‘for information only’ in the Notice of Initiation, the party claimed that inserting such imprecise definition into the provisional or final version of the regulation imposing duties would constitute a breach of general principles of EU law. According to this party, the interpretation of CN codes is not binding and such a general reference would impair the legal certainty concerning the product scope. In this respect, the Commission noted that in the Notice of Initiation the reference to ‘for information only’ was inserted to ensure that the product under investigation is defined in accordance with the product definition contained in the Notice of Initiation, as opposed to the definition contained in the CN codes. Pursuant to Article 14(6) of the basic Regulation, the Commission created a number of TARIC codes on initiation of this investigation, where the CN codes indicated had a wider scope than the product concerned. These TARIC codes, which can be seen in recital (39), identify the product concerned in the operative part of this provisional Regulation.

2.3.2. Product exclusion requests

(53) The importer Airoldi argued that aluminium extrusions made from hard alloys, specifically non-standard hard alloys, should be excluded from the product scope, since the EU production was far from meeting the actual EU demand for such products.

(54) In this respect the investigation showed that aluminium extrusions made from hard alloys share the same basic physical, technical and chemical characteristics with other products covered by the definition of the product concerned. Airoldi did not provide any evidence that there is a shortage of supply for this product type. In fact, the Commission found that the Union industry, including two of the sampled producers, invested significantly in new hard alloy presses in the period considered, and therefore is capable of supplying a wide range of aluminium extrusions, including hard alloys.

(55) The exporting producer Fuyao Glass argued that the investigation should target mainly those aluminium extrusions used in building and construction or ‘for use in structures’, and that products produced and exported by Fuyao Glass such as automobile related accessory products should be excluded.

(56) Fuyao Glass further argued that taking into consideration distinguishable features in physical, technical and chemical characteristics, manufacturing process, quality, distribution channels, absence of interchangeability and different consumer perception, as well as disparity in costs of production and pricing between products of very different end-use application, would require the exclusion of their aluminium extrusions for automobile decorative use from the scope of the investigation.

(57) In support of their claim, Fuyao Glass argued a number of technical differences between the products produced and exported by them, and the products used in the building and construction sector, such as the aluminium alloy type used, certain specific production steps, identification coding, aging, appearance inspection and packing. Fuyao Glass furthermore argued that the homogeneity or similarity is an element to be taken into consideration in the product definition.

(58) In this respect, the Commission noted that Fuyao Glass did not explain why the investigation should target aluminium extrusions used in building and construction or ‘for use in structures’ only, and not aluminium extrusions used by other industries. Aluminium extrusions are used in numerous industries, including automotive, and they all share the same basic physical, technical and chemical characteristics. While it is true that there are certain differences between the different aluminium extrusions in terms of shape and properties, it is important to note that those items share the same basic physical, technical and chemical characteristics such as that they are made from aluminium, and are used as input (i.e. intermediary products) in the production of downstream products. Therefore, the various types effectively belong to the product concerned as described under the product definition.

(59) Certain exporting producers (Jilin Qixing, Shandong Nollvetec Lightweight Equipment) and the user Alstom and its association UNIFE claimed that the aluminium extrusions for the rail transport industry should be excluded from the investigation. The main claims in this respect were that this is a small customer sector for the Union industry, that the user would be disproportionately impacted, and that imports from China are bespoke solutions. Also, it was claimed that different standards and technical characteristics apply to aluminium extrusions in this sector which differentiates it from other sectors.

(60) The Union industry challenged this exclusion request on the grounds that the Union industry has the capacity to manufacture products for the rail transport industry. Also, the Union industry stated that the product under investigation is broadly defined and the physical, chemical and technical characteristics of this industry are included in that definition.

(61) The Commission rejected this exclusion request because no convincing evidence has been submitted to demonstrate that aluminium extrusions for the rail transport sector have different basic physical, technical and chemical characteristics. In fact, all user sectors, and many individual users, have specific standards and technical requirements, which means that the rail transport industry is simply another user sector rather than one with grounds for exclusion from the measures. Similarly, other requests based on specific technical standards complied with by the imported products or specific end-uses could not be accepted because the compliance with a specific standard is not in itself a cause for exclusion from the product definition, if the product falls in the relevant definition. It is inevitable that the aluminium extrusions business, which is more and more focused on bespoke products, will have specific requirements and standards; however, this does not mean that they have different basic physical, technical and chemical characteristics.

(62) In addition, several Union producers are able to supply this sector with most of its requirements. This was confirmed, for example, regarding large aluminium extrusions for rail carriages, where the rail transport industry stated that three producers in China and one in the Union was able to supply their needs.

(63) Based on the foregoing, the Commission concluded that no grounds existed to exclude the rail sector (or a part of it) from the product scope of the investigation.

(64) Several other interested parties commented on products they manufacture or import requesting clarification as to whether they are included in the product scope. Although, the Union industry commented on such requests in a Note placed on the file for inspection by interested parties, the Commission notes that, ultimately, such decisions are the competence of national customs authorities at the time of importation. Specific attention will be paid to this issue in terms of a potential alternative description of the product concerned.

3. DUMPING

3.1. Application of Article 18 of the basic Regulation

(65) As indicated in recital (24) above, the Liaoning Zhongwang Group did not cooperate with the investigation. Also, it did not submit any comment to the letter whereby it was informed that the Commission intended to apply the provision of Article 18 of the basic Regulation.

(66) As indicated in recital (32), the investigation has been initiated on the basis of Article 2(6a)(a) of the basic Regulation. The Commission sent the GOC two questionnaires concerning the existence of distortion (5) upon initiation of the investigation. The GOC however did not submit any replies. The Commission informed the GOC by Note Verbale of 25 March 2020 that it intended to make use of the provision of Article 18 of the basic Regulation in that regard and invited the GOC to submit its comment on the application of Article 18. The GOC did not submit any comments.

3.2. Normal value

(67) According to Article 2(1) of the basic Regulation, ‘the normal value shall normally be based on the prices paid or payable, in the ordinary course of trade, by independent customers in the exporting country’.

(68) However, Article 2(6a)(a) of the basic Regulation stipulates that in case it is determined that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, and shall include an undistorted and reasonable amount of administrative, selling and general costs and for profits.

(69) As further explained below, the Commission concluded in the present investigation that, based on the evidence available and in view of the lack of cooperation of the GOC, the application of Article 2(6a) of the basic Regulation was appropriate.

3.2.1. Existence of significant distortions

3.2.1.1. Introduction

(70) Article 2(6a)(b) of the basic Regulation stipulates that ‘significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces as they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements: — the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country, — state presence in firms allowing the state to interfere with respect to prices or costs, — public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces, — the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws, — wage costs being distorted, — access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state’.

(71) According to Article 2(6a)(b) of the basic Regulation, the assessment of the existence of significant distortions within the meaning of Article 2(6a)(a) shall take into account, amongst others, the non-exhaustive list of elements in the former provision. Pursuant to Article 2(6a)(b) of the basic Regulation, in assessing the existence of significant distortions, regard shall be had to the potential impact of one or more of these elements on prices and costs in the exporting country of the product concerned. Indeed, as that list is non-cumulative, not all the elements need to be given regard to for a finding of significant distortions. Moreover, the same factual circumstances may be used to demonstrate the existence of one or more of the elements of the list. However, any conclusion on significant distortions within the meaning of Article 2(6a)(a) must be made on the basis of all the evidence at hand. The overall assessment on the existence of distortions may also take into account the general context and situation in the exporting country, in particular where the fundamental elements of the exporting country’s economic and administrative set-up provides the government with substantial powers to intervene in the economy in such a way that prices and costs are not the result of the free development of market forces.

(72) Article 2(6a)(c) of the basic Regulation provides that ‘[w]here the Commission has well-founded indications of the possible existence of significant distortions as referred to in point (b) in a certain country or a certain sector in that country, and where appropriate for the effective application of this Regulation, the Commission shall produce, make public and regularly update a report describing the market circumstances referred to in point (b) in that country or sector’.

(73) Pursuant to this provision, the Commission has issued a country report concerning China (hereinafter ‘the Report’) (6), showing the existence of substantial government intervention at many levels of the economy, including specific distortions in many key factors of production (such as land, energy, capital, raw materials and labour) as well as in specific sectors (such as steel and chemicals). The Report was placed on the investigation file at the initiation stage. The complaint also contained some relevant evidence complementing the Report. Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation.

(74) The complaint contained information on additional studies and reports analysing the situation of the aluminium industry in China. A first source was the Report on overcapacities in China issued by the European Union Chamber of Commerce in China (‘EU Chamber of Commerce Report’), which was used to demonstrate the existence of excess production capacity in China. Secondly, the complainant listed the OECD paper titled ‘Measuring distortions in international markets – The aluminium value chain’ (‘OECD Study’) (7), which closely analyses the issue of financial subsidies granted to companies in the aluminium industry, as well as the fact that export taxes on primary aluminium and incomplete VAT rebates on exports of certain aluminium products discouraged exports of primary aluminium and encouraged production and export of semis and fabricated articles of aluminium, including aluminium extrusions. Lastly, the complainant pointed out that in a recent expiry review regarding anti-dumping duties on imports of certain aluminium foil in rolls originating in China (8), the Commission confirmed the existence of significant distortions and this finding was systemic in nature and not limited to the product concerned in that particular investigation, and there was no reason to depart from this methodology.

(75) As indicated in recital (66), the GOC did not comment or provide evidence supporting or rebutting the existing evidence on the case file at the initiation stage, including the Report and the additional evidence provided by the complainant, on the existence of significant distortions and/or on the appropriateness of the application of Article 2(6a) of the basic Regulation in the case at hand.

(76) Comments in this regard were submitted on initiation on behalf of two exporting producers, GuangDong HaoMei New Materials Co., Ltd, and GuangDong King Metal Light Alloy Technology Co., Ltd (Haomei and King Metal). Firstly, these interested parties claimed that the subsidies they received were of minimum amount and focused on technology and IT upgrades. The exporting producers furthermore claimed that the aids they received were comparable to the ones granted in the EU to high-tech enterprises in order to achieve aims of public interest, such as upgrading technological transformation and digitalisation, listing a number of European laws concerning financial aid to enterprises.

(77) The Commission recalls that for the purpose of establishing the existence of significant distortions under Article 2(6a)(b) of the basic Regulation the potential impact of one or more of the distortive elements listed in that provision is analysed with regard to prices and costs in the exporting country. The cost structure and price formation mechanisms in other markets, including matters related to financial support, such as support granted in the EU, are not taken into consideration in this context. Moreover, the Commission recalls that significant distortions in China were assessed at country wide level. Therefore, even if in fact the commenting exporting producers did not benefit from any significant state financing, both companies were eligible for financial support as described in sections 3.2.1.8 coupled with 3.2.1.5 below. This is because, as explained in section 3.2.1.4, both exporting producers were subject, as all companies in the aluminium sector, to Chinese State planning and guidance documents and enjoyed access to financing, through the Chinese financial system described in section 3.2.1.8. In this respect, banks and other financing institutions following the guidance of the GOC, facilite access to finance for market players, including producers of aluminium products, hence creating a financial safety net for those enterprises, and giving them an additional advantage compared to their counterparts located outside China.

(78) Secondly, the exporting producers claimed that the complaint referred to significant distortions affecting prices and costs in very general terms, and that these elements were not applicable particularly to themselves. The exporting producers submitted that under Article 2(6a) of the basic Regulation, in order to construct the normal value, the Commission can choose to use domestic costs to the extent that they are positively established not to be distorted, on the basis of accurate and appropriate evidence and the assessment should be done for each exporter and producer separately. Haomei and King Metal alleged that the evidence on significant distortions contained in the complaint, drawing on various Reports, pertained broadly to the Chinese economy and the Chinese aluminium sector, and was not automatically applicable to the two exporting producers.

(79) The Commission notes, with regard to the above, that the existence of significant distortions giving rise to the application of Article 2(6a) of the basic Regulation is established at country-wide level. If the existence of significant distortions is established, then the provisions of Article 2(6a) apply to all exporting producers in China. In any event, the same provision of the basic Regulation allows exporting producers to demonstrate that their own domestic costs are not affected by significant distortions, in which cases they can be used for the calculation of the normal value. However, no domestic costs have been established to be undistorted on the basis of accurate and appropriate evidence, including in the framework of the provision on interested parties in Article 2(6a)(c). In particular, the exporting producers did not submit accurate and appropriate evidence on undistorted prices and costs. In view of the findings of the investigation stated in section 3.2.1.10 and in the absence of relevant evidence that these findings do not apply to the domestic costs of those exporting producers, this claim was rejected.

(80) Third, the exporting producers claimed that both the Commission Report and EU Chamber of Commerce Report on the file are very general, as they discuss about general problems in the aluminium industry which are however not applicable to Haomei and King Metal in particular. Similarly, the OECD Study concentrated on the largest producers and while they are major receivers of state subsidies in China, the paper acknowledges that other producers, including the producers of semis, do not benefit from the extensive state subsidies. Furthermore, the two exporting producers do not receive excessive amounts of state subsidies, as described in detail in the comments received listing all the State aid received by Haomei and King Metal. Therefore, the two exporting producers are not subject to the state subsidies to the extent the largest producers are and therefore their prices are not distorted.

(81) The Commission recalled that the existence of significant distortions is established for the exporting country as a whole in accordance with Article 2(6a)(b). Therefore, the three reports used to show the existence of significant distortions are relevant to fulfil the requirements of Article 2(6a)(b). According to Article 2(6a)(a), the use of domestic costs is allowed if they are positively established not to be distorted on the level of individual exporting producers. The fact that the two exporting producers did not benefit from subsidies to the same level as other, larger, producers is irrelevant in this case, as further explained in recitals (76) to (77).

(82) Furthermore, the two exporting producers submitted that their energy prices and wage costs were not distorted and that there was no evidence to support the claim that significant distortions affected those two factors of production.

(83) As already explained in recital (77), the existence of significant distortions giving rise to the application of Article 2(6a) of the basic Regulation is established on a country-wide level, and the provisions of Article 2(6a) allows the exporting producers to demonstrate that their own domestic costs are not affected by significant distortions, in which case they can be used for calculating the normal value. However, in the present case no domestic energy costs, nor domestic wages have been established to be undistorted on the basis of accurate and appropriate evidence, including in the framework of the provision on interested parties in Article 2(6a)(c). No exporting producer submitted evidence to demonstrate that their costs of energy and labour were not distorted. Therefore, their claim in that respect was rejected.

(84) With regard to China’s VAT rebates on exports of certain aluminium products, Haomei and King Metal submitted that they did not benefit from VAT rebates in relation to bars and rods, and that they only benefitted from a tax abatement of 10 % on the corporate income tax.

(85) First, the commenting exporting producers did not disclose further details on whether other products exported by them might be subject to a VAT rebate, beyond information on bar and rods. Secondly, as established by the Commission in its Report, China’s VAT rebates policy is particularly relevant as evidence proving distortions of the costs of inputs (i.e. primary aluminium) used in the production of the product concerned. The fact that Haomei and King Metal’s exports of certain aluminium products would not be subject to VAT rebates would not alter the fact that the prices of raw materials used by them in the production process would be distorted as a result of the VAT exempting policy at country-wide level. The said exporting producers did not provide any evidence to the contrary. Therefore, their claim was rejected.

(86) Furthermore, the two exporting producers claimed that their Commercial law and statutes of the companies do not mention the role of Party Committee, and that they were subject to enforcement of bankruptcy laws, corporate and property laws. They claimed that audits were regularly conducted by certified public accountants and the budgets were transparent and publicly accessible.

(87) The Commission recalls that according to the CCP Constitution, all Chinese companies are required to establish party cells, as explained in detail in recital (105). Therefore, the fact that there were no specific provisions in the statutes of both exporting producers does not alter the fact the CCP influenced business decisions in the case of the majority of China’s corporate fabric, through State presence in party cells (9). This contributed to the overall influence and control by the CCP over the Chinese economy. In consequence, such State intervention has been affecting not only Chinese exporting producers but also the producers of raw materials and inputs used by these exporting producers (including Haomei and King Metal), resulting in the prices of these inputs being distorted. There is no evidence on the file to contest this fact. Secondly, the Commission established in section 3.2.1.6 country-wide distortions with regard to the enforcement of bankruptcy laws, corporate and property laws, in accordance with the requirements of Article 2(6a)b, fourth indent. No evidence was submitted to demonstrate that the distortions present on the country wide level are not applicable to the two exporting producers. Both claims were therefore rejected.

(88) Another exporting producer,namely Press Metal Group, submitted comments concerning the existence of significant distortions in reaction to the Note of 16 March 2020. The exporting producer claimed that the Commission should not start the procedure based on Article 2(6a) of the basic Regulation before actually positively determining the existence of significant distortions. Therefore, according to this exporter, the Commission should not undertake steps such as sending Article 2(6a) questionnaires and starting looking for a representative country until the existence of significant distortions is positively established.

(89) The Commission clarified that while the determination on the actual existence of significant distortions and the consequent use of the methodology prescribed by Article 2(6a)(a) only occurs at the time of the provisional and/or definitive disclosure, Article 2(6a)(e) lays down an obligation to collect the data necessary for the application of this methodology when the investigation has been initiated on this basis. In this case the Commission deemed the evidence submitted by the complainant on the significant distortions as sufficient to initiate the investigation on this basis. The Notice of Initiation clearly specified this in its point 3, in accordance with the obligation set out in Article 2(6a)(e) of the basic Regulation. Therefore the Commission took the necessary steps in application of Article 2(6a)(e) of the basic Regulation. This procedure includes sending out questionnaires, as well as searching for possible appropriate representative countries. Furthermore, the second subparagraph of Article 2(6a)(e) imposes a further obligation on the Commission to inform parties promptly after the initiation about the relevant sources it intends to use in this respect. This constitutes the legal basis for the information requested in the questionnaires on the notes on factors of production, as detailed at recitals (35) to (37). On the basis of all these elements, the Commission dismissed the claim.

(90) The Commission examined whether it was appropriate or not to use domestic prices and costs in China, due to the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation. The Commission did so on the basis of the evidence available on the file, including the evidence contained in the Report, which relies on publicly available sources. That analysis covered the examination of the substantial government interventions in China’s economy in general, but also the specific market situation in the relevant sector including the product concerned.

3.2.1.2. Significant distortions affecting the domestic prices and costs in China

(91) The Chinese economic system is based on the concept of a ‘socialist market economy’. That concept is enshrined in the Chinese Constitution and determines the economic governance of China. The core principle is the ‘socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people’. The State-owned economy is the ‘leading force of the national economy’ and the State has the mandate ‘to ensure its consolidation and growth’ (10). Consequently, the overall setup of the Chinese economy not only allows for substantial government interventions into the economy, but such interventions are expressly mandated. The notion of supremacy of public ownership over the private one permeates the entire legal system and is emphasised as a general principle in all central pieces of legislation. The Chinese property law is a prime example: it refers to the primary stage of socialism and entrusts the State with upholding the basic economic system under which the public ownership plays a dominant role. Other forms of ownership are tolerated, with the law permitting them to develop side by side with the State ownership (11).

(92) In addition, under Chinese law, the socialist market economy is developed under the leadership of the Chinese Communist Party (‘CCP’). The structures of the Chinese State and of the CCP are intertwined at every level (legal, institutional, personal), forming a superstructure in which the roles of CCP and the State are indistinguishable. Following an amendment of the Chinese Constitution in March 2018, the leading role of the CCP was given an even greater prominence by being reaffirmed in the text of Article 1 of the Constitution. Following the already existing first sentence of the provision: ‘[t]he socialist system is the basic system of the People’s Republic of China’ a new second sentence was inserted which reads: ‘[t]he defining feature of socialism with Chinese characteristics is the leadership of the Communist Party of China’ (12). This illustrates the unquestioned and ever growing control of the CCP over the economic system of China. This leadership and control is inherent to the Chinese system and goes well beyond the situation customary in other countries where the governments exercise general macroeconomic control within the boundaries of which free market forces are at play.

(93) The Chinese State engages in an interventionist economic policy in pursuance of goals, which coincide with the political agenda set by the CCP rather than reflecting the prevailing economic conditions in a free market (13). The interventionist economic tools deployed by the Chinese authorities are manifold, including the system of industrial planning, the financial system, as well as the level of the regulatory environment.

(94) First, on the level of overall administrative control, the direction of the Chinese economy is governed by a complex system of industrial planning which affects all economic activities within the country. The totality of these plans cover a comprehensive and complex matrix of sectors and crosscutting policies and is present on all levels of government. Plans at provincial level are detailed while national plans set broader targets. Plans also specify the means in order to support the relevant industries/sectors as well as the timeframes in which the objectives need to be achieved. Some plans still contain explicit output targets while this was a regular feature in previous planning cycles. Under the plans, individual industrial sectors and/or projects are being singled out as (positive or negative) priorities in line with the government priorities and specific development goals are attributed to them (industrial upgrade, international expansion etc.). The economic operators, private and State-owned alike, must effectively adjust their business activities according to the realities imposed by the planning system. This is not only because of the binding nature of the plans but also because the relevant Chinese authorities at all levels of government adhere to the system of plans and use their vested powers accordingly, thereby inducing the economic operators to comply with the priorities set out in the plans (see also section 3.2.1.5 below) (14).

(95) Second, on the level of allocation of financial resources, the financial system of China is dominated by the State-owned commercial banks. Those banks, when setting up and implementing their lending policy need to align themselves with the government’s industrial policy objectives rather than primarily assessing the economic merits of a given project (see also section 3.2.1.8 below) (15). The same applies to the other components of the Chinese financial system, such as the stock markets, bond markets, private equity markets etc. Also these parts of the financial sector other than the banking sector are institutionally and operationally set up in a manner not geared towards maximising the efficient functioning of the financial markets but towards ensuring control and allowing intervention by the State and the CCP (16).

(96) Third, on the level of regulatory environment, the interventions by the State into the economy take a number of forms. For instance, the public procurement rules are regularly used in pursuit of policy goals other than economic efficiency, thereby undermining market based principles in the area. The applicable legislation specifically provides that public procurement shall be conducted in order to facilitate the achievement of goals designed by State policies. However, the nature of these goals remains undefined, thereby leaving broad margin of appreciation to the decision-making bodies (17). Similarly, in the area of investment, the GOC maintains significant control and influence over destination and magnitude of both State and private investment. Investment screening as well as various incentives, restrictions, and prohibitions related to investment are used by authorities as an important tool for supporting industrial policy goals, such as maintaining State control over key sectors or bolstering domestic industry (18).

(97) In sum, the Chinese economic model is based on certain basic axioms, which provide for and encourage manifold government interventions. Such substantial government interventions are at odds with free play of market forces, resulting in distorting the effective allocation of resources in line with market principles (19).

3.2.1.3. Significant distortions according to Article 2(6a)(b), first indent of the basic Regulation: the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country

(98) In China, enterprises operating under the ownership, control and/or policy supervision or guidance by the State represent an essential part of the economy.

(99) The GOC and the CCP maintain structures that ensure their continued influence over enterprises, and in particular State-owned enterprises (SOEs). The State (and in many aspects also the CCP) not only actively formulates and oversees the implementation of general economic policies by individual SOEs, but it also claims its rights to participate in operational decision making in SOEs. This is typically done through rotation of cadres between government authorities and SOEs, through presence of party members on SOEs executive bodies and of party cells in companies (see also section 3.2.1.4), as well as through shaping the corporate structure of the SOE sector (20). In exchange, SOEs enjoy a particular status within the Chinese economy, which entails a number of economic benefits, in particular shielding from competition and preferential access to relevant inputs, including finance (21). The elements that point to the existence of government control over enterprises in the aluminium sector are further developed in Section 3.2.1.5 below.

(100) The OECD Study, submitted as evidence by the complainant, refers to SOEs in the aluminium sector which specifically emphasise in their regulatory filings how State ownership influences relevant industrial policies and how State ownership translates into government support. More specifically, one SOE mentions in its 2016 bond prospectus that it is one of the 52 backbone State-owned enterprises, that it plays a key role in the formulation and implementation of policies in the power sector and that it receives comprehensive and sustainable support from the GOC. Another SOE refers in its 2017 bond prospectus to the fact that the respective provincial government can exert significant influence on the group (22).

(101) China is the largest aluminium producer in the world, with several large SOEs amongst the top individual producers worldwide. According to estimates, SOEs account for more than 50 % of the total primary aluminium output in China (23). A study on the non-ferrous metal industry in China also points in the direction of SOEs accounting for a dominant share of the domestic market (24). While an increase in capacity in recent years is attributed partly to privately-owned companies, such capacity increase would usually also entail various forms of (local) government involvement, such as tolerating illegal capacity expansion (25). Moreover, the aluminium production capacity amongst the main SOEs has also increased, though to a lesser extent (26).

(102) Apart from controlling the SOEs, the GOC is also influencing the privately owned companies in China. For example, the Commission found that one of the sampled companies, Press Metal Group, acknowledged receiving financial support from the State in recent years. The Chairman of the board of the company, Guan Baoqiang, stated: ‘the government supports the transformation of our enterprise towards intelligent manufacturing in various aspects. In 2011, the subsidiary of our newly established high-tech enterprise benefitted from governmental preferential policies such as tax relief, etc. Last year, in order to make the production chain more intelligent and automatic, we introduced large-scale high-end intelligent equipment, worth over RMB 100 million, and the government granted a technological transformation subsidy. Now, we will spontaneously pay attention to the governmental industry support policies’ (27).

(103) Moreover, according to the Initial Public Offering prospectus of the exporting producer Guangdong Haomei New Materials Co. Ltd., the company received regularly governmental subsidies. During the reporting period, that exporting producer benefitted from the following amounts: RMB 11 318 300 in 2016, RMB 17 020 800 in 2017, RMB 11 486 700 in 2018. These transfers amounted to 11,28 %, 13,24 %, 11,16 % of the company’s profit, respectively. In relation to this, the same document specifies the importance of those subsidies for the company: ‘Over the reporting period, the governmental subsidies received by the enterprise provided some funding guarantee. Looking at the governmental subsidies/profit ratio, the enterprise’s operating performance does not largely depend on governmental subsidies. Still, should the enterprise not be able to receive governmental subsidies in the future, this might have an impact on the enterprise’s cash flow and operating results’ (28).

(104) With the high level of government intervention in the aluminium industry and a high share of SOEs in the sector, even privately owned producers are prevented from operating under market conditions. Indeed, both public and privately owned enterprises in the aluminium sector are also subject to policy supervision and guidance as set out in section 3.2.1.5 below.

3.2.1.4. Significant distortions according to Article 2(6a)(b), second indent of the basic Regulation: State presence in firms allowing the state to interfere with respect to prices or costs

(105) Apart from exercising control over the economy by means of ownership of SOEs and other tools, the GOC is in position to interfere with prices and costs through State presence in firms. While the right to appoint and to remove key management personnel in SOEs by the relevant State authorities, as provided for in the Chinese legislation, can be considered to reflect the corresponding ownership rights (29), CCP cells in enterprises, state owned and private alike, represent another important channel through which the State can interfere with business decisions. According to China’s company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution (30)) and the company shall provide the necessary conditions for the activities of the party organisation. In the past, this requirement appears not to have always been followed or strictly enforced. However, since at least 2016 the CCP has reinforced its claims to control business decisions in SOEs as a matter of political principle. The CCP is also reported to exercise pressure on private companies to put ‘patriotism’ first and to follow party discipline (31). In 2017, it was reported that party cells existed in 70 % of some 1,86 million privately owned companies, with growing pressure for the CCP organisations to have a final say over the business decisions within their respective companies (32). These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of aluminium products and the suppliers of their inputs.

(106) The following examples illustrate the above trend of an increasing level of intervention by the GOC in the aluminium sector.

(107) As found by the Commission in another investigation on certain aluminium foil in rolls originating in China (33), in 2017, a Chinese state-owned aluminium producer, China Aluminium International Engineering Corporation Limited (‘Chalieco’), amended its Articles of Association giving more prominence to the role of party cells within the company. It included a whole chapter on the Party Committee, and Article 113 thereof states: ‘In deciding major corporate issues, the Board shall consult the Party Committee of the Company in advance’ (34). Furthermore, in their 2017 Annual Report (35), the Aluminum Corporation of China (‘Chalco’) stated that a number of directors, supervisors, and senior management – including the Chairman and Executive Director, and the Chairman of the Supervisory Committee – are members of the CCP.

(108) With regard to another SOE active in the Chinese aluminium sector, the Commission established that the executive director and the president of the company, He Zhihui, held the post of Secretary of the Communist Party Committee, while the chairman of the supervisory committee of the company, Ye Guohua, was a member of the Communist Party Committee.

(109) Close ties with the State and its ideology are also reflected in the website description of another company – Xinfa Group. The company ‘adheres to the guidance of Xi Jinping's socialist ideology with Chinese characteristics in the new era’ (36). At the same time, the chairman of Shandong Xinfa Group, Zhang Gang, was awarded in 2001 the honorary title of ‘Outstanding Communist Party Member of the Shandong Province’ by the Province’s CCP Committee. He was also member of the 10th and 11th National People’s Congress (37).

(110) Similarly, the executive director and CEO of major producer China Hongqiao Group, Zhang Bo, was elected as a member of the 12th session of the Shandong Provincial People’s Congress and awarded the title of ‘National Model Worker’ in 2010. At the same time, Zhang Bo holds the positions of vice-president of the China Nonferrous Metals Industry Association and president of Shandong Aluminum Industry Association (38). The Commission also found that Hongqiao Group’s vice-president, Deng Wenqiang, was a member of the 15th, 16th and 17th sessions of Zouping County People’s Congress and the 9th and 10th session of Binzhou City People’s Congress (39).

(111) In another example, the presence of the CCP in one of the sampled companies, Liaoning Zhongwang Group Co. Ltd. was confirmed by the following information: ‘Among the seven members of the Party Committee of the group, the Secretary of the Party Committee serves as the deputy general manager of the group, and the other six members of the Party committee serve as deputy general manager, factory director and other positions respectively. Together with the Group’s management level, the Party Committee of the group has established “Joint Meetings” and “Two-way Regular Meetings” and other systems and shall duly provide the management with feedback as to the opinions and suggestions collected from the staff and workers, so as to provide important reference for the enterprise’s scientific decision-making. The Party’s democratic centralism shall apply to the enterprise’s decision-making on major issues, and the Party’s internal evaluation system shall be introduced into the enterprise’s human resource management, so as to guarantee the scientific decision-making’ (40).

(112) The State’s presence and intervention in the financial markets (see also section 3.2.1.8 below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the market (41). Thus, the State presence in firms, including SOEs, in the aluminium and other sectors (such as the financial and input sectors) allow the GOC to interfere with respect to prices and costs.

3.2.1.5. Significant distortions according to Article 2(6a)(b), third indent of the basic Regulation: public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces

(113) The direction of the Chinese economy is to a significant degree determined by an elaborate system of planning which sets out priorities and prescribes the goals the central and local governments must focus on. Relevant plans exist on all levels of government and cover virtually all economic sectors. The objectives set by the planning instruments are of binding nature and the authorities at each administrative level monitor the implementation of the plans by the corresponding lower level of government. Overall, the system of planning in China results in resources being driven to sectors designated as strategic or otherwise politically important by the government, rather than being allocated in line with market forces (42).

(114) For instance, the government plays a key role in the development of the Chinese aluminium sector. This is confirmed in the numerous plans, directives and other documents pertaining directly or indirectly to the sector, which are issued at national, regional and municipal level. Through these and other instruments, the government directs and controls virtually every aspect of the development and functioning of the aluminium sector. Such policies have an important direct or indirect impact on the production costs of aluminium extrusions.

(115) In line with the Commission’s findings in the case on certain aluminium foil in rolls originating in China (43), the following facts are equally applicable to the present case concerning aluminium extrusions, which is, similarly, an aluminium downstream product:

(116) Although the 13th Five Year Plan on Economic and Social Development (44) does not contain specific provisions on aluminium, for the non-ferrous metal industry in general it envisages a strategy of promoting cooperation on international production capacity and equipment manufacturing. To achieve these goals, the plan confirms that it will enhance supporting systems related to taxation, finance, insurance, investment and financing platforms, as well as risk assessment platforms (45).

(117) The corresponding sectoral plan, the Non-Ferrous Metal Industry Development Plan (2016-2020) (‘the Plan’) sets out specific policies and targets that the government aims to achieve for a number of non-ferrous metals industries (46), including aluminium.

(118) The Plan aims at upgrading the range of product types produced by the Chinese aluminium industry, inter alia, through supporting innovation. It calls for swift development of the mixed ownership system and a boost to SOE’s vitality. It further provides for the possibility of stock-piling non-ferrous metals, improving the security of resources, including aluminium and sets specific quantitative targets for reducing power consumption, increasing the ratio of recycled aluminium in production and increasing capacity utilisation (47).

(119) The Plan further provides for structural adjustments with stricter control on new smelting facilities and elimination of outdated capacity. It provides for geographical distribution of processing plants, focuses on projects to increase bauxite and alumina resource exploitation and covers electricity supply and pricing policy (48).

(120) With this wide range of measures and policies, the Plan represents a continuation of the 2009 Non-Ferrous Metals Industry Adjustment and Revitalization Plan which was adopted to alleviate the negative effects on the non-ferrous metal industry of the financial crisis. The key objectives, set out in the plan include inter alia, production volume control, restructuration, raw material sourcing, export tax policy, security of resources, stockpiling, technological innovation, financial policy and planning and implementation (49).

(121) Another policy document targeting the aluminium sector is the Standard Conditions applicable to the Aluminium Industry issued by MIIT on 18 July 2013, in order to speed up structural adjustment and curb disorderly expansion of the aluminium smelting capacities. The Standard Conditions introduce minimum production quantities for new plants, quality standards and security of supply for imported and domestically sourced bauxite and alumina. The Standard Conditions indicate that MIIT is the authority in charge of the standardisation and management of the aluminium industry, as well as of the publication of the list of companies authorised to operate in the aluminium industry (50).

(122) In the Guiding Opinion on creating an excellent market environment, fostering the non-ferrous metal industry’s structural adjustment and transformation and increasing benefits issued by the General Office of the State Council in 2016 (2016/42) (51), the Chinese authorities state as main objectives to ‘optimise the non-ferrous metal industry structure; Basically balance supply and demand of key product categories; Maintain the utilisation rate of electrolytic aluminium production capacity above 80 %; Significantly increase the mineral resources supply security capacity for minerals such as copper and aluminium’ (52). The document also prescribes to ‘strictly control new production capacity.’ To achieve this, the State requires to: ‘Ensure the implementation of indispensable electrolytic aluminium new (reformed, expanded) construction projects; […] Use social supervision and other tools; Step up supervision and inspection efforts; Strictly investigate and deal with new electrolytic aluminium projects breaching regulations’ (53). These provisions demonstrate the substantial degree of the GOC’s intervention into the non-ferrous metals sector, including the aluminium sector.

(123) The above State interference in the functioning of the aluminium sector by means of planning documents is reflected also at the provincial level. For example, the Shandong Province Government’s Notice on the implementation plan for accelerating the high-quality development of the seven energy-intensive industries (2018/248) of 6 November 2018 requires to ‘foster the extension of the electrolytic aluminium industry chain’ through the following actions: ‘Further increase the proportion of fine and deep processing of electrolytic aluminium liquid and aluminium processing materials; Speed up and foster the extension of the aluminium industry chain to finished products and high-end products; Expand the use of high-end aluminium materials; Increase the development possibilities of the aluminium processing industry’ (54).

(124) As established by the Commission in its Report, the State has been intervening into the functioning of the aluminium sector for many years before the issuance of the above policy documents, which is, for example, illustrated by the Guidelines for Accelerating the Restructuring of the Aluminium Industry (‘Restructuring Guidelines’) (55), issued by the NDRC in April 2006. The latter regarded aluminium as a fundamental product in the development of the national economy. The said Restructuring Guidelines stated that, in implementing the Industrial Development Policy approved by the State Council, specific objectives shall be achieved in certain areas. These areas were: Enhance the concentration in the industry; Access to financial capital (see also section 3.2.1.8 below); Organisation of the industry; Strict control of exports of electrolytic aluminium; and Elimination of outdated capacity.

(125) Moreover, the Commission found that the Chinese State has been interfering with the free play of market forces in the sector of upstream aluminium products, hence in the production of inputs and of inputs to inputs, which are used by the producers of the product concerned. In that regard, for example, the Notice on fostering the orderly development of the Alumina Industry (2018/1655) issued on 28 December 2018 by the General Office of the MIIT (56) stipulates – concerning alumina (a key input in the production of primary aluminium) – that ‘guided by Xi Jinping’s socialist ideology with Chinese characteristics in a new era, [all relevant parties shall] comprehensively and thoroughly implement the spirit of the 19th National Congress of the Party; stick to the general orientation of stability in progress work; stick to the new development concept; focus on supply-side structural reforms; make full use of the market’s decisive role in allocating resources, better involve the government, […] meet domestic development needs, and promote the orderly and healthy development of the alumina industry’ (57). The same document states that ‘the provincial Development and Reform Commissions and MIIT administrations shall: keep abreast of the current developments in the alumina industry in their region; combine their region’s economic and social development, industry base, market demand and energy consumption and environmental capacity; strengthen the scientific planning for the development of the alumina industry; coordinate their region’s industry development scale and layout; ensure project demonstrations; strictly implement the construction requirements; orderly support project constructions; strengthen the supervision of the entire process; ensure the industry development scale matches the domestic market demand and local bearing capacity; prevent projects construction rush’ (58). In order to achieve the latter, the document prescribes to strengthen supervision and inspection: ‘In accordance with the present notice’s requirements the National Development and Reform Commission, the Ministry of Industry and Information Technology, together with the China Nonferrous Metals Industry Association and other relevant parties shall proceed to inspections of alumina construction projects in the form of letters of enquiries, research and random investigations. Should problems arise, they shall be strictly dealt with in accordance with the relevant regulations’ (59). The provisions described above show the degree of State intervention and control in the Chinese market of alumina – a key input to in the production of primary aluminium, which is the raw material used by aluminium extrusions producers.

(126) Another input in the production of the product concerned is electricity, which constitutes 2 %–3 % of the production cost of aluminium extrusions. In this regard, the Commission found evidence of State-induced distortions affecting the price of electricity provided to Chinese aluminium producers. Notably, it was established that the State intervened in favour of Chinese producers through differentiated, more advantageous energy pricing. In the Guiding Opinion on creating an excellent market environment, fostering the non-ferrous metal industry’s structural adjustment and transformation and increasing benefits mentioned above, the Chinese authorities acknowledged as a policy goal to ‘continue to implement the differentiated electricity price policy; Encourage eligible electricity users to conclude direct deals with power generation companies; Determine prices through negotiation’ (60). The Commission also established that similar policies were implemented at the provincial level. For example, in the Yunnan Province, according to information reported by the China Industry Journal in November 2019: ‘In order to implement the plan, Yunnan has successively issued specific policies such as the “Implementing Opinion on Promoting the Integrated Development of Hydropower and Aluminium Materials” and the “Plan implementing preferential prices to promote the use of Hydropower”. It appears clearly that any enterprise bringing its capacity quota to Yunnan shall benefit from the “preferential price, full transmission” policy, which means that for the first 5 years, electrolytic aluminium shall benefit from special preferential electricity price of RMB 0,25 per kWh. As to deep processing of materials, a special preferential electricity price of RMB 0,20 per kWh shall be granted. According to reports, the integrated projects of Henan Shenhuo and Sichuan Qiya’s bringing quotas to be built in Yunnan have already benefitted from the policy for integration projects and have signed relevant agreements with local governments, power grid companies, and power generation companies’ (61).

(127) As another example of State interference, at the provincial level, in the already mentioned Shandong Province Government’s Notice on the implementation plan for accelerating the high-quality development of the seven energy-intensive industries, the authorities have issued transformation and upgrading targets for the electrolytic aluminium industry with regard to energy use: ‘By 2022, the electricity consumption of electrolytic aluminium per ton of aluminium shall drop to approximately 12,800 kWh, the electrolytic deep processing rate of electrolytic aluminium in the province shall reach approximately 50 %, and the added value of aluminium per ton shall increase by more than 30 % on average’ (62).

(128) With respect to the enforcement of the provisions contained in the planning documents above, Chinese industry associations play an important role. These entities are to guarantee that industry implements the policies of the GOC. This responsibility is confirmed by the fact that in their activity, they liaise closely with State authorities, which is reflected in their statutes. In the case of the aluminium sector, the Articles of association of the China Non-Ferrous Metals Industry Association assert notably that ‘[t]he Association adheres to the party’s basic line and various principles and policies, abides by the Constitution, laws, regulations and national policies, and abides by social and moral values. It shall stick to the purpose of serving the government, the industry, the enterprises and business managers; it shall set up and improve the industry self-discipline mechanism; it shall fully involve government’s staff to get assistance; it shall play a bridging role between the government and enterprises.’ (Article 3). Along the same lines, Article 25 states that the Association’s chairman, vice-chairman and secretary general must fulfil as a first condition to: ‘Adhere to the party’s line, principles and policies, and have good political qualities’ (63).

(129) Similarly, the Articles of association of the China Non-Ferrous Fabrication Industry Association stipulate that ‘the Association accepts business guidance as well as supervision and management from the State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Civil Affairs and the China Nonferrous Metals Industry Association’ (Article 4). One of the established elements of the Association’s business scope is also to ‘Actively put forward suggestions and opinions on industry development, industry policies, laws and regulations, in accordance with the Party’s and the State’s general principles and tasks concerning the building of a socialist market economy system and taking into account the industry’s actual situation.’ (Article 6). Finally, Article 22 also prescribes that the Association’s chairman, deputy chairman and secretary general must, among others, meet as condition to: ‘Adhere to the party’s line, principles and policies, and have good political qualities’ (64).

(130) Thus, the numerous plans, directives and other documents pertaining to aluminium, issued at the national, regional and municipal level, clearly show the high degree of intervention of the Chinese government in the aluminium sector (65). Through these and other instruments, the government directs and controls virtually every aspect of the development and functioning of the sector.

(131) Beyond the plans, the government’s intervention in the sector has taken the form, inter alia, of export-related measures, including export duties, export quotas, export performance requirements and minimum export price requirements on different raw materials for aluminium.

(132) The GOC further discourages exports of primary aluminium and its inputs, aiming at promoting higher added-value aluminium products. This objective is pursued by granting full or partial VAT rebates on downstream aluminium products in combination with incomplete VAT rebates and export taxes on primary aluminium (66).

(133) As found by the Commission (see recital (126)), the prices of key inputs such as energy and electricity are influenced by different types of government intervention (67). Other types of government intervention leading to market distortions include the stockpiling policy through the State Reserve Bureau and the role of the Shanghai Futures Exchange (SHFE) (68). In addition, several trade defence investigations have established that the Chinese government has consistently granted different types of State support measures to aluminium producers (69). The extensive intervention of the GOC in the aluminium sector has led to overcapacity (70), which is arguably the clearest illustration of the implications of the GOC's policies and the resulting distortions.

(134) The OECD Study also identified additional government support influencing market forces in the aluminium sector. Such support would typically take the form of inputs, in particular electricity and primary alumina, sold at below-market prices (71). The OECD Study further describes how the GOC objectives for the aluminium sector are translated into industrial policies and specific actions on the provincial and local level, including for example capital injections, priority possession rights to mineral resources, governmental grants and subsidies or tax incentives (72).

(135) In sum, the GOC has measures in place to induce operators to comply with the public policy objectives of supporting key industries, including the aluminium sector, which encompasses the production of aluminium extrusions, as well as of primary aluminium – the main raw material used in the manufacturing of the product concerned (more than 50 % of its costs of production). Such measures impede market forces from operating freely.

3.2.1.6. Significant distortions according to Article 2(6a)(b), fourth indent of the basic Regulation: the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws

(136) According to the information on file, the Chinese bankruptcy system delivers inadequately on its own main objectives such as to fairly settle claims and debts and to safeguard the lawful rights and interests of creditors and debtors. This appears to be rooted in the fact that while the Chinese bankruptcy law formally rests on principles that are similar to those applied in corresponding laws in countries other than China, the Chinese system is characterised by systematic under-enforcement. The number of bankruptcies remains notoriously low in relation to the size of the country’s economy, not least because the insolvency proceedings suffer from a number of shortcomings, which effectively function as a disincentive for bankruptcy filings. Moreover, the role of the State in the insolvency proceedings remains strong and active, often having direct influence on the outcome of the proceedings (73).

(137) In addition, the shortcomings of the system of property rights are particularly obvious in relation to ownership of land and land-use rights in China (74). All land is owned by the Chinese State (collectively owned rural land and State-owned urban land). Its allocation remains solely dependent on the State. There are legal provisions that aim at allocating land use rights in a transparent manner and at market prices, for instance by introducing bidding procedures. However, these provisions are regularly not respected, with certain buyers obtaining their land for free or below market rates (75). Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land (76).

(138) Much like other sectors in the Chinese economy, producers of aluminium extrusions are subject to the ordinary rules on Chinese bankruptcy, corporate, and property laws. That has the effect that these companies, too, are subject to the top-down distortions arising from the discriminatory application or inadequate enforcement of bankruptcy and property laws. The present investigation revealed nothing that would call those findings into question.

(139) This finding is supported by the provisional affirmative determination of the US Department of Commerce, in the Countervailing Duty Investigation of certain Aluminium Foil from China, which found, using facts available, that the Government of China’s provision of land for Less Than Adequate Remuneration constitutes a financial contribution within the meaning of Section 771 (5)(D) of the Tariff Act of 1930, as amended (77).

(140) In light of the above, the Commission concluded that there was discriminatory application or inadequate enforcement of bankruptcy and property laws in the aluminium sector, including with respect to the product concerned.

3.2.1.7. Significant distortions according to Article 2(6a)(b), fifth indent of the basic Regulation: wage costs being distorted

(141) A system of market-based wages cannot fully develop in China as workers and employers are impeded in their rights to collective organisation. China has not ratified a number of essential conventions of the International Labour Organisation (‘ILO’), in particular those on freedom of association and on collective bargaining (78). Under national law, only one trade union organisation is active. However, this organisation lacks independence from the State authorities and its engagement in collective bargaining and protection of workers’ rights remains rudimentary (79). Moreover, the mobility of the Chinese workforce is restricted by the household registration system, which limits access to the full range of social security and other benefits to local residents of a given administrative area. This typically results in workers who are not in possession of the local residence registration finding themselves in a vulnerable employment position and receiving lower income than the holders of the residence registration (80). Those findings lead to the distortion of wage costs in China.

(142) No relevant evidence was submitted to the effect that the aluminium sector, including the producers of aluminium extrusions, would not be subject to the Chinese labour law system described. The aluminium sector is thus affected by the distortions of wage costs both directly (when making the product concerned or the main raw material for its production) as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in China).

3.2.1.8. Significant distortions according to Article 2(6a)(b), sixth indent of the basic Regulation: access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the State

(143) Access to capital for corporate actors in China is subject to various distortions.

(144) Firstly, the Chinese financial system is characterised by the strong position of State-owned banks (81), which, when granting access to finance, take into consideration criteria other than the economic viability of a project. Similarly to non-financial SOEs, the banks remain connected to the State not only through ownership but also via personal relations (the top executives of large State-owned financial institutions are ultimately appointed by the CCP) (82) and, again just like non-financial SOEs, the banks regularly implement public policies designed by the government. In doing so, the banks comply with an explicit legal obligation to conduct their business in accordance with the needs of the national economic and social development and under the guidance of the industrial policies of the State (83). This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (84).

(145) While it is acknowledged that various legal provisions refer to the need to respect normal banking behaviour and prudential rules such as the need to examine the creditworthiness of the borrower, the overwhelming evidence, including findings made in trade defence investigations, suggests that these provisions play only a secondary role in the application of the various legal instruments.

(146) Furthermore, bond and credit ratings are often distorted for a variety of reasons including the fact that the risk assessment is influenced by the firm's strategic importance to the GOC and the strength of any implicit guarantee by the government. Estimates strongly suggest that Chinese credit ratings systematically correspond to lower international ratings (85).

(147) This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (86). This results in a bias in favour of lending to SOEs, large well-connected private firms and firms in key industrial sectors, which implies that the availability and cost of capital is not equal for all players on the market.

(148) In this respect, the OECD Study refers to anecdotal evidence that certain aluminium producers in China have obtained financing on preferential terms, with cost of financing being seemingly decoupled from the corresponding level of corporate leverage. According to that study, one state-owned aluminium producer explicitly stated in its 2016 bond prospectus that it attracts considerable financial support from Chinese policy banks bearing interest rate below benchmark. Similarly, the 2017 bond prospectus of another state-owned producer refers to the strong ties which the company maintains with Chinese banks, including policy banks that have provided that company with low-cost financing sources. The OECD Study concludes in this connection that while there can be many reasons why interest rates are low for these firms, the contrast between poor financial indicators and low interest rates may suggest some potential under-pricing of the risk associated with those borrowers (87).

(149) Secondly, borrowing costs have been kept artificially low to stimulate investment growth. This has led to the excessive use of capital investment with ever lower returns on investment. This is illustrated by the recent growth in corporate leverage in the state sector despite a sharp fall in profitability, which suggests that the mechanisms at work in the banking system do not follow normal commercial responses.

(150) Thirdly, although nominal interest rate liberalisation was achieved in October 2015, price signals are still not the result of free market forces, but are influenced by government induced distortions. Indeed, the share of lending at or below the benchmark rate still represents 45 % of all lending and recourse to targeted credit appears to have been stepped up, since this share has increased markedly since 2015 in spite of worsening economic conditions. Artificially low interest rates result in under-pricing, and consequently, the excessive utilisation of capital.

(151) Overall credit growth in China indicates a worsening efficiency of capital allocation without any signs of credit tightening that would be expected in an undistorted market environment. As a result, non-performing loans have increased rapidly in recent years. Faced with a situation of increasing debt-at-risk, the GOC has opted to avoid defaults. Consequently, bad debt issues have been handled by rolling over debt, thus creating so called ‘zombie’ companies, or by transferring the ownership of the debt (e.g. via mergers or debt-to-equity swaps), without necessarily removing the overall debt problem or addressing its root causes.

(152) In essence, despite the recent steps that have been taken to liberalise the market, the corporate credit system in China is affected by significant distortions resulting from the continuing pervasive role of the state in the capital markets.

(153) No evidence was submitted to the effect that the aluminium sector, including the producers of aluminium extrusions, would be exempted from the above-described government intervention in the financial system. Therefore, the substantial government intervention in the financial system leads to the market conditions being severely affected at all levels.

3.2.1.9. Systemic nature of the distortions described

(154) The Commission noted that the distortions described in the Report are characteristic for the Chinese economy. The evidence available shows that the facts and features of the Chinese system as described above in Sections 3.2.1.1 to 3.2.1.5 as well as in Part A of the Report apply throughout the country and across the sectors of the economy. The same holds true for the description of the factors of production as set out above in Sections 3.2.1.6 to 3.2.1.8 above and in Part B of the Report.

(155) The Commission recalls that in order to produce aluminium extrusions, a broad range of inputs is needed. According to evidence on the file, all the sampled exporting producers sourced all their inputs in China. When the Chinese producers of aluminium extrusions purchase/contract these inputs, the prices they pay (and which are recorded as their costs) are exposed to the same systemic distortions mentioned before. For instance, suppliers of inputs employ labour that is subject to the distortions. They may borrow money that is subject to the distortions on the financial sector/capital allocation. In addition, they are subject to the planning system that applies across all levels of government and sectors.

(156) As a consequence, not only the domestic sales prices of aluminium extrusions are not appropriate for use within the meaning of Article 2(6a)(a) of the basic Regulation, but all the input costs (including raw materials, energy, land, financing, labour, etc.) are also affected because their price formation is affected by substantial government intervention, as described in Parts A and B of the Report. Indeed, the government interventions described in relation to the allocation of capital, land, labour, energy and raw materials are present throughout China. This means, for instance, that an input that in itself was produced in China by combining a range of factors of production is exposed to significant distortions. The same applies for the input to the input and so forth. No evidence or argument to the contrary has been adduced by the GOC or the exporting producers in the present investigation.

3.2.1.10. Conclusion

(157) The analysis set out in sections 3.2.1.2 to 3.2.1.9, which includes an examination of all the available evidence relating to China’s intervention in its economy in general as well as in the aluminium sector (including the product concerned) showed that prices or costs of the product concerned, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation as shown by the actual or potential impact of one or more of the relevant elements listed therein. On that basis, and in the absence of any cooperation from the GOC, the Commission concluded that it is not appropriate to use domestic prices and costs to establish normal value in this case.

(158) Consequently, the Commission proceeded to construct the normal value exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, that is, in this case, on the basis of corresponding costs of production and sale in an appropriate representative country, in accordance with Article 2(6a)(a) of the basic Regulation, as discussed in the following section.

3.3. Representative country

(159) The Commission chose the representative country on the basis of the following criteria: — A level of economic development similar to China. For this purpose, the Commission used countries with a gross national income similar to China on the basis of the database of the World Bank, — Production of the product under investigation in that country, — Availability of relevant public data in that country, and — Where there is more than one possible representative country, preference was given, where appropriate, to the country with an adequate level of social and environmental protection.

(160) As explained in recitals (31) t