COMMISSION IMPLEMENTING REGULATION (EU) 2021/983

of 17 June 2021

imposing a provisional anti-dumping duty on imports of aluminium converter foil 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 (‘the basic Regulation’) (1), and in particular Article 7 thereof,

After consulting the Member States,

Whereas:

1. PROCEDURE

1.1. Initiation

(1) On 22 October 2020, the European Commission (‘the Commission’) initiated an anti-dumping investigation with regard to imports of aluminium converter foil originating in People’s Republic of China (‘the PRC’, ‘China’ or the ‘country concerned’) on the basis of Article 5 of Regulation (EU) 2016/1036. It published a Notice of Initiation in the Official Journal of the European Union (2) (‘the Notice of Initiation’).

(2) The Commission initiated the investigation following a complaint lodged on 7 September 2020 (3) by six Union producers (‘the complainants’), representing more than 50 % of the total Union production of aluminium converter foil (‘ACF’ or the ‘product under investigation). The complaint contained evidence of dumping and of resulting material injury that was sufficient to justify the initiation of the investigation.

1.2. Registration

(3) Pursuant to Article 14(5a) of the basic Regulation, the Commission should register imports subject to an anti-dumping investigation during the period of pre-disclosure unless it has sufficient evidence that certain requirements are not met. One of these requirements, as indicated in Article 10(4)(d) of the basic Regulation, is that there is a further substantial rise in imports in addition to the level of imports which caused injury during the investigation period. As can be seen in Table 1, the imports of aluminium converter foil originating in the PRC showed a decrease of 22 % in the five months following initiation as compared to the investigation period (1 July 2019 to 30 June 2020). As there were no indications on the file that imports of aluminium converter foil as defined in recital (45) below are subject to seasonal fluctuations, the Commission did not consider it necessary to also compare the level of imports during the period November 2019 to March 2020 with the level of imports during the same months in the investigation period. The data following initiation was based upon the TARIC codes created for the product concerned at initiation. This was compared to the monthly average imports from the PRC for the IP. Table 1 Imports from China in the IP and after initiation (tonnes) Investigation period Investigation period monthly average November 2020 - March 2021 November 2020 - March 2021 monthly average Imports from China in the EU 44 276 3 689 14 465 2 893 Source: Eurostat and Surveillance II database.

(4) Consequently, the Commission did not make imports of the product concerned subject to registration under Article 14(5a) of the basic Regulation, as the condition in Article 10(4)(d) of the basic Regulation, that is a further substantial rise in imports, was not met.

1.3. Interested parties

(5) In the Notice of Initiation, the Commission invited interested parties to contact it in order to participate in the investigation. In addition, it specifically informed the complainants, known Union producers, known exporting producers and the authorities in the PRC, known importers and users as well as associations known to be concerned 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.

(7) Several parties requested a hearing with the Commission services. Parties who made a request within the stipulated deadlines were granted an opportunity to be heard.

1.4. Comments on initiation

(8) One user, Manreal, as well as a consortium of five importers, Cartonal Italia, Cutting Packaging, Now Plastics, QualityFoil and Transparent Paper, claimed the information in the complaint was often inconsistent and based on unsubstantiated and unreliable assumptions. One of the exporting producers, Xiamen, put forward similar arguments.

(9) First, the interested parties argued that the complaint is inconsistent as to the manner in which the data concerning the EU industry and the share of the total ACF production held by the complainants was aggregated. The complainants would indicate their proportion of Union industry with different values: 69,93 %, 61,20 % and 70 % of the total Union production.

(10) The Commission considered the explanations given for these different values in the complaint to be sufficiently clear. As indicated on page 6 of the complaint, 69,93 % represent the percentage of the total Union production of all complainants. This would go down to 61,20 %, should the Commission consider that one of the complaining companies needed to be excluded from the calculation, since this company imports limited quantities of ACF from the PRC. On page 36, the complainants indicate that the injury analysis pertains to a group of companies which include the non-complainant Novelis and who together represent at least 70 % of the Union production. This 70 % refers to the share of EU production of all complainants, namely 69,93 %, plus that of Novelis, and is a rounded value. As the 70 % is used for a description and not a calculation, there is also no influence on the analysis resulting from the rounding. In any case, all these percentages meet the threshold established in Article 5(4) of the basic Regulation.

(11) Second, the interested parties consider it to be inconsistent that the complainants included data of Novelis, who stopped its production of the product concerned in 2019, in its injury analysis. The impact of the interruption of Novelis’ production on the total Union production of ACF in 2019 and the investigation period (see recital (38)) as well as the share of the total Union production destined for captive use would be unreliable.

(12) The Commission considered the explanations regarding the impact of the data of Novelis in the complaint to be reliable. The complaint throughout the injury analysis indicated specific data or details related to Novelis, which demonstrated the impact of this data. Furthermore, the exit of Novelis from the production of the product concerned is part of the development of the Union industry during the period considered. As the inclusion of data of Novelis was clearly stated, the Commission was in a position to assess the influence on the captive use, relevant for the injury. The evidence, including the data of Novelis, was considered sufficient and reliable to justify the initiation of an investigation.

(13) Third, the interested parties criticized the complainants’ approach to base their calculation of the total Union production on EAFA (European Aluminium Foil Association) data adjusted to the production volume of the complainants, applying a further adjustment of 5 % to take into account that two complaining companies did not produce household foil, to be inherently uncertain and based on assumptions. Xiamen added that the decrease of the production would follow the trend in consumption and would be even slightly better than the decrease in consumption. Furthermore, the exit of various Union producers from the ACF market was allegedly described in a misrepresentative way as a consequence of injury, contrary to press releases praising that move to be based on voluntary business decisions.

(14) The Commission considered the calculation method based on the EAFA data as sufficiently reliable to justify the initiation of an investigation. Xiamen’s argument that the decrease of production would just follow the decrease in consumption is not consistent with the fact that Union producers during this period lost market share. Positively sounding press releases of Union producers who have decided to exit the market are, moreover, not definitive evidence of the actual underlying reasons for which the producers concerned may have exited the market.

(15) Fourth, the interested parties claimed the complainants’ method to estimate the total volume of sales as “the consumption of the product concerned in the EU minus the total imports of the product concerned” to be distorted as it would not include a distinction of captive sales. They argued that only the production destined for the EU free market should be relevant for the analysis. Xiamen added the argument that at least one Union producer allegedly produced almost exclusively aluminium household foils, thus further distorting the estimated total volume of sales.

(16) The Commission considered the complainants’ method to be sufficiently precise for the purpose of the complaint. As is evident from the analysis of the sales during the period considered in recital (271), captive sales are not significant enough to call the overall injury analysis into question.

(17) Fifth, the interested parties claimed the data to be distorted due to the metric used. Whereas the complaint provides data in tonnes, it should have been complemented with data in micron (micrometre) average as the market trend to reduce thickness would lead to a higher output of m2 per tonne.

(18) The Commission considered that the trend to use thinner gauges of ACF does not render the data provided in tonnes unreliable as it is also complemented with market share data and the trend to move to thinner foil affects all producers equally.

(19) Sixth, the interested parties contested the reliability and accuracy of the indicators in the complaint by referring to multiple isolated elements concerning differences in amounts in the tables contained in the complaint, compared to the tables contained in the open versions of the Annex 1A.2 to the complaint, that allegedly affected the indicators.

(20) The Commission noted that the alleged discrepancies in values originate from the fact that Annex 1A.2 provides a summary of the aggregated figures of the complaining companies, while in the confidential version detailed figures per company are indicated. Furthermore, the tables in the complaint include figures of Novelis, which however the document clearly indicates. The discrepancies in figures between the main document and the Annexes therefore do not result in inconsistencies. In addition, the Commission relied for its assessment on the more detailed company specific Annexes in the confidential version. Therefore, the different ways to display the figures did not affect the Commission’s capability to assess the injury indicators.

(21) Seventh, the interested parties claimed that the complaint did not contain positive evidence on the existence of material injury by imports originating in the PRC and referred to flaws in the allegations on macro and micro indicators. on the grounds that several indicators did not show a decrease or only a slight decrease.

(22) The Commission recalled that Article 5(2) of the basic Regulation requires that the complaint shall contain, to the extent that it is reasonably available to the complainant, information on changes in the volume of the allegedly dumped imports, the effect of those imports on prices of the like product on the Union market and the consequent impact of the imports on the Union industry, as demonstrated by relevant (but not necessarily all) factors and indices having a bearing on the state of the Union industry, such as those listed in Article 3(3) and (5) of the basic Regulation. In the present case, the specific injury analysis in the complaint contained evidence pointing to a significant penetration of the EU market by Chinese imports made at prices which substantially undercut and undersell the Union industry’s prices. The Commission thus considered that the complaint contained sufficient evidence that this had materially injured the Union industry. Consequently, these claims were rejected.

(23) One user, Alupol Packaging, argued that contrary to the product definition put forward by the complainants, which included “not further worked than rolled”, ACF purchased would regularly undergo further treatment by the producer, including splitting, cutting into required width, wounding on given cores and diameters as well as annealing (normalizing).

(24) The Commission considered the additional production steps indicated by Alupol Packaging to be an inherent part of the production process and to qualify as “not further worked than rolled”. Furthermore, the width forms part of the product control number (‘PCN’) structure. Therefore, this claim was rejected.

(25) In their comments on initiation various interested parties included comments related to exclusion requests for ACF with a gauge below 6 microns and for ACF used for electric car batteries. At the stage of the initiation there was no indication that such segments needed to be analysed separately. However, the Commission decided to collect additional data related to these requests. These comments, as well as comments related to the introduction of a lower end for gauges into the product definition in general, are addressed separately in section 2.3 concerning the exclusion requests. Comments related to an expected supply shortage in case of the imposition of duties, including those resulting from captive consumption as well as claims of insufficient investments by the Union industry, are addressed in section 6 on Union interest.

1.5. Sampling

(26) In the 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

(27) In the Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. It selected the sample based on the volume of production and sales of the like product in the Union during the investigation period. The sample consisted of three Union producers. The sampled Union producers accounted for more than 50 % of the estimated total production and 40 % of the estimated total Union sales volume of the like product. The Commission invited interested parties to comment on the provisional sample. No comments on the provisional sample were received.

(28) In light of the above, the sample was considered to be representative of the Union industry.

1.5.2. Sampling of importers

(29) 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.

(30) Two unrelated importers provided the requested information and agreed to be included in the sample. Given the small number of replies, sampling of unrelated importers was not necessary.

1.5.3. Sampling of exporting producers

(31) In order to decide whether sampling was necessary and, if so, to select a sample, the Commission asked all known exporting producers in the PRC 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 the European Union to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(32) Nine exporting producers in the country concerned 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 three companies on the basis of the largest representative volume of exports to the Union that could reasonably be investigated within the time available. These companies represented over 90 % of the estimated total Union imports of the product concerned. In accordance with Article 17(2) of the basic Regulation, all known exporting producers concerned and the authorities of the country concerned were given the opportunity to comment on the selection of the sample. No comments were received.

1.6. Individual examination

(33) Six exporting producers in China, which requested individual examination under Article 17(3) of the basic Regulation, were invited to submit a questionnaire response. However, no exporting producer submitted a completed questionnaire within the deadline. Therefore, no individual examination request could be examined.

1.7. Questionnaire replies and verification visits

(34) The Commission sent a questionnaire concerning the existence of significant distortions in China within the meaning of Article 2(6a)(b) of the basic Regulation to the Government of the People’s Republic of China (‘GOC’). It also sent to the GOC a questionnaire concerning raw material distortions within the meaning of Article 7(2a) and (2b) of the basic Regulation.

(35) The Commission sent questionnaires to the sampled Union producers, selected importers, users and sampled exporting producers. The same questionnaires had also been made available online (4) on the day of initiation.

(36) The Commission received questionnaire replies from three sampled Union producers, six non-sampled Union producers (macro questionnaire), one unrelated importer, nine users and three exporting producers.

(37) 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. The Commission instead cross-checked remotely all the information deemed necessary for its provisional determinations in line with its Notice on the consequences of the COVID-19 outbreak on anti-dumping and anti-subsidy investigations (5). The Commission carried out remote crosschecks (‘RCC’) of the following companies/parties: Union producers — Carcano Antonio Spa, (“Carcano”), Italy — Eurofoil Luxembourg S.A. (“Eurofoil”), Luxembourg — Hydro Aluminium Rolled Products GmbH (“Hydro”), Germany Exporting producers in China — Jiangsu Zhongji Lamination Materials Co., Ltd (“Zhongji”) — Yantai Donghai Aluminum Foil Co., Ltd (“Donghai”) — Xiamen Xiashun Aluminium Foil Co., Ltd (“Xiamen”)

1.8. Investigation period and period considered

(38) The investigation of dumping and injury covered the period from 1 July 2019 to 30 June 2020 (‘the investigation period’ or ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2017 to the end of the investigation period (‘the period considered’).

1.9. Withdrawal of the United Kingdom from the EU

(39) This case was initiated during the transition period following the withdrawal of the United Kingdom (‘UK’) from the EU. During this transition period, the UK remained subject to Union law. The transition period ended on 31 December 2020. Consequently, as of 1 January 2021, companies and associations located in the UK no longer qualified as interested parties in this proceeding. In conclusion, as the UK is no longer subject to the Union law, the findings on dumping and injury are based on the EU-27 market data.

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. Product concerned

(40) The product subject to this investigation is aluminium converter foil (‘ACF’) of a thickness of less than 0,021 mm, not backed, not further worked than rolled, in rolls of a weight exceeding 10 kg originating in the People’s Republic of China currently classified under CN code ex 7607 11 19 (TARIC codes 7607111960 and 7607111991) (‘the product concerned’). The CN and TARIC codes are given for information only. The following products are excluded: — Aluminium household foil of a thickness of not less than 0,008 mm and not more than 0,018 mm, not backed, not further worked than rolled, in rolls of a width not exceeding 650 mm and of a weight exceeding 10 kg. — Aluminium household foil of a thickness of not less than 0,007 mm and less than 0,008 mm, regardless of the width of the rolls, whether or not annealed. — Aluminium household foil of a thickness of not less than 0,008 mm and not more than 0,018 mm and in rolls of a width exceeding 650 mm, whether or not annealed. — Aluminium household foil of a thickness of more than 0,018 mm and less than 0,021 mm, regardless of the width of the rolls, whether or not annealed.

(41) ACF is supplied in jumbo reels and then processed on a converter (laminated, coated, lacquered, extruded (printed) formatted). Following conversion, ACF is used in a wide variety of applications including food, pharma, cosmetic and tobacco packaging as well as in building materials.

(42) ACF is manufactured by first rolling heated ingots (hot rolling) down to coils of thickness between 2 and 4 mm. The coils are then successively cold rolled to the required foil thicknesses. A second possible foil rolling method, continuous casting, bypasses the ingot stage and converts molten metal directly into a thick strip, which is immediately rolled into the coil from which the foil is then rolled.

2.2. Like product

(43) The investigation showed that the following products have the same basic physical, chemical and technical characteristics as well as the same basic uses: — the product concerned; — the product produced and sold on the domestic market of the PRC; and — 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.

2.3. Claims regarding product scope

(45) Several parties submitted product exclusion requests concerning the following products: ACF of gauge below 6 microns (‘ACF<6’) and ACF for electric car batteries (‘car battery ACF’).

2.3.1. ACF of gauge below 6 microns

(46) Several users, Walki, Gascogne and Alupol, claimed that Union producers do not offer ACF<6. This is allegedly evidenced by the fact that Union producers do not promote such products on their webpages, in their brochures and by their refusal of orders of such products. Neither are the Union producers interested in offering ACF<6, since their production capacity is filled with other product orders, taking into account also the expected demand for automotive battery foil. Union producers are not in a position to provide the requested “commercial” quality, especially regarding porosity/permeability, measured in maximum pinholes per square meters. The use of thinner ACF is furthermore more environmentally friendly and should also for this reason be excluded from the scope.

(47) In addition, users Tetrapak and Huhtamäki argued that the Union industry has supply constraints for thinner ACF.

(48) The Commission has requested all nine users that cooperate with the investigation to specify their current demand for and sources of ACF<6. Only one user confirmed to have purchased during the IP an amount of ACF<6 that surpassed the quality threshold for commercial production, from a single Chinese producer. However, even for this user ACF<6 represents a very small part of its ACF consumption. Other users only indicated requests from their respective customers for products that included ACF<6, which have triggered trial orders both to the Union ACF industry and to Chinese producers post IP.

(49) The replies indicated that the demand for ACF<6 has only very recently started and is in an increasing trend. As mentioned in recital (50) there was some limited demand for it over the past ten years, but no clear pattern. This is in line with explanations from the Union producers that in the past there was also a gradual movement into thinner gauges of ACF, from the 7-8 microns range being the lower range in the past into 6 and 6,35 microns becoming the current standard for many applications.

(50) While a survey amongst the Union producers has shown that, apart from direct negotiations, none of them currently actively markets ACF<6, the Commission has collected ample evidence that the Union producers are capable to produce ACF<6. This includes test roll production post IP, which according to testing documentation met the purchaser’s technical demands. Furthermore, the Commission could confirm sales of ACF<6 of various Union producers in commercial production quantities, even if on a limited scale, over a period of ten years prior to the IP. The Commission could also observe investments in quality control. The Commission therefore concluded that the Union industry can provide quality to fit the market demand.

(51) Second, the capacity to produce ACF<6 is limited by the last step i.e. the rolling mills. Therefore, the Commission has analysed the capacity of various Union producers in this last step, also taking into account the demand for other products in the various production steps. All sampled Union producers have sufficient free capacity to enable them to provide ACF<6, even if demand for car battery foil increases in the future. The Commission could therefore not confirm the risk of a supply shortage for a future increase in ACF<6 demand.

(52) Third, regarding the argument that the use of thinner ACF is more environmentally friendly, the Commission recalled that the intended effect of trade defence measures in the form of duties is not to prevent imports of a given product but to ensure that those imports are traded at non-injurious prices. The Commission also recalled the capability of the Union producers to manufacture ACF<6 as described in recital (50) above.

(53) Finally, as to the argument of Tetrapak and Huhtamäki concerning the supply constraint, the investigation revealed that the production capacity of the Union industry of ACF<6 is considerably greater than the demand.

(54) In view of the above considerations, the Commission provisionally rejected the request for exclusion of ACF<6 from the product scope of the product under investigation.

2.3.2. ACF for car batteries

(55) One interested party, Xiamen, requested the exclusion of aluminium car battery foil on the following grounds: — Aluminium car battery foil is a very different product with a different usage, as it uses the 1050 / 1060 / 1100 / 3003 alloys while the major alloys to produce ACF for packaging are 8079 / 8011 alloys; — the production equipment and processes is different, resulting in two bright surfaces as opposed to the dull/bright surface of other ACF. This also leads to different cost of production and sales prices; — it is not manufactured by the Union producers; and — it is currently not exported to the EU.

(56) In response, the Commission first noted that all the alloys named by the interested party share the same characteristic in that they all contain more than 98 % of aluminum and the complaint is not limited to a specific alloy. The use of different alloys for different product variations is not unusual and cannot serve as an exclusion criteria.

(57) Second, the bright/dull surface is a consequence of rolling two layers of ACF together in the last rolling mill, where the sides of ACF facing each other during the rolling turn out dull. This production method was covered by the complaint, which explicitly stated that both surfaces of ACF can be bright if specified by the customer (6). The intended use of ACF for car batteries cannot therefore justify any exclusion from the product scope as the physical characteristics of the product are the same. The same applies to the higher cost due to single layer rolling.

(58) Third, the car battery production in the Union is still in its starting phase. The Commission collected evidence demonstrating that the Union producers are preparing to meet the demand of this emerging market segment. Furthermore, the argument runs counter to the claim made by Walki related to the exclusion of ACF<6, that the Union industry might focus so much on car battery foil that they would potentially not be interested in dedicating sufficient production capacity to ACF<6.

(59) Fourth, the fact that currently there are no major exports from the PRC reflects the fact that the electric car battery production in the EU is still in its infancy, and this is thus not a viable argument for an exclusion.

(60) The analysis has shown that ACF for electric car batteries is technically ACF included in the defined scope of the investigation.

(61) In view of the above considerations, the Commission provisionally rejected the request for exclusion of ACF for electric car batteries from the product scope of the product under investigation.

3. DUMPING

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

(62) The evidence available at the initiation of the investigation pointed to the existence of significant distortions in the PRC within the meaning of Article 2(6a), point (b) of the basic Regulation. The Commission therefore considered it appropriate to initiate the investigation having regard to Article 2(6a) of the basic Regulation.

(63) In order to collect the necessary data for a possible application of Article 2(6a) of the basic Regulation the Commission invited all exporting producers in the country concerned to provide information regarding the inputs used for producing ACF. Seven exporting producers submitted the relevant information.

(64) In addition, the Commission invited all interested parties to make their views known, submit information and provide supporting evidence regarding 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.

(65) In point 5.3.2 of the Notice of Initiation the Commission informed interested parties that based on the information available at that stage possible appropriate representative countries pursuant to Article 2(6a)(a) of the basic Regulation could be Turkey and Brazil. The Commission also stated that it would examine other possibly appropriate representative countries in accordance with the criteria set out in 2(6a)(a) first indent of the basic Regulation.

(66) On 25 November 2020, the Commission issued a First note on the sources for the determination of the normal value (the ‘First Note’) by which it informed interested parties on the relevant sources it intended to use for the determination of the normal value. In that note, the Commission provided a list of all factors of production such as raw materials, labour and energy used in the production of ACF. In addition, the Commission identified Brazil, Russia and Turkey as possible appropriate representative countries. The Commission gave all interested parties opportunity to comment. The Commission received comments from all sampled exporting producers.

(67) On 17 March 2021, and after having analysed the comments received, the Commission issued the Second note on the sources for the determination of the normal value (the ‘Second Note’) (the First Note and Second Note are collectively referred to as the “Notes”). In the Second Note, the Commission updated the list of factors of production and informed interested parties of its intention to use Turkey as the representative country under Article 2(6a)(a), first indent of the basic Regulation. It also informed interested parties that it would establish selling, general and administrative costs ('SG&A') and profits based on publicly available financial statements of aluminium extrusion producers in Turkey. The Commission invited interested parties to comment. Comments were received from all sampled exporting producers.

(68) After having analysed the comments and information received on the Second Note, the Commission provisionally concluded that Turkey was an appropriate choice as representative country from which undistorted prices and costs would be sourced for the determination of the normal value. The underlying reasons for that choice are further described in detail in Section 3.4 below.

3.2. Application of Article 18 of the basic Regulation

(69) Upon initiation of the investigation on the basis of Article 2(6a)(a) of the basic Regulation, the Commission sent two questionnaires concerning the existence of distortions to the GOC. The GOC however did not submit any replies. The Commission informed the GOC by Note Verbale on 8 December 2020 that it intended to make use of the provision of Article 18 of the basic Regulation with regard to the possible existence of significant distortions on the Chinese domestic market for aluminium converter foil within the meaning of Article 2(6a) of the basic Regulation, and the possible existence of raw material distortions within the meaning of Article 7(2a) of the basic Regulation. The Commission invited the GOC to submit its comment on the application of Article 18. No comments were received.

3.3. Normal value

(70) 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”.

(71) However, according to Article 2(6a)(a) of the basic Regulation, “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” (“administrative, selling and general costs” is referred hereinafter as ‘SG&A’).

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

3.3.1. Existence of significant distortions

3.3.1.1. Introduction

(73) 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 given, 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.

(74) As the list in Article 2(6a)(b) 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.

(75) 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’.

(76) Pursuant to this provision, the Commission has issued a country report concerning the PRC (hereinafter ‘the Report’) (7), 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.

(77) The complaint contained information on additional studies and reports analysing the situation of the aluminium industry in the PRC. First, the complainant listed the OECD paper titled “Measuring distortions in international markets – The aluminium value chain” (“OECD Study”) (8), which closely analyses the issue of financial subsidies granted to companies in the aluminium industry. As noted by the complainants, based on the OECD Study, the Chinese 2016-20 Non-ferrous Metal Industry Development Plan among others calls for safeguard measures via the extension of financial and tax support, including company bail-outs or help with non-performing loans. Second, the complainants referred to a report prepared for WVMetalle, the German nonferrous metals industry association, dated 24 April 2017 (9) ("WV Metalle Report"), which supports the findings made in the Report as well as in the OECD Study. Moreover, the complainants pointed out that in a recent expiry review regarding anti-dumping duties on imports of certain aluminium foil in rolls originating in China (10), the Commission confirmed the existence of significant distortions in the price of aluminium and maintained that this finding was not limited to the product concerned in that particular investigation, but also extended to ACF, using the same input material and having identical manufacturing processes. Lastly, the complainants refer to an anti-subsidy investigation by the United States Department of Commerce ("DOC") on Chinese aluminium foil, concluded in 2018 (11), which established the existence of Chinese government support for the Chinese aluminium foil industry and subsidisation of primary aluminium.

(78) As indicated in recital (69), 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. Comments received in this respect from a number of interested parties are addressed in Section 3.3.1.11 below.

(79) The Commission examined whether it was appropriate or not to use domestic prices and costs in the PRC, 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 the PRC’s economy in general, but also the specific market situation in the relevant sector including the product concerned. The Commission further supplemented these evidentiary elements with its own research on the various criteria relevant to confirm the existence of significant distortions in the PRC.

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

(80) 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 the PRC. 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’ (12). 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 emphasized 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 (13).

(81) 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.’ (14). This illustrates the unquestioned and ever growing control of the CCP over the economic system of the PRC. 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.

(82) 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 (15). 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.

(83) 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 3.3.1.5 below) (16).

(84) Second, on the level of allocation of financial resources, the financial system of the PRC 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 3.3.1.8 below) (17). 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 maximizing the efficient functioning of the financial markets but towards ensuring control and allowing intervention by the State and the CCP (18).

(85) 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 (19). 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 (20).

(86) 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 (21).

3.3.1.3. 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

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

(88) 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 3.3.1.4), as well as through shaping the corporate structure of the SOE sector (22). 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 (23). The elements that point to the existence of government control over enterprises in the aluminium sector are further developed in Section 3.3.1.5 below.

(89) The OECD Study, submitted as evidence by the complainant, refers to SOEs in the aluminium sector which specifically emphasize 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 sustained 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 (24).

(90) The PRC is the largest aluminium producer in the world, with several large SOEs amongst the top individual producers worldwide. The WV Metalle Report points out that SOEs account for a dominant share of the domestic market (25) which is confirmed by other estimates according to which SOEs account for more than 50 % of the total primary aluminium output in the PRC (26). While an increase in capacity in recent years is attributed partly to privately owned companies, such capacity increases would usually also entail various forms of (local) government involvement, such as tolerating illegal capacity expansion (27). Moreover, the aluminium production capacity amongst the main SOEs has also increased, though to a lesser extent (28).

(91) Apart from controlling the SOEs, the GOC is also influencing the privately owned companies in the PRC. During the investigation, it was established that the ACF producers received subsidies from the government. For example, all sampled companies listed a number of governmental subsidies in the companies’ annual reports. The granting of all these subsidies also shows the substantial government intervention in the market.

(92) With a high level of government intervention in the aluminium industry and a high share of SOEs in the sector, even privately owned aluminium producers operating in the ACF segment 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 3.3.1.5 below.

3.3.1.4. 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

(93) 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 the Chinese 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.

(94) In addition, on 15 September 2020 a document titled “General Office of CCP Central Committee’s Guidelines on stepping up the United Front work in the private sector for the new era” (33) was released, which further expanded the role of the party committees in private enterprises. According to the guidelines, Section II.4: “We must raise the Party’s overall capacity to lead private-sector United Front work and effectively step up the work in this area”; and Section III.6: “We must further step up Party building in private enterprises and enable the Party cells to play their role effectively as a fortress and enable Party members to play their parts as vanguards and pioneers.” By this document, the party emphasised the role of the private enterprises in the “United Front work” in an effort to increase the role of the CCP in non-party organisations and entities (34).

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

(96) As found by the Commission in another investigation on certain aluminium foil in rolls originating in China (35), 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.’ (36). Furthermore, in their 2017 Annual Report (37), 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.

(97) With regard to the enterprises active in manufacturing of ACF products, Xiamen explains the party building exercises in the following way: “Xiashun actively promotes party building and labour union work, and remains committed to the system of joint meetings between Party, government and workers over the years, providing an important platform for employees to participate in decision-making, protect their rights and interests, and build a harmonious atmosphere.” (38).

(98) The State’s presence and intervention in the financial markets (see also section 3.3.1.8 below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the market (39). 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.

3.3.1.5. 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

(99) 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 the PRC 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 (40).

(100) 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 products.

(101) In line with the Commission’s findings in the case on certain aluminium foil in rolls originating in China (41), in the case of aluminium extrusions (42) and in the case on aluminium flat-rolled products (provisional measures) (43), the following facts are equally applicable to the present product concerned, which is, similarly, an aluminium downstream product.

(102) Although the 13th Five Year Plan on Economic and Social Development (44), covering the investigation period, 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).

(103) 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.

(104) 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 SOEs’ vitality. It further provides for the possibility of stockpiling non-ferrous metals, improving the security of resources, including aluminium and it sets specific quantitative targets for reducing power consumption, increasing the ratio of recycled aluminium in production and increasing capacity utilisation (47).

(105) 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).

(106) 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, restructuring, raw material sourcing, export tax policy, security of resources, stockpiling, technological innovation, financial policy and planning and implementation (49).

(107) Another policy document targeting the aluminium sector are 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).

(108) 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: ‘optimize the non-ferrous metal industry structure; Basically balance supply and demand of key product categories; Maintain the utilization 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 aims to ‘strictly control new production capacity.’ To achieve this, it is necessary 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.

(109) 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 (where Donghai, a major ACF producer, is established) 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 aims 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).’

(110) The State has been intervening in 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 National Development and Reform Commission in April 2006. The latter regarded aluminium as a fundamental product in the development of the national economy. The 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 3.3.1.8 below); organisation of the industry; strict control of exports of electrolytic aluminium; and elimination of outdated capacity.

(111) Moreover, the price of key inputs such as energy and electricity are also influenced by different types of government intervention (56). Notably, 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.’ (57). 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.’ (58).

(112) As another example of State interference, at the provincial level, in the Shandong Province Government’s Notice on the implementation plan for accelerating the high-quality development of the seven energy-intensive industries (see recital (109)), 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’ (59).

(113) 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: ‘Adhere to the party's line, principles and policies, and have good political qualities’ (60).

(114) 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 other conditions: ‘Adhere to the party's line, principles and policies, and have good political qualities’ (61).

(115) 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 (62). Through these and other instruments, the government directs and controls virtually every aspect of the development and functioning of the sector.

(116) 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.

(117) 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 (63).

(118) 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) (64). In addition, several trade defence investigations have established that the Chinese government has consistently granted different types of State support measures to aluminium producers (65). The extensive intervention of the GOC in the aluminium sector has led to overcapacity (66), which is arguably the clearest illustration of the implications of the GOC's policies and the resulting distortions.

(119) 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 (67). 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 (68).

(120) 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 ACF products. Such measures impede market forces from operating freely.

3.3.1.6. 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

(121) 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 (69).

(122) In addition, the shortcomings of the system of property rights are particularly obvious in relation to ownership of land and land-use rights in the PRC (70). 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 (71). Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land (72).

(123) Much like other sectors in the Chinese economy, producers of ACF products 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. As such, the Commission concluded that the Chinese bankruptcy and property laws do not work properly, thus generating distortions when maintaining insolvent firms afloat and when allocating land use rights in the PRC. Those considerations, on the basis of the evidence available, appear to be fully applicable also in the ACF products sector.

(124) This finding is supported by the provisional affirmative determination of the DOC in the 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 (73).

(125) 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.

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

(126) A system of market-based wages cannot fully develop in the PRC as workers and employers are impeded in their rights to collective organisation. China has not ratified a number of fundamental conventions of the International Labour Organisation (‘ILO’), in particular those on freedom of association and on collective bargaining (74). 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 (75). 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 (76). Those findings lead to the distortion of wage costs in the PRC.

(127) No relevant evidence was submitted to the effect that the aluminium sector, including the producers of ACF products, 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 materials for its production) as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in the PRC).

3.3.1.8. 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

(128) Access to capital for corporate actors in the PRC is subject to various distortions.

(129) Firstly, the Chinese financial system is characterised by the strong position of State-owned banks (77), 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) (78) 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 (79). This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (80).

(130) 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.

(131) For example, the GOC has very recently clarified that even private commercial banking decisions must be overseen by the CCP and remain in line with national policies. One of the State’s three overarching goals in relation to banking governance is now to strengthen the Party’s leadership in the banking and insurance sector, including in relation to operational and management issues in companies (81). Also, the performance evaluation criteria of commercial banks have now to, notably, take into account how entities ‘serve the national development objectives and the real economy’, and in particular how they ‘serve strategic and emerging industries’ (82).

(132) 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 (83).

(133) This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (84). 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.

(134) In this respect, the OECD Study refers to anecdotal evidence that certain aluminium producers in the PRC 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 (85).

(135) 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 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.

(136) 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 at least one-third of all lending as of the end of 2018 (86). Official media in the PRC have recently reported that the CCP called for ‘guiding the loan market interest rate downwards.’ (87). Artificially low interest rates result in under-pricing, and consequently, the excessive utilization of capital.

(137) Overall credit growth in the PRC 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.

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

(139) No evidence was submitted to the effect that the aluminium sector, including the producers of ACF products, 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.

3.3.1.9. Systemic nature of the distortions described

(140) 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 3.3.1.1-3.3.1.5 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 3.3.1.6-3.3.1.8 above.

(141) The Commission recalls that in order to produce ACF products, a range of inputs are needed. There is no evidence in the investigation file that those inputs are not sourced in the PRC. When the producers of ACF products purchase/contract these inputs, the prices they pay (and which are recorded as their costs) are clearly 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.

(142) As a consequence, not only the domestic sales prices of ACF products 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 the PRC. This means, for instance, that an input that in itself was produced in the PRC 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. The arguments and evidence adduced by the exporting producers in this regard are addressed in the next section.

3.3.1.10. Conclusion

(143) The preceding analysis, which includes an examination of all the available evidence relating to public interventions in the Chinese 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.

3.3.1.11. Comments by interested parties

(144) Xiamen claimed in response to the Second Note that there is no need for recourse to benchmarks, if the factors of production are sourced by Xiamen at arm’s length. In particular, Xiamen argued that benchmark prices and the prices settled by Xiamen for ingots and slabs were comparable, which appears to rebut allegations of material distortions. Furthermore, Zhongji argued that it purchased the raw materials and energy on a commercial basis at arm’s length.

(145) The Commission noted that once it is determined that due to the existence of significant distortions in the exporting country in accordance with Article 2(6a)(b) of the basic Regulation it is not appropriate to use domestic prices and costs in the exporting country, the normal value is constructed by reference to undistorted prices or benchmarks in an appropriate representative country for each exporting producer according to Article 2(6a)(a) of the basic Regulation. The same provision of the basic Regulation allows for the use of domestic costs if they are positively established not to be distorted, based on accurate and appropriate evidence. However, in the present case, Xiamen as well as Zhongji failed to produce any such accurate and appropriate evidence. Similar price levels of certain raw materials in the exporting country and the representative country are in itself not indicative of the absence of significant distortions under Article 2(6a) of the basic Regulation, because prices may happen to fluctuate and be aligned over a certain period for a number of other reasons. On the contrary, there is a host of other factors contributing to the finding of significant distortions as evidenced in sections 3.3.1.2 to 3.3.1.9. Consequently, a mere reference to comparability of domestic prices of certain raw materials with benchmark values in the representative country cannot satisfy the condition of adducing accurate and appropriate evidence. Therefore, Xiamen’s and Zhongji’s claims had to be rejected.

(146) Furthermore, in its comments on initiation, Xiamen, firstly alleged that Article 2(6a) is inconsistent with the WTO Anti-Dumping Agreement (‘ADA’). This is because, first, Article 2.2 ADA recognizes three scenarios, which allow for the normal value construction: (i) sales are not made in the ordinary course of trade; (ii) there is a particular market situation; or (iii) because of the low volume of sales on the domestic market, such sales are not representative. Xiamen submitted that significant distortions meet none of the three criteria. It further submitted that even if the concept of significant distortions could possibly be considered to fall under the second of the above criteria, the Panel in WTO DS529 Australia – Anti-Dumping Measures on A4 Copy Paper confirmed that the fact that the domestic price of the product concerned and its inputs are affected by governmental distortions was not enough to consider that the proper comparison between domestic market sales and export sales is affected ‘because of the particular market situation’. In addition, Xiamen commented that the Commission applied the construction of normal value systematically, while it should be checking on a case by case basis if the conditions of Article 2.2 ADA are met. Xiamen further submitted that Article 2.2 ADA requires that the construction of the normal value must reflect ‘a cost in the country of origin’, as confirmed in the cases WTO DS529 Australia – Anti-Dumping Measures on A4 Copy Paper and WTO DS473 European Union – Anti-Dumping Measures on Biodiesel from Argentina. Furthermore, Xiamen argued that the normal value should be constructed in accordance with the requirements of Article 2.2.1.1 ADA, and it added that the findings in the above mentioned report DS473 and in case WTO DS427 China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States required the investigating authorities to take into account the recorded costs of the exporting producers unless they are not in accordance with the generally accepted accounting principles or do not reasonably reflect the costs associated with the production and sale of the product under consideration. Even if the recorded costs satisfied those two conditions, Article 2(6a) of the basic Regulation is according to Xiamen inconsistent with Article 2.2.1.1 WTO ADA because the costs of the exporting producer are disregarded systematically.

(147) The Commission considered that the provisions of Article 2(6a) of the basic Regulation are fully consistent with the European Union’s WTO obligations. As explicitly clarified by the WTO Appellate Body in DS473 European Union – Anti-Dumping Measures on Biodiesel from Argentina, WTO law permits the use of data from a third country, duly adjusted when such adjustment is necessary and substantiated. The Commission recalled that the cases DS529 Australia – Anti-Dumping Measures on A4 Copy Paper and DS427 China – Broiler Products did not concern the interpretation of Article 2(6a) of the basic Regulation and the conditions for its application. Furthermore, the underlying factual situations in those cases was different from the underlying situation and criteria giving rise to the application of the methodology under this provision of the basic Regulation, which concerns the existence of significant distortions in the exporting country. Under Article 2(6a) it is only when significant distortions are found to be present and to affect costs and prices that normal value is constructed by reference to undistorted costs and prices sourced in a representative country or by reference to an international benchmark. In any event, Article 2(6a) second subparagraph, third indent of the basic Regulation provides for the possibility to use domestic costs to the extent they are established not to be distorted. The Commission therefore rejected these claims.

(148) Second, Xiamen submitted that Article 2(6a) of the basic Regulation is inconsistent with Article 2.2.2 ADA. It further submitted that the Appellate Body in DS219 EC – Tube or Pipe Fittings confirmed that the investigating authority is obliged to use the actual SG&A and profit of the exporting producers, as long as such data exists. Xiamen therefore submitted that the Article 2(6a) of the basic Regulation was incompatible with Article 2.2.2 ADA.

(149) The Commission noted that once it is determined that due to the existence significant distortions in the exporting country in accordance with Article 2(6a)(b) of the basic Regulation it is not appropriate to use domestic prices and costs in the exporting country, the normal value is constructed by reference to undistorted prices or benchmarks in an appropriate representative country for each exporting producer according to Article 2(6a)(a) of the basic Regulation. As explained above in recital (147), the same provision of the basic Regulation also allows the use of domestic costs if they are positively established not to be distorted. In that context, the exporting producers had the possibility to provide evidence that their individual SG&A costs and/or other input costs were actually undistorted. However, as evidenced in Sections 3.3.1.2 to 3.3.1.9, the Commission established the existence of distortions in the Chinese aluminium industry and there was no positive evidence as to the factors of production of individual exporting producers being undistorted. Therefore, these claims were rejected.

(150) Third, Xiamen submitted that according to the provisions of Article 2(6a) of the basic Regulation, the Commission may use domestic costs, and that it is obliged to conduct a company-specific and cost-specific analysis in this respect. Therefore, there should have been a specific analysis of Xiamen based on the questionnaire it submitted.

(151) The Commission noted that 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. If the existence of significant distortions is established, then the provisions of Article 2(6a) apply, a priori, to all exporting producers in the PRC and concern all costs relating to their factors of production. In any event, the same provision of the basic Regulation provides for the use of domestic costs which are positively established not to be affected by significant distortions. If this is the case with regard to one or more exporting producers, then Article 2(6a) third subparagraph requires a separate assessment of these claims for each exporter and producer individually, without prejudice to the sampling provisions.

(152) The calculations concerning Xiamen’s anti-dumping rate reflect the data submitted by the company itself, calculated in accordance with the provisions of the basic Regulation, in particular Article 2(6a). There was no evidence that Xiamen’s domestic prices and costs were not distorted by the pervasive distortions established on the basis of the evidence available, except for titanium boron aluminium rod as specified in recital (161). Therefore, the provisional margins of dumping reflect the specific situation of the company, including the factors of production and amounts as reported by the company in the questionnaire reply, but duly taking into account the existence and impact of significant distortions in the PRC. These claims were therefore rejected.

(153) With regard to the individual situation of the company, Xiamen submitted that the company was a privately owned company and that there was no evidence that it was subject to the same ownership, control or policy supervision and guidance by the Chinese authorities as an SOE and was not subject to policy supervision and guidance through State presence interfering with respect to prices and costs. It thus claimed that it did not ‘operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country’ as referred to in Article 2(6a)(b), first indent, of the basic Regulation.

(154) The Commission reiterated that once the significant distortions are established, the methodology under Article 2(6a) of the basic Regulation applies country-wide unless it is positively established that certain costs are not affected by distortions. Xiamen did not provide any such evidence, but only generic arguments concerning certain criteria listed in Article 2(6a)(b) of the basic Regulation on the existence of significant distortions in the exporting country as a whole and not linked to their specific costs being undistorted. The claim by Xiamen to be independent from State control cannot call into question the substantial body of evidence and the conclusions in Sections 3.3.1.3 to 3.3.1.5 which show the extent and pervasiveness of the influence of the government and of the CCP in the Chinese economy, including in the aluminium sector. Moreover, as indicated in Section 3.3.1.8, the government disposes of a vast number of instruments and financial incentives to steer the companies, including the privately owned ones, to follow its guidance. As described in the same section, financial institutions, including the private ones have incentives to facilitate access to finance for projects in line with the governmental plans, which has a substantial impact on the privately owned companies which need to comply with the governmental directives to ensure financial liquidity. Therefore, the argument of Xiamen that it is free from any government influence, including ownership, control or policy supervision and guidance by Chinese authorities, should be rejected.

(155) More specifically, the Commission noted that Xiamen is formally recognised as: a National Level Key High-Tech Enterprise by the State Council; Fujian Province’s Backbone Enterprise for Strategic and Emerging Industries by the Fujian Province Economic and IT Commission; a Fujian Province Innovative Enterprise by the Fujian Province Science and Technology Bureau, the Fujian Province Economic and IT Commission, the Fujian Provincial Federation of Trade Unions and by the Fujian Province People’s Government State-owned Asset Supervision and Administration Commission (88). In order to receive these formal recognitions, the company must have fulfilled the relevant eligibility requirements, which include, among others, following the official line of the GOC and complying with the official governmental strategies and policies. This is also necessary to be able to retain such recognitions and further benefit from the direct or indirect governmental support attached to them. As an example, some of the specific policies, objectives and benefits linked to the recognition as Strategic and Emerging Industries backbone enterprises in Fujian province, a title held by Xiamen, include: ‘Involve backbone enterprises as leaders and examples, foster the leapfrog scientific development of strategic emerging industries in Fujian, and achieve the goals and tasks set in the “Implementation Plan for Accelerating the Development of Strategic Emerging Industries in the Fujian Province”’; ‘Support Fujian’s various types of venture capital funds for strategic emerging industries to carry out equity investment to develop key projects of backbone enterprises’; ‘Encourage and support the provincial strategic emerging industries backbone enterprises to go public for financing and to issue corporate bonds, short-term financing bills, etc., and provide relevant support and services for corporate financing’; ‘Together with economic and trade departments of districts, cities, of Pingtan Comprehensive Experimental Zone and with provincial group (holding) companies, the Provincial Economic and Trade Committee has established a working and contact system with emerging industry backbone enterprises to help coordinate and solve the difficulties and problems encountered in the development of enterprises, and to ensure monitoring and analysis the development of backbone enterprises’ (89). The Commission thus did not accept the company specific defence that Xiamen would be free from control or policy supervision or guidance of the authorities of the PRC.

(156) Furthermore, Xiamen submitted that it was a wholly owned foreign enterprise (a ‘WOFE’) and subject to Chinese laws. Its shareholder was Daching Enterprises Limited, a company incorporated in Hong Kong. It further submitted that its financial statements were audited under the international accounting standards as it is part of an international group and that it was formed based on the Foreign Trade Law of the People’s Republic of China, the Foreign Investment Law of the People’s Republic of China, the Company Law of the People’s Republic of China and was subject to the Enterprise Bankruptcy Law of the People’s Republic of China. Pursuant to those laws, it was protected by the bankruptcy law and its capital could be freely remitted inward or outward in accordance with the law. It further argued that its financial statements were audited under the international accounting standards, by Ernst & Young and if its fi