COMMISSION IMPLEMENTING REGULATION (EU) 2020/492

of 1 April 2020

imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt

THE EUROPEAN COMMISSION,

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

Having regard to Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (1) (‘the basic Regulation), and in particular Article 9(4) thereof,

Whereas:

1. PROCEDURE

1.1. Initiation

(1) On 21 February 2019, the European Commission initiated an anti-dumping investigation with regard to imports into the Union of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People’s Republic of China (‘the PRC’) and Egypt (together referred to as ‘the countries concerned’) pursuant to Article 5 of the basic Regulation. 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 8 January 2019 by Tech-Fab Europe (‘the complainant’) on behalf of producers representing more than 25 % of the total Union production of GFF. The complaint contained evidence of dumping and of resulting material injury that was sufficient to justify the initiation of the investigation.

(3) On 16 May 2019, the Commission initiated a separate anti-subsidy investigation with regard to imports into the Union of GFF originating in the PRC and Egypt and commenced a separate investigation. It published a Notice of Initiation in the Official Journal of the European Union (3).

1.2. Registration of imports

(4) On 31 July 2019, the complainant submitted a request for registration of imports of GFF originating in the countries concerned under Article 14(5) of the basic Regulation. The complainant argued that after the investigation period, imports of GFF increased substantially and there is stockpiling in the Union at a scale that threatens to undermine the remedial effect of potential anti-dumping measures.

(5) One exporting producer, one user and the China Chamber Of Commerce for Import & Export of Light Industrial Products & Arts-Crafts (‘CCCLA’) opposed the request for registration. Those parties argued that the request did not provide sufficient evidence as required by Article 14(5) of the basic Regulation. They further argued that import data from the PRC and Egypt should be analysed separately and that, in any event, the imports in question are not likely to seriously undermine the remedial effect of the definitive anti-dumping duty as the average unit price of imports had increased from 2018 to 2019.

(6) As explained in recitals (48) and (50), the Commission decided not to impose provisional measures in this case. Therefore, the request for registration became redundant and thus its further analysis, together with the analysis of the comments summarised in recital (5), became unnecessary.

1.3. Interested parties

(7) In the Notice of Initiation, the Commission invited interested parties to contact it in order to participate in the investigation. In addition, the Commission specifically informed the complainant, other known Union producers, the known exporting producers and the Chinese and Egyptian authorities, known importers and users about the initiation of the investigation and invited them to participate.

(8) Interested parties had the 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.

(9) The intervention of the Hearing Officer was requested by Zhejiang Hengshi Fiberglass Fabrics Co. Ltd. The hearing took place on 28 October 2019. The agenda of the hearing was the proposed application of Article 18 of the basic Regulation to that company. The Commission analysed the points raised and addressed them in the final disclosure. There were no specific follow up actions recommended by the Hearing Officer.

(10) As mentioned in recital (48), the Commission clarified the product scope during the investigation and gave interested parties concerned by the clarification, or who might not have made themselves known because they believed they were not concerned by the proceeding, the opportunity to make themselves known and request a questionnaire within a time limit. No additional parties came forward.

1.4. Sampling

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

1.4.1. Sampling of Union producers

(12) In the Notice of Initiation, the Commission stated that it had decided to limit the investigation to a reasonable number of Union producers by applying sampling. It added that it had provisionally selected a sample of Union producers based on the reported production volume of the like product in the Union between October 2017 and September 2018 and also taking into consideration the geographical spread. This sample consisted of three Union producers accounting for more than 40 % of the estimated total Union production of GFF. The Commission invited interested parties to comment on the provisional sample.

(13) Only one Union producer commented, suggesting the inclusion of a fourth company into the sample to enlarge the geographical representativeness, the production volume and product types covered.

(14) Striving to sample the largest representative production volume the Commission decided to enlarge the sample to four companies. The final sampled Union producers accounted for more than 40 % of the estimated total Union production of GFF. The sample is representative of the Union industry.

1.4.2. Sampling of importers

(15) 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.

(16) Only one unrelated importer (Euroresins UK Ltd.) provided the requested information and agreed to be included in the sample. In view of the low number, the Commission decided that sampling was not necessary.

1.4.3. Sampling of exporting producers in the PRC

(17) To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all known exporting producers in 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.

(18) Nine exporting producers or groups of exporting producers in the PRC provided the requested information and agreed to be included in the sample. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of two groups of exporting producers based on the largest representative volume of exports to the Union, which could reasonably be investigated within the time available. The sampled groups of exporting producers represented 79 % of the reported exports of GFF from the PRC to the Union during the investigation period.

(19) The sample of exporting producers or groups of exporting producers is the following: — China National Building Materials Group (‘CNBM group’), including — Jushi Group Co. Ltd (‘Jushi’); — Zhejiang Hengshi Fiberglass Fabrics Co. Ltd (‘Hengshi’); — Taishan Fiberglass Inc (‘Taishan’). — Yuntianhua Group (‘Yuntianhua group’), including: — PGTEX China Co. Ltd (‘PGTEX’), — Chongqing Tenways Material Corp. (‘CTM’).

(20) In accordance with Article 17(2) of the basic Regulation, all known exporting producers concerned, and the authorities of the PRC were consulted on the selection of the sample.

(21) Comments on the selection of the sample were received from one non-sampled exporting producer, one sampled exporting producer and the CCCLA.

(22) The non-sampled exporting producer claimed that both sampled groups of exporting producers have a vertically integrated production process, which was different from its own manufacturing process (not integrated) and, therefore, it considered that the sampled groups of exporting producers would not be representative for its own situation. Likewise, the CCCLA claimed that the two sampled groups of exporting producers were vertically integrated and, therefore, the sample was not representative of the Chinese glass fibre fabric industry that also included non-integrated producers.

(23) Pursuant Article 17(1) of the basic Regulation the selection of the sample should be based on the largest representative volume of production, sales or exports which can reasonably be investigated within the time available. As stated in recital (18), the sampled groups of exporting producers represented 79 % of the reported exports from the PRC to the Union during the investigation period and that was considered representative. In any event, the two sampled groups of exporting producers included both vertically integrated and non-integrated entities and the Commission’s analysis properly takes into account this element. In fact, the majority of the exports to the EU were made by non-integrated entities. Therefore, the claim was rejected.

(24) In addition, all non-sampled exporting producers had the opportunity to request individual examination under Article 17(3) of the basic Regulation. As stated in recital (39), none of the exporting producers requested individual examination.

(25) The CCCLA also claimed that by selecting only two groups of exporting producers, this risked materially affecting the outcome of the investigation in the sense of Article 17(4) of the basic Regulation, should one of the selected groups stop cooperating or decide to withdraw from the investigation.

(26) The CCCLA argued that under such scenario, the duty rate for the non-sampled cooperating Chinese exporting producers, if any, would be based on the duty established for the remaining sampled group and that the sample would no longer be representative. Therefore, the CCCLA asked the Commission to extend the sample by including one more exporting producer.

(27) As stated in recital (19), the sampled groups of exporting producers included five exporting producing entities. Furthermore, as stated in recital (18) the sample covered 79 % of the reported exports from the PRC to the Union and it was considered representative. Therefore, the Commission decided not to extend the sample as it would have prevented it to investigate all the entities within the time limits of the investigation. Nevertheless, as mentioned in recital (24) the cooperating non-sampled companies had the opportunity to request individual examination under Article 17(3) of the basic Regulation, but none of the exporting producers requested individual examination.

(28) Regarding CNBM group, while Jushi and Hengshi did not dispute the fact that they were related companies, they claimed that they were not related to Taishan. Jushi claimed that the Commission could not mechanically rely on Article 127(1)(d) or (f) of Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015 (4) (the ‘Customs Code Implementing Act’) to treat Hengshi, Jushi and Taishan as a single entity. In support of that claim, Jushi referred to the WTO Panel in Korea – Certain Paper (5) and the Guidelines for related transactions of listed companies of Shanghai Stock Exchange.

(29) Taishan also disputed the fact that it was related to Jushi and Hengshi arguing that (i) they did not directly own each other’s shares; (ii) they had no common direct shareholding; (iii) they had different decision-making processes and management institutions; (iv) there was no overlap in the members of their boards; (v) there were no related transactions between Hengshi/Jushi and Taishan; (vi) they were competitors on the market; and (vii) that they were geographically located far away from Jushi and Hengshi. Finally, Taishan claimed that in a similar situation in a previous anti-dumping investigation concerning imports of crystalline silicon photovoltaic modules and key components originating in the PRC (6), companies had not been treated as related.

(30) The investigation revealed that China National Building Materials (‘CNBM’) is a Chinese state-owned enterprise owned directly and indirectly as to 41,27 % by CNBM Parent, which is in turn wholly-owned by the State-owned Assets Supervision and Administration Commission of the State Council (‘SASAC’). CNBM owns 26,97 % stake in China Jushi Co., Ltd. (‘China Jushi’), which is the sole shareholder of Jushi Group (7).

(31) In September 2017, CNBM entered into a Merger Agreement (8) with Sinoma that was finalised in May 2018. Sinoma, through its subsidiary Sinoma Science & Technology Co., was the owner of Taishan. After the merger, Sinoma was merged into and absorbed by CNBM. As a consequence, CNBM holds 26,97 % stake in China Jushi (the sole shareholder of Jushi) and 60,24 % in Sinoma Science & Technology Co., Ltd. (sole shareholder of Taishan).

(32) Article 127(d) of the Customs Code Implementing Act establishes that two persons shall be deemed to be related if: a third party directly or indirectly owns, controls or holds 5 % or more of the outstanding voting stock or shares of both of them. CNBM holds 26,97 % stake in China Jushi (the sole shareholder of Jushi) and 60,24 % in Sinoma Science & Technology Co., Ltd. (sole shareholder of Taishan). Therefore, the companies were found to be related.

(33) Furthermore, according to a company report by the Chinese brokerage company Guotai Junan Securities from 2019 (9), CNBM has been reorganising its operating entities in order to enhance regional coordination and eliminate horizontal competition among listed subsidiaries since 2017. Furthermore, CNBM intends to resolve horizontal competition issues by 2020. According to the publicly available information in the report, CNBM planned to start this process by consolidating its glass fibre business by asset injections between China Jushi and Sinoma Science & Technology (Taishan’s sole shareholder). Thus, the evidence collected during the investigation does not support the companies’ argument that the common shareholding has no practical implication and that the companies operate independently. To the contrary, that evidence suggests that beyond the mere shareholding (which alone is determinant for the conclusion that the companies are related), the three companies are also able to significantly influence each other’s business decisions, and that their controlling company (CNBM) aims to at least coordinate, if not to integrate, their operations (‘resolve the horizontal competition issues’). Therefore, the Commission rejected the claim that its conclusion to consider the three companies as related disregarded factual and economic realities.

(34) In relation to the argument that the Commission could not treat Hengshi, Jushi and Taishan as a single group, Article 9(5) of the basic Regulation allows the Commission to establish a sole individual anti-dumping duty when corporate links between suppliers exist. This is to ensure that customs authorities can effectively enforce measures, avoiding that related companies channel their exports through the company with the lowest duty. In addition, Article 2(1) of the basic Regulation dealing with normal value states that, when determining whether two parties are related, the Commission may take account of Article 127 of the Customs Code Implementing Act. There is no reason why the Commission would apply different standards to exporting producers in the context of normal value and when establishing whether or not they are related for the purpose of Article 9(5) of the basic Regulation. Thus, the Commission consistently makes use of the criteria laid down in Article 127 of the Customs Code Implementing Act when applying Article 9(5) of the basic Regulation. This consistent practice was in addition communicated to all parties in the Notice of Initiation at the start of the proceeding. The WTO case (10) referred to by Jushi in recital (28) does not support the company’s claim. In fact, contrary to what Jushi and Hengshi try to infer, the WTO Panel in that case confirmed that, for the purpose of dumping determinations in anti-dumping investigations, the rule in Article 6.10 of the WTO Anti-Dumping Agreement (where a dumping margin should be calculated per exporting producer) did not necessarily preclude treating distinct legal entities as a single exporter or producer. The Panel noted that this treatment would be permitted ‘where the structural and commercial relationship between the companies in question is sufficiently close to be considered as a single exporter’ (11). Applying this consideration, the Panel did not establish the criteria that investigating authorities must apply to assess whether companies are related. The Panel merely looked into the specific elements (such as shareholding, board of directors, sales channels) which where before the investigating authority in that case. The Appellate Body in EC – Fasteners confirmed the possibility of treating a number of exporters as a single entity, listing also elements which may be relevant, such as (i) the existence of corporate and structural links between the exporters, such as common control, shareholding and management; (ii) the existence of corporate and structural links between the State and the exporters, such as common control, shareholding and management; and (iii) control or material influence by the State in respect of pricing and output (12). In that respect, from the legal and factual elements of this case, the existence of corporate links between Jushi, Hengshi and Taishan cannot be disputed. Therefore, the Commission can treat them as a single entity within the meaning of Article 9(5) of the basic Regulation.

(35) Regarding the claim made by Taishan that in a similar situation in a previous anti-dumping investigation (13) certain companies had not been treated as related, the Commission noted that there was no issues relating to relationship in the investigation indicated by Taishan. Thus, the Commission failed to see how that case would assist Taishan in its claim regarding its relationship to Jushi and Hengshi. In any event, the situation in this case was assessed based on its own merits, in light of the applicable legal framework.

(36) Based on the above, the Commission concluded that they were related companies for the purpose of this investigation and all claims in this regard were thus rejected.

(37) After receiving the General Disclosure Document on 19 December 2019 (‘the final disclosure’), Taishan claimed that the CNBM had only very limited control on the business and operation decisions of Jushi or Hengshi. They reiterated that Taishan and Hengshi/Jushi were competitors in the market and noted that they had previously submitted evidence in support of these claims as stated in recital (29). Furthermore, Taishan claimed that although it was related to Hengshi/Jushi through common state ownership, it had little interest to coordinate its exports activities with Hengshi/Jushi after the imposition of measures. Taishan offered a commitment that would effectively cut any commercial link between Taishan and Hengshi/Jushi and thus it would not allow the channelling of any exports of GFF to the Union from Hengshi/Jushi via Taishan. Therefore, there would be no need to impose a single anti-dumping duty on the whole group.

(38) As described in recital (33), the investigation revealed that through their common shareholders the three companies are able to significantly influence each other’s business decisions. The evidence on file showed that the companies are in the process of consolidating and coordinating glass fiber operations. No new information or evidence was provided that could invalidate these findings. In fact, Taishan did not contest the plans of its main shareholder to consolidate its glass fibre business. Such plans are in clear contradiction with any commitment to cut commercial links between Taishan and Hengshi/Jushi. Besides, and without taking a position on whether the Commission could accept such a commitment, the company is clearly not in the position to enter into any kind of commitment without the endorsement of its ultimate controllers. Therefore, Taishan’s claims and commitment request were rejected.

1.5. Individual examination

(39) Seven of the Chinese exporting producers that returned the sampling form informed the Commission of their intention to request individual examination under Article 17(3) of the basic Regulation. The Commission made the questionnaire available online on the day of the initiation. Moreover, the Commission informed the non-sampled exporting producers that they were required to provide a questionnaire reply if they wished to be examined individually. However, none of the companies provided a questionnaire reply.

1.6. Questionnaire replies and verification visits

(40) The Commission sent a questionnaire concerning the existence of significant distortions in the PRC within the meaning of Article 2(6a)(b) of the basic Regulation to the Government of the People’s Republic of China (‘GOC’). The questionnaires for the Union producers, importers, users, and exporting producers in the PRC and in Egypt were made available online (14) on the day of initiation.

(41) The Commission received questionnaire replies from the four sampled Union producers, five users, one unrelated importer, all sampled exporting producers in the PRC and two exporting producers in Egypt belonging to the same group (CNBM). The GOC did not reply to the questionnaire concerning the existence of significant distortions in the PRC.

(42) The Commission sought and verified all the information deemed necessary for a determination of dumping, resulting injury and Union interest. Verification visits pursuant to Article 16 of the basic Regulation were carried out at the premises of the following parties: Union producers — European Owens Corning Fiberglas, Sprl, Belgium (‘OC’); — Chomarat Textiles Industries S.A.S., France (‘Chomarat’); — Saertex GmbH & Co. KG, Germany (‘Saertex’); — Ahlstrom-Munksjö Glassfibre Oy, Finland (‘Ahlstrom’); Exporting producers in the PRC — China National Building Materials Group (‘CNBM group’); — Jushi Group Co. Ltd, Tongxiang; — Zhejiang Hengshi Fiberglass Fabrics Co. Ltd, Tongxiang; — Taishan Fiberglass Inc., Taian; — Yuntianhua Group (‘Yuntianhua group’): — PGTEX China Co. Ltd, Changzhou; — Chongqing Tenways Material Corp., Chongqing; Exporting producers in Egypt — Jushi Egypt for Fiberglass Industry S.A.E, Suez; — Hengshi Egypt Fiberglass Fabrics S.A.E., Suez; Traders related to the Chinese and Egyptian exporting producers located in Hong Kong — Huajin Capital Limited; — Jushi Group (HK) Sinosia Composite Materials Co., Ltd.; Traders related to the Chinese and Egyptian exporting producers located in the PRC — Jushi Group Hong Kong Co. Limited, Tongxiang; Traders/importers related to the exporting producers located in the Union — Jushi France SAS, St. Priest, France; — Jushi Italia SRL, Milano, Italy; — Jushi Spain, Madrid, S.A., Spain; Users — Siemens Gamesa Renewable Energy GmbH&Co KG, Denmark (‘SGRE’); — Vestas Wind Systems A/S, Denmark (‘Vestas’).

1.7. Non-cooperation

(43) Two Chinese sampled exporting producers (Jushi and Hengshi), part of the CNBM group, failed to cooperate with the investigation. For this reason, the Commission decided to base findings on facts available in accordance with Article 18(1) of the basic Regulation, as explained in details in Section 3.1. In addition, the Commission accepted information from a related trade part of the CNBM group (CNBM International Corporation (‘CNBM International’)), which partially provided the required information at a late stage, in accordance with Article 18(3) of the basic Regulation (see recitals (85)–(87)).

1.8. Request for confidentiality under Article 19 of the basic Regulation

(44) The exporting producers Jushi and Hengshi requested confidential treatment of one of their submissions. Despite several requests to do so, the companies could not justify why the specific information should be treated as confidential. In particular, it should be noted that virtually the same information had already been submitted by another interested party on a non-confidential basis and was available to other interested parties in the open file. Hence, the request for confidential treatment could not be granted. Given that the companies were still unwilling to provide the submission on a non-confidential basis, the Commission decided not to disclose those comments in this Regulation.

(45) In any event, given that the other interested party had provided virtually the same comments/information on a non-confidential basis, the substance of Jushi and Hengshi’s arguments are fully addressed in this Regulation.

1.9. Investigation period and period considered

(46) The investigation of dumping and injury covered the period from 1 January 2018 to 31 December 2018 (‘the investigation period’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2015 to the end of the investigation period (‘the period considered’).

(47) Both the current anti-dumping and anti-subsidy investigation mentioned in recital (3) have the same investigation period and the same period considered

1.10. Non-imposition of provisional measures and subsequent procedure

(48) During the investigation, it became apparent that some economic operators might not have come forward based on an incorrect understanding of the definition of the product under investigation. For that reason, on 18 September 2019, the Commission clarified the wording of the product scope description included in the Notice of Initiation by publishing a Notice (‘Clarification Notice’) (15). The Clarification Notice also gave the possibility for parties to come forward within a prescribed time limit to make themselves known and to request a questionnaire, if they wished so. No interested party submitted any comment on the Clarification Notice nor requested a questionnaire.

(49) Due to the prospect of new parties coming forward and the consequent need to fully respect their procedural rights of defence, the Commission decided to continue the investigation without imposing provisional measures.

(50) On 26 September 2019, in accordance with Article 19a(2) of the basic Regulation, the Commission informed the interested parties of its intention not to impose provisional measures and to continue the investigation.

(51) After publication of the Clarification Notice and in the subsequent investigation, it was confirmed that no economic operators had failed to come forward due to the possible misunderstanding in the definition of the product concerned contained in the Notice of Initiation.

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. Product concerned

(52) The product concerned (16) is fabrics of woven and/or stitched continuous filament glass fibre rovings and/or yarns with or without other elements, excluding products which are impregnated or pre-impregnated (pre-preg), and excluding open mesh fabrics with cells with a size of more than 1,8 mm in both length and width and weighing more than 35 g/m2 (‘GFF’), originating in the PRC and Egypt, currently falling under CN codes ex 7019 39 00, ex 7019 40 00, ex 7019 59 00 and ex 7019 90 00 (TARIC codes 7019390080, 7019400080, 7019590080 and 7019900080) (‘the product concerned’).

(53) GFF is used in a wide range of applications, for example, for the production of blades for wind turbines, in the boat, truck and sport equipment production, as well as in pipe rehabilitation system.

(54) Following the final disclosure, the CCCLA claimed that the product scope was unclear and that it should be clarified whether products falling under CN codes 7019 59 00 and 7019 90 00 were included in the scope of the investigation.

(55) The Commission recalls that, as stated in the Notice of Initiation, the product under investigation is defined by the product definition and not by the CN or TARIC codes (which are given for information only). The Commission clearly defined the product concerned in the Notice of Initiation. This was confirmed by the fact that after the Commission issued the Clarification Notice concerning the product scope mentioned in recital (48), none of the interested parties came forward. The claim that the product scope would be unclear was therefore rejected.

2.2. Like product

(56) 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 countries concerned; — the product produced and sold on the domestic market of Turkey, which served as representative country within the meaning of Article 2(6a) of the basic Regulation; and — the product produced and sold in the Union by the Union industry.

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

2.3. Claims regarding product scope

(58) One exporting producer and the Ministry of Trade of the Arab Republic of Egypt claimed that pre-cut GFF kits should not be covered by the scope of the investigation. They argued that pre-cut GFF kits would be a downstream product requiring additional production steps and with differences in physical characteristics, having a much smaller size. It would come in a different forms and packaging, consisting of several smaller pieces of fabrics quilted together. It was further argued that there would be no circumvention risk by excluding kits as the process of cutting would be irreversible and that the product is not interchangeable with the uncut GFF.

(59) The complainant argued that pre-cut GFF kits and non-cut GFF have the same basic characteristics and end uses. As GFF are reinforcement materials, the cutting to shape is necessary to fit the form of the product that needs to be reinforced, but does not change its basic characteristics as such. The cutting process can be carried out by the GFF producer, an independent industrial cutter or the customer itself. It is a very simple and low-cost operation. The complainant further argued that users do not perceive pre-cut GFF differently from other GFF as GFF are generally produced to user specifications. If the cutting process would change the characteristics of the GFF, that would render them unusable for the specific customer.

(60) The investigation showed that pre-cutting and kitting processes do not change the basic physical, technical or chemical characteristics of GFF or their basic end uses. Customers of both products are largely the same and both are sold via the same distribution channels.

(61) The investigation also confirmed that for most applications GFF are produced to order according to customers’ specifications. Pre-cut GFF kits constitute merely an additional specification in the customer order. That pre-cut GFF kits receive a different packaging does also not change the characteristics. Since GFF is ordered increasingly in the form of pre-cut GFF kits and the services of external kitters are used increasingly, there would be a high circumvention risk, if pre-cut GFF would be excluded from the scope of the investigation. Therefore, the Commission concluded that it would not be appropriate to exclude pre-cut GFF from the scope of the investigation.

(62) Following the final disclosure, the CCCLA and the Egyptian Government (‘EG Government’) claimed that pre-cut GFF kits should be excluded from the product scope as they would be downstream products requiring additional production steps and with different physical characteristics having an appreciable impact on costs and prices. Both parties argued that there would also not be any risk of circumvention should pre-cut GFF kits be excluded from the scope of the measures, in particular because of the additional cost involved and the fact that the process of cutting would be irreversible.

(63) The Commission cannot accept this claim. As explained in recital (61) cutting and kitting does not create a downstream product, but an additional specification in the customer order. The claim was therefore rejected.

(64) Another exporting producer argued that glass fibre yarns should be deemed to be excluded from the scope of the investigation. This exporting producer argued that glass fibre yarn was not be mentioned explicitly in the questionnaire, the complaint or in the Notice of Initiation, which would indicate that they are not covered by the product scope. It further argued that GFF from yarn could not be classified under the characteristics of the product control number (‘PCN’), that GFF from yarn would be imported under different CN-codes than the ones mentioned in the complaint and that glass fibre yarns would also not be covered by the measures against glass fibre rovings in other proceedings.

(65) The complainant and another Union producer (not party to the complaint) argued that only GFF from non-twisted (also called zero-twisted) glass fibre yarns should be covered by the investigation, whereas twisted yarns could be excluded from the scope of the investigation. The complainant argued that non-twisted glass fibre yarns share the characteristics of glass fibre rovings to consist of a bundle of untwisted filaments or strands and are also used for the same purposes as rovings and are typically 13–24 micrometres in diameter and are 300–4 800 tex.

(66) Regarding the inclusion of GFF from glass fibre yarns, the Notice of Initiation defined the product under investigation as ‘fabrics of woven, and/or stitched continuous filament glass fibre rovings and/or yarn, […]’ (17). The investigation has shown that non-twisted glass fibre yarns share the same basic characteristics as glass fibre rovings, i.e. to consist of a bundle of non-twisted filaments or strands, and are also used for the same purposes. Both are typically 13–24 micrometres in diameter and are 300–4 800 tex. Thus, it would not be appropriate to exclude these product types from the scope of the investigation.

(67) In relation to GFF made mainly from twisted glass fibre yarn, the Commission notes that this product, which has different basic characteristics and is also subject to different end uses, e.g. printed circuit boards, was never part of the product concerned. The Commission explicitly clarified this point in the Clarification Note.

3. DUMPING

THE PRC

3.1. Preliminary remarks

(68) As mentioned in recital (43), Jushi and Hengshi failed to cooperate with the investigation. The Commission accepted information from a third related company, which provided the required information at a late stage. The situation of the three companies and their comments are addressed in this section.

(69) Jushi, a vertically integrated exporting producer, failed to provide essential information reflecting its manufacturing process in the questionnaire reply and the following deficiency letter. The missing information was essential to the determination of the company’s normal value under Article 2(6a) of the basic Regulation, which should reflect the manufacturing process of a vertically integrated company. The Commission required information as to the manufacturing costs per PCN. This comprised the volume and the value of all factors of production used to manufacture GFF by Jushi per PCN. However, Jushi refused to provide the required information for certain factors of production such as the details of the sizing mixture used to manufacture the glass fibre rovings (GFR), the main raw materials to produce GFF, per PCN. Despite several requests by the Commission for that information, supported by explanations as to why the information was required, Jushi refused to provide the information. As a result, the Commission informed Jushi of its intention to apply facts available under Article 18 of the basic Regulation in relation to the determination of the normal value.

(70) In addition, the company was informed that, given the refusal to cooperate, no information regarding the normal value would be accepted during the verification visit. The analysis of that information prior to the verification visit was essential to ensure an effective and meaningful on-spot verification visit, as far as the determination of the normal value under Article 2(6a) of the basic Regulation was concerned. In addition, given the statutory deadlines applicable to the investigation and the ample time and opportunities given to the exporting producer to provide the necessary information, the Commission was no longer in a position to accept any new information regarding normal value.

(71) Jushi argued that the Commission could still arrive at a reasonable finding by treating it as a non-vertically integrated producer, that is, by establishing its factors of production and production costs based on GFR, the main raw material for producing GFF. It argued that the relevant information was submitted within the deadlines and was verifiable. The exporting producer claimed that it acted to the best of its ability by disclosing to the Commission all the information that it did not consider business confidential. The exporting producer claimed that it could not provide its production cost of GFR in particular regarding the sizing mixture, which was a mix of several chemicals unique to the company and, therefore, business confidential.

(72) The missing information (the details of the sizing mixture per PCN for manufacturing costs of GFR), however, was essential for the determination of the normal value in case of the application of Article 2(6a) of the basic Regulation, as it should reflect the manufacturing process of the exporting producer. Furthermore, the exporting producer did not demonstrate how the Commission could arrive at a reasonable finding despite the fact that it did not disclose the necessary information concerning its full manufacturing cost.

(73) The Commission also clarified that all business confidential information provided in anti-dumping proceeding are treated as strictly confidential under Article 19 of the basic Regulation and that none of the other interested parties would have access to such information.

(74) Therefore, the Commission rejected the arguments brought forward by the exporting producer and decided to base findings on facts available in accordance with Article 18(1) of the basic Regulation.

(75) Hengshi, another non-integrated company of the CNBM group, provided false and misleading information during the verification visit, as well as seriously impeded the verification process by withholding important information and delaying the verification process unnecessarily and repeatedly. In particular, the information provided regarding the PCN, the allocation keys used to calculate the consumption volume of electricity, labour and overheads in the cost of production per PCN, its trial balance for 2018 and the shareholders’ structure was considered unreliable and could not be used to determine the dumping margin of that exporting producer.

(76) Therefore, the Commission informed the company concerned of its intention to apply facts available in accordance with Article 18(1) of the basic Regulation as far as the calculation of the normal value is concerned in case the investigation concluded that Article 2(6a) of the basic Regulation should apply. In accordance with Article 18(4) of the basic Regulation, the interested party was informed of the reasons for disregarding the information provided and was granted the opportunity to provide further explanations.

(77) Hengshi commented on the Commission’s intention to base findings on facts available in accordance with Article 18 of the basic Regulation and requested a hearing with the Hearing Officer in trade proceedings, which took place on 28 October 2019. The company claimed that it did not willingly delay or stop the progress of the investigation and that it had acted to the best of its abilities. In particular, the company claimed that the information submitted was not false or misleading and that, during the verification visit, it submitted an almost entirely correct version of the PCN table. It provided an entirely correct PCN table in the parallel on-going anti-subsidy investigation that was verified in the context of that anti-subsidy investigation and that it should be used in this proceeding as facts available. In addition, the company claimed that the submitted allocation keys for the cost of production per PCN were coefficients employed historically for managerial and cost accounting purposes and used by the company on a daily basis. The company insisted that these allocation keys objectively reflected the actual production costs. In relation to trial balance for 2018, the company explained that when providing supporting documents during the verification visit, it did not realise that these adjustments were not apparent in those documents because of technical limitations in its system. It was explained that this was due to a transition to a new accounting system on 1 January 2019, a fact that had not been previously disclosed to the Commission. The company challenged that the non-disclosure of the existence of this new system had unnecessarily delayed the verification. The exporting producer further claimed that the wrong reporting of the percentage of one of the shareholders was due to a typographical error that was corrected during the on-spot verification visit. Such an error should therefore not be qualified as ‘misleading’ information giving rise to the application of Article 18 of the basic Regulation. Finally, the exporting producer challenged that it impeded the verification process in several occasions, in particular by failing to provide (i) explanations regarding a certain (confidential) document provided in its questionnaire; and (ii) revised working sheets.

(78) First, the PCN that Hengshi submitted in this investigation was incorrect despite the multiple opportunities given to the exporting producer to revise the PCNs during the 6-day verification visit. Based on the information provided, the Commission was not able to determine reliable average sales prices per PCN and, therefore, the information provided had to be disregarded.

(79) Second, the investigation revealed that the allocation key used by the exporting producer did not reflect correctly the volume of electricity, labour and overheads costs per PCN. This was because when establishing the allocation keys, the company did not take into account the idle time of the production machines. This lead to an over-allocation of the volume of electricity and overheads consumed in the manufacturing process for products manufactured in small volume and under-allocation of the same items for products manufactured in large volumes. The allocation keys used by the exporting producer also lead to an erratic allocation of the number of labour hours per PCN. The exporting producer acknowledged this mistake in its letter to the Commission’s services on 22 July 2019. Furthermore, during the verification visit, the team repeatedly highlighted the inconsistent results when using the allocation keys suggested by the company, but the company refused to look into it. Even if the exporting producer previously used these allocation keys, they do not correctly reflect the volume of electricity, labour and overheads per PCN. On that basis, the Commission found that the allocations keys used did not reliably establish the company’s manufacturing costs per PCN. As a result, that information also had to be disregarded.

(80) Third, the Commission disagrees that this exporting producer did not impede the verification process by not disclosing the existence of the new accounting system. The assessment of the impact of this new system on the information provided by the company was more time consuming than necessary. The fact that the company’s financial manager, present during the verification visit, did not promptly disclose this information to the team is also surprising. Had this fact not been kept from the investigating team, it would not have been necessary to check whether the new system had an impact on the data reported for 2018. The additional time could have been used for the verification of more essential parts of the questionnaire. The Commission notes that even though the team extended the verification visit for an additional day, it was still not able to satisfactorily conclude the verification of the data provided by the company within the (extra) time available.

(81) Forth, the mistake in the reporting of the shareholder had a substantial impact and was decisive in the determination whether this exporting producer was related to other exporting producer (and therefore part of the same group, receiving one anti-dumping duty). Therefore, this mistake was considered serious and misleading, whether the incorrect information was provided intentionally or not.

(82) Finally, the Commission maintains that the company impeded the verification process on several occasions. In relation to the lack of explanations for the confidential document provided with the questionnaire reply, the Commission notes that during the on-spot verification, crucial information was withheld from the team and only provided after long delays, as recorded in the mission report provided to the company (18). Furthermore, during the verification visit, the Commission required information to verify whether the PCN structure of the product concerned was correct. Hengshi however provided information detailing the PCN structure only after the PCN was found to be incorrect. In addition, during the verification visit, the company withheld a revised file regarding the PCN until the case team spotted further mistakes in the file provided. At that point, the case team had already spent considerable time trying to verify the PCNs and had given the company the opportunity to provide working files and re-start the verification of the PCNs. This behaviour certainly impeded the investigation because it prevented the Commission officials to finalise the verification of the PCN provided. Thus, the Commission cannot agree that the company did not seriously impede the verification process.

(83) Given the significant shortcomings of the information provided by this exporting producer as described, the Commission decided to disregard this information (all PCNs and the cost of production per PCN) and based its findings on facts available in accordance with Article 18(1) of the basic Regulation (19).

(84) As the comments made by the company and in the hearing with the Hearing Officer did not alter the facts and conclusions established, the Commission confirmed the use of facts available under Article 18(1) of the basic Regulation with regard to this exporting producer as concerns export price and normal value.

(85) Finally, CNBM International, a related trader part of the CNBM group, did not submit as required a reply to Annex I of the questionnaire. However, the investigation revealed that necessary information about sales of GFF was missing and the Commission requested CNMB International to report these sales and to clarify why they had not been reported before.

(86) CNBM International submitted the requested sales information and argued that it became aware of these sales only when preparing the response to the Commission’s deficiency letter in the parallel anti-subsidy investigation mentioned in recital (3).

(87) However, the information submitted at such a late stage could only be partially verified. Given the small volume involved, as an exception, the Commission decided to accept the information related to these sales transactions and use facts available for certain information such as the selling, general and administrative expenses of the related trader in accordance with Article 18(3) of the basic Regulation.

3.2. Procedure for the determination of the normal value for exporting producer in the PRC under Article 2(6a) of the basic Regulation

(88) In view of the sufficient evidence available at the initiation of the investigation pointing to the existence of significant distortions on the domestic market in the PRC within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission considered it appropriate to initiate the investigation concerning the PRC pursuant to Article 2(6a) of the basic Regulation.

(89) Consequently, in order to collect the necessary data for the possible application of Article 2(6a) of the basic Regulation, in the Notice of Initiation the Commission invited all exporting producers in the PRC to provide the information requested in Annex III to the Notice of the Initiation regarding the inputs used to produce GFF. Nine exporting producers in the PRC covering the totality of the exports of GFF to the Union during the IP submitted the relevant information.

(90) In order to obtain information it deemed necessary for its investigation with regard to the alleged significant distortions on the domestic market in the PRC within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission also sent a questionnaire to the GOC. No reply was received from the GOC. Subsequently, the Commission informed the GOC that it would use facts available within the meaning of Article 18 of the basic Regulation for the determination of the existence of the significant distortions in the PRC. The GOC did not respond.

(91) In the Notice of Initiation, the Commission also invited all interested parties to make their views known, submit information and provide supporting evidence regarding the appropriateness of the application of Article 2(6a) of the basic Regulation vis-à-vis China within 37 days of the date of publication of the Notice in the Official Journal of the European Union. Hengshi, Jushi and CCCLA made a comment on the existence of significant distortions in China which is addressed in recitals (106) and (107).

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

(93) On 27 March 2019, the Commission made available to the interested parties the first note to the file (‘the Note of March 2019’) seeking their views on the relevant sources that the Commission may use for the determination of the normal value for exporting producers in the PRC, in accordance with Article 2(6a)(e) second indent of the basic Regulation. In that note, the Commission provided a list of all factors of production such as materials, energy, labour and waste used in the production of the product concerned by the exporting producers. In addition, based on the criteria guiding the choice of undistorted prices or benchmarks, the Commission identified a number of possible representative countries, namely, Brazil, Mexico, the Russian Federation, and Turkey.

(94) The Commission gave all interested parties the opportunity to comment. The Commission received comments from Taishan, Jushi, Hengshi and the complainant. The GOC did not provide any comments.

(95) The Commission addressed the comments received on the Note of March 2019 in the second note to the file on the sources for the determination of the normal value of 4 September 2019 (‘the Note of September 2019’). The Commission also provided the revised list of factors of production and concluded that, at that stage, Turkey was considered a representative country under Article 2(6a)(a), first indent of the basic Regulation. The Commission also determined the list of codes used by Turkey and made available the relevant Turkish customs statistics in the open file. The Commission invited interested parties to comment. The Commission received comments from two Chinese exporting producers part of CNBM group. This Regulation addresses those comments in recitals (106), (177), (207) to (211).

3.3. Normal value for the cooperating exporting producers

(96) 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’.

(97) However, according to Article 2(6a)(a) of the basic Regulation, ‘(i)n 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’. As further explained below, the Commission concluded in this investigation that, based on the evidence available and in view of the lack of cooperation of the GOC, Article 2(6a) of the basic Regulation was applicable.

3.3.1. Existence of significant distortions

3.3.1.1. Introduction

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

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

(100) 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’.

(101) Pursuant to this provision, the Commission has issued a country report concerning the PRC (‘the Report’) (20), 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. Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation. The complaint also contained some relevant evidence complementing the Report.

(102) In particular, the complaint contained information that the Chinese GFF and GFR industries are heavily promoted by the GOC. According to the complainant, China’s 12th 5-Year Plan highlighted the importance of the new materials industry, which includes GFF, as a ‘strategic emerging industry’ and stipulates that it should be developed into a ‘leading pillar industry’ through comprehensive policy support and guidance. Furthermore, the 13th 5-Year Plan aims to develop further new materials industries by strengthening research and development and enhancing the innovation capability of the manufacturing industry (21).

(103) The complaint further states that the new materials industry is also an encouraged industry under the Made in China 2025 initiative, and thereby eligible to benefit from considerable state funding. The complaint lists a number of funds created to support the Made in China 2025 initiative and hence indirectly the GFF industry (22).

(104) Lastly, the complaint notes that the 13th Five-Year Plan for the Building Materials Industry calls for optimizing industrial structure by, inter alia, expanding emerging industries such as glass-based materials, industrial ceramics, intraocular lens, high-performance fibres and composites, and graphene and modified materials. This shall be achieved through government funding, taxation, financial, pricing, energy, and environmental protection policies, and support for capital to participate in the mergers, acquisitions and restructuring of building materials enterprises through various means including lending (23).

(105) As indicated in recital (41), the GOC did not comment or provide evidence supporting or rebutting the existing evidence on the case file, 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 to the case at hand.

(106) Comments regarding distortions were received from Hengshi, Jushi and CCCLA, which claimed that the Union is bound under WTO law to establish costs for the construction of the normal value in order to reflect conditions prevailing in the PRC in accordance with Article 2 of the Anti-Dumping Agreement and referred to WTO Appellate Body Report DS 473 EU – Biodiesel (Argentina).

(107) For the purpose of this investigation, the Commission concluded in recital (161) that it is appropriate to apply Article 2(6a) of the basic Regulation. The Commission considers that Article 2(6a) is thus applicable. In addition, the Commission considers that this provision is consistent with the European Union’s WTO obligations. It is the Commission’s view that, as clarified in DS473 EU-Biodiesel (Argentina), the provisions of the basic Regulation that apply generally with respect to all WTO Members, in particular Article 2(5), second subparagraph of the basic Regulation, permit the use of data from a third country, duly adjusted when such adjustment is necessary and substantiated. The Commission finally recalled that the dispute DS473 EU-Biodiesel (Argentina) did not concern the application of Article 2(6a) of the basic Regulation, which is the relevant legal basis for the determination of normal value in this investigation. Therefore, the Commission rejected this claim.

(108) 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 based on 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.

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

(109) The Chinese economic system is based on the concept of ‘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’ (24). 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 ownership permeates the entire legal system and is emphasised as a general principle in all central pieces of legislation. 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 public ownership plays a dominant role. Other forms of ownership are tolerated, with the law permitting them to develop alongside State ownership (25).

(110) 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’ (26). 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.

(111) 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 (27). 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.

(112) 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 covers 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) (28).

(113) 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) (29). 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 (30).

(114) 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 is to 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 (31). Similarly, in the area of investment, the GOC maintains significant control and influence over the 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 (32).

(115) 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 the free play of market forces, resulting in distorting the effective allocation of resources in line with market principles (33).

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

(116) 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.

(117) 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 (34). 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 (35).

(118) Specifically in the GFF and GFR sectors, a substantial degree of ownership by the GOC persists. The State has significant shares in both of the sampled groups of producers, CNBM Group and Yuntianhua Group, which are the largest producers of GFF and GFR in China. These companies cover about 68 % of the total production capacity in China of the glass fiber industry covering both GFF and GFR (36).

(119) With the high level of government intervention in the GFF industry and a high share of SOEs in the sector, even privately owned producers are prevented from operating under market conditions. Indeed, both public and privately owned enterprises in the GFF sector are also subject to policy supervision and guidance as set out in section 3.3.1.5. The same is true for the GFR sector, producing the main raw material for GFF.

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

(120) 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 (37), 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 PRC’s company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution (38)) 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 (39). 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 (40). These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of GFF and the suppliers of their inputs.

(121) Specifically in the GFF sector, as already pointed out, many of the GFF producers are owned by the State. There is also evidence on the confidential file that there is the State presence in the sampled exporting producers that is able to exert influence on the company decisions and ultimately interfere with prices or costs. Since specific substantiating elements are present in the Articles of Association of the company or other documents which are of a confidential nature, they were disclosed separately to the party concerned.

(122) 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 (41). Thus, the State presence in firms, including SOEs, in the GFF 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

(123) 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 (42).

(124) The GFF industry is regarded as an important industry supported by the GOC. This is confirmed in a number of industry developments plans, such as the 13th Five-Year Plan for Economic and Social Development of the PRC or the Made in China 2025 initiative (43).

(125) Furthermore, GFF is often referred to under the umbrella of ‘new materials’. The Made in China 2025 Roadmap (44) describes sector 9 ‘new materials’ and its subcategories, including advanced fundamental materials (point 9.1), key strategic materials (point 9.2) including high performance fibres and composite materials, new energy materials (45).

(126) Additionally, further to the Made in China 2025 Roadmap, in November 2016, the list of 10 strategic sectors was refined into a Catalogue of Four Essentials published by the National Manufacturing Strategy Advisory Committee (NMSAC), an advisory group to the National Leading Small Group on Building a National Manufacturing Power. In this catalogue, each of the 10 strategic sectors is split into four chapters: (i) core essential spare parts; (ii) key essential materials; (iii) advanced essential processes/technologies; and (iv) industry technology platforms. Glass fibre can be found in sector 7: electrical equipment, point II key essential material: subpoint 16 glass fibre insulation boards and sector 9: new materials, point II key essential materials, subpoints 10. High-performance fibre, monomer and composite materials and 24. Glass-based materials.

(127) The 13th Five-Year Plan for Economic and Social Development of the PRC mentions the new materials in a couple of instances: ‘We will move faster to make breakthroughs in core technologies in fields such as next generation information and communications, new energy, new materials […]’ (46). The plan furthermore envisages that there will be projects carried out related to key new materials research, development and application (47).

(128) Made in China 2025 Roadmap lists 10 strategic sectors which are the key industries for the GOC. New materials, being one of the 10 strategic sectors, benefits from the advantages stemming from the support mechanisms listed in the document, including, among others, Financial Support Policies, Fiscal & Taxation Policy, State Council Oversight and Support (48).

(129) Fibre products are also explicitly mentioned in the Guidance Catalogue for Industrial Structure Adjustment (NDRC) 2011 edition, a document listing industries eligible for preferential funding in the building materials and textile chapters, as follows: ‘Building materials: […] 6. Tank furnace drawing technology for alkali free glass as well as technology development and production of high-performance glass fiber and products up to 50,000 tonnes/year Textile: […] 4. Development and production of organic and inorganic high-performance fibers and products … and high-strength glass fiber (HT-AR) , among others) […] 6. Use high-speed and new types of spinning technologies such as compact spinning, low-torque spinning, siro spinning, embedded spinning, to produce multi-type fiber mixed yarns and use automation equipment such as automatic winding, fine winder, integrated doffing, to produce high-quality yarns […] 9. Production of industry textiles which meet the demand of national economy in various fields by using woven, nonwoven composite, multi-layer direct composite, long-lasting multi-functional finishing, and other high-tech technologies. ’

(130) In addition, ‘Guidance Catalogue for Industrial Structure Adjustment 2011’ (Decision No 9) explicitly mentions as an encouraged industry: ‘Drawing of E-glass fibres in furnaces […], development and production of high-performance fibre glass and its product.’

(131) GFF and GFR are furthermore covered by the Construction Material Industry Development Plan 2016-2020, which envisages, among others, the transition of the construction material industry ‘from a large industry to a strong industry’ and optimisation of the construction sector’s structures, improvement of the security of supply of key materials, increase in the level of concentration in the industry as well as enhancement of the international competitiveness (49). The plan provides for quantitative development targets, governmental control over production capacity, detailed production targets, geographical distribution of industries among provinces in the PRC, security of supply, development of specific industries, government control and influence over enterprises and industry support measures (50). This demonstrate the strong presence and intervention of the State in the fibre glass industry.

(132) 13th Five-Year Plan for Fibre and Composite Materials Industry (51) is a plan targeting specifically the fibre material industry. It clearly guides the development of the sector, for example Section III.3 sets the goal to: ‘Actively integrate and upgrade the upstream and downstream ends of the industry chain to maintain the healthy and stable development of the fibre and composite materials industry: Encourage large-scale tank furnance enterprises to steadily implement the “go global” development strategy, implement global production capacity patterns. On this basis: – maintain a low level of control over the domestic glass fibre production volume growth rate; – at the same time, reduce the export ratio of domestic glass fibre and products; – actively adjust product structures; […] – actively adjust product structure and guide enterprises to implement differentiated development, vigorously develop highly processing of glass fibre products, expand the market size of fibre and composite materials products in mid-to-high-end application fields, and improve product quality and added value. Ensure that the annual growth rate of the main business revenue of the fibre and composite materials industry is higher than the national GDP growth rate by about 5 to 6 percentage points, that is, as of 2020, the total revenue of enterprises above designated size will reach 500 billion yuan, i.e. doubling compared to the situation prevailing at the end of the 12th Five-Year Plan.’ (52).

(133) Furthermore, section IV.3.4 of that plan sets basis for governmental guidance of the enterprises and the entire industry: ‘Guide various types of enterprises to get involved in differentiated operations taking into account their individual advantages and specific market segments. In particular, it is necessary to guide small and medium-sized enterprises to follow the growth path consisting in filling up specific gaps, in having small enterprises being complementary to big ones, in considering specialisation as the way to success. Thanks to differentiated operations, scale-competition between large enterprises is avoided, and the competition between similar enterprises is avoided, thus eliminating the low-cost competition market. At the same time, with specialized production, small and medium-sized enterprises can also win the respect and attention of large enterprises, establish close cooperative relationships with large enterprises, and effectively support and promote the development of large enterprises.’

(134) As explained in the Report, the industry associations are closely interlinked with the State, mostly through the importance of CCP building in those associations (53). Therefore, the provisions of section IV.3.6 of the same plan also point to a State intervention into the fibre production, including the GFF sector: ‘[The Association shall] — assist the government in duly designing and implementing industry policy, to ensure the sound development of the sector; — ensure the effective implementation of the glass fiber sector entry and management system and at the same time explore and implement the entry and management system applicable to the composite material sector; — set out and implement sector entry and management systems in order to — effectively curb low level duplications, — strengthen enterprises’ self-discipline awareness as well as the sector’s perspectives, — foster the elimination of obsolete production capacities and the transformation and upgrade of the sector, — maintain a sound and orderly competition and orderly development of the sector; — take account of the sector’s development needs, strive to set out incentive policies and measures, guide the sector’s sound development; — actively strive to obtain export tax refund on glass fiber highly processed products and guide the sound development of the glass fiber highly processing industry; — actively strive to obtain the introduction and improvement of import and export tax rates for fibers and composite materials so as to offer incentives to the growth of high value-added composite material products exports;’.

(135) The PRC has actively promoted the GFF and GFR industries on different government levels, an example of a local initiative covering one of the sampled companies can be found in the Jiujiang City 13th Five-Year Plan for the economic and social development: Section III 2.2 Effectively implement a development plan for strategic and emerging industries — New materials: […] — Extend and support the new materials industry chain, foster the development of new materials industry clusters; — Rely on Jiujiang economic development zone, Jiujiang Chihu district industry park, Yongxiu Xinghuo Industry park and the Lushan fiber production base, and focus on the development of organic silicone new materials, glass fiber composite materials, bio-fiber new materials, metal new materials, and graphene new materials; […] — Actively foster the JUSHI GROUP, Shengxiang Electronics, Cabot Chemical Industry and other leading enterprises’ innovation-driven development, active connexion to the market, exploration and development of new fields of application for glass fiber and composite new materials so as to speed up the transformation and upgrade of the glass fiber industry (54).

(136) As for the raw materials, for the cooperated non-vertically integrated producer, the main raw materials is GFR, which accounts for above 70 % of the total cost of production. It was already established in the previous anti-subsidy investigation into GFR that this industry is significantly subsidised by the GOC and thus distorted. It was established that the GFR industry benefits from preferential loans, tax reductions within the ‘High and New Technology Enterprise’ scheme, Indirect Tax and Import Tariff Programmes and provision of land use rights (55).

(137) Vertically integrated producers use a large number of factors of production, which are also distorted. As an example, gas, one of the important factors of production is produced mainly by SOEs (96 % of the natural gas is controlled by China National Petroleum Corporation (‘CNPC’), China Petroleum & Chemical Corporation (‘Sinopec’) and China National Offshore Oil Corporation (‘CNOOC’)) and its gas prices are regulated by the National Development and Reform Commission (‘NDRC’) (56). Quartz, kaolin and fluorite, other important raw material in the GFF production, are covered by the 13th Five-Year Plan for Mineral resources and quartz and kaolin are furthermore included in the 13th Five-year Plan for the Building Materials Industry. Those two plans set out governmental control over industry in general, set mining volume standards applicable among others specifically for quartz, encourages SOE reform, envisages a number of support measures and governmental intervention into private initiatives. Aluminium oxide was found to be subject to governmental intervention in the province of Hebei, where it was part of the list of key investment projects and of the Hebei 2016 New Material Industry Development Plan which set out state support to achieve a set production output (57). Sodium carbonate is covered by the 13th Five-year Plan for the Petrochemical and Chemical Industry, where it is set out that the State should keep control over production capacity: ‘strictly control new capacity increases in overcapacity sectors such as […], sodium carbonate, […].’ (58). Dolomite is another factor of production subject to State support in the PRC, for example it is one of the encouraged industries for the Inner Mongolia Autonomous Region in the Central and Western China Foreign Investment Catalogue. Polypropylene also receives governmental support, and is mentioned in the NDRC’s Guidance Catalogue for Industrial Structure Adjustment: ‘new construction of production units of polypropylene with an annual output of less than 70 000 tonnes (by continuous process and batch process’ (59) and in the Hebei province Petrochemical 13th Five-year Plan: ‘Industry optimization: By 2020, [Hebei shall] […] ensure the emergence of synthetic material industry clusters focussing on PVC, caprolactam (nylon), TDI, MDI (polyurethane), polypropylene, […]’ (60).

(138) In sum, the GOC has measures in place to induce operators to comply with the public policy objectives of supporting encouraged industries, including the production of GFR as the main raw material used in the manufacturing of the product concerned for the non-vertically integrated manufacturers as well as a number of raw materials used to manufacture GFF by the vertically integrated producers. Such measures impede market forces from operating normally.

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

(139) 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 the PRC, 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 (61).

(140) 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 (62). 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 (63). Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land (64).

(141) Much like other sectors in the Chinese economy, the producers of GFF 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 preliminarily 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, based on the evidence available, appear to be fully applicable also in the GFF sector.

(142) In light of the above, the Commission concluded that there was discriminatory application or inadequate enforcement of bankruptcy and property laws in the GFF 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

(143) A system of market-based wages cannot fully develop in the PRC as workers and employers are impeded in their rights to collective organisation. The PRC has not ratified a number of essential conventions of the International Labour Organisation (‘ILO’), in particular those on freedom of association and on collective bargaining (65). 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 (66). 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 (67). Those findings lead to the distortion of wage costs in the PRC.

(144) Labour constitutes an important factor of production in the GFF. It was established during the investigation that labour accounts between 5 % and 25 % of the total cost of production.

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

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

(147) Firstly, the Chinese financial system is characterised by the strong position of State-owned banks (68), 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) (69) 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 (70). This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (71).

(148) 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.

(149) 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 (72).

(150) This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (73). This results in a bias for 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.

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

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

(153) 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.

(154) In essence, despite the recent 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.

(155) No evidence was submitted to the effect that the GFF sector, would be exempted from the above-described government intervention in the financial system. In fact, the findings from the anti-subsidy investigation into GFR, which to a large extent covers also the producers of GFF who are vertically integrated, showed that the GFR producers in the PRC benefitted from preferential loans, both from State-owned banks and from private banks (74). Therefore, the substantial government intervention in the financial system leads to the market conditions being severely affected at all levels. The sampled exporting producers borrow significant amounts from banks and thus potentially benefit from the preferential policies and this distortion.

3.3.1.9. Systemic nature of the distortions described

(156) The Commission noted that the distortions described in the Report were 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 to 3.3.1.5 as well as in Part A of the Report apply throughout the country and across the sectors of the economy. The same holds true for the description of the factors of production as set out above in sections 3.3.1.6–3.3.1.8 above and in Part B of the Report.

(157) The Commission recalls that in order to produce GFF, a broad range of inputs is needed. According to evidence on the file, the sampled exporting producers sourced their more than 96 % of their inputs in the PRC. When the producers of GFF 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.

(158) As a consequence, not only the domestic sales prices of GFF 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 tainted 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 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. No evidence or argument to the contrary has been adduced by the GOC or the exporting producers in this investigation.

(159) One sampled exporting producer claimed that the material purchases and energy purchases for the production of GFF as well as other products were not distorted in China, because their prices were determined by market forces. The same exporting producer asked the Commission to either use the actual purchase costs of the materials and energy to construct normal value or base normal value on the actual domestic sales prices of GFF in China.

(160) The exporting producer did not submit any evidence to demonstrate that its material and energy purchases for the production of GFF were not distorted. Therefore, in view of findings of the investigation stated in recital (98) to