EXPLANATORY MEMORANDUM

1. CONTEXT OF THE PROPOSAL

Grounds for and objectives of the proposal This proposal concerns the application of Article 10 of Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against subsidised imports from countries not members of the European Community.

General context This proposal is made in the context of the implementation of the basic Regulation and is the result of an investigation which was carried out in line with the substantive and procedural requirements laid out in the basic Regulation.

Existing provisions in the area of the proposal Provisional anti-dumping measures were imposed on the same product group by Commission Regulation (EU) No 845/2012 (OJ L 252, 19.9.2010, p.33). Parallel proposal to impose definitive anti-dumping measures.

Consistency with other policies and objectives of the Union Not applicable.

2. RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of interested parties

Interested parties concerned by the proceeding have had the possibility to defend their interests during the investigation, in line with the provisions of the basic Regulation.

Collection and use of expertise

There was no need for external expertise.

Impact assessment This proposal is the result of the implementation of the basic Regulation. The basic Regulation does not provide for a general impact assessment but contains an exhaustive list of conditions that have to be assessed.

3. LEGAL ELEMENTS OF THE PROPOSAL

Summary of the proposed action On 9 January 2012, the Commission initiated an anti-subsidy proceeding concerning imports of certain organic coated steel products originating in the People's Republic of China. The investigation found subsidisation of the product concerned, which caused injury to the Union industry. The investigation also found that it was not against the Union interest to impose anti-subsidy measures. Therefore, it is proposed that the Council adopts the attached proposal for a Regulation in order to impose definitive anti-subsidy measures on imports of certain organic coated steel products originating in the People's Republic of China.

Legal basis Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against subsidised imports from countries not members of the European Community (‘the basic Regulation’)

Subsidiarity principle The proposal falls under the exclusive competence of the Union. The subsidiarity principle therefore does not apply.

Proportionality principle The proposal complies with the proportionality principle for the following reasons:

The form of action is described in the above-mentioned basic Regulation and leaves no scope for national decision.

Indication of how financial and administrative burden falling upon the Union, national governments, regional and local authorities, economic operators and citizens is minimized and proportionate to the objective of the proposal is not applicable.

Choice of instruments

Proposed instrument: Regulation.

Other means would not be adequate because the basic Regulation does not provide for alternative options.

4. BUDGETARY IMPLICATION

The proposal has no implication for the EU budget.

2013/0052 (NLE)

Proposal for a

COUNCIL IMPLEMENTING REGULATION

imposing a countervailing duty on imports of certain organic coated steel products originating in the People's Republic of China

THE COUNCIL OF THE EUROPEAN UNION,

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

Having regard to Council Regulation (EC) No 597/2009 on protection against subsidised imports from countries not members of the European Community[1], and in particular Article 17 thereof,

Having regard to the proposal from the European Commission,

Whereas:

1. PROCEDURE

1.1. Initiation

(1) On 22 February 2012, the European Commission announced by a notice published in the Official Journal of the European Union[2] ('Notice of initiation'), the initiation of an anti-subsidy proceeding with regard to imports into the Union of certain organic coated steel products originating in the People's Republic of China ('PRC' or the 'country concerned').

(2) The anti-subsidy proceeding was initiated following a complaint lodged on 9 January 2012 by EUROFER ('the complainant') on behalf of producers representing in this case more than 70% of the total Union production of certain organic coated steel products. The complaint contained prima facie evidence of subsidisation of the said product and of material injury resulting therefrom, which was considered sufficient to justify the initiation of a proceeding.

(3) Prior to the initiation of the proceeding and in accordance with Article 10(7) of the basic Regulation, the Commission notified the Government of the PRC ('the GOC') that it had received a properly documented complaint alleging that subsidised imports of certain organic coated steel products originating in the PRC were causing material injury to the Union industry. The GOC was invited for consultations with the aim of clarifying the situation as regards the contents of the complaint and arriving at a mutually agreed solution. The GOC accepted the offer of consultations and consultations were subsequently held. During the consultations, no mutually agreed solution could be arrived at. However, due note was taken of comments made by the authorities of the GOC in regard to the allegations contained in the complaint regarding the lack of countervailability of the schemes. Following the consultations, submissions were received from the GOC.

1.2. Anti-dumping proceeding

(4) On 21 December 2011, the European Commission had announced by a notice published in the Official Journal of the European Union[3], the initiation of an anti-dumping proceeding concerning imports into the Union of certain organic coated steel products originating in the PRC.

(5) On 20 September 2012, the Commission, by Regulation (EU) No 845/2012[4], imposed a provisional anti-dumping duty on imports of certain organic coated steel products originating in the PRC.

(6) The injury analyses performed in the present anti-subsidy and the parallel anti-dumping investigation are identical, since the definition of the Union industry, the representative Union producers and the investigation period are the same in both investigations. For this reason, comments on injury aspects put forward in any of these proceedings were taken into account in both proceedings.

1.3. Parties concerned by the proceeding

(7) The Commission officially advised the complainants, other known Union producers, the known exporting producers in the PRC, importers, traders, users, suppliers and associations known to be concerned, and the representatives of the PRC of the initiation of the proceeding. Interested parties were given the opportunity to make their views known in writing and to request a hearing within the time limit set in the notice of initiation.

(8) In view of the apparent high number of exporting producers, Union producers and unrelated importers, all known exporting producers and unrelated importers were asked to make themselves known to the Commission and to provide, as specified in the notice of initiation, basic information on their activities related to the product concerned during the period from 1 October 2010 to 30 September 2011. This information was requested under Article 27 of the basic Regulation in order to enable the Commission to decide whether sampling would be necessary and if so, to select samples. The authorities of the PRC were also consulted.

(9) Initially 19 Chinese exporting producers/groups of producers provided the requested information and agreed to be included in a sample. On the basis of the information received from the exporting producers and in accordance with Article 27 of the basic Regulation the Commission initially proposed a sample of 3 exporting producers/groups of exporting producers. However one of the exporting producers included in this sample withdrew its cooperation. Consequently it was replaced with the next exporting producer with the highest volume of exports sales to the EU. Following the notification also this exporting producer withdrew its cooperation.

(10) In order not to cause any further delay to the proceeding it was decided to limit the sample to two groups of exporting producers, which had the highest export volume to the Union, i.e. Zhangjiagang Panhua Steel Strip Co., Ltd and its related companies and Zhejiang Huadong Light Steel Building Material Co., Ltd and its related companies. The sample of these two groups of exporting producers serves as the basis to determine the level of subsidisation for those groups as well as the level of subsidisation for all cooperating exporting producers not included in the sample, as required by Articles 15.2 and 15.3 of the basic Regulation.

(11) As regards the Union producers, the Commission announced in the notice of initiation that it had provisionally selected a sample of Union producers. This sample consisted of six Union producers that were known to the Commission to produce the like product selected on the basis of sales, production volume, size and geographical location in the Union. The sampled Union producers accounted for 46% of the Union production and 38% of the Union sales. Interested parties were also invited in the notice of initiation to make their views known on the provisional sample. One of the Union producers stated that it did not wish to be included in the sample and was replaced in the sample by the next largest producer.

(12) Five unrelated importers provided the requested information and agreed to be included in the sample. In view of the limited number of cooperating importers, sampling was deemed to be no longer necessary.

(13) The Commission sent questionnaires to the representatives of the PRC, the two sampled exporting producers in the PRC, 14 other exporting producers in the PRC that requested so, the six sampled Union producers, the five cooperating importers in the Union and to the known users.

(14) Replies were received from the representatives of the PRC, nine exporting producers and related companies in the PRC, the six sampled Union producers, two unrelated importers and ten users.

(15) The Commission sought and verified all information deemed necessary for the determination of subsidisation, resulting injury and Union interest. Verification visits were carried out at the premises of the following State authority and companies:

(a) Government of the People Republic of China

– Chinese Ministry of Commerce, Beijing, China

(b) Union producers

– ArcelorMittal Belgium, Belgium and related sales company ArcelorMittal Flat Carbon Europe SA, Luxembourg

– ArcelorMittal Poland, Poland

– ThyssenKrupp Steel Europe AG, Germany

– voestalpine Stahl GmbH and voestalpine Stahl Service Center GmbH, Austria

– Tata Steel Maubeuge SA (formerly known as Myriad SA), France

– Tata Steel UK Ltd, United Kingdom

(c) Groups of Exporting producers (and related companies) in the PRC

– Zhangjiagang Panhua Steel Strip Co., Ltd and its related companies: Chongqing Wanda Steel Strip Co., Ltd, Zhangjiagang Wanda Steel Strip Co., Ltd, Jiangsu Huasheng New Construction Materials Co. Ltd and Zhangjiagang Free Trade Zone Jiaxinda International Trade Co., Ltd;

– Zhejiang Huadong Light Steel Building Material Co. Ltd and its related company Hangzhou P.R.P.T. Metal Material Company Ltd;

(d) Importers in the Union

– ThyssenKrupp Mannex, Germany

– Macrometal, Hamburg, Germany

(16) Subsequently all parties were informed of the essential facts and considerations on the basis of which it was intended to recommend the imposition of definitive countervailing duties on imports of certain organic coated steel products originating in the PRC ('the final disclosure'). All parties were granted a period within which they could make comments on the final disclosure.

(17) The comments submitted by the interested parties were considered and taken into account where appropriate.

1.4. Investigation period and period considered

(18) The investigation of subsidisation and injury covered the period from 1 October 2010 to 30 September 2011 (the ‘investigation period’ or ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2008 to the end of the IP (‘the period considered’).

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. Product concerned

(19) In the notice of initiation the product subject to the investigation was certain organic coated steel products ('OCS'), i.e. flat-rolled products of non-alloy and alloy steel (not including stainless steel) which are painted, varnished or coated with plastics on at least one side, excluding so-called 'sandwich panels' of a kind used for building applications and consisting of two outer metal sheets with a stabilising core of insulation material sandwiched between them, and excluding those products with a final coating of zinc-dust (a zinc-rich paint, containing by weight 70% or more of zinc).

2.2. Product exclusion requests

(20) The China Iron and Steel Association, two importers and two users, proposed the exclusion of five product types. These requests were received and have been analysed as follows:

2.2.1. OCS with metallic coating of chromium or tin

(21) A user of OCS submitted a request to exclude OCS with a substrate with a metallic coating of chromium or tin from the product scope. The investigation has established that the metallic coating of chromium or tin renders this product type physically and technically different to the OCS under investigation. Moreover, OCS with a substrate with a metallic coating of chromium or tin is almost exclusively used in the food packaging and cable industries. Finally, the Union industry explained that it did not intend for the above-mentioned product type to be included in this investigation. Given the above-mentioned reasons, OCS with a substrate with a metallic coating of chromium or tin is not included in the product scope.

2.2.2. Hot-rolled plates with protective primer, whether organic or inorganic

(22) This request was rejected because these products do not fall under the CN codes under investigation. The painting or coating is only for rust protection and therefore fall under CN heading 7208 and not CN heading 7210. Hot-rolled plates with a protective primer, whether organic or inorganic, arenot included in the product scope and as a result cannot be removed from it.

2.2.3. OCS with substrate thickness between 0.6 and 2.0 mm

(23) CISA and two importers requested the exclusion of OCS with substrate thickness between 0.6 and 2.0 mm, representing 5 – 10% of imports from China, stating that there was only direct competition between Chinese exports and Union industry production for OCS with substrate thickness of between 0.25 and 0.6 mm.

(24) This request was rejected, given that both Chinese exporters and the Union industry manufacture and sell OCS with a substrate thickness of between 0.6 and 2.0 mm and that therefore these products are clearly in competition with each other. No evidence was provided to show that OCS with a substrate thickness of over 0.6 mm does not compete with OCS with a substrate thickness of less than 0.6 mm and that therefore this would constitute a different product type. OCS with substrate thickness of less than and above 0.6mm have the same basic physical and technical characteristics and same end uses and therefore are the same product.

2.2.4. OCS with aluminium-zinc alloy coated substrate

(25) The two importers alleged that only four Union producers have the licence to produce this product type and that only one company was in fact producing it. They also alleged that this product differs from zinc coated OCS in terms of product characteristics.

(26) This request was rejected as the two product types are interchangeable with overlapping uses and at least two cooperating Union producers manufactured this product type during the investigation period. It should be noted that only one cooperating Chinese exporting producer exported this product type to the Union during the investigation period.

2.2.5. OCS with zinc alloy coated substrate

(27) This request was rejected because, contrary to the assertion by one user, this product is produced and sold in significant quantities by several Union producers and has the same essential physical and technical characteristics and end uses as other types of OCS.

2.3. Product inclusion request

(28) One association requested that OCS with a metallic coating of chromium or tin, classified under TARIC codes 7210 12 20 10 and 7210 50 00 10 be included in the product scope. This request was rejected as these codes were not included in the original complaint and the products covered by such codes have different physical and technical characteristics from the products covered by the complaint.

2.4. Product concerned

(29) Given the acceptance of the exclusion of OCS with metallic coating of chromium or tin, as outlined in recital (21), the product concerned is amended by this exclusion.

(30) The product concerned is therefore certain organic coated steel products ('OCS'), i.e. flatrolled products of non-alloy and alloy steel (not including stainless steel) which are painted, varnished or coated with plastics on at least one side, excluding so-called 'sandwich panels' of a kind used for building applications and consisting of two outer metal sheets with a stabilising core of insulation material sandwiched between them, excluding those products with a final coating of zinc-dust (a zinc-rich paint, containing by weight 70 % or more of zinc), and excluding those products with a substrate with a metallic coating of chromium or tin, currently falling within CN codes ex 7210 70 80, ex 7212 40 80, ex 7225 99 00, ex 7226 99 70, and originating in the People's Republic of China ('the product concerned').

2.5. Like product

(31) The investigation has shown that OCS produced and sold by the Union industry in the Union, OCS produced and sold on the domestic market of the PRC and OCS imported into the Union from the PRC have the same basic physical and chemical characteristics and the same basic end uses. Therefore these products are considered to be alike within the meaning of Article 2(c) of the basic Regulation.

3. SUBSIDISATION

3.1. Preliminary remarks

(32) Both the GOC and the sampled Chinese exporting producers submitted questionnaire replies and accepted on-spot visits in order to verify the replies.

(33) With respect to the GOC, following the analysis of the questionnaire reply, the Commission sent a deficiency letter and two pre-verification letters. The Commission provided to the GOC ample time for the preparation and submission of its representations whenever this was requested and justified. Indeed substantial deadline extensions were granted to the GOC, i.e. 20 days extension for the reply to the questionnaire which resulted in an eventual deadline of 57 days for the submission of the questionnaire reply and 25 days for the reply to the deficiency letter.

(34) In its replies to the questionnaire, deficiency letters and various other submissions the GOC provided a reply only concerning schemes used by the sampled exporting producers and argued that it should not be requested to provide replies to questions relating to alleged subsidy schemes available also to non-sampled producers or producers which had not made themselves known.

(35) The Commission respectfully disagreed with this approach and explained to the GOC that the purpose of the questionnaire sent to the GOC is for the Commission to obtain information of subsidisation of the industry producing organic coated steel in China and to determine to what extent Union imports of the product concerned are subsidised. The Commission informed the GOC that broader information on the extent of subsidisation is required in order to address any significant non-cooperation by exporters which are alleged to have received benefits under particular subsidy schemes not used by the sampled or cooperating companies and possible requests for individual examination by cooperating exporting producers. However the GOC did not alter its approach and did not provide information on most of the other subsidy schemes alleged in the complaint but not used by the sampled companies.

(36) Prior to the on-spot verification visit, the GOC requested the Commission to provide further information in writing, in particular a list of all the questions that it intended to ask during the verification plus a list of the Government departments which were expected to participate in the on-spot visit. In the absence of these, it was argued that the GOC "was left unaware of what should have been prepared or could be expected during the verification" and that the pre-verification letter "certainly does not provide any indication of what the Commission actually intends to verify…".

(37) The Commission could not grant the GOC's request. In this respect it is noted that the Commission has fulfilled all the relevant conditions of Article 26 of the basic Regulation. A detailed pre-verification letter had been sent to the GOC confirming the agenda (days and group of schemes to be discussed per verification day) and requesting the presence of the authorities responsible for the relevant schemes and of the officials involved in the preparation of the GOC submissions. The Commission also explained before the on-spot verification visit that only the GOC could identify the authorities responsible for the schemes under investigation as well as those officials which are best placed to take part in the verification and answer questions. As regards the list of specific questions, the Commission explained that such a list is not required by EU legislation (nor by WTO requirements) and that the purpose of this investigation is to verify the GOC reply to the questionnaire and the relevant supplementary submissions; therefore the verification would follow the structure of these documents. The Commission would also seek to obtain and clarify further information necessary for the on-going proceeding but precise questions in this context would depend on the GOC's replies to the initial verification of its replies. It was also made clear to the GOC before the on-spot verification visit that refusals to provide necessary information or to assist the investigating authority in verifying information and data deemed necessary for the purposes of the proceeding might seriously undermine the investigation process. The GOC was also reminded of the consequences of the provision of Article 28 of the basic Regulation.

(38) During the on-spot verification visit to the Chinese Ministry of Commerce in Beijing, the Commission endeavoured to verify information provided on the basis of the supporting documents that were used to prepare the GOC's response, in line with the provisions of Articles 11 and 26 of the basic Regulation. In doing so, the Commission came preliminarily to the conclusion that the lack of information and supporting documents available did not allow a proper verification of the reply to the questionnaire. Moreover, certain information was not submitted at all although it was specifically requested and certain questions were simply not replied to. Consequently, the GOC was made aware of the consequences of non-cooperation in accordance with Article 28(1) and (6) of the basic Regulation.

(39) The GOC also submitted that the Commission was imposing an unreasonable burden on the GOC and had requested irrelevant and unnecessary information in the questionnaire and subsequent deficiency letter.

(40) With respect to the requested information it is noted that the Commission requested only information concerning allegations in the complaint that is deemed necessary for the purposes of arriving at a representative finding and remained consistent in its requests by asking for the same data and information during the investigating process and requesting the GOC to explain the submitted information and its implication for the investigated schemes. In other words, the Commission only requested information that was necessary to assess the existence and level of subsidisation available to the product concerned pursuant to other subsidy schemes alleged in the complaint. Such information would have allowed for an adequate determination of the amount of subsidisation granted pursuant to the other subsidy schemes under investigation available to the non-cooperating exporting producers. Since neither the representatives of the PRC nor the non-cooperating exporting producers provided the necessary information to determine whether the other subsidy schemes were available to the non-cooperating exporting producers, on the basis of best facts available, the Commission concluded that the other alleged subsidy schemes were indeed available to the other non-cooperating exporting producers, and proceeded to calculate the amounts of benefit conferred through those schemes on the basis of best facts available.

3.2. Individual Examination ('IE')

(41) Claims for IE were submitted by two cooperating exporting producers pursuant to Article 27(3) of the basic Regulation, i.e. Union Steel China (Union Steel) and Shenzhen Sino Master Steel Co. Ltd. It was not possible to grant these IEs to both companies as, due to the high number of alleged subsidy schemes and time consuming nature of anti-subsidy investigation, it would be unduly burdensome and could prevent completion of the investigation in good time.

(42) However, Union Steel had already been individually examined in the parallel anti-dumping investigation and consequently individual injury margin was calculated for this company.

(43) Given that the GOC provided only a reply concerning schemes used by the sampled exporting producers as explained in recital (34) above, it was practically impossible to analyse some of the subsidy schemes possibly used by Union Steel. Consequently, on the basis of facts available under Article 28 of the Basic Regulation, the average subsidy rate applicable to other co-operating companies was attributed to this company.

3.3. Specific Schemes

(44) On the basis of the information contained in the complaint the Commission sought information related to the following schemes, which allegedly involved the granting of subsidies by the Governmental authority:

(I) Government Provision of Goods and Services for Less than Adequate Remuneration (“LTAR”)

– Provision of inputs at less than adequate remuneration: Hot-rolled and cold-rolled steel

– Provision of land use rights for less than adequate remuneration

– Programmes consisting of provision of water for less than adequate remuneration

– Programme consisting of provision of electricity for less than adequate remuneration

– Programme consisting of provision of electricity and water at less than adequate remuneration in the Jiangsu Province

– Provision of various inputs for less than adequate remuneration

(II) Preferential loans and interest rates to the OCS industry

(III) Equity programmes

– Debt for equity swaps

– Equity infusions

– Unpaid dividends

(IV) Income and other direct taxes

– Tax policies for the deduction of research and development expenses

– Tax concessions for Central and Western regions

– Income tax credit for the purchase of domestically manufactured production equipment

– Preferential tax policies for companies that are encouraged as high and new technology enterprises

– Income tax concessions for the enterprises engaged in the comprehensive resource utilisation ('special raw materials')

– Tax credit concerning the purchase of special equipment

– Preferential income tax policy for the enterprises in the Northeast region

– Income Tax exemption for investment in domestic technological renovation

– Various local tax discounts (Shandong Province, Chongqing City, Guangxi Region Zhuang, Tax privileges to develop central and western regions)

– Dividend exemption between qualified resident enterprises

– Two free, three half tax exemptions for the productive FIEs

– Local income tax exemption and reduction programmes for the productive FIEs

– Income tax credit for FIEs purchasing domestically produced equipment

– Income tax subsidies for FIEs based on geographical location

(V) Indirect Tax and Import Tariff Programmes

– Import tariff and VAT exemptions for FIEs and certain domestic enterprises using imported equipment in encouraged industries

– VAT refunds to FIEs purchasing domestically produced equipment

– VAT deduction on fixed assets in the Central region

– Other tax privileges of Ma'anshan

(VI) Grant Programmes

– China World Top Brand programme

– Famous Brands programme

– The State key technology project fund

– Programmes to rebate anti-dumping legal fees

(VII) Purchase of goods by the Government for higher than adequate remuneration

(VIII) Other regional programmes

– Subsidies provided in the Tianjin Binhai New Area and the Tianjin Economic and Technological Development Area

– Programmes related to the Northeast Region

– Grants under the Science and technology programme of Jiangsu Province

– Grants under the Science and Technology programme of Hebei Province

(IX) Ad hoc subsidies referred to in the complaint

3.3.1. Government Provision of Goods and Services for Less than Adequate Remuneration (“LTAR”)

3.3.1.1. Provision of hot-rolled and cold-rolled steel (HRS and CRS) for less than adequate remuneration

(45) The allegation in the complaint was that the GOC controls certain upstream industries and products so as to provide favourably priced inputs to producers of OCS. On this basis OCS producers receive countervailable subsidies through the purchase from State-owned enterprises (SOEs) of government-produced HRS and CRS at a below the market price and thus at less than adequate remuneration for the SOEs.

Non-cooperation

(46) The Commission requested from the GOC detailed information concerning SOEs providing HRS and CRS to the Chinese exporting producers of OCS in order to verify the allegations in the complaint and to establish whether these SOEs are public bodies. In particular, the Commission created Appendix B to the questionnaire for the GOC intended for the SOEs and invited the GOC to provide information requested therein. In the deficiency letter the Commission again asked the GOC to provide the information requested in Appendix B and encouraged GOC to coordinate the responses with the SOEs concerned.

(47) However, GOC did not provide a reply to any of the questions in Appendix B and also failed to provide relevant information requested in the main questionnaire (e.g. on the ownership and control of Chinese government of the SOEs in the steel sector and its involvement in the reorganisation of Chinese steel industry). Instead of providing the requested information the GOC stated in its response to the questionnaire that the complainants have failed to demonstrate that the HRS and CRS producers are public bodies.

(48) Because of the lack of cooperation from the GOC the Commission had to look into other best information available. The Commission notified GOC about this course of action. In assessing whether the SOEs providing HRS and CRS to the Chinese exporting producers of OCS are public bodies the Commission considered the limited information provided by the GOC, information in the complaint, publicly available factual information from similar proceedings conducted by other investigating authorities, as well as other publicly available information, and based its findings on the totality of the information on the file.

(a) SOEs providing OCS producers with hot-rolled and cold-rolled steel are public bodies

Preliminary remarks

(49) The complainant claims that SOEs in China are public bodies within the meaning of Article 2(b) of the basic Regulation which provide goods (HRS and CRS) to OCS producers at below-market prices and thus confer a benefit to them.

(50) The WTO Appellate Body (AB), in its report in United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China[5] (the AB report) defined a public body as an entity that "possesses, exercises or is vested with governmental authority"[6]. The AB also considered that public bodies are also characterised by the "performance of governmental functions"[7] which would "ordinarily be considered part of governmental practice in the legal order of the relevant Member"[8].

(51) In light of the WTO AB conclusions, there are two questions for the analysis, i.e. (a) whether the SOEs in question perform functions which are ordinarily considered part of governmental practice in China and (b) if so, whether they exercise government authority when doing so?

Performance of governmental functions

(52) In the context of the GOC, there is ample evidence to show that the government is deeply involved in the management of the economy. The primary role of the Chinese government in the economy is guaranteed by the Constitution of the People's Republic of China. According to Article 7 of the Constitution reads: "The state economy is the sector of socialist economy under ownership by the whole people; it is leading force in the national economy. The state ensures the consolidation and growth of the state economy". Similarly Article 15 of the Constitution reads: "The state practices economic planning on the basis of socialist public ownership". Also the Constitution of the Communist Party of China prescribes the primary role of the public ownership, e.g. preamble of the Constitution of CCP reads: "the Party must uphold and improve the basic economic system, with public ownership playing a dominant role…" Also the various 5-year plans promulgated by the National Development and Reform Commission (NDRC) and adopted by the China's highest legal authority State Council point to the very strong grip of the Chinese government in the economy.

(53) As regards the steel sector, the information on the file suggests that the SOEs producing HRS and CRS in China often perform governmental functions described, inter alia, in the sectoral plans for iron and steel industry. These plans confirm that the GOC has chosen to be closely involved in the management and development of the steel industry in China and their implementation by SOEs can therefore be considered to fall under the heading of governmental practices. The plans provide targets and goals for all operators in the iron and steel industry and direct the whole sector to produce specific outcomes. In fact, the GOC is using the iron and steel SOEs as a prolonged arm of the state in order to achieve goals and targets set in the plans.

(54) Order No. 35 of the NDRC – Policies for Development of Iron and Steel Industry, inter alia, outlines a policy to decrease the number of iron and steel smelting enterprises and sets goals on the output for those steel enterprise groups that rank top 10 in the domestic market (Article 3), for the production capacity prohibits the establishment of new iron and steel associated enterprises (Article 10), prescribes the conditions to access into the iron and steel industry on the equipment level and also prescribes the technical and economic indexes steel and iron enterprises should follow (Article 12), sets rules for the changes in the organisational structure of steel enterprises (article 20), manages investments ( Articles 22, 23), conditions access to financial funds (Articles 25,26), gives state the right to intervene in the purchase of raw materials (Article 30).

(55) Twelfth 5 Year Development Plan for the Steel Industry summarises the achievement of goals set in the previous plan, covers the development strategy and sets goals for the entire steel industry. Similarly to the Order No.35 it sets very specific targets on the industrial clustering level (Section III.(III).6), encourages certain projects and discourages other (Section IV(IV))and discriminates in support for iron and steel industry in different provinces (Section IV(V), provides for support of large-scale steel enterprises and gives a leading role to the biggest state-owned Chinese steel producers such as Bao Steel, Anshan Iron and Steel, Wuhan Iron and Steel etc.[9] The plan also provides for the strengthening of the regulation and management of the existing steel enterprises' production operation (Section V(IV).

(56) Law of the People's Republic of China on the State-owned Assets of Enterprises also obliges the SOEs (or State-invested enterprises (SIEs) are referred to in this law) to comply with the national industrial policies[10]. Similarly the Tentative Measures for the supervision and Administration of the Investments by Central Enterprises oblige SOEs (SIEs) to follow development plans and industrial policies of the state[11]. According to Measures for the Administration of Development Strategies and Plans of Central Enterprises all SIEs shall formulate a development and strategy plan which State-owned Asset Supervision and Administration Commission of the State Council (SASAC) must examine and approve. When performing such examination and prior the approval SASAC must consider, inter alia, whether or not this plan complies with the national development planning and industrial policies and whether or not it complies with the strategic adjustment of the layout and structure of the State-owned economy[12].

(57) The concrete examples of the implementation of the measures described in the plans such as the relocation of the Capital Steel Corporation[13] or numerous mergers of steel enterprises[14] show that the plans are not only indicative documents which serve as guidelines but they result in concrete actions by the state-owned steel enterprises orchestrated by the government (represented by the NDRC and State Council).

(58) All of the specific actions described in the above paragraphs must be followed and executed by the enterprises covered by the plans. It is concluded that through this direct government involvement in steel enterprises' commercial behaviour, the state-owned steel enterprises act like an arm of the government in performing governmental functions which subsequently lead to the fulfilment of goals and targets set in the plans.

Government control of SOEs

(59) Having established that SOEs are performing government functions, the question remains as to whether they exercise government authority in doing so. In this regard, a key question is whether they are meaningfully controlled by the government[15]. If this is the case, it is reasonable to determine, in the light of all the relevant evidence, that SOEs act as an arm of government and effectively implement policy set out in the plans above.

(60) The governmental control described below indicates that SOEs possess, exercise or are vested with governmental authority. Control can be exercised, inter alia, through government ownership, administrative regulation and involvement of SASAC, boards of directors, government plans.

Government ownership

(61) As already mentioned in the section above concerning non-cooperation (recitals (46) to (48)), GOC did not provide the requested information on the ownership structure of the producers of HRS and CRS in China. With the reply to the questionnaire the GOC submitted a list of 54 companies in which the GOC is the largest shareholder, but during the verification visit it claimed that the list is not correct and also includes privately owned companies. The GOC did not correct the list and also did not specify which of the companies are privately owned and which are owned by the GOC. Because of the non-cooperation the Commission had to look at other evidence on the file and publicly available information.

(62) The complainant provided evidence that the major HRS and CRS producers are state owned and submitted detailed information in this respect in Annex 10 to the complaint[16]. Also other publicly available information[17] confirms that the GOC has ownership stake in many of the producers of HRS and CRS.

(63) Taking into account all the information on the file it is reasonable to conclude that the GOC has a significant ownership stake in many of the Chinese HRS and CRS producers.

Administrative regulation and involvement of SASAC

(64) SASAC performs the responsibilities of the State as an investor and manages the state-owned assets under its supervision. It is noted that although the GOC in its response to the questionnaire and subsequent submissions claimed that SASAC is not involved in the commercial operations of SOEs and supported this claim with reference to Article 7 of the Interim Measures for the Supervision and Administration of State-owned Assets of Enterprises[18], other articles of the same law and also other evidence on file[19] suggest otherwise.

(65) In fact, the GOC reply to the anti-subsidy questionnaire shows that SASAC, authorised by the State Council, appoints and removes the top executives of the supervised enterprises, and evaluates their performances through legal procedures. It is also responsible for urging the supervised enterprises to carry out the guiding principles and policies, has responsibility for the fundamental management of the state-owned assets of enterprises and directs and supervises the management work of local state-owned assets according to the law.

(66) SASAC is also responsible for remuneration and assessment of the SOEs' managers; furthermore, it appoints and decides on the rewards and punishments to the SOE managers[20]. In fact, all the evidence suggests that the careers of SOE managers depend on SASAC. These circumstances show that he SASAC clearly is vested with Governmental authority.

Board of directors

(67) The composition of the Boards of SOEs also demonstrates the high level of control by the GOC of the SOEs. The evidence on file[21] shows that many of the members of boards of directors and boards of supervisors hold or held in the past government and/or party functions and that their selection is strongly influenced by governmental authorities such as SASAC or Communist Party of China (CCP).

Government plans

(68) The GOC's policies, interests and goals concerning steel industry are set in various governmental plans on central and also sub-central level, The SOEs are encouraged to follow these policies (the non-compliant companies are even subject to sanctions) and from the recent actions of some major steel SOEs in China it is obvious that these policies are adhered to and the steel SOEs are working towards reaching the targets and goals set in the plans.

(69) According to the Twelfth 5 Year Development Plan for the Steel Industry only the "enterprises that comply with the nation's policies for the iron and steel industry and the Standards and Conditions for Production and Operation of the iron and steel industry play a primary role in merging and reorganization."[22]

(70) A number of provincial and local level plans also mention specific SOEs and set goals and targets for them. The complainant provided extracts from these plans[23]. All these plans were requested from the GOC in the questionnaire and in the deficiency letter for the purpose of verification and clarification but the GOC decided not to provide them. It is however noted that the GOC did not dispute the accuracy of these citations during the proceeding. Moreover, companies mentioned in the provincial and local plans admit their cooperation with authorities and describe how they act or acted in the past in line with the plans[24].

(71) Although the GOC claims that some of the above plans are only indicative, not binding and are supposed to serve merely as a guidance, this allegation is not supported by other evidence on file. On the contrary, many laws and regulations which certainly are legally binding[25] make the state development plans and industrial policies obligatory for the SOEs.

Conclusion

(72) The GOC formulates the goals and targets for the iron and steel industry through the 5-year plans and other relevant official documents and achieves these goals via the functions and activities described therein. Since these plans and documents are formulated by departments of the Chinese Government such as National Council or NDRC the functions and activities to which they refer should be considered governmental. Since as described above the steel SOEs are obliged to follow the plans and policies they act as an arm of the government and, since the government exercises meaningful control over them, they are in fact exercising government authority.

(73) In view of the lack of cooperation from the GOC, the scope of those entities which are considered "public bodies" was not defined to the full extent. In any event, any SOE in which the government is the majority or the largest shareholder is a public body. Entities in which the government has no shareholding are private bodies. Having that said, there is no need to draw a bright line between public and private bodies here, since in recitals (85) to (98) below, it is demonstrated that all private bodies in the steel sector are entrusted and directed by the State and so, for all relevant purposes, behave in the same way as public bodies.

(b) Benefit (public bodies)

General considerations

(74) In order to assess whether there is a benefit in accordance with Article 3(2) of the basic Regulation, it is necessary to compare the prices of HRS and CRS paid by the exporting producers concerned to the relevant benchmark. The AB report confirmed that in a case where the market of the country of provision is distorted by the role of the government, the use of external benchmarks was permitted. It also noted that "where the government is the predominant supplier, it is likely that private prices will be distorted, but a case-by-case analysis is still required"[26]. The AB also stated that: "….we are not suggesting that there is a threshold above which the fact that the government is the predominant supplier in the market alone becomes sufficient to establish price distortion, but clearly, the more predominant a government's role in the market is, the more likely this role will result in the distortion of private prices"[27]. The AB further stated that: "when the government is a "significant" supplier, evidence pertaining to factors other than government market share will be needed, as the government's role as a significant supplier cannot, on its own, prove distortion of private prices". Therefore, the first question to be answered is whether the government share of the production of HRS and CRS in China is predominant or merely significant.

(75) The Commission requested from the GOC information on the market of HRS and CRS in respect to the proportion of output of HRS and CRS produced by the SOEs and private companies but the GOC did not submit any relevant information in this respect[28].

(76) The Commission used other information available[29] concerning this issue on the basis of which it was established that at least 63% of HRS in China is produced by steel SOEs. It is important to note that this 63% share of SOEs was arrived at after very conservative analysis and represents the absolute minimum figure. The fact that many of the allegedly private suppliers reported by the exporters seem to be trading companies (which may well have purchased from the product from SOEs), the non-cooperation of the GOC (see recitals (46) to (48) above) and findings of other investigating authorities (see footnote 32) leads to the conclusion that the real share of SOEs on the HRS market is much higher. Also the strong involvement of the GOC in this sector HRS market (see recitals (85) to (94) below) limits the manoeuvring of the private operators.

(77) Taking the above into consideration it was established that the SOEs are predominant in the HRS market in China. This predominance of SOEs in the HRS market is so considerable that the private producers have no choice but to align their prices with the SOEs, as is demonstrated below.

(78) With regard to CRS, the reported share of SOEs from the Chinese exporting producers (18%) was much lower than in the case of HRS, however it was contradicted with other information (see recital (79) below). In view of non-cooperation from the GOC, the fact that many of the allegedly private suppliers reported by the exporters seem to be trading companies (which may well have purchased from the product from SOEs) and the limitations on commercial activities of private operators caused by the strong involvement of the GOC in this sector (see recitals (85) to (94) below) it is concluded (partly on the basis of facts available (see recital (79) below) within the meaning of Article 28 of the basic Regulation) that SOEs also predominate in the CRS market in China.

(79) This conclusion is corroborated by the World Steel Capacity Book, which contradicts the 18% share reported by the Chinese exporters and shows that more than 70% of the whole production capacity of CRS in China is state-owned[30].

(80) The Commission requested information from the GOC on prices of HRS and CRS by state-owned and privately owned companies sold on Chinese market. In the reply to the questionnaire the GOC did not provide any such information. The investigation at the exporters of OCS established that the prices paid by the four exporting producers/groups during the IP for the HRS and CRS sourced from private producers of HRS and CRS or from traders were consistently very close to the prices of SOEs[31]. Thus the observed data, together with the predominance of SOEs in this sector, demonstrates that the price of private suppliers effectively tracks the prices paid to SOEs. Furthermore, in the contract submitted by one of the sampled exporting producers for the provision of HRS by a privately owned supplier there is even a condition to link the price to the SOE supplier price.

(81) On the basis of the totality of the information on the file it is established that the prices of HRS and CRS sold by SOEs in China are distorted, as a result of the strong predominance of the SOEs in the HRS and CRS market in China. The prices of HRS and CRS of private suppliers are aligned with the prices of SOEs. Taking this into account it is concluded that there are no reliable market prices in China for the HRS and CRS. Since there are no "prevailing market terms and conditions" on the HRS and CRS market in China, the Commission, in accordance with Article 6(d) of the basic Regulation, had to look for an alternative benchmark. Since the whole of the Chinese market is distorted, it is considered impractical to adjust costs and prices in China in any meaningful way and import prices would appear to be similarly distorted by the predominance of SOEs. Therefore, in accordance with Article 6(d)(ii) of the basic Regulation, an external benchmark was sought.

(82) The most appropriate benchmark appears to be a constructed benchmark on the basis of the world market prices of HRS and CRS regularly published in various specialised steel journals like Steel Business Briefing, MEPS and CRU.

(83) Comparing the SOE prices to the out of country benchmark (constructed as explained in recital (103) below) showed that these prices were well below the benchmark prices and consequently resulted in benefit for the Chinese exporting producers of OCS within the meaning of Article 3(2) of the basic Regulation.

(c) Specificity

(84) This subsidy programme is specific within the meaning of Article 4(2)(c) of the basic Regulation given that the HRS and CRS is only used by limited number of industries and enterprises in China in their production.

(d) Entrustment and direction of private suppliers

(85) The next question to be addressed is whether the private producers of HRS and CRS, which are not public bodies, are nevertheless entrusted or directed by the GOC to provide HRS and CRS to the OCS producers, within the meaning of Article 3.1(a)(iv) of the basic Regulation.

Government policy

(86) At the outset, it has already been established that the GOC has a policy to provide HRS and CRS to the OCS sector, because public bodies, which are part of the government, are engaged in such provision and hold a predominant place in the market, which enables them to offer below-market prices. And in any event, regardless of the characterisation of those bodies as "public" or not, the same evidence shows the existence of government policy strongly interfering in this sector. It now has to be determined whether that policy extends to private suppliers.

Extension of policy to private suppliers of HRS and CRS

Government plans providing guidance and encouragement

(87) In a number of government plans and policy documents there are indications that steel producers in China (both SOEs and privately owned) are encouraged and supported by the GOC. Certain sections of these documents suggest that there is a direct link between the government and the conduct of the private steel companies and on a number of occasions it can be observed that this "guidance" resulted in action by steel companies as is recommended in the plans.

(88) For example, Order of the NDRC No.35- Policies for the development of Iron and Steel Industry encourages the steel companies to act in certain way[32], sets conditions on investments and makes investment subject to approval by the authorities[33], influence competition for resources[34] and even provide for sanctions for non-complying companies[35]. Also the Twelfth 5 Year Development Plan for the Steel Industry influences the business decisions of the steel companies which consequently can have impact on cost structure and prices[36].

(89) In addition to this the complainant provided in the Annex 24 to the complaint a collection of extracts from various policy documents of different government organisations highlighting the GOC support to the steel industry in general or organic coated business specifically[37].

(90) Furthermore, there is publicly available information showing that the privately owned companies act in accordance with different government plans and policy documents[38].

Export restrictions on hot-rolled and cold-rolled steel

(91) The GOC has taken steps to discourage the export of HRS and CRS by means of export restrictions imposed through the complex VAT refund system. More specifically HRS and CRS is subject to the payment of VAT at 17%. VAT for domestically sold OCS produced from CRS (which is produced from HRS) is refundable at 13% whereas if the company chooses to export HRS or CRS the VAT is not at all refunded. This system means that the privately owned producers of HRS and CRS are not able to act with normal commercial freedom and has the effect of increasing the domestic supply of HRS and CRS and inevitably depressing its price on the Chinese market. Thus private-owned HRS and CRS producers (in the same way as SOEs) are unable to act independently from the GOC policy.

Pricing of private suppliers

(92) In the section above concerning benefit for public bodies, it was established that due to the predominance of the steel SOEs in the HRS and CRS market the private producers of HRS and CRS have no choice but to align their prices with the SOEs prices. In other words they do not set the prices but they rather take them. This is another sign that the private producers of HRS and CRS cannot act independently from the actions of GOC and other public bodies.

(93) This fact is also supported by the information provided by the Chinese exporting producers which submitted replies to the anti-subsidy questionnaires which shows that the prices of private suppliers of HRS and CRS are almost aligned with those of SOEs. Furthermore, in the contract submitted by one of the sampled exporting producers for the provision of HRS by a privately owned supplier there is even a condition to link the price to the SOE supplier price.

(94) In view of the above finding that SOE prices are at below-market levels, it is clear that the prices of privately owned suppliers, being aligned to those of SOEs, are also at below-market levels.

(e) Financial contribution

(95) According to Article 3.1(a)(iv) – second indent - of the basic Regulation, a financial contribution exists where a government: "entrusts or directs a private body to carry out one or more of the type of functions illustrated in points (i), (ii) and (iii) which would normally be vested in the government, and the practice, in no real sense, differs from practices normally followed by governments;". The WTO Appellate Body has interpreted "direction" as referring to situations where a government exercises its authority, including some degree of compulsion, over a private body, and "entrustment" as referring to situations in which a government gives responsibility to a private body[39].In addition, the WTO panel on US-Export Restraints[40], established a three-pronged test for the existence of entrustment and direction, which requires the existence of (a) a government action, which is (b) addressed to particular party and (c ) the objective of which is a particular task or duty[41].

(96) On this basis, the inclusion of private suppliers in the GOC policy to supply HRS and CRS constitutes government "entrustment" and "direction" of private suppliers for the following reasons:

A government "action":

– The GOC "policy" (see recital (86) above), constitutes an "action" or "actions". The policy is carried out by public bodies (SOEs), which are predominant in the market and sell at below-market prices and by the GOC, through plans and the manipulation of export restrictions. The overall effect is that private suppliers are effectively compelled to follow the below-market prices of public bodies.

"Addressed to a particular party":

– The government policy (notably the plans and export restrictions) applies to all HRS and CRS producers, both state-owned and private. In this sense the policy is "addressed" to all producers. This is evidenced by the fact that SOE and private prices are aligned and that private suppliers sell at prices which are commercially unreasonable.

"the objective of which is a particular task or duty":

– The objective of the government policy, as evidenced by the price levels in China, is the provision of HRS and CRS at below-market prices. The actions of the GOC and SOEs leave private suppliers with no other choice but to follow the practices of public bodies and this effectively imposes a particular task or duty on them. The GOC policy, especially through the plans and VAT manipulation, severely restricts the freedom of private suppliers from this task or duty.

Conclusion

(97) Taking all of the above factors into consideration it can be concluded that the GOC export restriction, government planning and the predominance of SOEs limits the freedom of private suppliers of HRS and CRS, obliging them to act in a non-commercial manner and to accept economically irrational (below-market) prices which they would not do in a free and open market. This confirms that the government policy to supply HRS and CRS (including to the organic coated steel sector) extends to private suppliers.

(98) Furthermore, in view of the above analysis, the evidence on the file and other publicly available information led the Commission to the conclusion that private producers of HRS and CRS in China are entrusted and directed by the GOC to provide goods in line with Articles 3.1(a)(iii) and 3.1(a)(iv) of the Basic regulation and act in the same way as steel SOEs.

(f) Benefit (private suppliers)

(99) The Commission established that the private suppliers of HRS and CRS act under entrustment and direction of the GOC and the investigation showed that the prices of privately owned suppliers of HRS and CRS are aligned with SOEs prices (see the section above).

(100) Taking this into account it is concluded that the findings concerning benefit and specificity from the provision of HRS and CRS for below market prices by the SOEs also apply to the provision of HRS and CRS by privately owned suppliers.

(g) Findings of the investigation

(101) Two sampled exporting producers have benefited from this programme. One exporting producer (Panhua Steel Group) has benefited from the provision of HRS for less than adequate remuneration and the other exporting producer (Huadong Steel Group) has benefited from the provision of CRS for less than adequate remuneration.

(h) Calculation of the subsidy amount

(102) The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipient, which is found to exist during the IP. That benefit is calculated by taking the sum of the differences between the actual purchase values and appropriate benchmark values of the HRS and CRS purchases. The resulting amount was then allocated over the total sales turnover of the cooperating exporting producer during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(103) Since the Chinese market for HRS and CRS is distorted, world market prices of HRS and CRS were considered appropriate bases for constructing benchmark prices for HRS and CRS. On the basis of various steel journals (SBB and MEPS) domestic prices, net of taxes, of five countries/regions were selected (i.e. Europe, USA, Turkey, Japan and Brazil). In order to arrive at the representative benchmark the Commission selected the biggest market for each relevant geographical region, i.e. Europe (EU), North America (USA), Latin America (Brazil), Asia (Japan) and Middle East/North Africa (Turkey). The monthly average prices for the IP period of each of the five countries/regions were arithmetically averaged so as to arrive at the monthly benchmark prices. The five countries/regions selected did not have the highest prices during the IP, they are all members of WTO, are among the ten biggest steel producers worldwide and are located in different continents. The benchmark prices thus established are therefore considered reasonable and appropriate.

(104) The subsidy rate established with regard to this scheme during the IP for the sampled exporting producers amounts to 23,02% for the Huadong Group and 27,63% for the Panhua Group.

(105) The weighted average subsidy rate for the cooperating companies not included in the sample is 25,37%.

(106) Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 32,44%.

3.3.1.2. Provision of land use rights for less than the adequate remuneration

(a) Introduction

(107) The complainant alleged that there is no functioning market for land in China and the amount paid by the companies for the use of land is below the normal market rate. In its reply to the anti-subsidy questionnaire the GOC stated that "In accordance with the Land Administration Law of the PRC, land in urban districts shall be owned by the State; land in rural areas and suburban areas, except otherwise provided for by the State, shall be collectively owned by peasants". GOC claimed that there is a standardised and orderly competitive land market, land use rights must be publicly traded in accordance with the law in the land market. GOC also stated that industrial and commercial land should be obtained by compensation for the use in open market by bidding, auction and competition. The GOC did not provide any data with respect to the actual land-use rights prices, minimum land prices formulated by the government which were mentioned in the reply to the anti-subsidy questionnaire and during the verification visit.

(108) During the verification the Commission requested from the GOC evidence to support its claim that all the industrial land in China is assigned through bidding, quotation or auction. GOC was not able to provide such evidence during the verification visit, but submitted some information in this respect after the verification visit. However, all this evidence shows is that from thirteen land-use rights transactions concerning sampled exporting producers, only six were to be subject to bidding or auction process. No information on the auction/bidding process participant was provided as requested by the Commission and in fact on all occasions the final price paid by the company was same as the price arbitrarily set by the local authorities.

(109) The Commission also requested from the GOC, under the assumption that there is no market price for land in the PRC, its views on possible benchmarks. Although this was only an assumption and by no means a finding or conclusion at the time when the questionnaire was sent to the GOC, the GOC expressed its view that this assumption is false and did not provide any possible benchmarks. GOC also pointed out to the alleged deficiency in the complaint that on one hand the complainant alleges that there is no market for land in China and "out of country benchmark" should be used, but on the other hand alleges that the SOEs receive land from the government at favourable terms vis-à-vis private industry and suggested that should any benchmark be used it should be the prices that "not favoured" Chinese industries are paying, but did not provide any information on these prices. In this context it should be noted that the complainant alleged that the land use rights market in China was distorted as a whole and both state-owned and private OCS producers have received land-use rights for less than adequate remuneration.

(b) Legal basis

(110) The land-use right provision in China falls under Land Administration Law of the People's Republic of China and Real Right Law of the People's Republic of China.

(c) Practical implementation

(111) According to Article 2 of the Land Administration Law, all land is government-owned since, according to the Chinese constitution and relevant legal provisions, land belongs collectively to the People of China. No land can be sold but land-use rights may be assigned according to the law. The State authorities can assign it through public bidding, quotation or auction.

(d) Findings of the investigation

(112) The cooperating exporting producers have reported information regarding the land they hold as well as most of the relevant land-use rights contracts/certificates, but only very limited information was provided by the GOC about pricing of land-use rights.

(113) As mentioned above the GOC claimed that the land-use rights in China are assigned through bidding, auction and competition. This is also provided for in the Article 137 of the Real Right Law of the People's Republic of China[42].

Panhua Group Co. Ltd.

(114) However, during the verification of cooperating exporting producers it was found that this system as described by the GOC does not always work like that in practice. For example out of six land-use rights purchased by Chongqing Wanda Steel Strip Co. Ltd. (part of Panhua Group Co. Ltd) for four of them, as confirmed by company officials, there was no bidding process. Chongqing Wanda was the only participant and the final transaction price paid by the company was in fact exactly the same as the initial price arbitrarily set by the local Land Resources Bureau. As for the remaining two land-use rights there was a bidding process, but no evidence for this was provided neither by the company nor by the GOC. In fact, from the documents submitted by the GOC after the verification visit it appears that also these two land-use rights were purchased for the price identical to the price set by the local Land Resources Bureau. Zhangjiagang Panhua Steel Strip Co., Ltd (also part of Panhua Group Co. Ltd) obtained three land-use rights by transfer from private companies in exchange for share in Panhua Group Co. Ltd.

Zhejiang Huadong Light Steel Building Material Co., Ltd

(115) Zhejiang Huadong Light Steel Building Material Co., Ltd obtained two of its land-use rights from local Land and Resources Bureau, Xiaoshan District and one from the private company. No evidence on bidding or auction could be provided as according to the GOC for the land-use rights purchased before 1 September 2006 there were no sales confirmation for land use rights transactions and in fact the GOC did not confirm or deny that these transactions were subject to bidding or auction.

(116) The findings of the proceeding confirm that the situation concerning land provision and acquisition in China is unclear and non-transparent and the prices are often arbitrarily set by the authorities. The authorities set the prices according to the Urban Land Evaluation System which instruct them among other criteria to consider also industrial policy when setting the price of industrial land. Also, at least in the steel sector, the access to industrial land is by law limited only to companies respecting the industrial policies set by the State[43].

(117) Also, the independent information submitted by the complainant suggest that the land in China is provided for below the normal market rates[44].

(e) Conclusion

(118) Accordingly, the provision of land-use rights by the GOC should be considered a subsidy within the meaning of Article 3(1)(a)(iii) and Article 3(2) of the basic Regulation in the form of provision of goods which confers a benefit upon the recipient companies. As explained in recitals (114) - (115) above, there is no functioning market for land in China and the use of an external benchmark demonstrates that the amount paid for land-use rights by the cooperating exporters is well below the normal market rate. The subsidy is specific under Article 4 2(a) and 4 2(c) of the basic Regulation because the access to industrial land is by law limited only to companies respecting the industrial policies set by the State, only certain transactions were subject to a bidding process, prices often being set by the authorities and government practices in this area are unclear and non-transparent.

(119) Consequently, this subsidy is considered countervailable.

(f) Calculation of the subsidy amount

(120) As it was concluded that the situation in China with respect to land-use rights is not market-driven, there appear to be no available private benchmarks at all in China. Therefore, an adjustment of costs or prices in China is not practicable. In these circumstances it is considered that there is no market in China and, in accordance with Article 6(d)(ii) of the basic Regulation, the use of an external benchmark for measuring the amount of benefit is warranted. Given that the GOC did not cooperate or failed to submit any proposal for an external benchmark the Commission had to resort to facts available in order to establish an appropriate external benchmark. In this respect it is considered appropriate to use information from the Separate Customs Territory of Taiwan as an appropriate benchmark.

(121) The Commission considers that the land prices in Taiwan offer the best proxy to the areas in China where the cooperating exporting producers are based. The majority of the exporting producers are located in the eastern part of China, in developed high-GDP areas in provinces with a high population density.

(122) The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is calculated by taking into consideration the difference between the amount paid by each company for land use rights and the amount that should have been normally paid on the basis of the Taiwanese benchmark.

(123) In doing this calculation, the Commission used the average land price per square meter established in Taiwan corrected for currency depreciation and GDP evolution as from the dates of the respective land use right contracts. The information concerning industrial land prices was retrieved from the website of the Industrial Bureau of the Ministry of Economic affairs of Taiwan. The currency depreciation and GDP evolution for Taiwan were calculated on the basis of inflation rates and evolution of GDP per capita at current prices in USD for Taiwan as published by the IMF in its 2011 World Economic Outlook. In accordance with Article 7(3) of the basic Regulation this subsidy amount (numerator) has been allocated to the IP using the normal life time of the land use right for industrial use land in China, i.e. 50 years. This amount has then been allocated over the total sales turnover of the co-operating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(124) The subsidy rate established with regard to this scheme during the IP for the cooperating exporting producers amounts to 0,34% for the Huadong Group and 1,12% for the Panhua Group.

(125) The weighted average subsidy rate for the cooperating companies not included in the sample is 0,73%.

(126) Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 1,36%.

3.3.1.3. Programme consisting of provision of water for less than adequate remuneration

(a) Introduction

(127) The complaint alleged that water prices in China are exclusively determined by public authorities and that the pricing structure is set according to industrial macro-policies. It also reported that water prices were different in the various local areas and that there was also a differentiation of rates on a company-by-company basis. The complaint alleged that it was likely that OCS producers had benefitted from water prices for less than adequate remuneration in accordance with the policy to encourage high-added value steel products.

(128) The water supply and market in China is administered by the NDRC, the Ministry of Water Resources and the Ministry of Environment. The water supply market is still largely dominated by local state-owned companies, although the entrance of foreign investment companies in some water supply projects of certain cities has broken the monopoly of state suppliers. However, the GOC was unable to provide a detailed list of water suppliers with their service area and volumes supplied (see recital (129) below), but limited its reply to a list of water suppliers in the areas of the sampled exporting producers.

(129) As for pricing, the NDRC formulates the main pricing policy and the local authorities set the local water price after a hearing procedure with the aim to pursue a sustainable utilisation of water resources. The prices reflect the costs together with a reasonable profit for the local water suppliers. The GOC submitted the relevant price lists applicable in the municipalities where the sampled OCS producing exporters were located. It was clarified that the various municipal prices apply to all industrial users uniformly and do not vary by company or users.

(b) Findings of the investigation

(130) The investigation confirmed that the NDRC sets the basic price of water, and the municipal price administrative authorities set the price for each municipality on the basis of several parameters (e.g. costs of distribution, profit, and reasonable surplus). The water price is supplemented by a 'sewage treatment' fee also set at municipal level.

(131) While the basic water price, the sewage treatment fee and other possible local surcharges are equally applicable to all users falling in the same categories, it was found that one of the two sampled exporters, Zhejiang Huadong Group, did not pay the sewage treatment fee.

(132) The exporter claimed that it paid this fee as a lump-sum amount to the Environment Protection Bureau. However, it is not considered that this payment was made on the place of the sewage treatment fee for the following three reasons: (1) the official document reads "waste water emission" fee and not "sewage treatment" fee; (2) the payment is not proportional to the actual water consumption; (3) the total amount paid is quite small as compared to the actual amount that would have been payable if the sewage treatment fee on the actual water consumption had been due.

(c) Financial contribution

(133) Zhejiang Huadong Group received a financial contribution within the meaning of Article 3(1)(a)(iii) of the basic Regulation in that the government provided water through the local public water supply company (i.e. Hangzhou Xiaoshan Water Supply Co. Ltd.). This constitutes a government financial contribution in the form of provision of goods other than general infrastructure within the meaning of the basic Regulation. Alternatively, this could be viewed as revenue foregone by the government because a public body did not collect revenue otherwise due in the sense of Article 3(1)(a)(ii).

(d) Benefit

(134) Huadong Steel Group received a benefit within the meaning of Article 3(2) of the basic Regulation to the extent that the government has provided water for less than adequate remuneration. It has been established that this exporter has not paid the full price for water supply normally applicable to the category of users to which it belongs, as the "sewage treatment fee" component of the water price has not been paid.

(e) Specificity

(135) The subsidy in form of provision of water to one of the cooperating exporters is specific within the meaning of Article 4(2)(c) of the basic Regulation, since the sewage treatment fee is not waived for all enterprises. Notwithstanding the absence of legislation limiting this subsidy to certain enterprises, the possibility for a certain enterprise producing the product concerned to obtain water supply for less than adequate remuneration, coupled with the apparent discretion conferred with the local authorities to waive part of the rate normally paid for water, makes the subsidy in fact specific. The Commission could not collect any further evidence concerning the basis on which this fee was waived as the exporting producer was unable to provide it.

(f) Calculation of subsidy amount

(136) The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. That benefit is considered to be the amount of sewage treatment fee not paid for water consumption during the IP. In accordance with Article 7(2) of the basic Regulation, this subsidy amount (numerator) has been allocated over the total sales turnover of the cooperating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(137) Zhejiang Huadong Group has benefited from the non-payment of the sewage treatment fee. The subsidy rate established for it is 0,01%.

(138) The weighted average subsidy rate for the cooperating companies not included in the sample is 0,01%.

(139) Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for the sampled cooperating companies, i.e. 0,01%.

3.3.1.4. Programme consisting of provision of electricity for less than adequate remuneration

(a) Introduction

(140) The complaint alleged that the GOC has provided electricity for less than adequate remuneration through preferential rates. In particular, the complaint asserted that electricity rates were set differently in different provinces and also that preferential rates were used as an industrial policy tool to encourage high added-value steel products and discourage outdated production capacities.

(141) The NDRC is responsible for regulating the electricity market and setting the pricing in China. The trans-provincial and provincial grids are operated by two state-owned suppliers: State Grid Corporation of China and China Southern Power Grid Corporation. The electricity suppliers at municipal level are subsidiaries of these companies. A competition mechanism is in the process of being introduced in China through a few pilot projects, but its impact is still negligible at this stage.

(142) The electricity prices are set by the NDRC on the basis of a procedure that includes cost investigation, expert appraisal, public hearings, and final price determination and publication. The NDRC publishes the prices applicable to each province into Notices, and then the local price bureaux publish a corresponding notice at local level implementing the prices decided by the central NDRC. The final price reflects purchasing costs, transmission costs and losses, and government surcharges. The prices are differentiated by province depending on the local situation and policy objectives pursued in the various provinces. They are set for different end user categories (e.g. residential, industrial users). An additional price differential exists for different industrial users to pursue the industrial policies set by the GOC and reflected in the catalogue contained in Decision No. 40 (2005) of the NDRC (see further explanation in recital (182)). Users falling in the 'encouraged' enterprises according to the NDRC catalogue pay the basic electricity rate, whereas users falling in the 'outdated' or 'prohibited' enterprises pay a surcharge on top of the basic rate. Users not falling into any category listed in the catalogue fall in the default category of 'allowed' enterprises and also pay the basic rate without surcharges. OCS producers would normally fall in the category of 'encouraged' enterprises according to Decision No. 40 of the NDRC.

(b) Non –cooperation

(143) The Commission requested from the GOC the regulatory framework of the electricity market and pricing and the role that all relevant bodies or entities play. The GOC failed to submit the full set of the relevant pricing decisions issued by the NDRC and the local price bureaux not only with regard to the non-sampled producing exporters, but also with regard to the sampled producing exporters. The GOC also failed to describe accurately the role of the NDRC and the local price bureaux in the setting of the prices. The Commission informed the GOC of these shortcomings with regard to the sampled producing exporters in its letter of 12 August 2012. It was also discovered after the verification visits that the GOC indicated an incorrect electricity rate applicable to one of the sampled cooperating exporters.

(c) Findings of the investigation

(144) The investigation confirmed that it is the NDRC that sets the prices of electricity applicable in the various provinces. It was verified that the local price bureau merely acts as an executive arm of the decision taken at central level by the NDRC. This is also confirmed by the fact that the NDRC issues Notices in which it sets the actual prices set for each province and then these notices are formally transposed into local notices adopted by the local price bureaux and implemented at local level. The investigation also established that differential electricity rates applicable for certain sectors and/or at provincial and local level are set in accordance with certain factors, including notably the pursuit of the industrial policy goals set by the central and local governments in their 5-year plans and in the sectoral plans.

(145) The investigation of the cooperating sampled exporters showed that one of them, i.e. Chongqing Wanda Steel Strip ("CWSS") benefited from an electricity rate lower than the rate generally applicable for large industrial users. It was found that in the specific area where this exporter was located a sub-category of certain industrial users, including those producing the product concerned, were entitled to this lower rate.

(d) Financial contribution

(146) One of the cooperating sampled exporters (CWSS) received a financial contribution in the sense of Article 3(1)(a)(iii) of the basic Regulation in that the government provided electricity through the local public electricity supply company. This constitutes a government contribution in the form of provision of goods other than general infrastructure within the meaning of the basic Regulation.

(e) Benefit

(147) CWSS received a benefit within the meaning of Article 3(2) of the basic Regulation to the extent that the government has provided electricity for less than adequate remuneration. It has been established that this exporter was entitled to a rate lower than the rate generally applicable to other large industrial users.

(f) Specificity

(148) The subsidy in form of provision of electricity to one of the cooperating exporters is specific within the meaning of Article 4(2)(a) and 4(3) of the basic Regulation. The lower electricity rate is set out in the relevant NDRC Notice and incorporated in the Notice issued by the local Price Bureau, i.e. it is mandated by a central authority and administered at local level. This lower rate is limited to certain enterprises in certain specified sectors (mainly producers of ferroalloy in electronic furnace and fertilizer companies) included in a sub-category of large-scale industrial users. Therefore, this lower rate is limited de jure only to companies falling into these categories in the meaning of Article 4(2)(a) of the basic Regulation.

(149) The subsidy is also limited to a certain region in that it only applies in a limited designated geographical area where the exporting producer is located. This area is encouraged according to legislation issued by the Central Government, i.e. the Circular of the State Council Concerning Several Policies on Carrying out the Development of China's Vast Western Regions (see for more details recital (233) below). This Circular explicitly mentions price mechanism in electricity transmission and provision as one of the tools to achieve development of certain sectors. As the electricity rates applicable in this area are set by a central authority, this subsidy is also regionally specific within the meaning of Article 4(3) of the basic regulation.

(g) Calculation of subsidy amount

(150) The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit to the exporting producers has been calculated by considering the difference between the actual electricity rate per Kwh paid and the rate that should have been paid per Kwh for large industrial users, multiplied by the electricity volume consumed during the IP. In accordance with Article 7(2) of the basic Regulation this amount (numerator) has then been allocated over the total sales turnover of the cooperating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(151) One of the cooperating sampled exporting producers belonging to the Panhua Group of companies (i.e. CWSS) has benefited from this lower electricity rate. The subsidy rate established for the Panhua Group is 0,14%.

(152) The weighted average subsidy rate for the cooperating companies not included in the sample is 0,07%.

(153) Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 0,17%%.

3.3.1.5. Provision of various goods for less than adequate remuneration

(154) The complaint referred to a number of other goods provided by the GOC to OCS producers through its SOEs. In particular, the complaint listed a number of specific transactions concerning the provision of several steel outputs manufactured by SOEs, including iron ore concentrate, pellets, sintered ore, scrap, billet, sintered ore, alloys and many others. The complaint showed that the price for the provision of these goods was set by reference to different elements and/or benchmarks, and that there were price caps or adjustments depending on the different goods and on whether the transaction concerned related parties.

(155) The GOC replied that it did not have this programme for steel makers during the IP. Given the lack of further information provided by the GOC on this programme, the Commission based its findings on the information available on file according to Article 28 of the basic Regulation.

(156) To the extent that prices for the various goods mentioned above do not reflect adequate remuneration, this programme is countervailable according to Article 3(1)(a)(iii) and Article 6(d) of the basic Regulation. However, the complexity of the various transactions for the provision of these goods and of the underlying contracts which were not available in the record of the proceeding did not enable the Commission to come to a firm conclusion on this programme. Therefore the Commission has decided not to assess this programme further.

3.3.2. Preferential loans and interest rates to the OCS industry

(a) Introduction

(157) The complainant alleged that the OCS producers benefit from low (subsidised) interest rates from state-owned commercial banks and government banks in accordance with the GOC policy to support and develop the expansion of the Chinese steel industry under the five year plans.

(b) Non-cooperation and the use of facts available

(158) The Commission requested from the GOC information concerning the proportion of loans provided by the banks where the GOC is the largest or sole shareholder, banks where the GOC has a shareholding stake but is not the largest shareholder, banks where the GOC is not a shareholder and banks which are foreign owned, to both industry as a whole and to the industry concerned by this proceeding. The GOC replied that it does not retain records of the amounts and percentages of the loans provided by the state-owned banks and that the GOC also does not retain the records of loans for steel industry. GOC did not suggest any alternative source for this information.

(159) The Commission also sought information about the state ownership of the banks and financial institutions but the GOC did not provide the information claiming that it does not retain such records. Although it is unlikely that the GOC is not aware of the assets it owns, it is noted that according to the publicly available information[45][46] the GOC is a major shareholder in many of the major banks established in China and therefore, as in the case of the SOEs producing HRS and CRS, it has access to banks' Articles of Association where the information on shareholdership should be described in detail. In this respect it is also noted that according to Article 61 of the Law on Commercial Banks [2003] the banks "shall report the balance sheets, statements of profits, and other financial statement and statistical reports and documents to the banking regulatory organ of the State Council and People's Bank of China".

(160) The Commission also requested information (by means of a specific questionnaire – Appendix A) concerning the structure of government control in the Chinese banks concerned and the pursuit of government policies or interests with respect to the steel industry (i.e. board of directors and board of shareholders, minutes of shareholders/directors meetings, nationality of shareholders/directors, lending policies and assessment of risk with respect to loans provided to the cooperating exporting producers). Nevertheless, in the reply to the questionnaire the GOC submitted only one Appendix A which contained some general information (mostly compiled from websites of the banks). Most of the specific information requested in Appendix A was not provided. To some of the questions the GOC replied that it does not have such information at this time and to some it only provided information on selected banks (e.g. Articles of Association were only provided for eight banks). In the deficiency letter, the Commission repeated its request and invited the GOC to provide all the information as originally requested in the questionnaire. In its reply to the deficiency letter the GOC submitted some additional information. However, the answer was still very incomplete and much of the requested information (e.g. the percentage of government ownership in state-owned banks, the Articles of Association of some banks listed in the questionnaire, complete replies questions in Appendix A) was not provided.

(161) In the questionnaire, deficiency letter and again during the on-spot verification visit the Commission requested circulars of the People's Bank of China (PBOC) concerning expansion of financial institutions' loan interest rate policy (YinFa [2003] No.250 and YinFa [2004] No 251). The Commission learned about the existence of these circulars in the course of previous investigation[47]. However, instead of providing these circulars the GOC referred the Commission to the PBOC website to find out about the financial institutions' loan interest rate policy. During the verification two exhibits were submitted in this respect, but these were only printouts from the website. It is noted that no complete content of these Circulars could be found on the PBOC website.

(162) The Commission requested also the Circular of PBOC concerning the changes of 8 June 2012 to be submitted during the on-spot verification. The GOC did not provide the Circular and instead it only provided general information printed from the PBOC website concerning adjustment of benchmark interest rates.

(163) The Commission also asked the GOC to arrange meetings with specific banks in order to verify information concerning preferential lending to the OCS industry. However the GOC failed to organise such meetings and claimed that it was unable to intervene with state-owned banks to arrange such meetings. It is also noted that in the pre-verification letter of 7 June 2012 the Commission explained that it would be prepared to start the verification one day earlier and in fact allow more time for the verification should the GOC consider that banks are best placed to provide clarifications and explanations concerning preferential lending. The Commission therefore requested the GOC to confirm the presence of the banks before the verification so that necessary arrangements could be made by the verification team. In its letter of 15 June 2012 the GOC stated that it would continue to request the banks to cooperate but that it could not coerce them to do so. Eventually, it was only during the first day of the verification that the Commission team was informed that the representative of the China Construction Bank was available for the questions and explanations. Since the Commission had not been informed about this (although specifically requested in the pre-verification letter) it was not possible to address specific questions about contracts and loan terms but only questions of a general character. In any event, no supporting documentation was provided for the statements made by the representative of the China Construction Bank with the explanation that all the documents that the Commission requested would be confidential and of an internal character.

(164) The GOC was made aware of the consequences of non-cooperation in accordance with Article 28(1) and (6) of the basic Regulation. In view of this lack of cooperation, it has been necessary, in addition to taking account of relevant GOC documents submitted by other parties, to use information from secondary sources, including the complaint and publicly available information retrieved from internet.

(c) Findings of the investigation

State involvement in the banking sector

(165) The investigation has established that the Chinese financial market is characterised by government intervention because most of the major banks are state-owned. The Chinese authorities have provided only very limited information concerning shareholding/ownership of banks in China. However, as further outlined below, the Commission compiled available information in order to arrive at a representative finding. In performing its analysis whether banks are entities vested with or exercising government authority (public bodies) the Commission also sought information concerning not only the government ownership of the banks but also other characteristics such as the government presence on the board of directors, the government control over their activities, the pursuit of government policies or interests and whether entities were created by statute.

(166) From the available information it is concluded that the state-owned banks in China hold the highest market share and are the predominant players in the Chinese financial market. According to the 2006 Deutsche Bank Research on China's banking sector[48], the state-owned banks' share may amount to more than 2/3 of the Chinese market. For the same matter the WTO Trade Policy Review of China noted that “The high degree of state ownership is another notable feature of the financial sector in China”[49] and "there has been little change in the market structure of China's banking sector, which is dominated by state-owned banks"[50]. It is pertinent to note that the five largest state-owned commercial banks (Agricultural Bank, Bank of China, Construction Bank of China, Bank of Communications and Industrial and Commercial Bank) appear to represent more than half of the Chinese banking sector[51].

(167) The Commission also requested information concerning the structure of government control in those Chinese banks and the pursuit of government policies or interests with respect to the steel industry (i.e. board of directors and board of shareholders, minutes of shareholders/directors meetings, nationality of shareholders/directors, lending policies and assessment of risk with respect to loans provided to the cooperating exporting producers). Nevertheless, as noted in recital (160) above, the GOC provided only very limited information in this respect. Consequently, the Commission had to use the information available. It concluded on the basis of the available data that those banks are controlled by the government and exercise government authority in a manner that their actions can be attributed to the State. The relevant data used in order to arrive at the aforesaid findings is derived from information submitted by the GOC, the annual reports of Chinese banks that were either submitted from GOC or publicly available, information retrieved from the 2006 Deutsche Bank Research on China's banking sector, WTO Policy review on China (2010 and 2012), China 2030 World Bank Report, information submitted from the co-operating exporting producers and information existing in the complaint. As for foreign banks, independent sources estimate that they represent a minor part of the Chinese banking sector and consequently play an insignificant role in policy lending; with relevant information suggesting that this may represent as little as 1% of the Chinese market[52]. Relevant publicly available information also confirms that Chinese ba