Proposal for a Council Regulation amending the anti-dumping measures imposed by Council Regulation (EC) No 1334/1999 on imports of magnesium oxide originating in the People's Republic of China
Date: 2003-05-23
Institutions: European Commission
Subjects: China, anti-dumping legislation, common tariff policy, import (EU), magnesium, originating product

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 23.5.2003
COM(2003) 292 final

Proposal for a

COUNCIL REGULATION

amending the anti-dumping measures imposed by Council Regulation (EC)
No 1334/1999 on imports of magnesium oxide originating
in the People's Republic of China

(presented by the Commission)

EXPLANATORY MEMORANDUM

On 13 June 2002 a partial interim review limited to the form of the measure was initiated with
regard  to  anti-dumping  measures  imposed  by  Council  Regulation  (EC)  No  1334/1999  on
imports  into  the  Community  of  magnesium  oxide  originating  in  the  People’s  Republic  of
China.

The attached proposal for a Council Regulation is based on the findings of the investigation
with  regard  to  the  need  to  foresee  in  the  operative  part  of  Council  Regulation  (EC)  No
1334/1999 an introduction of an ad-valorem duty for all sales not made between an exporter
in the People’s Republic of China and an unrelated importer in the Community as well as a
clause for damaged goods.

It is therefore proposed that the Council adopt the attached proposal for a Council Regulation
which should be published as soon as possible in the Official Journal of the European Union.

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Proposal for a

COUNCIL REGULATION

amending the anti-dumping measures imposed by Council Regulation (EC)
No 1334/1999 on imports of magnesium oxide originating
in the People's Republic of China

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having  regard  to  Council  Regulation  (EC)  No  384/96  of  22  December  1995  on  protection
against  dumped  imports  from  countries  not  members  of  the  European  Community1  (“basic
Regulation”), and in particular Article 11(3) thereof,

Having  regard  to  the  proposal  submitted  by  the  Commission  after  consulting  the  Advisory
Committee,

Whereas:

A. PROCEDURE

Measures in force

In  June  1999,  the  Council,  by  Regulation  (EC)  No  1334/19992,  imposed  definitive
anti-dumping  duties  on  imports  of  magnesium  oxide  originating  in  the  People’s
Republic of China (the “PRC”). The duties took the form of a minimum import price
(“MIP”).

Initiation

On  13  June  2002,  the  Commission  announced  by  a  notice  (“Notice  of  Initiation”)
published  in  the  Official  Journal  of  the  European  Communities3,  the  initiation  of  a
partial  interim  review  of  the  anti-dumping  measures  applicable  to  imports  into  the
Community of magnesium oxide originating in the PRC pursuant to  Article 11(3) of
the basic Regulation.

The review was initiated on the initiative of the Commission in order to examine the
appropriateness of the form of the measures in force. The current measures in the form
of an MIP do not differentiate between sales made to related parties and sales made to
unrelated  parties,  or  between  direct  sales  to  the  Community  and  indirect  sales,  i.e.
sales not made directly from an exporter in the country concerned to an importer in the
Community. This lack of differentiation between different types of sales possibly leads

OJ L 56, 6.3.1996, p. 1, as last amended by Regulation (EC) No 1972/2002 (OJ L 305, 7.11.2002, p. 1).
OJ L 159, 25.6.1999, p. 1.
OJ C 140, 13.6.2002, p. 6.

1.

(1)

2.

(2)

(3)

1

2

3

3

                                                
to circumvention problems. Indeed, parties could set the import price at an artificially
high  level  when  entering  the  Community,  in  order  to  avoid  the  payment  of  anti-
dumping  duties.  This  artificially  high  level  may  be  attained  through  an  agreement
between related parties or because the price was inflated due to successive sales before
customs clearance.

Consequently,  the  existing  measures  do  not  appear  sufficient  to  counteract  the
dumping which is causing injury.

Furthermore, the current measures do not cater for situations in which imported goods
have  been  damaged  before  entry  into  free  circulation  into  the  Community.  In  this
respect  it  should  be  noted  that,  since  the  measures  should  not  go  beyond  what  is
necessary for the removal of injury, due account should be taken of the possible value
reduction  in  cases  of  damage  before  the  goods  enter  into  free  circulation  into  the
Community.

Investigation

The  Commission  officially  advised  exporting  producers,  the  importers,  the  users
known  to  be  concerned  and  their  associations,  the  representatives  of  the  exporting
country  concerned  and  the  Community  producers  about  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 out in the Notice of Initiation.

One  chamber  of  commerce  in  the  country  concerned,  as  well  as  an  association  of
Community  producers  and  Community  importers/traders  made  their  views  known  in
writing.  All  parties  who  so  requested  within  the  set  above  time  limit  and  who
demonstrated  that  there  were  particular  reasons  why  they  should  be  heard  were
granted the opportunity to be heard.

(4)

(5)

3.

(6)

(7)

(8)

(9)

The Commission sought and verified  all the information it deemed  necessary  for  the
purpose of a determination of the appropriateness of the measures in force.

B. SALES MADE TO RELATED AND UNRELATED PARTIES

(10) When  they  export  to  related  companies  in  the  Community,  exporters  subject  to
measures  are  in  a  position  to  invoice  at  a  price  above  the  MIP,  and  to  subsequently
compensate  such  a  price  after  customs  declaration.  This  may  render  the  MIP
ineffective,  as  it  may  mean  that  the  product  concerned  is  effectively  still  exported
below the MIP to  the Community. Accordingly,  this  could  lead  to  subsequent  resale
prices in the Community which prevent that the intended effects of the measure, i.e. to
remove the injurious effects of dumping, are achieved.

(11)

If,  however,  sales  made  by  exporters  located  in  the  PRC  to  related  importers  in  the
Community were subject to an ad valorem duty, the serious risk of such a duty evasion
between  related  parties  would  be  considerably  reduced  and  any  possible  price
manipulation  would  be  more  easily  detected.  Indeed,  an  ad  valorem  duty  would  be
assessed in relation to the value in view of the existing rules on the determination of
the customs value of goods imported into the Community as set out in the Community

4

Customs  Code4.  For  transactions  made  between  unrelated  parties,  the  Community
Customs  Code  assumes  that  the  value  of  imported  goods  for  customs  purposes  is
normally the transaction value. In order for a transaction value between related parties
to  be  accepted  by  customs,  the  exporter  must  demonstrate  that  this  value  closely
approximates  to  one  of  the  transaction  values  as  defined  in  Article  30  of  the
Community  Customs  Code.  It  is  part  of  the  daily  activity  of  customs  authorities  to
detect possible underestimates of the transaction values so determined. Indeed, if the
customs  authorities  detect  an  artificially  low  transfer  price  between  related  parties,
they  will  calculate  a  new  customs  value  that  would  then  be  higher.  The  Community
customs legislation5 provides an exhaustive definition of “related parties” for customs
purposes.  It  is  therefore  part  of  the  routine  activity  of  the  customs  authorities  to
determine  if  a  transaction  is  made  between  related  parties,  and  hence  the  customs
authorities are well equipped to identify the status of parties dealing with the product
concerned.  As  a  result,  should  an  ad  valorem  duty  be  applied,  customs  authorities
would be in a position to detect any irregular value declaration between related parties,
thus making circumvention more difficult.

(12) A  duty  will  have  to  be  paid  based  on  the  amount  of  the  transaction  value.  Should
parties  reduce  the  transaction  value,  this  will  have  consequences  in  subsequent
reviews,  including  anti-absorption  investigations,  since  these  low  transaction  values
will be taken as a basis for the determination of the new export price with the potential
of  an  increase  of  the  dumping  margin.  In  this  context,  in  the  case  of  an  ad  valorem
duty, the (low) transaction values are evidenced in the relevant shipping documents.

(13)

Finally, it should also be considered that the incentive for related parties to manipulate
prices is higher in case of an MIP. Indeed with an MIP, price manipulations could lead
to avoiding the anti-dumping duty completely. In the case of an ad valorem duty, on
the other hand, possible price manipulations will only lead to a lower duty, as the duty
is  a  percentage  of  whatever  price  is  being  charged.  The  risk  of  manipulation  is
therefore higher when an MIP applies than when an ad valorem duty applies.

(14) Community producers requested that no change in the form of the measures should be
applied for transactions between related importers. They argued that there is a risk that
national customs authorities will not properly identify the status of related importers.
As a consequence, it is claimed that unrelated importers might hold themselves out to
be related importers, thus benefiting from the ad valorem duty as opposed to the MIP
in an unjustified manner. In this respect, as mentioned above, customs authorities are
in a position to identify the status of the parties involved. Moreover, whatever its form,
i.e. whether a minimum import price or an ad valorem duty, the effect of the duty is
the same, namely to remove the effects of injurious dumping. For these reasons, even
in the unlikely event that importers wrongly hold themselves out to be related, the duty
will still have the same effect, whilst the overall risk of circumvention is considered to
be lessened.

4

5

OJ L 302, 19.10.1992, p. 1.
Commission  Regulation  (EEC)  No  2454/93  of  2  July  1993  laying  down  provisions  for  the
implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code
(OJ L 253, 11.10.1993, p. 1), as last amended by Regulation (EC) No 444/2002 (OJ L 68, 12.3.2002,
p. 11).

5

                                                
(15) Given  the  above,  it  is  also  concluded  that  if  sales  made  by  exporters  located  in  the
PRC to related parties in the Community were subject to an ad valorem duty, the risks
of  circumvention  of  the  duty  would  be  much  reduced.  The  request  by  Community
producers  not  to  change  the  form  of  the  measures  for  related  importers  is  therefore
rejected.

(16) Community producers also argued that the definition of price in the operative part of
Regulation  (EC)  No  1334/1999  “net,  free-at-Community  frontier”  still  allows  the
importer  to  clear  the  goods  at  the  end-customer’s  warehouse,  including  all  logistics
costs  incurred  from  “CIF  free  out”  to  “franco  end-customer”  and  that  thereby  the
import price may be artificially high. It was therefore requested to change the wording
into “free-at-Community port”.

(17) However,  the  customs  value  arrived  at  by  the  definition  “net,  free-at-Community
frontier” includes only the cost of transport and insurance of the imported goods, and
loading  and  handling  charges  associated  with  the  transport  of  the  imported  goods  to
the  place  of  import  into  the  Community  customs  territory.  Consequently,  costs
incurred  after  import  from  the  frontier  to  the  end-customer  are  not  included  and  the
request is therefore rejected as unfounded.

(18)

The  Community  industry  also  argued  that  in  order  to  avoid  any  absorption  of
measures,  the  form  of  the  measure  should  be  a  double  duty,  i.e.  an  MIP  or  an  ad
valorem  duty,  whichever  is  the  higher  in  order  to  avoid  a  possible  manipulation  of
prices. The argument was not substantiated and is therefore rejected.

(19) One Chamber of Commerce finally argued that any transaction at a price which is at or
above  the  MIP  level  should  be  enough  to  remove  the  injury,  regardless  if  such
transaction  is  destined  to  a  related  or  unrelated  party.  If  an  ad  valorem  duty  were
applied to a price which is at or above the MIP level, the protection would go beyond
the level necessary to remove injury.

(20)

In  this  respect,  it  is  stressed  that  whatever  its  form,  i.e.  whether  a  minimum  import
price or an ad valorem duty, the effect of the duty is the same, namely to remove the
effects of injurious dumping. On the other hand, it is not proposed that the ad valorem
duty should be applied in addition to the MIP, but instead of the MIP. In addition, as
pointed out above, exporters of products for which anti-dumping measures are in place
could easily invoice at an artificially high price (i.e. above the MIP) when they export
to  related  companies  in  the  Community,  and  subsequently  compensate  such  a  price
after customs declaration. This may render the MIP meaningless and subsequent resale
prices  in  the  Community  may  not  achieve  the  intended  effects  of  the  measure.  For
these reasons, and considering the serious risk of price manipulation in sales between
related parties, the argument made by the Chamber of Commerce is rejected.

C. DIRECT / INDIRECT SALES BETWEEN UNRELATED PARTIES

(21) As  regards  sales  between  unrelated  parties,  a  further  distinction  should  be  made
between direct sales (i.e. between an importer in the Community and an exporter in the
country  concerned) and indirect sales  (i.e.  not  made  directly  from  an  exporter  in  the
country concerned to an importer in the Community), since in the latter case the same
risk of price manipulation exists.

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(22) One importer argued that there should be no differentiation between direct and indirect
sales  to  the  Community  as  this  would  lead  to  an  unequal  treatment  of  different
importers.  For  instance,  importers  buying  the  products  via  traders  in  third  countries
would  be  disadvantaged  compared  to  importers  buying  the  product  directly  from  an
exporter in the country concerned, even if all companies involved were unrelated.

(23)

First it should be borne in mind that the two types of duty have the effect of removing
the  effects  of  injurious  dumping,  and  thus  represent  the  same  level  of  duty.
Furthermore,  the  distinction  between  direct  and  indirect  sales  is  motivated  by  the
necessity  to  limit  the  risk  of  price  manipulation.  It  is  considered  that  this  risk  is
prevalent in all cases where sales are not made directly from an exporter located in the
PRC  to  an  unrelated  importer  in  the  Community,  as  a  consequence  of  the  higher
number of parties involved and the difficulty for the customs authorities to verify the
full chain of events when sales are made via traders in third countries. The seriousness
of these risks is underscored by the findings of the European Court of Auditors in its
2000 Annual Report6. Due to the serious risk of price manipulation in indirect sales,
which is considered to outweigh the potential disadvantage to importers sourcing from
third countries, the importer’s argument is rejected.

(24)

It is therefore concluded that sales made by exporters located in the PRC directly to an
unrelated party in the Community shall remain subject to the MIP, which was found to
be  the  appropriate  measure  in  the  original  investigation.  However,  in  order  to  avoid
the risk of price manipulation, in all other cases an ad valorem duty rate of 27.1% as
previously established7 shall apply.

D. DAMAGED GOODS

(25) Article  145  of  Commission  Regulation  (EEC)  No  2454/93  foresees  that,  for  the
determination  of  the  customs  value,  an  apportioning  of  the  price  actually  paid  or
payable  in  situations  where  goods  have  been  damaged  before  entry  into  free
circulation takes place. Consequently ad valorem duties on damaged goods follow the
decrease  in  prices  paid  or  payable  when  a  good  has  been  damaged,  and  the  duty
payable is automatically reduced.

(26)

(27)

In the case of a damaged good for which an MIP is in place, the duty payable, i.e. the
difference  between  the  MIP  and  the  net,  free-at-Community-frontier  price,  before
customs clearance, is not automatically adjusted downwards. As a consequence, if the
same MIP applicable to non-damaged goods would also apply to damaged goods, the
measures could go beyond what is necessary for the removal of injury.

In  order  to  avoid  the  above  described  situation  the  MIP  should,  in  case  of  damaged
goods, be reduced by a percentage which corresponds to the apportioning of the price
actually paid or payable. The duty payable will then be equal to the difference between
the  reduced  MIP  and  the  reduced  net,  free-at-Community-frontier  price,  before
customs clearance.

(28) Community  producers  argued  that,  in  order  to  avoid  fraud,  the  determination  of  the
customs value for damaged goods should be assessed by an independent expert.

6

7

OJ C 359, 15.12.2001, p. 1, recitals 1.31 and 1.35.
Council Regulation (EEC) No 1473/93 (OJ L 145, 17.6.1993, p. 1).

7

                                                
(29)

(30)

The  valuation  of  goods,  damaged  or  not,  is  carried  out  by  the  customs  authorities
according  to  the  well-established  rules  set  out  in  the  Community  Customs  Code.  In
view  of these  rules, which ensure a  sufficient  degree of  impartiality,  it  is  considered
that  there  is  no  need  of  having  further  specific  provisions.  The  request  is  therefore
rejected.

In the  absence  of  any  substantiated  argument  from  interested  parties,  it  is  concluded
that  in  cases  where  goods  have  been  damaged  before  entry  into  free  circulation,  the
duty payable should be equal to the difference between the reduced minimum import
price and the reduced net, free-at-Community-frontier price, before customs clearance,

HAS ADOPTED THIS REGULATION:

Article 1

Paragraph 2 in Article 1 of Regulation (EC) No 1334/1999 shall be replaced by the following
paragraphs:

2.

The amount of the anti-dumping duty shall be:

(a) the difference between the minimum import price of EUR 112 per tonne and the
net, free-at-Community frontier price, before duty, in all cases where the latter is:

- less than the minimum import price, and

- established on the basis of an invoice issued by an exporter located in the People’s
Republic of China directly to an unrelated party in the Community (Taric additional
code A420).

(b) zero,  if  the net, free-at-Community frontier  price, before duty, is established on
the  basis  of  an  invoice  issued  by  an  exporter  located  in  the  People’s  Republic  of
China directly to an unrelated party in the Community and equal to or higher than
the minimum import price of EUR 112 per tonne (Taric additional code A420).

(c)  equal  to  an  ad  valorem  duty  of  27.1%  in  all  other  cases  not  falling  under
subparagraph (a) and (b) above (Taric additional code A999).

In cases where the anti-dumping duty is established according to subparagraph 2(a)
of Article 1 and where goods have been damaged before entry into free circulation
and,  therefore,  the  price  actually  paid  or  payable  is  apportioned  for  the
determination  of  the  customs  value  pursuant  to  Article  145  of  Commission
Regulation  (EEC)  No  2454/93,  the  minimum  import  price  set  out  above  shall  be
reduced by a percentage which corresponds to the apportioning of the price actually
paid or payable. The  duty  payable will then  be equal to the difference between the
reduced  minimum  import  price  and  the  reduced  net,  free-at-Community-frontier
price, before customs clearance.

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Article 2

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the
Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council
The President

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