CELEX: 52013PC0084
Language: en
Date: 2013-02-15
Title: 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

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		52013PC0084
		
			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 /*  */
			
				
		
		
			
			   	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
banks, particularly the large commercial banks, still rely on state-owned
shareholders and the government for replenishment of capital when there is a
lack of capital adequacy as result of credit expansion[53]. 
(168)   With
respect to the banks that provided loans to the cooperating exporting
producers, the great majority of them are state-owned banks. Indeed on the
basis of the available information it was found that at least 14 out of the 17
reported banks are state-owned banks, including the major Commercial banks in China
like Bank of China, China Construction Bank and Industrial and Commercial Bank
of China. With respect to the remaining state-owned banks concerned, again the
Commission requested the same information mentioned above concerning the
government control and the pursuit of government policies or interests with
respect to the steel industry. No such detailed information was provided. It is
therefore concluded that the banks are controlled by the government and
exercise government authority in a manner that their actions can be attributed
to the State. For this reason the state-owned commercial banks in China should
be considered public bodies.
(169)   Another sign of GOC involvement
in Chinese financial market is the role played by the PBOC in setting the
specific limits on the way interest rates are set and fluctuate. Indeed, the
investigation established that the PBOC has specific rules regulating the way
interest rates float in China. According to the information available, these
rules are set out in the PBOC's Circular on the Issues about the Adjusting
Interest Rates on Deposits and Loans-Yinfa (2004) No 251 ("Circular
251"). Financial institutions are requested to provide loan rates within a
certain range of the benchmark loan interest rate of the PBOC. For commercial
bank loans and policy bank loans managed commercially there is no upper limit
range but only a lower limit range. For urban credit cooperatives and rural
credit cooperatives there are both upper and lower limit ranges. For
preferential loans and loans for which the State Council has specific
regulations the interest rates do not float upwards. The Commission sought
clarifications from the GOC on the definition and wording stated in the
Circular 251 as well as to its preceding legislation (Circular of PBOC
concerning expansion of Financial Institution's Loan Interest Rate Float Range
– YinFa [2003] No. 250). However as described in the recitals (161) and (162)
above, the GOC refused to provide these Circulars which prevented the
Commission to verify their content and seek explanations. Since the GOC did not
provide any relevant information in this respect which would suggest the
situation changed since May 2011 when the Commission concluded its anti-subsidy
investigation concerning Coated Fine Paper[54] it is
established that the PBOC is involved and influences setting of interest rates
by state-owned commercial bank.
The GOC did not provide any evidence that the situation as established in the
Coated Fine Paper investigation has changed, therefore on the basis of facts
available and the other evidence cited above, it was concluded that the
situation concerning the methodology for determining interest rates should
remain the same during the entire IP.
Entrustment and direction
(170)   The
Commission also endeavoured to analyse whether the privately owned commercial
banks in China are entrusted or directed by the GOC to provide preferential
(subsidised) loans to the organic coated steel producers, within the meaning of
Article 3.1(a)(iv) of the basic Regulation.
GOC policy
(171)   From the section above
concerning state involvement in the banking sector (recitals (165) to (169)) it
is clear that the GOC has a policy to provide preferential lending to the
organic coated steel sector, because public bodies (state-owned commercial
banks)[55]
are engaged in such provision and hold a predominant place in the market, which
enables them to offer below-market interest rates. It now has to be determined
whether that policy extends to private suppliers.
Extension of policy to private banks
(172)   The Commercial banking law
[2003] applies in the same way to state-owned commercial banks and privately
owned commercial banks. For example Article 38 of this law instructs all
Commercial banks (i.e. also those which are privately owned) to "determine
the loan rate in accordance with the upper and lower limit of the loan rate set
by the PBOC", Article 34 of the Commercial Banking Law instructs the
commercial banks to "carry out their loan business upon the needs of
national economy and the social development and with the spirit of state
industrial policies".
(173)   Also the Order No.35 -
Policies for the development of Iron and Steel Industry, in particular
Articles 24 and 25 which limit the provision of loans only to those companies
which comply with the national development policies for the Iron and steel
industry do not distinguish between state-owned and privately-owned commercial
banks.
(174)   Further the above mentioned
(recitals (161) and (162)) Circulars of the PBOC are also binding for privately
–owned commercial banks.
(175)   The
above citations from laws and regulations relevant for the banking sector show
that the GOC policy to provide preferential lending to the organic coated steel
producers extends also to privately-owned commercial banks and in fact the GOC
instructs them to "carry out their loan business upon the needs of
national economy and the social development and with the spirit of state
industrial policies"[56].
Credit risk assessment
(176)   The Commission requested
relevant information from the GOC in order to assess how the banks in China are
performing credit risk assessment of the OCS companies before deciding whether
to grant them or not loans and deciding on the conditions of the loans which are
granted. In the Appendix A to the questionnaire the Commission requested
information on how do the banks take account of risk when granting loans, how
is the creditworthiness of the borrower assessed, what are the risk premiums
charged for different companies/industries in China by the bank, which are the
factors the bank takes into account when assessing the loan application, the
description of loan application and approval process etc. However, neither the
GOC nor the individual banks identified in the questionnaire provided any
evidence in this respect. The GOC provided only replies of general nature not
supported by any evidence whatsoever that any kind of credit risk assessment
actually takes place.
(177)   The Commission also
requested the similar information from the cooperating exporting producers and
attempted to verify it during the on-spot verification visits of sampled
exporting producers. Both groups of sampled exporting producers replied that
banks request certain documents and perform some kind of credit risk analyses
before the loans are granted. However, they could not support their claims with
any evidence. During the on-spot verification the Commission asked for the
evidence that the banks requested such documents or that these documents were
provided to the banks by the companies or any kind of report issued by the
banks proving that such credit risk analyses was performed. However the sampled
groups of exporting producers were not able to provide such evidence, neither
were they able to provide any other evidence supporting their claims. It is
also noted that none of the sampled groups of exporting producers or individual
companies within these groups has a credit rating assigned.
(178)   The
information concerning credit risk assessment was repeatedly requested from
interested parties as it is considered crucial inter alia account taken
of (i) the finding of the IMF 2006 report which suggested that the bank
liberalisation in China is incomplete and credit risk is not properly reflected[57], (ii) the IMF 2009 report which highlighted the lack of interest
rate liberalisation in China[58], (iii) the IMF 2010 Country Report which stated that cost of
capital in China is relatively low, credit allocation is sometimes determined
by non-price means and high corporate saving is partly linked to low cost of
various factor inputs (including capital and land)[59] and
(iv) the OECD 2010 Economic Survey of China[60] and
OECD Economic Department Working Paper No. 747 on China's Financial Sector
Reforms[61] which stated that ownership of financial institutions remains
dominated by the State raising issues as the extent to which banks' lending
decisions are based purely on commercial considerations while banks'
traditional role appears to be that of government agencies with ties to the
government.
(d)              
Financial Contribution
(179)   Having
regard to the totality of the evidence, it is concluded that the vast majority
of loans to the 2 sampled groups of exporting producers are provided by
state-owned banks which are considered to be public bodies because they are
vested with government authority and exercise government functions. There is
further evidence that these banks effectively exercise government authority
since as it is explained in recital (169) there is a clear intervention by the
State (i.e. PBOC) in the way commercial banks take decisions on interest rates
for loans granted to Chinese companies. In these circumstances, the lending
practices of these entities are directly attributable to the government. The
fact that banks exercise government authority is also confirmed by the way NDRC
Order No.35- Policies for the development of Iron and Steel Industry[62], Decision 40 and Article 34 of the Law on Commercial
Banks act with respect to the fulfilment of the government industrial policies.
There is also a great deal of circumstantial evidence, supported by objective
studies and reports, that a large amount of government intervention is still
present in the Chinese financial system as already explained in recital (178)
above. Finally, the GOC failed to provide information which would have enabled
a greater understanding of the state-owned banks' relationship with government
as explained in recitals (159) to (164). Thus, in the case of loans provided by
state-owned commercial banks in China , the Commission concludes that there is
a financial contribution to the organic coated steel producers in the form of a
direct transfer of funds from the government within the meaning of Article
3(1)(a)(i) of the basic Regulation. In addition, the
same evidence shows that SOCBs (as well as privately owned banks) are entrusted
or directed by the government and this consequently means that a financial
contribution exists within the meaning of Article 3(1)(a)(iv) of the basic
Regulation.
(180)   In
view of the analysis in Recitals (170) to (175) above, it is also determined
that privately-owned banks are entrusted and directed by the GOC to provide
loans to the OCS producers and that a financial contribution exists under
Articles 3(1)(a)(i) and 3(1)(a)(iv) of the basic Regulation.
(e)              
Benefit
(181)   A benefit within the meaning
of Articles 3(2) and 6(b) of the basic Regulation exists to the extent that the
government loans are granted on terms more favourable than the recipient could
actually obtain on the market. Since it has been established that
non-government loans in China do not provide an appropriate market benchmark
(privately owned banks being entrusted and directed by the GOC), such a
benchmark has been constructed using the method described in recitals (191) and
(192) below. 
(f)               
Specificity
(182)   The
steel industry belongs to the encouraged category according to the Decision No.
40. Decision No 40, is an Order from the State Council, which is the highest
administrative body in the PRC and in that regard the decision is legally
binding for other public bodies and the economic operators. It classifies the
industrial sectors into 'Encouraged, Restrictive and Eliminated Projects'. This
Act represents an industrial policy guideline that along with the Directory Catalogue
shows how the GOC maintains a policy of encouraging and supporting groups of
enterprises or industries, such as the steel/ OCS industry, classified by the
Directory Catalogue as an 'Encouraged industry'. With respect to the number of
industries listed as 'Encouraged' it is noted that these represent only a
portion of the Chinese economy. Furthermore, only certain activities within
these encouraged sectors are given "encouraged" status. Decision No
40 also stipulates under Article 17 that the 'Encouraged investment projects'
shall benefit from specific privileges and incentives, inter alia, from
financial support. On the other hand, with reference to the 'Restrictive and
Eliminated Projects', Decision No 40 empowers the state authorities to intervene
directly to regulate the market. In fact, Articles 18 and 19 provide that the
relevant authority prevents financial institutions from supplying loans to such
'Restrictive and Eliminated Projects'. It is clear from the above that Decision
No 40 provides binding rules to all the economic institutions in the form of
directives on the promotion and support of encouraged industries, one of which
is the part of OCS industry:
(183)   Furthermore, Order No. 35
of the NDRC - Policies for the development of Iron and Steel Industry, in
particular Articles 24 and 25, limit the provision of loans only to steel
enterprises which fully comply with the development policies for the iron and
steel industry.
(184)   The complainant also
provided evidence that some other government plans and documents are
encouraging and instructing for the financial support of steel industry in
general and also in specific geographical regions of China[63][64].
(185)   Taking all the above into
consideration it becomes clear that the authorities only allow the financial
institutions to provide preferential loans to limited number of
industries/companies which comply with the development policies of the GOC. On
the basis of the evidence on the file and in the absence of the cooperation
from the GOC on this matter it is concluded that the subsidies in form of
preferential lending are not generally available and are therefore specific in
the meaning of Article 4(2)(a) of the basic Regulation. Moreover there was no
evidence submitted by any of the interested parties suggesting that the subsidy
is based on objective criteria or conditions under Article 4(2)(b) of the basic
Regulation.
(186)   The investigation showed
that the two groups of sampled exporting producers benefited from the
preferential lending in the investigation period.
(g)              
Conclusion
(187)   Accordingly, the financing
of the organic coated steel industry should be considered a subsidy.
(188)   In view of the existence of
a financial contribution, a benefit to the exporting producers and specificity,
this subsidy should be considered countervailable.
(h)              
Calculation of the subsidy amount
(189)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. According to Article 6(b) of
the basic Regulation the benefit conferred on the recipients is considered to
be the difference between the amount that the company pays on the government
loan and the amount that the company would pay for a comparable commercial loan
obtainable on the market.
(190)   As explained above (recitals
(165) to (178)), since the loans provided by Chinese banks reflect substantial
government intervention in the banking sector and do not reflect rates that
would be found in a functioning market, an appropriate market benchmark has
been constructed using the method described below. Furthermore, due to the lack
of cooperation by the GOC, the Commission has also resorted to facts available
in order to establish an appropriate benchmark interest rate.
(191)   When
constructing an appropriate benchmark, it is considered reasonable to apply
Chinese interest rates, adjusted to reflect normal market risk. Indeed, in a
context where the exporters' current financial state has been established in a
distorted market and there is no reliable information from the Chinese banks on
the measurement of risk and the establishment of credit ratings, it is
considered necessary not to take the creditworthiness of the Chinese exporters
at face value, but to apply a mark-up to reflect the potential impact of the
Chinese distorted market on their financial situation. 
(192)   With
respect to the above as explained in recitals (160), (163) and (164) both the
GOC and the cooperating exporting producers were requested to provide
information on the lending policies of the Chinese banks and the way loans were
attributed to the exporting producers. Parties failed to provide such
information, although repeatedly requested to do so, and refused access to the
state-owned banks. Accordingly in view of this lack of cooperation and the
totality of facts available, and in line with the provisions of Article 28(6)
of the basic Regulation, it is deemed appropriate to consider that all firms in
China would be accorded the highest grade of "Non-investment grade"
bonds only (BB at Bloomberg) and apply the appropriate premium expected on
bonds issued by firms with this rating to the standard lending rate of the
People's Bank of China. The
benefit to the exporting producers has been calculated by taking the interest
rate differential, expressed as a percentage, multiplied by the outstanding
amount of the loan, i.e. the interest not paid during the IP. This amount was
then allocated over the total turnover of the co-operating exporting producers.
(193)   The subsidy rate established
with regard to this scheme during the IP for the sampled exporting producers
amounts to 0,25% for the Huadong group of companies and 0,89% for the Panhua
group of companies. 
(194)   The weighted average subsidy
rate for the cooperating companies not included in the sample is 0,58%.
(195)   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. 0,97%.
3.3.3.     Equity Programmes
(196)   A
number of alleged subsidy programmes concerning equity were detailed in the
complaint in relation to exporting producers not selected in the sample and/or
not cooperating with the investigation. The Commission asked the GOC to submit
information about these programmes in the original and supplementary
questionnaires, and subsequently gave ample opportunity to the GOC to provide
replies on these programmes. The GOC took the view that it would only provide
replies on alleged subsidy programmes concerning the two sampled exporting
producers and confirmed this stance throughout the proceeding. 
(197)   The
significant level of non-cooperation in this proceeding hindered the
possibility for the Commission to acquire information and evidence on these
programmes mentioned in the complaint. The Commission verified that the sampled
exporting producers did not make use of these programmes. Therefore the
Commission had to determine the existence of the subsidy programmes and
establish the residual duty with regard to all the other programmes for which
the GOC did not submit information and that were not available for or used by
the sampled exporting producers on the basis of the evidence available on file
in accordance with the provisions of Article 28(1) of the basic Regulation.
3.3.3.1.  Debt for equity swaps
(a)              
Description
(198)   The complaint contained
evidence that several steel producers were involved in debt for equity swaps in
the year 2000 for a combined total of 62.5 billion RMB of debts. It is alleged
that outstanding debt due by State-owned steelmakers to State-owned commercial
banks ("SOCBs") was cancelled in exchange for equity through the
involvement of four Chinese Asset Management Companies ("AMCs") which
was not on the basis of market considerations. The complaint further asserted
that AMCs were specifically created to dispose of massive non-performing loans
in key industries including the steel sector and to restructure the debts of
SOEs through inter alia debt to equity swaps. Given that the GOC has failed to
provide any information on this programme, the Commission draws its findings on
the basis of the information available in the file according to Article 28 of
the basic Regulation (see recitals (33) - (35) above). For the same reason,
Article 28 of the basic Regulation was applied with regard to the Equity
Infusion and Unpaid Dividend programmes described in recitals (204) - (215)
below.
(b)              
Findings of the investigation
(199)   The findings on this
programme are based on the information contained in the complaint. Debt for
equity swaps constitute a financial contribution in the form of equity infusion
and/or loan within the meaning of Article 3(1)(a)(i) of the basic Regulation or
in the form of revenue forgone resulting from debt cancelled or not repaid
within the meaning of Article 3(1)(a)(ii) of the basic Regulation. This
financial contribution was provided by the government through public bodies
involved in these transactions, i.e. the four AMCs and various SOCBs (refer to
recital (168) above). In the absence of any cooperation from the GOC, the
evidence on the record demonstrates that AMCs are public bodies because they
were specifically created by the GOC to dispose of massive non-performing loans
in key industries including the steel sector and to restructure the debts of
SOEs. Consequently, they are considered to exercise government authority.
(200)   Furthermore, the complainant
has provided prima facie evidence that the huge amount of debt cancellation was
not subject to normal commercial considerations as the GOC did not carry out an
assessment that a normal private investor would carry out with respect to the
expected reasonable rate of return these equity swaps would generate over time.
Instead, complaint alleged that the GOC exchanged massive amounts of debt in
exchange for equity with the objective to reduce the liabilities-to-assets
ratio of steel producers to increase their competitiveness aside from
commercial considerations that a private investor would make. The Commission,
after careful analyses of the information provided in the complaint and in the
absence of any other information on the file concluded that, the measures are
therefore considered to confer a benefit within the meaning of Article 6(a) of
the basic Regulation.
(201)   This subsidy is specific in
the sense of Article 4(2) of the basic Regulation as it is restricted only to
selected entities participated by the State and the award of this financing is
discretionary and no objective criteria exist. Therefore it is concluded that
this programme constitutes a countervailable subsidy for exporting producers of
the product concerned.
(c)              
Calculation of the subsidy amount 
(202)   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 a non-recurring benefit and is considered to be the full amount
of the debt for equity swaps, i.e. the amount of debt forgiven. In the absence
of other information for the assessment of this benefit submitted by the GOC, the
Commission based its findings on information contained in the complaint. In
accordance with Article 7(3) of the basic Regulation the subsidy amount so
calculated has been allocated to the IP on the basis of the normal depreciation
period of assets of the recipient companies. The amount has been adjusted by
adding interest during this period in order to reflect the value of the benefit
over time and thereby establish the full benefit of this scheme to the
recipients. In accordance with Article 7(2) of the basic Regulation, this
subsidy amount has been allocated over the level of production of the product
concerned 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.
(203)   The subsidy rate thus
obtained for all non-cooperating companies amounts to 0,05%. It was not
necessary to calculate the subsidy rate for the sampled and other cooperating
producers for the reasons described in recitals (196) and (197).
3.3.3.2.  Equity infusions
(a)              
Description
(204)   The
complaint alleges that the GOC has provided over the years substantial amounts
of cash to steel producers through equity infusions. According to the
complaint, the GOC (through various state-owned entities) acquired shares in
companies in which it was already the main shareholder without acquiring
additional shareholder rights. The complaint also details specific transactions
involving State-controlled entities, including China International Capital
Corporation (CICC) and SASAC.
(b)              
Findings of the investigation
(205)   Since the GOC failed to
provide any information on this programme (see recitals (196) and (197) above),
the findings on this programme are based on the information contained in the
complaint, as supported by adequate sources. Equity infusions constitute a
direct transfer of funds within the meaning of Article 3(1)(a)(i) of the basic
Regulation. These financial contributions were provided by the government
through public bodies involved in these transactions, including CICC and SASAC.
The complaint contains specific evidence on equity infusions concerning an SOE
steel producer where CICC acted as the lead underwriter and manager of the
share issuance. According to information in the complaint, CICC is 51%
state-owned and it is ultimately controlled by SASAC, which in the specific
transactions documented in the complaint also acted as the GOC entity controlling
the steel producer SOE (for the analysis of SASAC's functions see recitals (64)
to (66)) above). Therefore, these transactions were carried out by the GOC
through public bodies within the meaning of Article 2(b) of the basic
Regulation and the relevant WTO jurisprudence. 
(206)   These equity infusions are
considered to confer a benefit to the recipient companies within the meaning of
Article 6(a) of the basic Regulation as they are inconsistent with the usual
investment practice of private investors. The inconsistency of these equity
infusions with private investors' practice is proven in detail in the
complaint. With regard to these specific transactions, the complaint shows
firstly that the SOE steel producer paid an overvalued price of its portion of
the new share issue not in line with fair market conditions, and secondly that
it used the funds raised to purchase state-owned assets and equity investments
at below-market prices. The complaint also shows that the GOC paid the same
price as other investors despite its shares were worth less as they had
different rights and prospects than the shares sold to other shareholders.
(207)   These subsidies are specific
in the sense of Article 4(2)(c) of the basic Regulation because they were
provided to a limited number of selected entities in which the government
participated. Therefore it is concluded that this programme constitutes a
countervailable subsidy for exporting producers of the product concerned.
(c)              
Calculation of the subsidy amount
(208)   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 considered to be the amount of the equity infusions. In the
absence of other information for the assessment of this benefit submitted by
the GOC, the Commission based its findings on information contained in the
complaint. In accordance with Article 7(3) of the basic Regulation the subsidy
amount so calculated has been allocated to the IP on the basis of the normal
depreciation period of assets of the recipient companies. The amount has been
adjusted by adding interest during this period in order to reflect the value of
the benefit over time and thereby establish the full benefit of this scheme to
the recipients. In accordance with Article 7(2) of the basic Regulation, this
subsidy amount has been allocated over the total level of production of the
recipients during the IP as appropriate denominator, because the subsidy is not
contingent upon export performance and was not granted by reference to the
quantities manufactured, produced, exported or transported.
(209)   The subsidy rate thus
obtained for all non-cooperating companies amounts to 0,08%. It was not
necessary to calculate the subsidy rate for the sampled and other cooperating
producers for the reasons described in recitals (196) and (197).
3.3.3.3.  Unpaid dividends
(a)              
Description
(210)   The complaint alleged that
according to GOC policy, state-owned enterprises including the steel companies
producing OCS do not have to pay dividends to the government as their owner
even when they earn profits. As a result, SOE steel producers are able to
finance massive investment through retained profits not distributed as
dividends according to this programme.
(b)              
Findings of the investigation
(211)   Since the GOC failed to
provide any information on dividend distributions by the SOE steel producers
(see recitals (196) and (197) above), the findings on this programme are based
on the information contained in the complaint, as supported by adequate sources.
Unpaid dividends must be considered as a disguised grant in the meaning of
Article 3(1)(a)(i) of the basic Regulation or as revenue forgone under Article
3(1)(a)(ii) of the basic Regulation in that the GOC does not collect dividends
that are normally paid to private investors on their shares. These disguised
grants were provided by the government through the entity directly holding the
shares in the SOE steel producers, in principle SASAC. The analysis concerning
SASAC shows that it performs Government functions (see for details recitals (64)
to (66) above).
(212)   The full amount of unpaid
dividends is considered to confer a benefit to the recipient SOE steel
producers within the meaning of Article 6(a) of the basic Regulation as this is
inconsistent with the usual investment practice of private investors that
require dividend distributions normally attached to their shares. For SOEs
partially owned by private investors, the amount of the benefits equals the amount
of unpaid dividends distributed to them on a pro rata basis. 
(213)   These subsidies are specific
under Article 4(2) of the basic Regulation because they were provided to a
limited number of selected entities in which the government participated. Therefore
it is concluded that this programme constitutes a countervailable subsidy for
exporting producers of the product concerned.
(c)              
Calculation of the subsidy amount
(214)   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 considered to be the amount of the unpaid dividends. In the
absence of other information for the assessment of this benefit submitted by
the GOC, the Commission based its findings on publicly available financial
information on the recipients. In accordance with Article 7(2) of the basic
Regulation, the subsidy amount so calculated has been allocated over the total
turnover of the recipients during the IP as appropriate denominator, because
the subsidy is not contingent upon export performance and was not granted by
reference to the quantities manufactured, produced, exported or transported.
(215)   The
subsidy rate thus obtained for all non-cooperating companies amounts to 1,36%. It was not necessary to calculate the subsidy rate for the sampled
and other cooperating producers for the reasons described in recitals (196) and
(197).
3.3.4.     Income
and other direct tax Programmes
3.3.4.1.  Tax Policies for the deduction
of research and development (R&D) expenses
(216)   This scheme provides a
benefit to companies which introduce new technologies, new products or new
techniques in their production. The eligible companies can decrease their
corporate income tax by 50% of the actual expenses for approved projects.
(217)   It is noted that although
the GOC limited its reply to the questionnaire and deficiency letter to the
schemes used by the sampled companies it did not provide any information on
this scheme, despite the fact that one of the sampled companies reported
benefits under this scheme in its questionnaire reply. When requested again
during the on spot verification to provide the necessary information, GOC
provided a partial supplementary response concerning this programme. Despite
the late provision of this information the verification team asked for
clarifications on several issues (see recital (219) below) however these were
not provided. As a result the Commission had to base its findings on the best
fact available.
(a)              
Legal Basis
(218)   This scheme is provided as
preferential tax treatment by Article 30(1) of the Corporate Income Tax Law of
the PRC (Order No 63 of the President of the People's Republic of China,
effective from 1 January 2008), Article 95 of the Regulations on the
Implementation of Enterprise Income Tax Law of the PRC (Decree No 512 of the
State Council of the PRC) and the Guide to Key Fields (Notification n.6, 2007).
The GOC did not provide Decree No 512 and Notification No 6 in this proceeding.
(b)              
Eligibility
(219)   As
noted above the GOC did not provide any relevant information for this scheme in
the replies to the questionnaire and deficiency letter. In the document
submitted during the on spot verification GOC stated that only the "research
and development fees incurred by Enterprises in the development of new
technology, new products and new skills" may be computed in the
taxable income for the purpose of deduction. However, the GOC did not elaborate
on the meaning of terms "new technology", "new product" and
"new skills". The Commission also endeavoured to find the exact
meaning of these terms during the verification of Zhejiang Huadong but the
company was not able to provide any concrete explanation and replied that these
are general terms only.
(220)   However, in the Coated Fine
Paper investigation, it was established that only R&D projects of the
companies of New and High Tech Sectors Receiving Primary Support from the State
and projects listed in the Guide to Key Fields of High Tech Industrialization under
the current Development Priority promulgated by the NDRC are eligible for this
scheme[65].
Given the fact that no new relevant information was provided in this proceeding
which would rebut this conclusion it is established that the scheme is not
generally available, as only selected industries/companies/projects are
eligible.
(c)              
Practical implementation 
(221)   According to the GOC reply,
companies which intend to apply for this tax concession shall file their Income
Tax Return and "other relevant documents" with the taxation authority
without specifying which these other relevant documents are. In the Coated
Fine Paper investigation it was established that any company that intends
to apply for the benefit from this scheme must file detailed information about
the R&D projects with the local Science and Technology Bureau and that only
after examination will the Tax Bureau issue the notice of approval. Following
the approval the amount subject to corporate income tax is decreased by 50% of
actual expenses for approved projects[66].

(d)              
Findings of the investigation
(222)   This scheme was used by one
of the cooperating exporting producers, Zhejiang Huadong Light Steel Building
Material Co. Ltd during the IP. Because of the lack of cooperation from the GOC
and because of its late and incomplete reply concerning this scheme, it was not
possible to determine the application and approval procedure which must be
undertaken by the companies benefiting from this scheme. As noted above, the
Commission had to partially rely on the facts established in the Coated Fine
Paper investigation. 
(e)              
Conclusion
(223)   This scheme should be
considered a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2)
of the basic Regulation in the form of foregone government revenue which confers
a benefit upon the recipient companies.
(224)   The GOC was requested to
provide information on the eligibility criteria for obtaining benefits from
this scheme and on the use of the subsidy, in order to determine to what extent
access to the subsidy is limited to certain enterprises and whether it is
specific according to Article 4 of the basic Regulation. The GOC provided no
such information in its reply to the questionnaire and to the deficiency letter.
In addition, the information submitted in this respect during the on-spot
verification visit appears to be incomplete in view of the findings concerning
same scheme found to be used by the companies in Coated Fine Paper
investigation. The Commission, mindful of the requirement of Article 4(5) of
the basic Regulation that any determination of specificity shall be 'clearly
substantiated' on the basis of positive evidence, therefore had to base its
findings on the facts available in accordance with Article 28 of the basis
Regulation. The best facts available included the findings of the Coated
Fine Paper investigation. 
(225)   This subsidy scheme is
specific within the meaning of Article 4(2)(a) of the basic Regulation given
that the legislation itself, pursuant to which the granting authority operates,
limited the access to this scheme only to certain enterprises and industries
classified as encouraged, such as those belonging to OCS industry. In addition,
there do not seem to be objective criteria to limit eligibility and no
conclusive evidence to conclude that the eligibility is automatic in accordance
with Article 4(2)(b) of the basic Regulation. It is noted that the lack of
cooperation from the GOC authorities does not permit the Commission to assess
the existence of such objective criteria.
(226)   Accordingly, this subsidy
should be considered countervailable.
(f)               
Calculation of the subsidy amount
(227)   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 considered to be the amount of total tax payable according to the
normal tax rate, after the subtraction of what was paid with the additional 50%
deduction of the actual expenses on R&D for the approved projects. 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.
(228)   One of the cooperating
sampled exporting producers, namely the Huadong Group of companies, has
benefited from this scheme. The subsidy rate established for the Huadong Group
is 0,19%.
(229)   The weighted average subsidy
rate for the cooperating companies not included in the sample is 0,09%.
(230)   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. 0,19%.
3.3.4.2.  Tax concessions for Central
and Western Regions
(231)   This
scheme provides a benefit to companies located in the Central and Western
Regions. The eligible companies are subject to preferential income tax rate of
15% instead of normal income tax rate of 25% applicable in China.
(232)   The GOC was requested to
provide information on this scheme in the questionnaire, in the deficiency
letter and again during the on-spot verification visit. In its responses to the
questionnaire and deficiency letter the GOC did not reply to any of the
questions and stated that this programme is no longer valid as it expired on 31
December 2010 and also claimed that no sampled companies benefited from this
scheme in the IP. However, this was in contradiction with the responses of one
of the exporting producers (Chongqing Wanda Steel Strip Co., Ltd) and with the
evidence collected during the on-spot verification visit of this company. 
(a)              
Legal Basis
(233)   This
scheme is provided for as preferential tax treatment by the Notice on
Favourable Tax Policies for Western Region Development (issued by the
Ministry of Finance , General Tax Bureau and General Customs Office, effective
from 1 January 2001) which was updated by the Notice on Further
Implementation on Tax Policies of the Western Development Strategy (issued
the Ministry of Finance ,General Tax Bureau and General Customs Office,
effective from 1 January 2011 onwards) which extends the period of validity of
this programme until 31 December 2020.
(b)              
Eligibility
(234)   It
is noted that the GOC did not provide answers to any of the questions
concerning this scheme in its response to the questionnaire, deficiency letter
or during the on-spot verification visit. However, according to the Notice
on Favourable Tax Policies for Western Region Development this preferential
tax treatment is available for the encouraged type of enterprises in the
Western Region (encouraged refers to those enterprises with major business
accounting for 70% or more of total income as described in the Catalogue of
industry, product & technologies encouraged by the State). During the
on-spot verification of Chongqing Wanda, the company confirmed that the reason
for the preferential tax rate is that they belong to the encouraged category of
industries in the Western and Central region.
(c)              
Practical implementation
(235)   Neither the GOC, nor the
Chongqing Wanda Steel Strip Co., Ltd provided information on the operation and
administration of this programme. According to the Circular of the State
Council Concerning Several Policies on Carrying out the Development of China’s
Vast Western Regions, an approval of people’s governments of the provincial
level is necessary for the reduction of the normal tax rate of 25% to the
preferential rate of 15%. On the company's annual income tax declaration form
the deducted (exempted) income tax amount is listed under item 28 – deducted
tax. 
(d)              
Findings of the investigation
(236)   This scheme was used by one
of the cooperating exporting producers, Chongqing Wanda Steel Strip Co., Ltd
during the IP. Because of the non-cooperation from the GOC it is difficult to
discern the application and approval procedure which must be undertaken by the
companies benefiting from this scheme. The Commission had to draw its own
conclusions from submitted documents which form the legal basis for this scheme
without being able to seek the explanations from the GOC. 
(e)              
Conclusion
(237)   This scheme should be
considered a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2)
of the basic Regulation in the form of foregone government revenue which
confers a benefit upon the recipient companies.
(238)   The GOC was requested to
provide information on the eligibility criteria for obtaining benefits from
this scheme and on the use of the subsidy in order to determine to what extent
access to the subsidy is limited to certain enterprises and whether it is
specific according to Article 4 of the basic Regulation. The GOC provided no
such information. The Commission, mindful of the requirement of Article 4(5) of
the basic Regulation that any determination of specificity shall be 'clearly
substantiated' on the basis of positive evidence, therefore had to base its
findings on the facts available in accordance with Article 28 of the basis
Regulation. 
(239)   This subsidy scheme is
specific within the meaning of Article 4(2)(a) and 4(3) of the basic Regulation
given that the legislation itself, pursuant to which the granting authority
operates, limited the access to this scheme only to certain enterprises and
industries classified as encouraged, such as those belonging to the OCS
industry, and in addition located in certain regions of China. In addition,
there do not seem to be objective criteria to limit eligibility and no
conclusive evidence to found to determine that the eligibility is automatic in
accordance with Article 4(2)(b) of the basic Regulation. It is noted that the
lack of cooperation from the GOC authorities does not permit the Commission to
assess the existence of such objective criteria.
(240)   Accordingly, this subsidy
should be considered countervailable.
(f)               
Calculation of the subsidy amount
(241)   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 considered to be the amount of tax payable according to
the normal income tax rate, after the deduction of the amount of tax paid
according to the preferential income tax rate. In accordance with Article 7(2)
of the basic Regulation this subsidy amount (numerator) has 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.
(242)   The subsidy rate established
for the Panhua Group is 0,03%.
(243)   The weighted average subsidy
rate for the cooperating companies not included in the sample is 0,02%.
(244)   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. 0,04%.
3.3.5.     Other
Income tax Programmes for which the GOC provided insufficient or no replies
(245)   A number of alleged subsidy
programmes were detailed in the complaint in relation to exporting producers
not selected in the sample and/or not cooperating with the investigation. The
Commission asked the GOC to submit information about these programmes in the
original and supplementary questionnaires, and subsequently gave ample
opportunity to the GOC to provide replies on these programmes. The GOC took the
view that it would only provide replies on alleged subsidy programmes
concerning the two sampled exporting producers and confirmed this stance
throughout the proceeding. However, the GOC did submit for some of these
programmes information and evidence indicating that they had been terminated
and were not in force during the IP. The Commission took into account this
evidence submitted by the GOC in its findings.
(246)   For all the other
programmes, the GOC failed to submit any information or evidence. The
significant level of non-cooperation in this proceeding hindered the
possibility for the Commission to acquire information and evidence on these
programmes included in the complaint by the exporting producers. The Commission
verified that the sampled exporting producers were not eligible or did not make
use of these programmes (mainly due to the fact that they were privately owned,
or their being outside the area of application of the programme, or their
relatively limited size). Therefore the Commission had to determine the
existence of this programme and establish the residual duty with regard to all
the other programmes for which the GOC did not submit information and that were
not available for or used by the sampled exporting producers on the basis of
the evidence available on file in accordance with the provisions of Article
28(1) of the basic Regulation.
3.3.5.1.  Income tax credit for the
purchase of domestically manufactured production equipment
(a)              
Description
(247)   This programme allows a
company to claim tax credits on the purchase of domestic equipment if a project
is consistent with the industrial policies of the GOC. A tax credit up to 40%
of the purchase price of domestic equipment may apply to the incremental
increase in tax liability from the previous year.
(b)              
Legal basis
(248)   The legal bases of this
programme are the Provisional measures on enterprise income tax credit for
investment in domestically produced equipment for technology renovation
projects of 1 July 1999 and the Notice of the State Administration of Taxation
on Stopping the Implementation of the Enterprise Income Tax Deduction and
Exemption Policy of the Investments of an Enterprise in Purchasing Home-made
Equipment, No. 52 [2008] of the State Administration of Taxation, effective 1
January 2008.
(c)              
Non cooperation
(249)   The GOC replied that this
programme has been terminated as from January 2008 according to the mentioned
Notice No. 52 and that to the best of its knowledge no programme has replaced
this programme. The Commission asked the GOC to provide relevant additional
information, namely details of the timetable for the phase-out of benefits. The
GOC did not provide this information and limited its reply on the actual
benefits accrued to all OCS producers by simply referring to the questionnaire
replies of the sampled producers. The Commission has already explained the
reasons why the GOC was required to provide information with regard to all the
OCS producers and not just the sampled producers (see recitals (34) and (35)
above). Furthermore, the GOC also failed to provide information with regard to
the sampled producers as it merely referred to their replies. The Commission
considers that it is not sufficient to provide evidence of termination of a
programme without providing additional evidence on the phasing out of the
actual benefits under the programme and potential replacement programmes. With
regard to this programme, a tax benefit (i.e. a tax credit) accrued in a
certain year may actually be used in a different tax year and thus the benefits
can extend beyond its period of validity even if the programme has in the
meantime been terminated. Other "terminated" tax programmes have
turned out to continue to confer benefits for some years after their official
expiry date. It may also be the case that unusually large amounts of benefit
can be allocated over time. In the absence of information provided by the GOC
in this respect, the Commission bases its findings on the information on the
record (in this case complaint) in accordance with Article 28 of the basic
Regulation.
(d)              
Findings of the investigation 
(250)   This programme constitutes a
subsidy as it provides a financial contribution in the form of revenue forgone
by the GOC according to Article 3(1)(a)(ii) of the basic Regulation. This
programme provides a benefit to the recipients for an amount equal to the tax
saving in the meaning of Article 3(2) of the basic Regulation. This subsidy is
specific under Article 4(4)(b) of the basic Regulation since the tax saving is
contingent on the use of domestic over imported goods.
(e)              
Calculation of the subsidy amount
(251)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. Since this programme has not
been examined in an anti-subsidy proceeding by the Union institutions yet, and
in the absence of precise quantification elsewhere, the most appropriate source
of information for the assessment of the benefit to the exporting producers has
been a comparable decision by the US authorities. When basing subsidy amounts
on findings in other investigations, account is taken throughout this regulation
of, inter alia, whether there have been any significant changes in the scheme
in question and whether the subsidy amount may have diminished over time. It is
noted that the amount of recurring subsidies will normally not diminish in this
way. In the absence of any such changes or diminution of the subsidy amount,
the original rate from the investigation in question is used as the amount of
subsidy in the present case.
(252)   The
subsidy rate thus established with regard to this scheme during the IP for all
non-cooperating companies is set at 0,38% which is the rate for this scheme as
established in the US Decision Memorandum of 17 November 2008 on Circular
Welded Carbon Quality Steel Line Pipe (Page No. 26) (Federal Register / Vol. 73, No. 227, page
70961 / 24 November 2008). With regard to
investigations conducted by the US authorities, it is noted that the methodology
used for calculating the amount of benefit from tax programmes is substantially
the same as that employed by the EU[67].
3.3.5.2.  Preferential tax policies for
companies that are recognised as high and new technology companies
(a)              
Description
(253)   This programme allows an
enterprise applying for a Certificate of High and new technology Enterprise to
benefit from a reduced income tax rate of 15% as compared to the ordinary rate
of 25%. This programme has been found countervailable by the EU in the Coated
Fine Paper investigation and also by the US authorities. [68]
(b)              
Legal basis
(254)   The legal basis of this
programme are Article 28 of the PRC Law on Enterprise Income Tax (No. 63
promulgated on 16 March 2007) along with the Administrative Measures for the
Determination of High and New Technology Enterprises, and the Notice of the
State Administration of Taxation on the issues concerning Enterprises Income
Tax Payment of High and New Technology Enterprises (Guo Shui Han [2008] No.
985).
(c)              
Non cooperation
(255)   The GOC replied that none of
the sampled companies made use of this programme during the IP and referred to
the responses of the sampled producers for information concerning any benefits
that may have been received pursuant to this programme. The Commission refers
to the arguments developed above with regard to the request to the GOC to
provide full replies not limited to the sampled exporters (recitals (34) - (35)
above). Therefore the Commission bases its findings on this programme on the
information available on record (Coated Fine Paper findings and the
complaint in this case) in accordance with Article 28 of the basic Regulation.
(d)              
Findings of the investigation 
(256)   This programme constitutes a
subsidy as it provides a financial contribution in the form of revenue forgone
by the GOC according to Article 3(1)(a)(ii) of the basic Regulation. The
benefit for the recipient is equal to the tax saving enjoyed through this
programme according to Article 3(2) of the basic Regulation. This subsidy is
specific within the meaning of Article 4(2)(a) of the basic Regulation since it
is limited to certain enterprises and industries classified as encouraged, such
as those operating in the steel sector. Furthermore, there are no objective
criteria established by the legislation or the granting authority on the
eligibility of the scheme and this is not automatic pursuant to Article 4(2)(b)
of the basic Regulation.
(e)              
Calculation of the subsidy amount
(257)   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 considered to be the amount of total tax payable according to the
normal tax rate, after the deduction of what was paid with the reduced preferential
tax rate. In the absence of information for the assessment of this benefit and
since this programme has already been examined in a previous anti-subsidy
proceeding by the Union institutions, the most appropriate source of
information for the assessment of the benefit to the exporting producers has
been the assessment made for this programme in the Council Implementing
Regulation (EU) No 452/2011 of 6 May 2011 imposing a definitive anti-subsidy
duty on imports of coated fine paper origination in the People's Republic of
China, duly adjusted if needed as mentioned in recital (252) above.
(258)   The subsidy rate thus
established for all non-cooperating companies is set at 0,9% which is the
arithmetical average of the rates established for this programme in the
Regulation mentioned in the preceding recital.
3.3.5.3.  Income tax concessions for
the enterprises engaged in comprehensive resource utilisation (special raw
materials')
(a)              
Description
(259)   This tax programme allows
companies that use any of the materials listed in the Catalogue of Income tax
Concessions for Enterprises engaged in Comprehensive Resource utilisation as
its major raw material and which manufacture products listed in the same
Catalogue in a way that meets relevant national and industrial standards, to
include the income they thereby obtain in the total income at the reduced rate
of 90%. Therefore, 10% of income can be deducted when the companies calculate
the income tax. This exemption is granted for 5 years.
(b)              
Legal basis
(260)   The legal bases of this
programme are: Article 33 of the PRC Law on Enterprise Income Tax, Article 99
of Regulations on Implementation of the PRC Law on Enterprise Income Tax by the
State Council and the Catalogue of Income Tax Concessions for Enterprises
engaged in Comprehensive Resource Utilisation.
(c)              
Non-cooperation
(261)   The GOC stated that none of
the sampled companies made use of this programme during the IP and referred to
the responses of the sampled producers for information concerning any benefits
that may have been received pursuant to this programme. The Commission refers
to the arguments developed above with regard to the request to the GOC to
provide full replies not limited to the sampled exporters (recitals (34) - (35)
above). The Commission thus bases its findings on this programme on the
information available on record (in this case complaint), in accordance with
Article 28 of the basic Regulation.
(d)              
Findings of the investigation 
(262)   This programme constitutes a
subsidy since it provides a financial contribution in the form of revenue
forgone by the GOC within the terms of Article 3(1)(a)(ii) of the basic
Regulation. The scheme provides a benefit for the recipient equal to the amount
of tax savings according to Article 3(2) of the basic Regulation. This subsidy
is specific within the meaning of Article 4(2)(a) of the basic Regulation as it
is limited only to certain enterprises using as primary raw materials the
resources listed in the above-mentioned Catalogue of Tax Concessions for
the purpose of manufacturing products enlisted in that Catalogue.
(e)              
Calculation of the subsidy amount
(263)   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 considered to be the amount of total tax payable according to the
normal tax rate, after the deduction of what was paid with the reduced
preferential tax rate. In the absence of other information for the assessment
of this benefit, the Commission based its findings on information contained in
the complaint. In accordance with Article 7(2) of the basic Regulation, the
subsidy amount so calculated has been allocated over the total turnover of the
recipients during the IP as appropriate denominator because the subsidy is not
contingent upon export performance and was not granted by reference to the
quantities manufactured, produced, exported or transported.
(264)   The subsidy rate thus
established for all non-cooperating companies amounts to 0,01%.
3.3.5.4.  Tax credit concerning the
purchase of special equipment
(a)              
Description
(265)   This programme allows firms
to offset 10% of the purchase cost of special equipment used for environmental
protection, energy and water saving and production safety against the corporate
income tax payable in the year of purchase. The remaining part of the 10% of
the amount invested can be carried forward to the following 5 years.
(b)              
Legal basis
(266)   The legal bases of this
programme are: Article 34 of the PRC Law on Enterprise Income Tax, Article 100
of Regulations on Implementation of the PRC Law on Enterprise Income Tax by the
State Council.
(c)              
Non-cooperation
(267)   The GOC replied that none of
the sampled companies made use of this programme during the IP and referred to
the responses of the sampled producers for information concerning any benefits
that may have been received pursuant to this programme. The Commission refers
to the arguments developed above with regard to the request to the GOC to
provide full replies not limited to the sampled exporters (recitals (34) - (35)
above). The Commission thus bases its findings on this programme on the
information available in accordance with Article 28 of the basic Regulation.
(d)              
Findings of the investigation 
(268)   This programme confers a
subsidy as it provides a financial contribution in the form of revenue forgone
by the GOC within the terms of Article 3(1)(a)(ii) of the basic Regulation. The
scheme gives a benefit for the recipient equal to the amount of tax savings
according to Article 3(2) of the basic Regulation.
(269)   With respect to the
specificity of this programme, it is considered that there is insufficient
information on the record for the Commission to make further findings and
subsequently to reach a definitive finding of specificity of the programme.
Therefore the Commission could not assess this programme any further.
3.3.5.5.  Preferential income tax
policy for the enterprises in the Northeast region
(a)              
Description
(270)   This programme allows
companies located in the Northeast Region (including Liaoning, Jilin, and
Heilongjiang Provinces, and Dalian Municipality), first, to reduce the
depreciation life of fixed assets by up to 40% for tax purposes, thereby
increasing the annual amount of depreciation deductible from the income tax
and, second, to shorten the period of amortisation of intangible assets by up
to 40% for tax purposes, resulting in a larger annual deduction. Under a
document released by the Ministry of Finance and State Administration of
Taxation, corporate taxpayers in certain specified sectors including the
metallurgical sector may also benefit from other VAT, resource tax, and
corporate income tax advantages, namely in connection with purchase of fixed
assets.
(b)              
Legal basis
(271)   The legal bases of this
programme are the Preferential policies regarding enterprise income tax for
revitalization of companies of the old industrial base in the Northeast
(Caishui, No 153, 20 September 2004), Notice of the Ministry of Finance and the
State Administration of taxation on the Assets Depreciation and the
Implementation Calibre of Amortization Policy in the Northeast Old Industrial
Base (Caishui, No 17, 2 February 2005). The GOC submitted the legal basis
showing termination of this programme on 1 January 2008, namely the Notice of
the Ministry of Finance and State Administration of Taxation on Several
Preferential Policies in Respect of Enterprise Income Tax (No 1 [2008]).
(c)              
Non cooperation
(272)   Apart from providing the
aforementioned legal basis showing termination of the programme, the GOC simply
referred to the responses of the sampled producers for information concerning
any benefits that may have been received pursuant to this programme. The
Commission refers to the arguments developed above with regard to the request to
the GOC to provide full replies not limited to the sampled exporters (recitals (34)
- (35) above). Furthermore, the Commission notes that as this programme
provides for subsidies linked to purchase of fixed assets that may be amortised
over several years and the GOC has failed to provide any details on the
phasing-out of benefits under the programme or on the outstanding benefits
still not fully amortised, the Commission has decided to base its findings on
this programme on the information available on record (in this case the
complaint and relevant US findings) in accordance with Article 28 of the basic
Regulation.
(d)              
Findings of the investigation
(273)   This programme provides a
subsidy in the form of revenue forgone by the GOC within the meaning of Article
3(1)(a)(ii) of the basic Regulation. The benefit under Article 3(2) of the
basic Regulation amounts to the tax savings generated for eligible companies by
the deduction of accelerated depreciation and amortisation expenses linked to
the purchase of fixed assets. This subsidy is specific within the meaning of
Article 4(3) of the basic Regulation since it is limited to enterprises located
in a designated geographical area, i.e. the Northeast Region.
(e)              
Calculation of the subsidy amount
(274)   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 considered to be the difference between the amount of tax that would have
been paid during the IP under the normal depreciation schedule for the assets
concerned and the amount actually paid under accelerated depreciation. Since
this programme has not been examined in an anti-subsidy proceeding by the Union
institutions yet, and in the absence of precise quantification elsewhere, the
most appropriate source of information for the assessment of the benefit to the
exporting producers has been a comparable decision (based on similarity in the
nature of the programme[69])
by the US authorities. As noted in recital (252) above, when basing subsidy
amounts on findings in other investigations, account is taken throughout this
regulation of, inter alia, whether there have been any significant changes in
the scheme in question and whether the subsidy amount may have diminished over
time. It is noted that the amount of recurring subsidies will normally not
diminish in this way. In the absence of any such changes or diminution of the
subsidy amount, the original rate from the investigation in question is used as
the amount of subsidy in the present case.
(275)   The subsidy rate thus
established with regard to this scheme during the IP for all non-cooperating
companies is set at 0,08% which is the rate for the 'Income Tax Exemption for
Investors in Designated Geographical Regions Within Liaoning' Scheme as
established in the US Decision Memorandum of 3 June 2010 on Wire Decking (Page
No. 25) (Federal Register / Vol. 75, No. 111, page 32902 / 10 June 2010). With regard to investigations conducted by the US authorities, it
is noted that the methodology used for calculating the amount of benefit from
tax programmes is substantially the same as that employed by the EU[70].      
3.3.5.6.  Income tax exemption for
investment in domestic technological innovation
(a)              
Legal basis
(276)   The legal bases for this
programme are the Technological Transformation of Domestic Equipment Investment
Credit management of Enterprise Income Tax Audit, adopted by the State tax
Administration, No 13 of 17 January 2000, and the Notice concerning the Promulgation
and Circulation of Measures for the Administration of national Key
Technological Renovation Projects.
(b)              
Findings of the investigation
(277)   The GOC replied that this
programme was terminated since 1 January 2008 by the Notice of the State
Administration of Taxation on Stopping the Implementation of the Enterprise
Income Tax Deduction and Exemption Policy for the Investments of an Enterprise
in Purchasing home-made Equipment No. 52 [2008] of the State Administration of
Taxation. As this programme provides recurring tax benefits that have
terminated since 2008 and there is no evidence on outstanding benefits still
being amortised during the IP, the Commission concludes that this programme is
not countervailable.
3.3.5.7.  Various local tax discounts
(a)              
Description
(278)   The complaint lists a number
of tax discounts available in several provinces (i.e. Shandong, Chongqing Municipality,
Guangxi Region Zhuang, Central and Western Regions) in the form of a reduced
corporate tax rate of 15% as opposed to the generally applicable tax rate of
25%.
(b)              
Legal basis
(279)   The complaint reports the
legal basis of Shandong tax discount, namely Reduced Income Taxes based on
Geographical Location (Zheijang and Shandong Provinces): Income Tax Law of the
PRC for Enterprises with Foreign Investment and Foreign Enterprises, Article 7,
adopted on 9 April 1991, No. 45.
(c)              
Non-cooperation
(280)   The GOC simply stated that
none of the sampled companies made use of this programme during the IP and
referred to the replies of the sampled companies for information relating to
benefits which may have been received by them. In addition to the arguments on
the obligation for the GOC to provide full replies (see recitals (34) - (35)
above), the Commission notes that at least one of the lower tax rates listed
under this section benefited one of the cooperating exporters (see recitals (231)
and following above). Therefore the Commission is resorting to the information
available on record (in this case the complaint and relevant US findings) in
accordance with Article 28 of the basic Regulation for the assessment of this
programme.
(d)              
Findings of the investigation 
(281)   This programme confers a
subsidy in the form of revenue forgone by the GOC within the meaning of Article
3(1)(a)(ii) of the basic Regulation. This recurring benefit is equal to the
amount of tax savings generated by the lower corporate tax rate according to
Article 3(2) of the basic Regulation. The programme is specific since it is
limited to companies located in designated geographical areas within the
meaning of Article 4(3) of the basic Regulation.
(e)              
Calculation of the subsidy amount
(282)   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 considered to be the amount of total tax payable
according to the normal tax rate reduced by the amount paid under the
preferential tax rate. Since this programme has not been examined in an
anti-subsidy proceeding by the Union institutions yet, and in the absence of
precise quantification elsewhere, the most appropriate source of information
for the assessment of the benefit to the exporting producers has been a
comparable decision (based on similarity in the nature of the programme) by the
US authorities. As noted before, when basing subsidy amounts on findings in
other investigations, account is taken throughout this regulation of, inter
alia, whether there have been any significant changes in the scheme in question
and whether the subsidy amount may have diminished over time. It is noted that
the amount of recurring subsidies will normally not diminish in this way. In
the absence of any such changes or diminution of the subsidy amount, the
original rate from the investigation in question is used as the amount of
subsidy in the present case.
(283)   The subsidy rate thus
established with regard to this scheme during the IP for all non-cooperating
companies is set at 0,66% which is the rate for the 'Reduced Income Taxes Based
On Geographic Location' Scheme as established in the US Decision Memorandum of
12 June 2009 on Certain Tow Behind Lawn Groomers and Certain Parts Thereof
(Page No. 11) (Federal Register / Vol. 74, No. 117, page 29180 / 19 June 2009).
With regard to investigations conducted by the US authorities, it is noted that
the methodology used for calculating the amount of benefit from tax programmes
is substantially the same as that employed by the EU[71].
3.3.5.8.  Dividend exemption between
qualified resident enterprises
(a)              
Description
(284)   This programme consists of a
preferential tax treatment for Chinese resident enterprises that are
shareholders in other Chinese resident enterprises in the form of tax exemption
on income from certain dividends, bonuses and other equity investments for the
resident parent enterprises. This programme was countervailed by the EU in the
anti-subsidy proceeding concerning Coated Fine Paper[72]
(b)              
Legal basis
(285)   The legal basis are Article
26 of the Enterprise Income Tax Law of the PRC, Article 83 of the Regulations
on the Implementation of Enterprise Income Tax Law of the PRC, Decree no. 512
of the State Council, promulgated on 6 December 2007.
(c)              
Non-cooperation
(286)   The GOC replied that none of
the sampled companies made use of this programme during the IP and referred to
the responses of the sampled producers for information relating to any benefits
that may have been received pursuant to this programme. The Commission refers
to it arguments on the request to the GOC to provide full replies (recitals (34)
- (35) above). Therefore it has decided to base its findings on this programme
on the information available on file according to Article 28 of the basic
Regulation, namely the findings as included in the decision on Coated Fine
Paper.
(d)              
Findings of the investigation
(287)   This programme confers a
subsidy in the form of revenue forgone within the meaning of Article
3(1)(a)(ii) of the basic Regulation. This benefit is equal to the amount of tax
savings given by the tax exemption on dividends, bonuses and other equity
investments for Chinese resident enterprises according to Article 3(2) of the
basic Regulation. The programme is de jure specific within the meaning
of Article 4(2)(a) of the basic Regulation given that the legislation pursuant
to which the granting authority operates limits its access only to enterprises
resident in China receiving dividend income from other resident enterprises, as
opposed to enterprises investing in non-resident enterprises. The programme is
also specific under Article 4(2)(b) of the basic Regulation given that this
programme is reserved exclusively to important industries and projects
encouraged by the State, such as the steel industry (see e.g. recital (182)
above) and also that there are no objective criteria to limit eligibility for
this programme and no conclusive evidence to conclude that eligibility is
automatic.
(e)              
Calculation of the subsidy amount
(288)   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 considered to be the amount of total tax payable with the
inclusion of the dividend income coming from other resident enterprises in China,
after the subtraction of what was actually paid with the dividend tax
exemption. In the absence of information for the assessment of this benefit and
since this programme has already been examined in a previous anti-subsidy
proceeding by the Union institutions, the most appropriate source of information
for the assessment of the benefit to the exporting producers has been the
assessment made for this programme in Coated Fine Paper proceeding, duly
adjusted if needed as mentioned in recital (252) above.
(289)   The subsidy rate thus
established for all non-cooperating companies is set at 0,77% which is the
arithmetical average of the rates established for this programme in the Coated
Fine Paper proceeding. 
3.3.5.9.  Preferential Tax Programme
for Foreign Invested Entities (FIEs)
(290)   The complaint lists the
following preferential income tax schemes in favour of FIEs:
–              
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
(291)   The GOC submitted the
relevant legal bases to show that programmes concerning FIEs had been
terminated with the adoption on 16 March 2007 of the Corporate Income Tax
Law of 2008 at the 5th Session of the 10th National People's Congress of
the People's Republic of China, namely:
–              
Notice of the State Council on the
Implementation of the Transitional Preferential Policies in respect of Enterprise
Income Tax No. 39 [2007] of the State Council;
–              
Notice of the State Administration of
Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction
and Exemption Policy for the Investments of an Enterprise in Purchasing
Home-made Equipment, No. 52 [2008] of the State Administration
of Taxation
(292)   These provisions show that
income tax benefits for FIEs have been progressively phased out until the end
of 2011. The GOC has also stated that there is no replacement programme for
FIEs and the tax treatment of FIEs is now the same as for other corporate
taxpayers. The Commission notes that these preferential income tax programmes
concerning FIEs are still countervailable as OCS producers may still enjoy
outstanding benefits at least for a part of the IP until the end of 2011 and it
cannot be ruled out that there exists a replacement programme for FIEs as from
2012. Nevertheless, the Commission has decided not to assess them further
considering the need to reduce the administrative burden for all the parties
concerned, also in consideration of the approaching end of the progressive
phase-out period and the absence of indications on a possible replacement
programme.
3.3.6.               Indirect Tax and Import Tariff
Programmes
3.3.6.1.  Import tariff and VAT
exemptions for FIEs and certain domestic enterprises using imported equipment
in encouraged industries
(a)              
Description
(293)   This programme provides an
exemption from VAT and import tariffs in favour of FIEs or domestic enterprises
for imports of capital equipment used in their production. To benefit from the
exemption, the equipment must not fall in a list of non-eligible equipment and
the claiming enterprise has to obtain a Certificate of State-Encouraged
projects issued by the Chinese authorities or by the NDRC in accordance with
the relevant investment, tax and customs legislation. This programme was
countervailed by the Union in the anti-subsidy proceeding concerning Coated
Fine Paper[73].

(b)              
Legal basis
(294)   The legal bases of this
programme are Circular of the State Council on Adjusting Tax Policies on
Imported Equipment, Guo Fa No. 37/1997, Announcement of the Ministry of
Finance, the General Administration of Customs and the State Administration of
Taxation [2008] No. 43, Notice of the NDRC on the relevant issues concerning
the Handling of Confirmation letter on Domestic or Foreign-funded Projects
encouraged to develop by the State, No. 316 2006 of 22 February 2006 and
Catalogue on Non-duty-exemptible Articles of importation for either FIEs or
domestic enterprises, 2008.
(c)              
Non cooperation
(295)   The GOC claimed that none of
the sampled companies benefited from this programme during the IP and referred
to the responses of the sampled producers for information relating to any
benefits that may have been received pursuant to this programme. The Commission
refers to its arguments on the request to the GOC to provide full replies
(recitals (34) and following above), and thereby will base its findings on this
programme on the information available on file according to Article 28 of the
basic Regulation, namely its findings in the Coated Fine Paper
proceeding.
(d)              
Findings of the investigation 
(296)   This programme is considered
a subsidy in the form of revenue forgone by the GOC within the meaning of
Article 3(1)(a)(ii) as FIEs and other eligible domestic enterprises are
relieved from payment of VAT and/or tariffs otherwise due if they did not
obtain the relevant NDRC certificate of State-encouraged project. It therefore confers
a benefit on the recipient companies in the sense of Article 3(2) of the basic
Regulation. The programme is specific within the meaning of Article 4(2)(a) of
the basic Regulation since the legislation pursuant to which the granting
authority operates limits its access to enterprises that invest under specific
business categories defined exhaustively by law and obtaining the Certificate
of State-encouraged Projects. In addition, there are no objective criteria to
limit eligibility for this programme and no conclusive evidence to conclude
that eligibility is automatic under Article 4(2)(b) of the basic Regulation.
(e)              
Calculation of the subsidy amount
(297)   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 considered to be the amount of VAT and duties
exempted on imported equipment. In the absence of information for the
assessment of this benefit and since this programme has already been examined
in a previous CVD proceeding by the EU, the most appropriate source of
information for the assessment of the benefit to the exporting producers has
been the assessment made for this programme in the Coated Fine Paper
investigation, duly adjusted if needed as mentioned in recital (252) above.
(298)   The
subsidy rate thus established for all non-cooperating companies is set at 0,89%
which is the arithmetical average of the rates established for this programme
in the Coated Fine Paper investigation.
3.3.6.2.  VAT refunds to FIEs
purchasing domestically produced equipment
(a)              
Description
(299)   This programme provides
benefits in the form of VAT refunds for the purchase of domestically produced
equipment by FIEs. The equipment must not fall into the –Non-Exemptible
Catalogue and the value of the equipment must not exceed the total investment
limit on an FIE according to the 'trial Administrative Measures on Purchase of
Domestically Produced Equipment'. This programme was countervailed by the EU in
the anti-subsidy proceeding concerning Coated Fine Paper[74]and by the US authorities in a
countervailing duty proceedings concerning Coated Free Sheet from the PRC[75].
(b)              
Legal basis
(300)   The legal bases of this
programme are Circular of State Administration of taxation on the release of
the provisional measures for the Administration of tax refunds for purchase
domestically-manufactured equipment by FIEs No 171, 199, 20.09.1999; Notice of
the Ministry of Finance and the State Administration of Taxation on Stopping
the Implementation of the Policy of Refunding Tax to Foreign-funded Enterprises
for Their Purchase of Home-made Equipment, No 176 [2008] of the Ministry of
Finance.
(c)              
Non-cooperation
(301)   The GOC claimed that this
programme was terminated by the Notice No 176 [2008] referred to above
as from of 1 January 2009. The Commission requested the GOC to provide
information on the actual termination of benefits that would have to be
allocated over a longer period of time since this programme is linked to the
purchase of domestically-manufactured assets. The GOC simply referred to the
replies of the sampled producers for information relating to any benefits that
may have been received pursuant to this programme. The Commission refers to its
arguments on the request to the GOC to provide full replies (recitals (34) and
following above). The Commission also notes that that the Notice No 176
provides for a transitional period for the acquisition of eligible fixed assets
and filing of the application to obtain benefits until 30 June 2009. As the GOC
failed to provide any information on the phasing-out of benefits and given that
such benefits, being linked to fixed assets, may be allocated over time and
continue into the IP, the Commission issues its findings on this programme on
the basis of the information available according to Article 28 of the basic Regulation,
namely the findings in the Coated Fine Paper proceeding.
(d)              
 Findings of the investigation 
(302)   This programme is considered
a subsidy in the form of revenue forgone by the GOC within the meaning of
Article 3(1)(a)(ii) and thus conferring a benefit to the recipient companies in
the sense of Article 3(2) of the basic Regulation. The programme is specific
within the meaning of Article 4(2)(a) of the basic Regulation given that the
legislation itself pursuant to which the granting authority operates limits its
access to certain enterprises (FIEs) for purchase of equipment not falling into
the Catalogue of non-exemptible equipment. There is no indication of
non-specificity according to Article 4(2)(b) of the basic Regulation because
there are no objective criteria to limit eligibility for this programme and no
conclusive evidence to conclude that eligibility is automatic. In addition, the
programme is also specific within the terms of Article 4(4)(b) of the basic
Regulation as the subsidy is contingent upon the use of domestic over imported
goods.
(e)              
 Calculation of the subsidy amount
(303)   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 considered to be the amount of VAT reimbursed on the purchase of
domestically produced equipment. In the absence of information for the
assessment of this benefit and since this programme has already been examined
in a previous CVD proceeding by the EU, the most appropriate source of
information for the assessment of the benefit to the exporting producers has
been the assessment made for this programme in the Coated Fine Paper
proceeding, duly adjusted if needed as mentioned in recital (252) above.
(304)   The subsidy rate thus
established for all non-cooperating companies is set at 0,04% which is the
arithmetical average of the rates established for this programme in the Coated
Fine Paper proceeding.
3.3.6.3.  VAT deduction on fixed assets
in the Central region
(a)              
 Description
(305)   This programme covers VAT
taxpayers mainly active in certain listed industries, including the
metallurgical industry. The programme provides that eligible VAT taxpayers
located in 26 cities of the old industrial bases of the central region that
make investments in certain fixed assets can deduct the amount of VAT paid on
the fixed assets from its total VAT payable.
(b)              
 Legal basis 
(306)   The legal bases of this
programme are Notice on Ministry of Finance and State administration of
Taxation issuing the Interim Measures for Expanding the Scope of Offset for
Value Added Tax in the Central Region, No. 75, 2007, Notice of the Ministry of
Finance and the State Administration of Taxation on Several Issues concerning
the National Implementation of Value-added Tax reform, No 170 [2008] of the
Ministry of Finance. 
(c)              
 Non-cooperation
(307)   The GOC claimed that this
programme was terminated by the Notice No 170 [2008] since 1 January
2009 and referred to the replies of the sampled producers for information
relating to any benefits that may have been received pursuant to this
programme. The Commission refers to its arguments on the request to the GOC to
provide full replies (recitals (34) and following above). The Commission notes
that the Notice No. 170 does state that VAT benefits for companies located in
the Central Region terminate at the end of 2008 and can only be carried forward
until January 2009. However, such benefits, being linked to fixed assets, may
be allocated over time and continue into the IP ; in addition, the Notice also
seems to contain another preferential VAT system for these enterprises located
in the Central Region as from January 2009 consisting of half of the applicable
VAT rates. In the absence of clarification by the GOC on the phasing-out of
outstanding benefits under this programme or on the details of any replacement
programme, the Commission bases its findings on this programme on the evidence
available on the file under Article 28 of the basic Regulation.
(d)              
 Findings of the investigation 
(308)   This programme is considered
a subsidy in the form of revenue forgone by the GOC within the meaning of
Article 3(1)(a)(ii) and thus conferring a benefit to the recipient companies in
the sense of Article 3(2) of the basic Regulation equal to the amount of VAT
savings generated by the deduction on the purchase of fixed assets. The
programme is specific according to Article 4(2)(a) of the basic Regulation
given that the legislation limits access to certain enterprises, i.e. industries
that operate in the listed sectors. This programme is also specific under
Article 4(3) of the basic Regulation given that it is limited to certain
designated areas, i.e. the cities of the old industrial bases of the Central
region.
(e)              
 Calculation of the subsidy amount
(309)   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 considered to be the amount of VAT savings generated by the
deduction on the purchase of fixed assets. In the absence of information for
the assessment of this benefit and since a comparable VAT programme has already
been examined in this proceeding, the most appropriate source of information for
the assessment of the benefit to the exporting producers has been the
assessment made in recitals (297) and (298).
(310)   The subsidy rate thus
established for all non-cooperating companies is set at 0,89%.
3.3.6.4.  Other tax privileges of
Ma'anshan
(a)              
 Findings of the investigation
(311)   The complaint listed
miscellaneous tax privileges from 2008 to 2010 enjoyed by OCS producers located
in Ma'anshan and Wuhan, including exemptions from city maintenance and
construction tax, and extra charges on education funds. The Commission asked
the GOC to provide information on these tax benefits. The GOC replied that the
requested information were irrelevant for the investigation because none of the
sampled exporting producers was located in Ma'anshan. The Commission refers to
its explanation that the GOC was requested to submit information also with
regard to the subsidy allegations concerning the non-sampled companies
(recitals (34) - (35) above).
(312)   In the absence of
information provided by the GOC, the Commission concludes that the tax
privileges available in Ma'anshan and Wuhan are to be considered a subsidy in
the form of revenue forgone by the GOC in accordance with Article 3(1)(a)(ii).
They confer a benefit to the recipient companies in the meaning of Article 3(2)
of the basic Regulation in that they provide a tax saving equal to the
difference between the tax paid and the amount of tax normally payable in the
absence of this programme. The programme is specific within the meaning of
Article 4(3) of the basic Regulation given that it is limited to the
enterprises established in certain designated regions or municipalities in
Ma'anshan.
(b)              
 Calculation of the subsidy amount
(313)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of other
information for the assessment of this benefit the Commission based its
findings on information contained in the complaint. In accordance with Article
7(2) of the basic Regulation, the subsidy amount so calculated has been
allocated over the total turnover of the recipients during the IP as
appropriate denominator, because the subsidy is not contingent upon export
performance and was not granted by reference to the quantities manufactured,
produced, exported or transported.
(314)   The subsidy rate thus
established for all non-cooperating companies amounts to 0,08%.
3.3.7.     Grant Programmes
(315)   The complaint alleged that
as from the year 2005 until recently (including the year 2009) the companies
producing the product concerned received benefits under several grant
programmes and sub-programmes. It cannot be ruled out that payments under this
programme either are still on-going or have been effected on a non-recurring
basis in connection with capital investment and thus there are still on-going
benefits not fully amortised during the chosen 15-year amortisation period. The
GOC was requested to submit information on these programmes but has failed to
provide a meaningful reply on any of these programmes. Therefore, in the
absence of replies by the GOC on all these aspects, the Commission is basing
its findings on the best evidence available in compliance with Article 28 of
the basic Regulation
3.3.7.1.  China World Top Brand
programme
(a)              
Legal basis
(316)   The legal bases of this
programme as reported in the complaint are the following: 
–                        
Circular on Carrying out Evaluation of
Products to be Recognised as China World Top Brand, GZJH [2005] No 95
–                        
Announcement No 5, 2005 of China Promotion
Committee for Top Brand Strategy, Promulgating the List of China Top Brand
Products
–                        
Circular on application of China World Top
Brands in 2006, ZJZH [2006] No 11;
–                        
Announcement No 6, 2006 of China Promotion
Committee for Top Brand Strategy, Promulgating the List of China Top Brand
Products;
–                        
Announcement No 6, 2007 of China Promotion
Committee for Top Brand Strategy, Promulgating the List of China Top Brand
Products;
–                        
Circular on application of China World Top
Brands in 2008, ZJZH [2008] No 23;
–                        
Measures for the Administration of Chinese
Top-Brand Products issued by the GOC
(b)              
Eligibility
(317)   Only producers granted the
designation of "China World Top Brand" are entitled to the benefits
of this programme. The complaint reports a number of steel products produced by
the steel companies subject to this investigation as being granted this
designation. 
(c)              
Findings of the investigation
(318)   Given the lack of
cooperation of the GOC, the findings are based on the information present on
the file in accordance with Article 28 of the basic Regulation.
(319)   This programme provides
financial contributions in the form of grants, below-market loans and other
incentives, which constitute a direct transfer of funds conferring a benefit
upon the recipients within the meaning of Article 3(1)(a)(i) and Article 3(2)
of the basic regulation.
(320)   This subsidy is specific
within the meaning of Article 4(2)(a) of the basic Regulation because the
legislation limits access to certain enterprises only, that is the enterprises
that have received the designation "China World Top Brand" for their
products. Furthermore, there are no objective criteria established by the
granting authority with regard to the eligibility of the scheme, which is not
automatic under Article 4(2)(b) of the basic Regulation.
(d)              
Calculation of the subsidy amount
(321)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been comparable
decisions by the US authorities. As mentioned before, when basing subsidy
amounts on findings in other investigations, account is taken throughout this regulation
of, inter alia, whether there have been any significant changes in the scheme
in question and whether the subsidy amount may have diminished over time. It is
noted that the amount of recurring subsidies will normally not diminish in this
way. In the absence of any such changes or diminution of the subsidy amount,
the original rate from the investigation in question is used as the amount of
subsidy in the present case.
(322)   The subsidy rate thus
established with regard to this scheme during the IP for all non-cooperating
companies is set at 0,13% which is the arithmetical average rate for similar
programmes as established in the US Decision Memorandum of 6 April 2009 on
Citric Acid and Certain Citrate Salts (Page No. 6) (Federal Register Vol. 74, No.
69, page 16836 / 13 April 2009), the US Decision Memorandum of 14 May 2010 on
Pre-Stressed Concrete Steel Wire Strand (Page No. 29) (Federal Register Vol.
75, No. 98, page 28557 / 21 May 2010), the US Decision Memorandum of 28 May
2010 on Certain Steel Grating (Page No. 18) (Federal Register Vol. 75, No. 109, page 32362 / 8 June 2010),
the US Decision Memorandum of 28 March 2011 on Aluminium Extrusions (Page No.
19) (Federal Register Vol. 76, No. 64, page 18521 / 4 April 2011) and the US
Decision Memorandum of 11 October 2011 on Multi-layered Wood Flooring (Page No.
17) (Federal Register Vol. 76, No. 201, page 64313 / 18 October 2011). With
regard to investigations conducted by the US authorities, it is noted that the
methodology used for calculating the amount of benefit from grant programmes is
substantially the same as that employed by the EU[76].
3.3.7.2.  Famous Brands programme and
sub-programmes (Chongqing Famous Brands, Hubei Province Famous Brands,
Ma'anshan Famous Brands, Shandong Province Top Brands, Wuhan Famous Brands)
(a)              
Legal basis
(323)   The legal bases of this
programme as reported in the complaint with regard to the Shandong
sub-programme are the following:
–                        
Notice on Printing and Distribution of 2003
Policies for Encouraging and expanding Foreign Trade Export to Shandong,
LWJMJCZ, [2003] No 180;
–                        
2004 Policies for Encouraging the Development
of Foreign Trade & Economic Cooperation in Shandong, LWJMJCZ, [2003] No
1037;
–                        
2005 Policies for Encouraging the Development
of Foreign Trade & Economic Cooperation in Shandong;
–                        
Notice on Printing and Distribution of 2006
Policies for Encouraging the Development of Foreign Trade & Economic
Cooperation in Shandong, LCQ [2006] No 5.
–                        
Special Award Fund Budget for the Development
of Self-Exporting Brands, Lucaiqizhi, 2008, No 75.
(b)              
Eligibility
(324)   This programme confers
benefits to producers of products designated as "Famous Brands" and
meant for export markets. The complaint refers to a number of producers of the
product concerned having benefited from this programme until at least 2009. 
(c)              
Findings of the investigation
(325)   The complaint asserts that
this programme was designed to promote domestic advanced industries and
encourage exports of their products to the world markets. The main framework of
this programme is set in the central programme, and provincial and local
governments develop their own famous brands programmes consistently with the
central programme to promote the export of local products. The USA have
challenged this grant programme at the WTO (DS 387). In addition, the US
authorities have countervailed this programme in several proceedings referred
to in the complaint. The Commission has also countervailed the benefits under
this programme in the Coated fine paper case[77].
(326)   The 'famous brands' programme
provides financial contributions in the form of subsidised interest loans,
R&D funding, and cash grant rewards for exporting. These incentives
constitute a direct transfer of funds conferring a benefit upon the recipients
within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic
Regulation.
(327)   This subsidy is specific
under Article 4(2)(a) of the basic Regulation because the legislation limits
access only to those enterprises recognised to export products designated as
'famous brands'. Furthermore, given the apparent absence of objective criteria
and conditions for the application of this programme by the granting authority,
specificity is also found under Article 4(2)(b) of the basic Regulation. The
preferential treatment under this programme is also specific according to
Article 4(4)(a) of the basic Regulation because its benefits are contingent
upon export performance of the relevant 'famous brand' products.
(d)              
Calculation of the subsidy amount
(328)   The
amount of countervailable subsidy is calculated in terms of the benefit
conferred on the recipients, which is found to exist during the IP. In the
absence of precise quantification elsewhere, the most appropriate source of
information for the assessment of the benefit to the exporting producers has
been comparable decisions (based on similarity in the nature of the programme)
by the US authorities. As mentioned before, when
basing subsidy amounts on findings in other investigations, account is taken
throughout this regulation of, inter alia, whether there have been any
significant changes in the scheme in question and whether the subsidy amount
may have diminished over time. It is noted that the amount of recurring
subsidies will normally not diminish in this way. In the absence of any such changes
or diminution of the subsidy amount, the original rate from the investigation
in question is used as the amount of subsidy in the present case.
(329)   The
subsidy rate thus established with regard to this scheme during the IP for all
non-cooperating companies is set at 0,13% which is the arithmetical average
rate for similar programmes as established in the US Decision Memorandum of 6
April 2009 on Citric Acid and Certain Citrate Salts (Page No. 6) (Federal
Register Vol. 74, No. 69, page 16836 / 13 April 2009), the US Decision
Memorandum of 14 May 2010 on Pre-Stressed Concrete Steel Wire Strand (Page No.
29) (Federal Register Vol. 75, No. 98, page 28557 / 21 May 2010), the US
Decision Memorandum of 28 May 2010 on Certain Steel Grating (Page No. 18) (Federal
Register Vol. 75, No. 109, page 32362 / 8 June 2010), the US Decision Memorandum of 28 March 2011
on Aluminium Extrusions (Page No. 19) (Federal Register Vol. 76, No. 64, page
18521 / 4 April 2011) and the US Decision Memorandum of 11 October 2011 on
Multi-layered Wood Flooring (Page No. 17) (Federal Register Vol. 76, No. 201,
page 64313 / 18 October 2011). With regard to
investigations conducted by the US authorities, it is noted that the
methodology used for calculating the amount of benefit from grant programmes is
substantially the same as that employed by the EU[78].
3.3.7.3.  The State key technology
project fund
(a)              
Non- cooperation by the Government of China
(330)   In its questionnaire reply
GOC only stated that this programme has been terminated in 2003 and that none
of the sampled exporters has benefited from it. As the GOC has not supplemented
this reply with any underlying evidence or further clarification, the
Commission analyses this programme on the basis of facts available pursuant to
Article 28 of the basic Regulation. 
(b)              
Legal basis
(331)   The legal bases of this
programme referred to in the complaint are the following:
–                        
State Circulars: Guojingmao Touzi No 886 of
1999, Guojingmao Touzi No 122 of 1999, Guojingmao Touzi No 1038 of 1999,
Guojingmao Touzi No 822 of 2000 and
–                        
Measures for the Administration of National
Debt Special Fund for National Key Technology Renovation Projects
(c)              
Eligibility
(332)   According to quotations of
the main legal basis contained in the complaint, enterprises supported under this
programme "shall be mainly selected from large-sized state holding
enterprises among the 512 key enterprises, 120 pilot enterprise groups and the
leading enterprises of the industry." There is also a geographical
preference for enterprises located in the old industrial bases in north-east,
central and west areas.
(d)              
Findings of the investigation
(333)   Given the lack of
cooperation of the GOC, the Commission relies on the elements included in the
complaint and/or on the other sources mentioned in the complaint[79].
(334)   The complaint reports that
this programme sought to provide financial support to eligible enterprises to
promote: technological renovation in key industries, enterprises and products;
facilitation of technology upgrades; improvement of product structure;
improvement of quality; increase of supply; expansion of domestic demand;
continuous and healthy development of the State economy. According to the
complaint, the fund has supported 47 iron and steel enterprises with respect to
investments totalling RMB 75 billion. The US authorities have countervailed
this programme in at least two proceedings.
(335)   The programme constitutes a
subsidy as it provides financial contributions in the form of grants for the
acquisition of fixed assets in accordance with Article 3(1)(a)(i) of the basic
Regulation, which confers a benefit to the recipient. Since the subsidy is
linked to fixed assets and is allocated over time, it is concluded, on the
basis of facts available, that this benefit continues into the IP. 
(336)   This subsidy is specific in
the meaning of Article 4(2)(a) of the basic Regulation as the support is
limited to certain large-sized state-owned enterprises and state-holding
enterprises among 512 key enterprises and 120 pilot enterprise groups. In so far
as the project focuses on companies located in specifically designated
geographical regions of the old industrial base in north-east, central and west
areas, it is also specific within the meaning of Article 4(3) of the basic
Regulation.
(e)              
Calculation of the subsidy amount
(337)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a similar
decision by the US authorities, namely the US Decision Memorandum of 10
September 2010 on Certain Seamless Carbon and Alloy Steel Standard, Line, and
Pressure Pipe (Page No 19) (Federal Register Vol. 75, No. 182, page 57444 / 21
September 2010)..
(338)   The subsidy rate thus
established with regard to this scheme during the IP for all non-cooperating
companies is set at 0,01% which is the rate for a similar scheme as established
in the US decision referred to in the preceding recital.
3.3.7.4.  Programmes to rebate
anti-dumping legal fees
(a)              
No cooperation by the GOC
(339)   The complaint referred to
various investigations carried out by the US authorities[80] and the Commission (Coated
Fine Paper proceeding) which found countervailable several provincial
programmes under which 40% of the legal fees for a company's participation in
anti-dumping proceeding was refunded by the local financial bureau. As the GOC
decided not to reply to questions on this programme, merely stating that the
sampled exporters had not benefited from it, the Commission bases its findings
on the evidence available on the file according to Article 28 of the basic
Regulation. 
(b)              
Legal basis
(340)   According to the complaint
and the Commission decision in Coated Fine Paper (recital 193), the
legal basis of this programme is the following:
–                        
Rules for the Implementation of the Support
Policy for the Anti-dumping, Anti-subsidy, Safeguard investigation respondent
(c)              
Eligibility
(341)   This programme is available
for companies involved in the anti-dumping investigations and working in
compliance with the instructions of the Ministry of Commerce and provincial
authorities. 
(d)              
Findings of the investigation
(342)   This programme constitutes a
subsidy as it provides financial contribution in the form of a direct transfer
of funds in the meaning of Article 3(1)(a)(i) of the basic Regulation in order
to cover legal fees in anti-dumping proceedings and confers a benefit within
the meaning of Article 3(2) of the basic Regulation. This subsidy is specific
under Article 4(2)(a) and (c) of the basic Regulation because it is restricted
to certain enterprises that are subject to foreign anti-dumping proceedings.
Furthermore, this programme is also specific within the terms of Article 4(3)
of the basic Regulation given that it is limited to certain enterprises registered
in the designated geographical regions governed by the relevant provincial authorities
implementing this programme. 
(e)              
Calculation of the subsidy amount
(343)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of
information for the assessment of this benefit and since this programme has
already been examined in a previous anti-subsidy proceeding by the Union
institutions, the most appropriate source of information for the assessment of
the benefit to the exporting producers has been the assessment made for this
programme in the Coated Fine Paper proceeding, duly adjusted if needed
as mentioned in recital (252) above.
(344)   The
subsidy rate thus established for all non-cooperating companies is set at 0,01%
on the basis of Coated Fine Paper findings[81].
3.3.8.     Purchase
of goods by the Government for higher than adequate remuneration
(345)   The complaint contained
evidence that the GOC purchased through SOEs steel products manufactured by OCS
producers. The complaint referred to the GOC purchases of a number of steel
outputs, including colour-coated sheet, hot-rolled sheet coils, cold-rolled
sheet, medium plates, galvanised sheet, and many others. The complaint showed
that the price for the purchase of these goods by SOEs 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.
(346)   The GOC replied by reference
to its general arguments concerning SOEs that it has not been demonstrated that
purchasers SOEs of these steel products were public bodies within the meaning
of the WTO SCM Agreement and that it was impossible for the GOC to collect
transaction-specific data with regard to unknown entities. The GOC also stated
that the complaint did not refer to any purchase of goods involving the sampled
exporters. The Commission refers to its conclusions on purchasers of OCS and
other steel products being SOEs (recitals (49) - (73) above) and to the request
to the GOC to provide information also concerning non-sampled exporters (see
recitals (34) and (35) above). Given the lack of further information provided
by the GOC on this programme, the Commission bases its findings on the
information available on file according to Article 28 of the basic Regulation.
(347)   To the extent that prices
are above market prices and a benefit is conferred by the State on OCS
producers through its purchasers SOEs, this programme is countervailable
according to Article 3(1)(a)(iii) and Article 6(d) of the basic Regulation. It
also needs to be considered that the complaint allegation that there is no
reliable private price in the market because of the predominance of the public
sector in the steel market has been confirmed by the investigation as SOEs have
a predominant share in the steel market in China at least with regard to
hot-rolled steel and cold-rolled steel (see recitals (76) to (79)). This
subsidy is also specific under Article 4(2) of the basic Regulation as it is
restricted only to selected entities participated by the State in the steel
sector. However, the complexity of these transactions and of the underlying
contracts coupled with the lack of the necessary details on the record 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.
3.3.9.     Other regional programmes
(a)              
Non-cooperation by the GOC
(348)   The Government of China
replied that as none of the sampled producers was located in the areas of
application of the regional programmes included in this section, the
information requested by the Commission was irrelevant for the investigation.
Given the relevance of this information for the investigation (see recitals (34)
- (35) above), in the absence of a reply by the GOC the Commission is basing
its decision on all the regional programmes in this section on the facts
available on file in accordance with Article 28 of the basic Regulation.
3.3.9.1.  Subsidies provided in the Tianjin
Binhai New Area and the Tianjin Economic and Technological Development Area
(a)              
Legal basis
(349)   The legal basis of the
Accelerated Depreciation scheme is the Circular of the Ministry of Finance and
the State Administration of Taxation concerning the Related Preferential
Policies of Enterprise Income Tax for Supporting the Development and Openness
of Binhai New Area of Tianjin.
(b)              
Findings of the investigation
(350)   The complaint alleged that
the programme aims to promote the construction of science-technology
infrastructure in the Tianjin Binhai New Area (TBNA) and the Tianjin Economic
and Technological Development Area (TETDA) and build a science-technology
renovation system and service abilities. According to the complaint, financial
benefits under this programme were granted under the Science and Technology
Fund and under the Accelerated Depreciation Programme. These benefits would be
limited to enterprises established in the TBNA Administrative Committee's
jurisdiction, including companies producing/exporting the product concerned.
The complaint referred to the decision by the US authorities in the
countervailing proceeding concerning certain seamless carbon and alloy steel
standard, line, and pressure pipe from the People's Republic of China, which
found this programme countervailable[82].
(351)   In the absence of
cooperation by the GOC, the Commission bases its decision on this programme on
the best information available in accordance with Article 28 of the basic
Regulation contained in the complaint and in the mentioned decision by the US
authorities.
(352)   This programme confers a
non-recurring benefit to the recipient companies in the form of grants under
the Science and Technology Fund in the meaning of Article 3(1)(a)(i) of the
basic Regulation (direct transfer of funds) and in the form of revenue forgone
under Article 3(1)(a)(ii) of the basic Regulation as concerns the Accelerated
Depreciation Programme.
(353)   The subsidies under the
Science and Technology Fund and under the Accelerated Depreciation Programme
are specific within the meaning of Article 4(3) of the basic Regulation as they
are limited to certain enterprises located within designated geographical
regions (i.e. the TBNA and/or the TETDA).
(c)              
Calculation of the subsidy amount
(354)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable decision
by the US authorities, namely the US Decision Memorandum of 10 September 2010
on Certain Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe
(Pages Nos 20 and 21) (Federal Register Vol. 75, No. 182, page 57444 / 21
September 2010). With regard to investigations conducted by the US authorities,
it is noted that the methodology used for calculating the amount of benefit
from tax and grant programmes is substantially the same as that employed by the
EU[83].
(355)   The total subsidy rate thus
established during the IP for all non-cooperating companies is set at 0,61%
which corresponds to the accumulated rate for the schemes concerned as
established in the decision referred to in the preceding recital.
3.3.9.2.  Programmes related to the
Northeast Region
The Northeast Revitalization Programme
(a)              
Legal basis
(356)   The legal basis is the
Circular of the Ministry of Finance and State Tax Administration on Printing
and Distributing the Regulations on Relevant Issues with respect to Expansion
of VAT Deduction Scope in the Northeast Areas of 14 September 2004. 
(b)              
Findings of the investigation
(357)   The complainant affirmed
that the GOC established the Northeast Revitalisation Programme in 2003 to
revive the old industrial base of Dalian City and the three Northeast Provinces
of Liaoning, Jilin and Heilongjiang, which is the traditional centre of China's
steel industry. According to the complaint, the GOC has created a special bank,
the Northeast Revitalisation Bank (NRB) under the control of the State Council
with a mandate to finance the support for the revitalisation of Northeast old
heavy industrial hub.
(358)   The complaint also referred
to subsidies provided under this programme by the Export-Import Bank of China
(“ExIm Bank”) through its Dalian branch for a total amount of RMB 5 billion in
export credits and other "low-cost credit" worth RMB 150 million in
savings for local enterprises since November 2003. The complaint also reported
that loans were also extended to non-creditworthy enterprises to enhance the
competitiveness of ailing SOEs, which enjoyed a disproportionate access to
financial resources despite having the highest share of non-performing loans in
the country.
(359)   In
the absence of cooperation by the GOC, the Commission bases its decision on
this programme on the information contained in the complaint and in the US
Decision Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel
Line Pipe (Line Pipe) (Pages 21 and 22) (Federal Register Vol. 73, No. 227,
page 70961 / 24 November 2008), duly adjusted if needed as mentioned in recital
(252) above.
(360)   This programme confers an
advantage to the recipient companies in the form of: (i) grants as export
interest subsidies; (ii) VAT refunds for purchase of fixed assets.
(361)   With regard to (i) export
interest subsidies, the provision of interest subsidies constitutes a subsidy
in the form of grant within the meaning of Article 3(1)(a)(i) of the basic
Regulation. The US decision refers to this programme as the "Foreign Trade
Development Fund" rather than the "Northeast Revitalisation
Programme", as also mentioned in the complaint. This programme is managed
by the Liaoning provincial authorities (namely the Liaoning Provincial Bureau
of Foreign Trade and Economic Cooperation and the Liaoning Department of
Finance). Eligible projects include those undertaken by exporting enterprises
inter alia to improve the competitiveness of their export base and to explore
international markets. Because these grants are contingent upon export performance,
this programme is specific according to Article 4(4)(a) of the basic
Regulation.
(362)   With regard to (ii) VAT
refunds, for the purchase of fixed assets, they constitute a subsidy in the
form of revenue forgone by the State according to Article 3(1)(a)(ii) of the
basic Regulation. This programme provides that VAT taxpayers of certain
industries may deduct VAT for purchases of fixed assets from the VAT for sales
of finished goods. This VAT deduction is limited to firms located in the
northeast region and is therefore regionally specific within the meaning of
Article 4(3) of the basic Regulation.
(c)              
Calculation of the subsidy amount
(363)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable
decision (based on similarity in the nature of the programme) by the US
authorities.
(364)   The total subsidy rate thus
established for the Northeast Revitalization Programme during the IP for all
non-cooperating companies is set at 0,18% which corresponds to the accumulated
rate for the grants and VAT refunds received under the Foreign Trade
Development Fund Program as established in the US Decision Memorandum of 17
November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe)
(Pages 21 and 22) (Federal Register Vol. 73, No. 227, page 70961 / 24 November
2008). With regard to investigations conducted by the US authorities, it is
noted that the methodology used for calculating the amount of benefit from similar
programmes is substantially the same as that employed by the EU[84].
Export interest subsidies
(a)              
Legal basis
(365)   The legal basis is the
Provisional Administration Measures on High Tech Products and Equipment
Manufacturing Products Export Financial interest Assistance of Liaoning
Province, established on 16 December 2004.
(b)              
Findings of the investigation
(366)   The complaint alleged that
this programme provides assistance to companies to expand the export of
high-tech products and supports the development of enterprises located in the Liaoning
Province. The programme is managed by the Liaoning Provincial Bureau of Foreign
Trade and Economic Cooperation, the Liaoning Department of Finance, and the
Economic Commission of Liaoning province. The US authorities have found this
programme countervailable in the above-mentioned decision concerning Line
Pipe (see recital (359). 
(367)   This programme confers a
benefit in the form of direct transfer of funds from the GOC used to pay
interest on bank loans within the meaning of Article 3(1)(a)(i) of the basic
Regulation. Export loans means short-term loans obtained by enterprises that
produce high-tech products and equipment manufacturing products in the province
from banks and non-bank financial institutions due to the shortage of necessary
funds for production and operation between products export declaration and receipt
of payment. Eligible enterprises must have an annual export value above $ 1
million and have exported products falling in the scope of the "China
High-Tech Product Export Catalogue" or the scope of equipment
manufacturing products. This programme is therefore specific under Article 4(2)
of the basic Regulation because it is limited to enterprises fulfilling these
criteria. This programme is also contingent upon export performance according
to Article 4(4)(a) of the basic Regulation. The programme is also regionally
specific within the terms of Article 4(3) as it is limited to enterprises
located within the designated geographical region in the Northeast of China.
(c)              
Calculation of the subsidy amount
(368)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable
decision (based on similarity in the nature of the programme) by the US
authorities.
(369)   The subsidy rate thus
established during the IP for all non-cooperating companies is set at 0,43%
which corresponds to the rate for the export interest subsidies scheme as
established in the US Decision Memorandum of 17 November 2008 on Circular
Welded Carbon Quality Steel Line Pipe (Line Pipe) (Page No 23) (Federal
Register Vol. 73, No. 227, page 70961 / 24 November 2008). With regard to
investigations conducted by the US authorities, it is noted that the
methodology used for calculating the amount of benefit from similar programmes
is substantially the same as that employed by the EU[85].
Export loans
(a)              
Findings of the investigation
(370)   The complaint refers to the
previous programme of export interest subsidies, which is eligible only in
connection with outstanding "export loans". The US authorities have
found also this programme countervailable in the decision concerning Line Pipe.
(371)   The legal basis is the
"Provisional Administration Measures on High Tech Products and Equipment
Manufacturing Products Export Financial interest Assistance of Liaoning
Province", established on 16 December 2004.
(372)   This programme constitutes a
benefit in the form of direct transfer of funds from the GOC in the meaning of
Article 3(1)(a)(i) of the basic Regulation. The subsidy confers a benefit under
Article 3(2) and 6(b) of the basic Regulation equal to the difference between
what the recipients paid, and the amount they would have paid for a comparable
commercial loan in the absence of the programme. These loans are provided by
the government through its policy banks and its SOCBs (see analysis in recitals
(157) - (180) above). These export loans are specific under Article 4(4)(a) of
the basic Regulation because they are contingent upon export performance and
also under Article 4(3) as they are limited to enterprises located within a
designated geographical region in China.
(b)              
Calculation of the subsidy amount
(373)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable
decision (based on similarity in the nature of the programme) by the US
authorities.
(374)   The subsidy rate thus
established during the IP for all non-cooperating companies is set at 1,05%
which corresponds to arithmetical average of the rates for the export loans
scheme as established in the US Decision Memorandum of 17 November 2008 on
Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Page No 23)
(Federal Register Vol. 73, No. 227, page 70961 / 24 November 2008). With regard
to investigations conducted by the US authorities, it is noted that the
methodology used for calculating the amount of benefit from similar programmes
is substantially the same as that employed by the EU[86].
Liaoning Province Grants- Five Point One
Line Programme
(a)              
Findings of the investigation
(375)   The complaint states that
the "Five Points, One Line Coastal Belt" programme was introduced on
21 January 2006 by the Liaoning Provincial Government. The Liaoning government
provides subsidies for certain enterprises located in the area. The first
priority is given to enterprises set up in the five key areas as export
manufacture bases. The preferential treatment include a number of benefits,
including a reduced income tax rate of 15% for enterprises certified as
"high-tech" enterprises; income tax exemption for 'domestically
invested' high-tech enterprises; priority to receive interest subsidies;
economic management privileges; and exemptions from government fees. According
to the complaint the China Development Bank (CDB), a state-owned policy bank,
has provided preferential loans under this programme.
(376)   The US authorities have
found this programme countervailable in the above-mentioned decision concerning
Line Pipe.
(377)   The legal basis of this
programme is the "Opinion of Liaoning Provincial Encouraging the Expansion
of Opening-Up in Coastal Key Developing Areas." The Liaoning Development
and reform Commission and the Liaoning Finance Bureau manage the interest
subsidies, and the Huludao Beigang Industrial Park, Industry, and Commerce
Authority administer the fee exemptions provided under this programme.
(378)   This programme provides
financial advantages in the form of direct transfer of funds from the GOC in
the terms of Article 3(1)(a)(i) of the basic Regulation and/or revenue forgone
or not collected in the terms of Article 3(1)(a)(ii) of the basic Regulation.
These subsidies constitute a benefit under Article 3(2) of the basic Regulation
equal to the amount of the grant and/or to the tax/fee exemptions. These
subsidies are specific within the terms of Article 4(3) of the basic Regulation
as they are limited to certain enterprises located within the designated
jurisdiction of the Liaoning Provincial authority. The first priority for the
granting of these subsidies is given to enterprises set up in the five key
areas as export manufacture bases, and therefore they are also specific
according to Article 4(4)(a) of the basic regulation insofar as they are
contingent upon export performance.
(b)              
Calculation of the subsidy amount
(379)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable
decision (based on similarity in the nature of the programme) by the US
authorities.
(380)   The subsidy rate thus
established during the IP for all non-cooperating companies is set at 0,30%
which corresponds to the rate established for this scheme in the US Decision
Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel Line
Pipe (Line Pipe) (Page No 23) (Federal Register Vol. 73, No. 227, page 70961 /
24 November 2008). With regard to investigations conducted by the US authorities,
it is noted that the methodology used for calculating the amount of benefit
from grant programmes is substantially the same as that employed by the EU[87].
3.3.9.3.  Grants under the Science and
technology programme of Jiangsu Province
(a)              
Legal basis
(381)   The legal basis of this
programme is the Administrative Measures on Jiangsu Sci-Tech Public Service
Platform (Sukeji (2006) No 102; Sucaijiao (2006) No 22).
(b)              
Findings of the investigation
(382)   The complaint states that
this programme provides, among others, grants to certain enterprises. The
Government of China stated in its questionnaire reply that no sampled company
used or benefited under this programme. The Commission refers to its arguments
that the GOC was expected to provide complete replies also to questions
concerning non-sampled companies (recitals (34) - (35) above). Furthermore, the
Commission notes that the complaint lists as potential beneficiaries both
companies that were sampled and other non-sampled OCS producers located in the
relevant area of application. The Commission therefore bases its findings on
the facts available on record in accordance with Article 28 of the basic
Regulation, and in particular the information contained in the complaint and
the findings by the US authorities that have countervailed this programme in
the decision concerning Pre-Stressed Concrete Steel Wire Strand from the
People's Republic of China.[88]
(383)   The financial advantages
granted in the form of grants provide a contribution within the meaning of
Article 3(1)(a)(i) of the basic Regulation. These subsidies are specific within
the terms of Article 4(2)(c) of the basic Regulation because, there seem to be no
objective criteria or conditions governing the eligibility for the benefits
from this scheme (as provided for in Article 4(2)(b) of the basic Regulation )
and, on the basis of the facts available, discretion does not seem to be
exercised by the Jiangsu Department of Science and Technology is an objective
manner.
(c)              
Calculation of the subsidy amount
(384)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of precise
quantification elsewhere, the most appropriate source of information for the
assessment of the benefit to the exporting producers has been a comparable
decision (based on similarity in the nature of the programme) by the US
authorities.
(385)   The subsidy rate thus
established during the IP for all non-cooperating companies is set at 0,01%
which corresponds to the rate established for this scheme in the US Decision
Memorandum of 14 May 2010 on Pre-Stressed Concrete Steel Wire Strand (Page No
35) (Federal Register Vol. 75, No. 98, page 28557 / 21 May 2010). With regard
to investigations conducted by the US authorities, it is noted that the
methodology used for calculating the amount of benefit from grant programmes is
substantially the same as that employed by the EU[89].
3.3.9.4.  Grants under the Science and
Technology programme of Hebei Province
(a)              
Findings of the investigation
(386)   The complaint refers to two
grants provided under the Science and Technology programme of Hebei province to
an OCS producer in 2009 under this programme for an amount of RMB 700.000 and
RMB 2.080.000. The Government of China stated in its questionnaire reply that
none of the sampled company was established in Hebei and therefore the
requested information was irrelevant for the investigation. The Commission
refers to its arguments that the GOC should have provided complete replies also
to questions concerning non-sampled companies (recitals (34) - (35) above). The
Commission findings are therefore based on the facts available on record (in
this case the complaint) in accordance with Article 28 of the basic Regulation.
(387)   The financial advantages
provided under this programme in the form of grants constitute subsidies given
that they provide a financial contribution in the terms of Article 3(1)(a)(i)
of the basic Regulation. They constitute a benefit under Article 3(2) of the
basic Regulation equal to the amount of the grants. These subsidies are
specific according to Article 4(3) of the basic Regulation as they are provided
only for companies located in the Hebei province.
(b)              
Calculation of the subsidy amount
(388)   The amount of
countervailable subsidy is calculated in terms of the benefit conferred on the
recipients, which is found to exist during the IP. In the absence of other information
for the assessment of this benefit the Commission based its findings on
information contained in the complaint. In accordance with Article 7(2) of the
basic Regulation, the subsidy amount so calculated has been allocated over the
total turnover of the recipients during the IP as appropriate denominator,
because the subsidy is not contingent upon export performance and was not
granted by reference to the quantities manufactured, produced, exported or
transported.
(389)   The subsidy rate thus established
for all non-cooperating companies is negligible (less than 0,01%).
3.3.10.   Ad hoc subsidies
(a)              
Findings of the investigation
(390)   The complaint listed a
number of ad hoc subsidies allegedly granted to certain OCS producers, both
SOEs and private companies. These subsidies were either grants or other tax
exemptions or reductions inter alia in order to finance particular projects or
assets. They were granted in the context of the general strategic policy to
upgrade the steel industry.
(391)   The Commission asked the GOC
to provide information on these ad hoc subsidies. The GOC replied that the
allegations in the complaint were based on quotations from the annual reports
and it seemed that none of them concerned sampled companies. Therefore, the GOC
concluded that it was not necessary to address transaction-specific allegations
concerning non-sampled companies and provinces. Furthermore, the GOC restated
one of its general comments that the mere listing of certain transactions as
'subsidies' in a company's annual report cannot be taken as evidence sufficient
to launch an investigation on them as it "does not constitute
sufficient prima facie evidence according to Article 11.2 of the WTO SCM
Agreement".
(392)   The Commission refers to its
arguments explaining why the GOC was required to submit information also with
regard to the subsidy allegations concerning the non-sampled companies
(recitals (34) - (35) above). The Commission based its findings on these ad hoc
subsidies on the facts available on file in accordance with Article 28 of the
basic Regulation.
(393)   The ad hoc subsidies listed
in the complaint constitute a subsidy in the meaning of Article 3(1)(a)(i) of
the basic Regulation in the form of a direct transfer of funds with regard to
the grants and similar transfers of resources, and in the meaning of Article
3(1)(a)(ii) of the basic Regulation in the form of revenue forgone for the
various exemptions or reductions of taxes and/or fees at central, provincial,
or municipal level otherwise due. The Commission notes that the annual reports
of the various OCS producers themselves refer to these financial contributions
as 'subsidies'. On the face of it, a number of these subsidies appear to be
specific in law or in fact, within the terms of Article 4(2) of the basic
Regulation because, in the absence of cooperation from the GOC, they are deemed
to be granted to a limited number of steel companies in the encouraged steel
sector, and/or because of the manner in which discretion of the granting
authorities has been exercised for their granting. Furthermore, some of these
subsidies appear also specific pursuant to Article 4(3) of the basic Regulation
since their access was limited to certain enterprises located in designated
geographical regions in the territory of a certain province.
(b)              
Calculation of the subsidy amount
(394)   The Commission has carefully
studied the information available on the record concerning each of these ad hoc
subsidies for the various producers of OCS. The Commission found that some of
these subsidies are non-trade distortive and/or confer relatively small amounts
to OCS producers. By contrast, there are also a number of specific subsidies
that appear to confer significant amounts of subsidies to the OCS producers. In
view of this and of the information present on file, the Commission considers
it appropriate to calculate the applicable countervailing duty by reference to
the simple average resulting from the grants and the tax programmes
countervailed in this proceeding despite the non-cooperation by the GOC and the
relevant OCS producers.
(395)   The subsidy rate thus
established for all non-cooperating companies is set at 0,5%.
3.4.        Comments
of parties after definitive disclosure
(396)   GOC, one sampled exporting
producer (Zhejiang Huadong) and the complainant submitted comments on
definitive disclosure.
3.4.1.     Comments of GOC on
definitive disclosure
(397)   In view of the numerous and
very detailed arguments submitted by the GOC and that fact that it would be
impracticable (also due to the presence of some confidential information) to
include all of them in this regulation, the Commission has bilaterally
explained in writing to the GOC all the legal and factual elements underlining
the rejection of these claims.
3.4.1.1.  Procedural issues
(398)   In a number of its arguments
on the initiation of the investigation, the GOC seemed to consider the GOES panel
report[90] to be controlling in interpreting certain provisions of the SCM
Agreement and the EU Basic Regulation. For instance, the GOC talks about doubts
being "removed" by the GOES panel[91]. While
the Commission took note of the findings of the panel in this and does not
disagree with a number of its conclusions, these findings do not amend the
relevant Treaty or legislative language, notably Articles 11.2 and 11.3 of the
WTO Subsidies Agreement or Articles 9(2) and 9(3) of the basic CVD Regulation which
are relevant and binding for the Commission in all AS proceedings.
(399)   The
GOC claimed that the Commission is in breach of Article 11.2 of the SCM Agreement
(ASCM) because it initiated this investigation on the basis of a complaint
which did not contain any evidence of the "existence, degree and effect of
any (/each) alleged subsidy" and therefore the Commission had violated its
obligation under Article 11.3 to review the accuracy and the adequacy of the
evidence. 
This claim had to be rejected. The GOC's reference to "existence, degree
and effect" of the subsidy is a quote from Article 11.1 of the ASCM and
describes the purpose of an investigation. In Commission's view it is
unrelated to Article 11.2 of ASCM, which requires that the complainant shall
provide "sufficient evidence of the existence of a subsidy and, if
possible, its amount" and the complaint shall include "such
information as is "reasonably available" to the complainant.
The Commission has analysed the evidence submitted by the complainant, which
was substantial, as it appears clearly from the version open for inspection by
interested parties of the complaint. The Commission services only proposed the
initiation of an investigation after having duly analysed the accuracy and
adequacy of the evidence which they consider sufficient prima facie.
(400)   The
GOC suggested that each element (financial contribution, benefit and
specificity) of each subsidy scheme has to be determined individually. The
Commission agrees with the GOC that subsidy allegations have to be examined
individually. However, it is not the case that the evidence presented with
regard to each element of each subsidy programme has to be examined in
isolation. For instance, evidence of the existence of specificity for one
programme could be highly relevant for the determination of specificity with
regard to another programme, inter alia, depending on how much
information is publicly available on the programmes in question, as well as the
extent to which the programmes are closely connected and depend upon the same
legislation.
(401)   The GOC argued that there
must be evidence of the (above de minimis) amount of subsidy during the
IP for each programme and that there must be sufficient evidence of current
subsidization for each subsidy, not of "potential" or
"likely" benefits. On this point, the Commission does not agree with
the GOC, since there is no requirement in the basic Regulation or WTO SCM
Agreement to show that subsidies for a particular programme are above de
minimis. There is no dispute that a subsidy must confer a benefit during
the IP in order to be countervailed and that the complainants should endeavour
to produce such evidence. However, Article 11.2 of ASCM requires
"sufficient evidence" of subsidization on the basis of information
"reasonably available" to the complainant. Since much information on
subsidy benefits (e.g. tax exemptions, grants, provision of goods) is not publicly
available, it is often impossible for complainants to establish with certainty
that the subsidy has conferred a benefit to producers of the product concerned.
In such situations, the complainant is required to provide the best available
evidence showing that, for example, producers of the product concerned are eligible
for the subsidy and that the programme is still in force or providing
benefits. The level of evidence required will depend on the facts of the case
in question and on how much information is reasonably available to the
complainant.
(402)   The GOC claimed that the
Notice of Initiation is in violation of Article 22.2 (iii) of the ASCM, arguing
that it cannot be considered that the simple repetition of the names assigned
to the various programs constitutes a "description" thereof. The
Commission considers that subsidy practices to be investigated have been
adequately described in the Notice of Initiation by specifying the schemes
concerned and therefore the Notice does not violate Article 22.2(iii) of ASCM.
(403)   The GOC argued that the
Commission has wrongly initiated on a number of subsidy programmes because it
has looked at the complaint "holistically" or "in its
totality" rather than examining each programme; GOC also stated that the findings
of other investigating authorities on various programmes are not by themselves
sufficient evidence for initiation. As explained above (recital (400), the
Commission services have examined each programme. The extent, to which findings
of other authorities on a particular programme can constitute sufficient
evidence for initiation, is a case by case issue and depends to some extent on
what other information is reasonably available to the complainant.
(404)   The GOC (quoting a US
submission in the GOES case[92])
claimed that the "encouraged" status of OCS producers in government
planning documents may have been used in "blanket fashion" to show
specificity. This does not represent reality. The legislation classifying OCS
producers as "encouraged"[93] (and
the consequences which flow from this) is not (as GOC submits) "general
information about government policy, with no direct connection to the programme
at issue". Given that it explicitly limits access to programmes to certain
enterprises (or gives preferential benefits), such legislation obviously has a
very direct connection to the programme in question.
(405)   The GOC claimed that there
must be evidence of a current benefit from a subsidy programme and that the
fact that programmes were countervailed in other cases is insufficient, as such
findings relate to a different IP. There is no dispute that a subsidy must
confer a benefit during the IP in order to be countervailed and that the
complainants should endeavour to produce such evidence. However, for the purposes
of initiation, evidence of use of a programme in a reasonably recent period can
be highly relevant, for instance if there is no publicly available information
that the programme has been terminated or modified. The reference of the GOES
panel[94] by GOC (to Paragraph 7.72 of the panel report) is inconclusive,
because this refers to situations where it is "clear" that there is
no present subsidization, which is not the case here.
(406)   The
GOC claimed that there must be evidence that some producers of the product
concerned have actually received a benefit from a programme, in order for
initiation to take place. This claim could not be accepted. There is no
requirement in the basic Regulation nor it is a requirement of Article 11.2 of
the ASCM, which requires "sufficient evidence of the existence of a
subsidy…", or explicit evidence of actual utilisation by certain
producers. Since much information on subsidy benefits (e.g. tax exemptions,
grants, provision of goods) is not publicly available, it is often impossible
for complainants to establish with certainty that the subsidy has conferred a
benefit to producers of the product concerned. In such situations, the
complainant is required to provide the best available evidence showing that,
for example, producers of the product concerned are eligible for the
subsidy and that the programme is still in force or providing benefits. The
level of evidence required will depend on the facts of the case in question and
on how much information is reasonably available to the complainant. Imposing
such a requirement on complainants would effectively favour non-transparent
systems over more transparent ones granting the same type of subsidy.
(407)   The
GOC argued that the Commission did not provide a "reasonable period"
for the GOC to submit the necessary information under Article 12.7 of the SCM
Agreement. The GOC also claimed that the Commission did not grant to the GOC "ample
opportunity" to present in writing all relevant evidence concerning the
investigation in accordance with Article 12.1 of the SCM Agreement. These
arguments must be rejected as the Commission granted a reasonable period and
ample opportunity for the GOC to submit the relevant information in accordance
with the relevant provisions of the WTO and of the basic Regulation. The
Commission notes that it granted exceptionally generous extensions to the
deadline for the original questionnaire reply, bringing the total period for
the reply from 37 days to almost 2 months. Considering also the deficiency
process, the GOC had more than 3 months since the initiation to provide the
requested information. The GOC was also offered the opportunity to provide
missing information until the time of the verification visit. The Commission
also notes that 'reasonable period' must be seen in the procedural context
whereby the Commission is mandated by the basic anti-subsidy Regulation to
conclude the investigation within a period of 13 months. Granting even longer
deadlines as requested by the GOC would inevitably have negatively affected the
possibility for the Commission to proceed expeditiously in order to comply with
the relevant legal deadlines.
(408)   The GOC also referred to its
request for assistance to the Commission in preparing the questionnaire reply,
which in the GOC view was denied by the Commission. This does not correspond to
reality because the GOC request for assistance was so broad and open-ended
(i.e. it covered each question in the questionnaire and the appendices)
that the Commission was only able to offer the GOC assistance with respect to
the specific problems the GOC was encountering in the replies, rather
than the individual questions. The GOC decided not to take up this offer for
assistance further. The Commission also notes that Article 12.11 ASCM states
that the assistance requested must be "practicable", which is not the
case with respect to broad, open-ended requests imposing an impossibly high
burden on the investigating authority, particular when the questionnaire is
self-explanatory. The Commission notes that the GOC is highly experienced in
anti-subsidy investigation and uses the services of outside lawyers. 
(409)   With respect to the subsidy
programmes contained in the complaint that were not used by the sample
exporters, the GOC argued that it would be unable to provide the requested
information on all these programmes in the time allotted by the Commission
because of the fragmentation of the steel industry. The GOC also claimed that
it did not understand from the Commission until late in the proceeding the
potential consequences from the failure to provide the requested information on
these programmes given that they concerned non-sampled companies. The
Commission at the outset notes an inconsistency in the position of the GOC, as
its claim that it did not have sufficient time to provide replies in the time
allotted appears to conflict with its deliberate choice of not replying to all
the programmes not used by the sampled exporters because it allegedly did not
understand the purpose of the Commission's request and the consequences for the
refusal to provide the requested information. In any event, as specified above
(recital (407)) the Commission granted several deadline extensions to the GOC
in order to enable it to submit the requested information concerning on all of
the programmes. Therefore the total time allotted (i.e. more than 3 months
considering the deficiency process) was more than sufficient to provide the
requested information. The GOC itself explicitly acknowledges in its comments
that it is true that it took this position that it should not have been
required to submit the information on these other programmes, and this is also
shown by the fact that it did not even try to submit a partial or incomplete
reply to show its willingness to cooperate but simply did not submit any
information at all in this respect.
(410)   The Commission also cannot
accept the GOC argument that it did not understand the consequences for failure
to provide the requested information on the programmes not used by the sampled
exporters. As a matter of fact, the Commission clarified these consequences in
several instances since the beginning of the proceeding. More specifically, the
consequences for non-cooperation are explicitly indicated with reference to the
relevant provisions of the basic Regulation in the Notice of Initiation and in
the cover page of the questionnaire. The Commission also replied extensively on
the purpose of sampling and on the need for the GOC to provide the requested
information given the high level of non-cooperation and the possible
examinations of the requests for individual treatment in its letters of 19
March, 11 April, 4 May (deficiency letter), 7 June (pre-verification visit
letter), and 14 August 2012. Therefore, the GOC could not possibly have been
unaware or have misunderstood the consequences of its lack of cooperation on
these programmes not used by the sampled exporting producers. Fundamentally,
the GOC appears to have ignored that, as the grantor of the alleged
subsidy schemes, it was required to cooperate and provide information with
respect to all subsidy schemes alleged to be available for the product under
investigation.
(411)   The GOC also made a number
of arguments with regard to the verification process and the verification visit
itself. The GOC objected that from the Commission’s pre-verification letter it
could not discern the extent of the verification of the relevant information
and complains about an alleged refusal by the Commission to provide a more
specific outline for the verification. The GOC added that it was entitled at a
minimum to some "narrowing down" of the possible scope of the
verification (e.g. by means of an advance written list of all questions that
the Commission officials would ask)[95] which
in the GOC view could not have been exhaustive given short duration of the
visit. With respect to this latter argument, the Commission rejects the GOC
argument as there is no legal basis in either the WTO ASCM or the EU basic
anti-subsidy Regulation granting a purported right to this narrowing-down of
the scope of the visit. Nor is there any ruling by the WTO even suggesting that
such an entitlement would have to be interpreted as to exist.   
With regard to the other GOC arguments, the
Commission notes that it sent a detailed pre-verification letter on 7 June 2012
clearly indicating (i) a proposed schedule previously agreed informally with
the GOC, (ii) the purpose of the verification visit, (iii) the scope, content
and object of the visit, and (iv) the possible resort to facts available for
the programmes not used by the sampled exporters (see above). In order to limit
the need for the presence of the relevant GOC officials, it also indicated on
which day each programme would be addressed. The Commission went even further
than that in order to accommodate the requests for further details on the
verification visits by the GOC in the spirit of full cooperation, as it met the
representatives of the GOC at a very short notice to provide the requested
clarifications on the details of the verification visits. The Commission then
followed-up in writing to this meeting by answering further requests for
clarifications by the GOC in a number of emails exchanged with the GOC.
Therefore the Commission did everything it possibly could to ensure a
successful verification visit, but nevertheless the GOC seems to have ignored
all these efforts. 
3.4.1.2.  Provision of HRS and CRS for
less than adequate remuneration
(412)   GOC claimed that the
Commission should have made a “threshold” determination of the existence of a
public body before requesting transaction-specific information in Appendix B to
the GOC questionnaire. This claim could not be accepted as it would be
impractical to separate the investigation into two stages in this way, as the
Commission would have to make two separate requests for information and carry
out two separate verification visits to China. In addition to the
resource implications, this would in practice make it virtually impossible to
complete the investigation within the deadlines. In any event, the totality of
the evidence (including the transaction-specific data on prices and quantities)
may be relevant to the public body determination.
(413)   GOC claimed that its failure
to provide responses to Appendix B intended for the SOEs supplying HRS and CRS
to the OCS producers should not lead to the application of Article 28 of the
Basic regulation and the fact that the Commission applied facts available is in
breach it Article 12.7 of the ASCM agreement. GOC further claimed that the
Commission required that the Appendix B be completed by many companies
irrelevant to the investigation. This claim must be rejected. The Commission
constructed Appendix B in a way to verify the allegations in the complaint and
did so in line with the findings of WTO Appellate Body in DS379 which set out
certain guidelines for the determination of public body. The claim of the GOC
that "it is not only SOEs to which appendix B pertained" does not
represent reality. It is true that initially the Commission asked all producers
of HRS/CRS to fill in Appendix B, but following the GOC reply to the
questionnaire the Commission, in order to facilitate the work of the GOC in
replying to Appendix B, scaled down the request only to SOEs concerned[96]. Despite this effort from the Commission the GOC and the SOEs
concerned did not reply to the Appendix B although it is clear (notably from
the complaint) that SOEs providing HRS/CRS to the exporting producers of OCS
are concerned by this investigation.
(414)   Taking the above into
account the Commission had no alternative but to apply Article 28 (1) of the
basic Regulation and did so fully in compliance with Article 12.7 of the ASCM.
(415)   The
GOC claimed that the facts available used by the Commission do not support the
conclusion that the cited steel industry “guidelines” are legally binding. The
main steel industry planning document on the basis of which the Commission
based its findings concerning the existence of a public body is the Order No.
35 of the NDRC – Policies of the Development of Iron and Steel Industry. The
Commission asked a direct question concerning the legal status of orders of the
NDRC and it was confirmed that orders in Chinese legislation are legally
binding as they fall into the one of the four categories of law in China.
Therefore this claim is in contradiction with the relevant information on the
file.
(416)   The GOC claimed that the
market distortion found by the Commission in the steel sector is irrelevant for
the public body determination of the HRS/CRS producers and that the public body
determination should have been made specifically to the entities supplying
HRS/CRS to the two sampled groups of exporting producers and not only to all
SOEs producing HRS/CRS in China in general. According to the GOC, if the
Commission does not have information on these entities, it cannot make a
determination; otherwise, it would be drawing an impermissible adverse
inference. The Commission does not agree with this claim. The existence of the
market distortion is a relevant, although not determining, factor in the
analysis. The "public body "finding of the Commission in the context
of this proceeding concerns all the HRS/CRS producers which are fully or partly
state-owned, because it was made on the basis of evidence relating to broad
policy and industry-wide factors and was not a company-specific determination .
The state-owned entities supplying HRS/CRS to the two sampled exporting
producers clearly fall within the scope of the public body finding and
therefore it was not considered necessary to do make a specific determination
limited to them. In any event, the GOC provided no information which may serve
for such a company-specific determination in response to the Commission’s
questionnaire.    
The GOC argument that the Commission cannot make a determination in the absence
of "actual facts" on the specific SOEs concerned would mean that the
GOC would actually benefit from non-cooperation (as it had refused to supply
the "facts") and would thus obtain a "more favourable"
result than if it had cooperated, which is the opposite to an adverse inference.
(417)   GOC objected that it was
notified by the Commission of the "entrustment and direction"
analyses only at the stage of final disclosure and therefore its rights of
defence were breached. However, the Commission could not know that it would
come to this conclusion at the earlier stage of the investigation. This finding
is a result of all the information and data collected throughout the proceeding
and was disclosed as soon as the final determination was made, i.e. at the time
when the definitive disclosure was made. The complaint alleged subsidies
related to the government provision of goods by SOEs. The investigation showed
that the government policy in question, which initially concerned SOEs, also
applied to private entities, leading to a conclusion of entrustment or
direction by government.
(418)   The GOC claimed that the
facts discussed by the Commission in no way justify the conclusion that any
private body in the steel sector is entrusted and directed by the state to
provide the subsidies countervailed. This claim had to be rejected. In its
analyses concerning entrustment and direction the Commission referred to number
of government plans and policy documents and cited sections from these
documents which show a direct link between the government and the conduct of
the private steel companies and supported this finding by examples of actions
by these private operators.
(419)   The
GOC claimed that the Commission failed to distinguish between the consequences
of government action and the intention of government action when doing the
entrustment and direction analysis. This claim is also rejected. The Commission
established the existence of a government policy to support the steel industry
and to provide HRS/CRS through public bodies (SOEs) at below-market prices. It
was further established that this policy (by means of the predominance of SOEs
and the dissuasion of exports of HRS/CRS) effectively forced private producers
to supply the domestic OCS industry at the same below-market prices charged by
SOEs. Indeed, there is evidence that the prices of private suppliers are
explicitly linked to those of SOEs. Therefore,
the Commission established that the one of the aims of the policy was to
direct and entrust private bodies to follow the same practices as the SOEs. This
is a classic case of the government, by itself and through SOEs,
"exercising its authority" over private suppliers. The policy has all
the required elements for entrustment and direction i.e. a "government
action", "addressed to a particular party", "the objective
of which is a particular task or duty." As
an illustration of government intentions, certain provisions of the Order No 35
penalise the companies which do not act in line with policies described
therein. This shows that the GOC has an intention to lead the whole steel
industry in a certain direction and that should there be companies which do not
follow this intention there will be consequence for them.
(420)   The GOC also claimed that
the Commission did not establish that the GOC has a policy to provide HRS and
CRS to the OCS sector and that the Commission did not draw a conclusion to that
effect. This claim had to be rejected. As shown in the analysis in recitals (49)
- (72) above, the SOEs providing HRS/CRS to the OCS producers are public
bodies, the extended arm of the GOC and it is clear that they provide HRS/CRS
to the OCS exporting producers. It was also established that the prices of
these inputs do not reflect the market values. Therefore it is concluded that
through these SOEs the GOC exercises a policy of provision of cheap HRS and CRS.
(421)   GOC claimed that the
Commission has erroneously concluded that there is pervasive government control
of the steel sector generally and that the steel industry complies with certain
guidelines, but it has not concluded that the provision of steel to the OCS
sector at below market prices is a goal of that policy. This claim had to be
rejected. As explained in recital (419) above, the Commission has found that
the government policy involves an intention to direct private suppliers to
follow the below-market provision practices of SOEs.
(422)   GOC claimed that the
Commission did not make a finding that there is a specific intent by the GOC to
provide actual financial contribution at issue in the case of provision of HRS
and CRS as prescribed by the AB report in US –Countervailing Duty
Investigation on DRAMS from Korea[97]. This claim had to be rejected. The
governmental actions in question are based on a government policy intended to
direct private suppliers to follow the below-market provision practices of
SOEs. This is not a “consequence” or “by product” of government intervention;
it is the purpose of it. It is clear that in this case private suppliers of
HRS/CRS are not exercising "free choice" in the market because the
market is distorted by the predominance of SOEs and the export of HRS/CRS is
discouraged.
(423)   The GOC claims that the
Commission made no findings on the actual private bodies which supplied HRS/CRS
to the sampled companies. This claim had to be rejected. As in the case of
public bodies, the Commission made a sector-wide determination of entrustment
and direction which applies to all private suppliers. Since the government
policy in question applies to all such entities, there is no need to make a
company-specific determination.
(424)   The GOC claimed that the
Commission rejected the GOC's evidence concerning the proportion of Chinese
production of HRS and CRS which comes from SOEs. The table provided by the GOC
in this respect cannot be considered evidence. The GOC refused to provide
source data before and during the verification for this table and therefore it
cannot be considered to be reliable information. For this reason the Commission
used information from the World Steel Capacity Book, which is generally
accepted by the world steel industry.
(425)   The GOC claimed that the
Commission did not explain why the world market prices of HRS and CRS are the
most appropriate benchmark and referred to the AB ruling in the US-Softwood
Lumber IV that the out-of-country benchmark "must relate or refer to, to
be connected with, the prevailing market conditions in the country of provision
and must reflect price, quality, availability, marketability, transportation
and other conditions for purchase or sale". GOC also claims that the
"government predominance" cannot lead to relaxation of this
jurisprudence, because if it were the option to use an out-of-country benchmark
would not be available at all. GOC claim that the Commission has not complied
with the requirements of Article 14 of the ASCM. The Commission disagrees with
this claim. The prevailing market conditions in China are distorted as found by
the Commission and explained in recitals (49) - (97) above. Since steel is
produced worldwide by similar processes and is traded worldwide, the most
reasonable external benchmark is world price, since should China be in a normal
non-distorted market situation, it is likely that the prices would align with
the world prices. GOC provided very little information on the steel market in China
even though it was specifically requested by the Commission. Also China did not
propose any other benchmark except the in-country benchmark which was not
suitable because of market distortions found.   
GOC claimed that the Commission did not base the specificity finding in respect
to the provision of HRS/CRS for less than adequate remuneration on anything
other than the tautological statement made by the complainants in the complaint
and this is not sufficient to fulfil the requirements of the ASCM. This claim
had to be rejected. Both HRS and CRS are used as inputs only by a limited
number of companies, since companies in many sectors will have no use for these
products. The GOC itself in its reply to the questionnaire confirmed that the HRS
and CRS are used only by limited number of industries. The GOC did not dispute
this fact in the comments to definitive disclosure. Therefore it is confirmed that
this subsidy is specific within the meaning of Article 4(2)(c) of the basic
Regulation which is a reproduction of Article 2.1.(c) of the ASCM.
3.4.1.3.  Preferential Loans and
Interest Rates to the OCS industry
(426)   The
GOC claimed that the banks are not required to follow the industrial
guidelines, do not have individual business decisions dictated to them by the
government, and the banking sector is not predominated by the government. This
claim cannot be accepted. Articles 24 and 25 of the Order No 35 limit the
provision of loans only to those companies which comply with national
development policies for the iron and steel industry, therefore the claim of
the GOC are not required to follow the industrial policies is in contradiction
to this evidence. Clearly, these provisions restrict which companies the banks
can finance and which not. Also the claim that the banking sector is not
dominated by the Government must be disregarded. In this respect it is noted
that the GOC provided only very limited information on the ownership structure
in the banking sector, claiming it does not possess such information, although
according to Article 24 of the Commercial Banking Law all banks are obliged to
report such information to the China Banking Regulatory Commission, a state
agency authorised by the State Council. The other information on the files
cited in this regulation led to the conclusion that the banking sector in China
is indeed dominated by the government (see recitals (166)-(169) above). In
addition to the sources referred to in this regulation, the IMF Country Report
No 11/321 on China from November 2011 states that the state is also directly
and indirectly involved in the financial sector and recommends the
re-orientation in the role and responsibilities of the government in the
financial sector away from using the banking system to carry out broad
government policy goals and to allow lending decisions to be based on
commercial goals[98] [99].
(427)   The GOC claimed that its
failure to comply with the demands of Appendix A to the GOC questionnaire could
not trigger a valid resort to facts available, because the Commission should
not have held the GOC responsible to provide internal, sensitive,
transaction-specific data concerning banks many of which were not in any way
owned by the government. As explained in the recital (426) above the GOC had
access at least to some of the requested information but refused to provide any
answers to questions in Appendix A. In this respect it is also noted that since
the GOC refused to provide any ownership data the Commission, in the case of
many banks, did not know which banks are and which are not state-owned.
(428)   In relation to certain
Circulars of the PBOC the GOC claims that the publicly available summaries of
the contents of the relevant circulars together with the testimonies of the
PBOC officials are sufficient to replace the actual Circulars of the PBOC and
no facts available should be applied due to the GOC's failure to provide these.
The GOC also claimed that the Commission has rejected information provided in
good faith, i.e. the testimony of the PBOC official combined with the abstract
of the circulars at issue and referred to the Article 28 of the Basic
Regulation which says that only the information which is false or misleading
may be disregarded. In addition GOC claimed that the Commission did not base
its findings on actual facts available or the the information provided, but
rather made it incumbent upon the GOC to prove that the state of affairs
examined during the Coated Fine Paper case was no longer current. In this case,
according to the GOC, the Coated Fine Paper findings do not even contradict the
information provided by the GOC, since these were based on information pertaining
to a different time period altogether.         
Concerning the extracts provided from the PBOC and website and the testimony of
the PBOC official, these could not have been verified without the source
documents, i.e. the Circulars themselves. The Commission fails to understand
why on the one hand the GOC considers these to be confidential internal
documentation and on the other the summary of the contents is allegedly
published on the website of PBOC. The Coated Fine Paper findings are highly
relevant to the present case. The fact that the information pertained to a
different time period is of limited relevance, as the facts on the record
(including the complaint) demonstrate that the practices in question have not
changed since then. As regards GOC’s allegation that the Commission is
reversing the burden of proof, it is noted that the Coated Fine Paper findings
are part of the totality of the evidence taken into account but that the GOC is
not required to “disprove” them. Co-operation in such investigations is two-way
process and all parties may offer evidence or arguments to rebut other evidence
on the record.
(429)   The GOC argues that the
Commission has not found that the GOC benchmark rates reflect a non-commercial
distortion (thereby conceding that the Chinese market interest rates generally
reflect adequate remuneration) and that the fact that there is only a lower
limit on the interest rates for commercial loans works to the detriment of the
exporting producers making use of such loans rather than benefit. Without the
PBOC-imposed floor, those rates may well have been considerably lower. This
argument is misplaced. The fact that the GOC (PBOC) sets the benchmark rates
arbitrarily points to non-commercial behaviour at the first place. This is also
confirmed by the IMF Country Report No 11/321[100] on China
from November 2011 which refers to interest regulation.
(430)   The GOC claimed that the
Commission failed to assess the creditworthiness of the actual parties
investigated as it did in the Coated Fine Paper case. In reply, the
creditworthiness of the sampled exporting producers was not assessed as it is
in any event influenced by the industrial policies and by state support and
intervention. As it was found that the financial system in China is distorted
this would be a pointless exercise. There was no such creditworthiness
assessment in Coated Fine Paper case.
(431)   The GOC also objects the BB
rating determination because it alleges to be "purely punitive" and
"in any event the Commission's reasons for this selection have not been
disclosed in a manner capable of scrutiny." For the GOC, if the Commission
finds that the Chinese benchmark plus the BB risk premium would be that rate,
then it must explain its reasoning in that regard and on a producer and loan
specific basis. This claim had to be rejected. Given the distortions and the
lack of proper creditworthiness or risk assessment of the OCS producers by the lending
banks the Commission could not have taken the credit rating (if they had any at
all) of the individual exporting producers at its face value. The BB rating is
in this case not unfavourable for the exporting producers because it is the
best non-investment rating on the market.
3.4.1.4.  Provision of LURs for less
than adequate remuneration
(432)   The GOC claimed that the
Commission recognised that the GOC's claims that the LURs are provided with
reference to competition are such that they would obviate the need for an
external benchmark. GOC also claimed that throughout its explanation of why the
GOC claims were rejected the Commission focuses solely on the GOC evidence
rather than the facts actually available. The GOC requests that the Commission
disclose the actual factual basis it has determined that the prices set by the
local authorities were arbitrary, i.e. that they did not refer or relate to the
supply and demand for industrial land.          
The GOC's understanding of this issue is not correct. The Commission did not find
that that the LURs are provided with reference to competition. The Commission found
that out of the 13 LUR transactions only 6 were to be subject to bidding
or auction process. With regard to these 6 the evidence submitted in this
respect showed that the tenders were not competitive as there was only one
offer/bid and the price was set by the authorities. The Commission did not
understand the GOC's requests for the facts available used in respect to the
lack of a market for LUR to be disclosed when no facts available were used to
reject GOC claims in this matter and the analysis was done on the basis of
information submitted by the GOC and exporting producers in this respect. The
factual basis for the determination that the prices are arbitrarily set is
referred to in recitals (114) - (116) above, i.e. information on actual
transactions submitted by the sampled exporting producers, Urban Land
Evaluation System and Order No 35.
(433)   According to the GOC the
Commission did not determine specificity under Articles 2.1 and 2.2 of the
ASCM, nor did it clearly substantiate its determinations of specificity on the
basis of positive evidence, as required by Article 2.4 of the ASCM . In
addition, it did not substantiate the need to base the benefit amount on an
out-of-country benchmark nor did it construct the benchmark selected in the
manner consistent with Article 14 (d) of the ASCM. These claims had to be
rejected. The basis for Commission's specificity findings is the fact that all
companies which do not comply with industrial policies set by the state are
excluded from the provision of LUR, prices are often arbitrarily set by the authorities
and government practices are unclear and non-transparent The need for the
out-of-country benchmark was explained and justified in paragraphs (109), (118)
and (120)-(121) above. As it was found that the LUR market in China is
distorted it was not possible to apply in-country benchmark as proposed by the
GOC. The Commission does not agree with the claim that the benchmark was
constructed in a manner inconsistent with Article 14(d) of the ASCM. The Taiwan
benchmark is considered a best proxy available to the Commission and is
consistent with the recommendations of the AB in DS 379.
(434)   The GOC claims that it
suggested that any possible benchmark should be in-country and be based on the
prices that "not favoured" Chinese industries were paying; according
to GOC, this is precisely because there is no distinction in the first place,
and that therefore the subsidy amount would rightly be zero. The
Commission does not agree with this claim and in any event the GOC did not
provide any information for the "non-favoured" industries LUR prices
which could, in theory, be used for the benchmark construction.
(435)   GOC also claims that the
complainant provided no indication or evidence that LURs were granted in
particular to any subset of limited enterprises and the EU has not made the
crucial finding that the provision of LURs is explicitly limited to
certain/encouraged enterprises. The Commission has made the finding that
the provision of LUR is limited to companies which comply with the industrial
policies set by the GOC in the Order No 35 of the NDRC (recital (116) above).
(436)   The
GOC claimed that the Commission did not perform a rigorous examination in order
to find a benchmark that refers or relates to the situation in China and that
the Commission did not do its best to identify a benchmark that approximates
the market conditions that would prevail in the absence of the distortion, or
if it did it has not explained how this is so. This claim had to be rejected. The
Commission indeed looked in detail in the various indicators and compared Taiwan
and PRC as a whole as well as individual Chinese provinces concerned. After
such analyses the Commission considers Taiwan[101] as an
appropriate benchmark because of the totality of the information on the file i.e. (i) the level of economic development and economic structure
prevailing in Taiwan and the relevant Chinese provinces and city[102] where the co-operating exporting producers are established, (ii)
the physical proximity of these two Chinese provinces with Taiwan, (iii) the
high degree of infrastructure that both Taiwan and these two Chinese provinces
have, (iv) the strong economic ties and cross border trade between Taiwan and
the PRC, (v) the similar density of population in the Chinese provinces
concerned and in Taiwan, (vi) the similarity between the type of land and
transactions used for constructing the relevant benchmark in Taiwan with those
in the PRC and (vii) the common demographic, linguistic and cultural
characteristics in both Taiwan and the PRC. Furthermore, Jiangsu and Zhejiang
provinces together with Chongqing City are considered top manufacturing
provinces in the PRC. Although the GDP per capita of Taiwan and the Chinese
provinces and Chongqing City is not identical, the GDP of these Chinese
provinces and Chongqing City has grown rapidly in recent years i.e. they are
catching up with Taiwan.    
In addition, recent data suggest that the both PRC as a whole, the two
provinces and Chongqing City have much higher GDP growth rate than Taiwan[103], i.e. they are catching up very fast. However, it is important to
note that the exact comparison made between the GDP of a non-market economy
(the PRC) and the GDP of a well-established market economy (Taiwan) is not a
decisive fact because it is normal for a non-market economy to lag behind a
functioning market economy in terms of GDP. In addition, many other factors
e.g. planning rules, environmental policy may affect the supply and demand of
industrial land. The real issue is what would be the ‘prevailing market conditions’
with regard to LUR in the PRC if it was a functioning market economy and on the
basis of all evidence they would be very similar to those of Taiwan.
(437)   GOC also claims that the
Commission in its calculation used depreciation period of 50 years while not
all of the relevant land use right contracts were based on the 50 years terms.
This was not correct. All the LUR, the provision of which was countervailed
in this investigation, were based on the 50 years terms.
3.4.1.5.  Programme consisting of
provision of electricity for less than adequate remuneration
(438)   GOC claimed that the
conclusion concerning specificity is "wholly artificial" on the
grounds that the range of economic activity paying the non-penalised rate
encompasses the vast majority of the Chinese economy. The GOC also questioned
the Commission's finding on ‘regional’ specificity and in particular the
conclusion that this subsidy is only available in the geographical areas where
the exporting producer is located. According to the GOC the penalty applies
across the board in all geographical areas in which all exporting producers are
located and therefore there is no regional specificity. This claims had to be
rejected. The Commission notes that the GOC seems to base its comments
exclusively on the differential pricing system for the categories of
‘encouraged’, ‘restricted’, ‘prohibited’, and ‘allowed’ enterprises according
to decision No. 40. However, the Commission based its findings on the special
electricity pricing system available in the broader Chongqing municipality area
where one of the sampled cooperating exporters has a production plant. This
exporter benefits from a lower electricity rate specifically applying only to a
sub-set of companies belonging to certain sectors (namely ferroalloy electronic
furnace and fertilizer companies) within the same category of large industrial
users. Therefore, the Commission has concluded that the lower electricity rate
only applying to this very restricted sub-set of companies belonging only to
those specific eligible sectors is de jure specific.     
With regard to ‘regional’ specificity, recital (149) does not refer to any
penalty system as the GOC indicates in its comments. This paragraph clarifies
that this beneficial electricity rate applying to the restricted sub-set of
companies including the producer of the product concerned is limited to a
designated geographical area (i.e. the broader Chongqing municipality) which is
part of the China’s Vast Western Region encouraged according to the law referred
to in the same recital and further explained in recital (233) above. As further
stated in recital (149), this legislation refers to electricity pricing as one
of the tools to achieve the main policy objective to foster the development of
this region. The Commission finding that this subsidy is also regionally
specific is hereby confirmed.
(439)   The GOC questioned the
conclusions in recital (146) above concerning specificity on the basis of the
differential pricing system between the categories of ‘encouraged’,
‘restricted’, ‘prohibited’, and ‘allowed’ enterprises. The GOC explains again
that the difference in electricity price paid between the specifically
discouraged project and everyone else operates as a penalty, or surcharge, to
discourage specific projects rather than a "discount" paid to
encouraged projects. The GOC concludes that the Commission must make a finding
of what remuneration would be considered adequate and in this case the
Commission has assumed that the penalty price would be adequate remuneration.
This claim had to be rejected. As explained at length above, the Commission’s
finding of financial contribution refers to the lower electricity rate that
this company is entitled to as part of the restricted sub-set of companies
within the larger industrial user category. The GOC arguments are therefore not
relevant with respect to the findings by the Commission.
3.4.1.6.  Other income and tax
programmes not used by the sampled producers countervailed for the purposes of
the "residual rate"
(440)   The GOC argued that the
Commission had not applied consistently the relevant WTO rules concerning
sampling contained in the WTO Anti-dumping Agreement (i.e. Articles 6.10, 9.2
and 9.3), because the purpose of sampling would be to limit the scope of the investigation.
This argument was linked to Article 19.4 WTO ASCM, which limits the amount of
countervailing duty to the amount of subsidy "found to exist". The
GOC concluded that if the Commission did not consider the extent of
subsidisation sufficiently captured by the sample selected, the solution would
have been to sample more companies. In the first place, the Commission
notes that the analogy between sampling in anti-dumping and anti-subsidy
investigations has certain limits, because unlike anti-dumping investigations
in CVD investigations there is no general rule that each exporter receives an
individual duty and so-called 'aggregate' cases are explicitly permitted.
Moreover, unlike in anti-dumping cases, the government is a required
participant and respondent in a CVD case and the government is therefore
implicitly included in the scope of any "sample" for the purposes of
a CVD determination. In other words, the government' actions as the grantor of
the alleged subsidisation, always fall under the scope of the CVD
investigation, regardless of the use of a sample of exporting producers.
(441)   As regards the GOC comment
that the recourse is to "sample more companies", the Commission notes
that this is exactly what it did in this case. Further to the withdrawal of
cooperation by one of the exporters that had originally agreed to cooperate,
the Commission decided to include another exporter in the sample. However,
shortly after this company was informed of its inclusion in the sample, it
notified to the Commission that it no longer intended to cooperate in the
investigation. The Commission was consequently forced to limit the sample to
the two remaining exporters originally sampled that had not withdrawn
cooperation in order to avoid any further delay that would put in jeopardy the
expeditious completion of the investigation within the prescribed legal
deadlines. The Commission notes that this unsuccessful attempt undermined
solely by the exporters' behaviour shows precisely that this GOC claim is
without merit in that does not address the problem of companies which do not
come forward for sampling in the first place or which withdraw if selected for
sampling.
(442)   With respect to the
application of facts available, the GOC referred to Article 12.7 ASCM and
quoted WTO jurisprudence holding that facts on the record can only be used to
replace missing information, and that non-cooperation does not justify
determinations devoid of factual foundations. The Commission does not
understand the logic of this claim, given that in its determination it has used
the facts on the record as allowed under the WTO provision and the basic
Regulation in full compliance with the relevant WTO jurisprudence. As the GOC
has also recognised, the findings in Coated Fine Paper and in the various
US DOC decisions constitute the best facts available to the Commission
and are used precisely to replace the information gaps caused by the GOC lack
of cooperation.     
The GOC also questioned the use of these facts as they would not reflect a
present subsidization and are also not specifically linked to the product
concerned. The Commission notes in this respect that most of these subsidy
programmes concern non-recurring subsidies (e.g. grants, tax advantages linked
to investment in assets) which are normally amortised over several years and
therefore their benefits continue well in the future and thus even beyond the
IP in this case. Where recurring subsidies are involved, there is no evidence
that these programmes have changed since the investigation in question. As for
the link between these programmes and the product concerned, the Commission
recalls that all of these programmes cover the steel sector (they are not
product-specific), or apply in the region where the OCS exporters have located
their factories. In the absence of evidence to the contrary in the file, the
Commission has decided that it is reasonable to conclude that the benefits of
these programmes still reflect the best proxy for present subsidization for
producers of the product concerned. It is stressed that the GOC had ample
opportunity to submit evidence to the contrary on all these programmes but it
deliberately decided not to submit it and as a result the Commission has to
resort to the facts available on record as prescribed by the basic Regulation
and the WTO ASCM.
3.4.1.7.  Equity programmes
(443)   The GOC claimed that all
these programmes (unpaid dividends, debt-for equity swaps and equity infusions)
were not initiated in accordance with requirements with Articles 11.2 and 11.3
of the ASCM.      
This claim had to be refused. As already explained in the section concerning
the reply to the GOC's comments on initiation (recitals (399) - (406) above)
the Commission services have analysed the evidence submitted by the
complainant, which was substantial, as it appears clearly from the version open
for inspection by interested parties of the complaint. The Commission services
only proposed the initiation of an investigation on specific schemes after
having duly analysed the accuracy and adequacy of the evidence which they
consider sufficient on a prima facie basis.
(444)   In the view of the GOC the
equity programmes are unique ad-hoc subsidies, to the extent they exist, in
that that they apply only to one particular recipient and not pursuant to any
particular legislation and since "the Commission knows for a fact that the
companies subject to the residual duty not only did not receive, but could not
have received given their ad-hoc nature" these subsidies, they should not
be countervailed. In addition the GOC claimed that to the extent that facts
available determinations are made, they must be based on actual facts. For this
reason the countervailing of ad hoc subsidies to companies other than those
actually alleged to have received them is a violation of Article 12.7 of the
ASCM.       
It is noted that the GOC did not reply to a single question in the
questionnaire or in the deficiency letter concerning these schemes. Therefore
the statement of the GOC that "the Commission knows for a fact that the companies
subject to the residual duty not only did not receive, but could not have
received given their ad-hoc nature" these subsidies, does not represent
reality. To the contrary, the complaint listed several companies benefiting
from these equity schemes and did not allege this list to be exhaustive. Since
the GOC did not provide any information on the nature or eligibility of these
schemes the Commission has no other option but to apply facts available.
3.4.2.     Comments of Zhejiang Huadong

3.4.2.1.  Provision of LURs for less
than adequate remuneration
(445)   Zhejiang Huadong claimed
that it provided the Commission with all relevant legislations governing the
mechanics and value-setting of sales of LURs in China and referred to the Provisions
on the Assignment of State-Owned Construction LUR through bid invitation,
auction and quotation to demonstrate that there is a well-functioning real
estate market in China, where quotes and prices paid are made public. It
further claimed that the real estate market that exists today in China, and the
exhaustive official statistics on LUR prices available, form the best evidence
for assessing the price of the LURs at the time this exporting producer bought
them.     
This claim had to be rejected. The Commission explains the findings in respect
to Zhejiang Huadong's LURs in recital (115) above. These findings were not
disputed in its comments to definitive disclosure. Evidence at hand shows that
the LUR market in China is distorted as the tenders investigated on-the-spot by
the Commission were not competitive and the prices were arbitrarily set by the
authorities. The factual basis for the determination that the prices are
arbitrarily set is referred to in recitals (114) - (116) above, i.e.
information on actual transactions submitted by the sampled exporting
producers, Urban Land Evaluation System and Order of the NDRC No 35.
(446)   Zhejiang Huadong claimed
that according to Article 14(d) of the WTO SCM Agreement adequate benchmark prices
should relate or refer to prevailing market conditions in the country of
provision in the first instance or in the absence of such conditions, any
out-of-country benchmark should be adjusted appropriately so as to avoid the
countervailing of comparative advantages. It further claimed that on the basis
of paragraph 15(b) of the China – WTO Accession Protocol, when prevailing terms
and conditions in China are not available as appropriate benchmarks, the
importing WTO Member should adjust such prevailing terms and conditions, where
practicable, before considering the use of terms and conditions prevailing
outside China. Whilst the Commission agrees with much of the legal theory
behind this claim, it also concluded that there is no functioning market for
land in China and for this reason external benchmark for land prices was used.
The need for an out-of-country benchmark was explained and justified in
recitals (109), (118) and (120)-(121) above. As it was found that the LUR
market in China is distorted it was not possible to apply an in-country benchmark
as suggested by the Zhejiang Huadong and there is no basis on which to adjust
such an benchmark. In addition, from the information submitted in relation to
the benchmark suggested by the Zhejiang Huadong (Xiaoshan of Zhejiang Province)
it is unclear and not verifiable whether the price information suggested is
limited to allegedly "non-favoured" industries' LUR prices.
(447)   Zhejiang Huadong claimed
that the choice of Taiwan as a benchmark is not reasonable and objective for
the following reasons: 1) Zhejiang Province was not a developed-high GDP region
similar to Taiwan at the time the LURs were bought; 2) the Commission's
selection of actual land prices in Taiwan was based on offers for sale of
industrial land and not on the basis of actual prices for leasehold for
industrial use which is similar to LUR assigned to Zhejiang Huadong.        
This claim has to be rejected. With regard to 1) as stated above in recital (436)
the Commission looked in detail in the various indicators and compared Taiwan
and the PRC as a whole as well as individual Chinese provinces concerned. After
such analyses the Commission considers Taiwan as an appropriate benchmark consistent
with the basic Regulation and the WTO rules. With regard to 2) it is noted that
the Commission had used the best information which was reasonably available to
it.
(448)   Zhejiang Huadong pointed to
an arithmetical mistake in the calculation of the inflation rates used in the
adjustment for inflation of the benchmark. The Commission took this claim into
account and revised the calculation concerned.
(449)   Zhejiang Huadong claimed
that there is no specificity in its acquisition of LURs
since all companies in China are treated the same way under the legislation. Zhejiang
Huadong claimed also that the Commission did not adequately address the
specificity issue and that there was no reasoning in the definitive
disclosure regarding the grounds on which the price paid by Zhejiang Huadong
results in a benefit.    
This claim had to be rejected. The basis for the Commission's specificity
findings is the fact that all companies which do not comply with industrial
policies set by the state are excluded from the provision of LUR, prices are
often arbitrarily set by the authorities and government practices are unclear
and non-transparent The Commission has made the finding that the provision of
LUR is limited to companies which comply with the industrial policies set by
the GOC in the Order No 35 of the NDRC (recital (116) above).
3.4.2.2.  Provision of CRS for less
than adequate remuneration
(450)   Zhejiang Huadong claimed
that for the sake of reasonability and objectiveness and for reasons of
consistency the Commission should have retrieved steel price data from the same
data source (i.e. Steel Business Bulletin (SBB) for all the regions represented
in the benchmark basket when constructing the benchmark. It claimed also that
SBB provides a variety of markets for CRS prices other than those selected by
the Commission and suggested to add Mexico and Argentina as these countries
represent the emerging market of steel in the American continent. This claim had
to be rejected as in its construction of the benchmark the Commission used
price data that reflect the actual market situation in each country or region
as accurately as possible. As for the prices of Europe (the majority of which
are EU countries) the Commission considered that it had more detailed pricing
data available from MEPS. If it had possessed MEPS data for the other countries
selected, it would have used them. Concerning the inclusion of prices in Mexico
and Argentina, it is noted that these are relatively small markets in
comparison with China as well as with the other countries/regions in the
benchmark basket used by the Commission.         
The Commission revised its subsidy margin calculation for this scheme following
a correction to the constructed benchmark prices for HRS and CRS. The
correction concerned the steel prices for Brazil used in the benchmark
construction which erroneously included taxes in the calculations disclosed to
parties.
(451)   Zhejiang Huadong also
claimed that the Commission's conclusion on
specificity is unsubstantiated (no positive evidence) and unfounded, hence the alleged subsidy by provision of CRS for LTAR is not
countervailable. Zhejiang Huadong submitted that the benefit, if exists, of
provision of HRS and CRS for LTAR is not limited to certain enterprises or
sectors, but universally conferred to all potential buyers and consumers from
all economic sectors.            
This claim had to be rejected. GOC made the same
comment and the Commission addresses it in recital (415) above. The
"potential" buyers are by definition limited to certain enterprises.
3.4.3.     Comments of the complainant
3.4.3.1.  Provision of water and
electricity for less than adequate remuneration
(452)   Complainant claimed that,
because of the distortions and state influence in the Chinese water and
electricity markets, the Commission should have used international benchmarks
and calculate the benefits for these schemes in accordance with Article
6(d)(ii) of the basic Regulation. 
This claim had to be rejected. In this particular case, the evidence on the
record did not enable the Commission to find that water and electricity
markets are distorted to an extent which would justify recourse to an
out-of-country benchmark.
3.4.3.2.  Certain Tax programmes
concerning Foreign invested enterprises (FIEs)
(453)   The complainant claimed that
the Commission should have quantified the amount of subsidy for two tax
programmes related to FIEs, i.e. Income tax credit for the purchase of
domestically produced equipment and Two free, Three half-tax exemption for the
productive FIEs, given the lack of cooperation from the GOC and the fact that
GOC should have provided evidence that no benefits for these programmes were
granted to OCS producers in the IP.            
This claim had to be rejected. As already explained in recitals 282 above, for
the purpose of reducing the administrative burden for all the parties concerned
and taking in consideration the particular situation in relation to the pending
termination of these schemes, the Commission has decided not to countervail
them.
3.5.        Amount of countervailable
subsidies
(454)   The amounts of
countervailable subsidies in accordance with the provisions of the basic Regulation,
expressed ad valorem, for the investigated companies are set out in the table
below:
 Exporting producer || DEFINITIVE SUBSIDY MARGIN 
 HUADONG GROUP || 23,8% 
 PANHUA GROUP || 29,7% 
 UNION STEEL CHINA || 26,8% 
 COOPERATING COMPANIES NOT SAMPLED || 26,8% 
 ALL OTHER COMPANIES || 44,7% 
(455)   In accordance with Article
15(3) of the basic Regulation, the total subsidy margin for the cooperating
companies not included in the sample is calculated on the basis of the total
weighted average subsidy margin established for the cooperating companies in
the sample, i.e. 26,8%.
(456)   With regard to all other
exporters in the People's Republic of China, the Commission first established
the level of cooperation. The comparison between Eurostat import data and the
volume of exports to the Union of the product concerned reported for the
investigation period by the cooperating companies shows that cooperation of
exporting producers in the People's Republic of China was low, namely 58%.
Given this low level of cooperation, the total subsidy rate for all
non-cooperating companies is set at the level of the total of the subsidy rates
as established for all non-cooperating companies for all schemes investigated,
i.e. 44,7%. 
4.           INJURY
4.1.        Union production and Union
industry
(457)   All
available information concerning Union producers, including information
provided in the complaint, data collected from Union producers before and after
the initiation of the investigation, and the verified questionnaire responses
of the sampled Union producers, was used in order to establish the total Union
production for the period considered.
(458)   During the IP, OCS was
manufactured by 22 producers in the Union. On the basis referred to in the
previous recital, the total Union production was estimated to be around 4 018
310 tonnes during the IP. The Union producers accounting for the total Union
production constitute the Union industry within the meaning of Article 9(1) of
the basic Regulation and will be hereafter referred to as the ‘Union industry’.
4.2.        Determination of the
relevant Union market
(459)   It
was found during the investigation that a substantial part of the sampled Union
producers' production was destined for captive use, i.e. often simply
transferred (without invoice) and/or delivered at transfer prices within the
same company or group of companies for further downstream processing.
(460)   In order to establish
whether or not the Union industry suffered injury and to determine consumption
and the various economic indicators related to the situation of the Union
industry, it was examined whether and to what extent the subsequent use of the
Union industry’s production of the like product had to be taken into account in
the analysis. 
(461)   In order to provide as
complete a picture as possible of the situation of the Union industry, data
have been obtained and analysed for the entire OCS activity and it was
subsequently determined whether the production was destined for captive use or
for the free market.
(462)   For sales volume and sales
prices on the Union market and market share, it was found that a meaningful
analysis and evaluation of these indicators had to focus on the situation
prevailing on the free market. 
(463)   However the other economic
indicators could only reasonably be examined by referring to the whole
activity, thereby including captive use and sales. Production, capacity,
capacity utilisation, investments, stocks, employment, productivity, wages and
ability to raise capital depend upon the whole activity, whether the production
is captive or sold on the free market.
4.3.        Union consumption
(464)   The like product is sold by
the Union industry to unrelated customers as well as sold/transferred to
related companies for further downstream processing, e.g. in steel service
centres.
(465)   In calculating the apparent
Union consumption of OCS, the institutions added the volume of total imports of
OCS into the Union as reported by Eurostat and the volume of sales and captive
use of the like product in the Union produced by the Union industry as reported
in the complaint and as verified during the verification visits for the sampled
Union producers.
(466)   Eurostat import data is
however based on full CN codes, and it is clear that for a part of these CN
codes the import is not the product concerned. 
(467)   On this basis, the total
Union consumption developed as follows: 
   || 2008 || 2009 || 2010 || IP 
 Consumption (in tonnes) || 5 197 716 || 3 879 380 || 4 548 528 || 4 811 310 
 Index (2008=100) || 100 || 75 || 88 || 93 
(468)   Total consumption on the EU
market shrunk by 7% over the period considered. Between 2008 and 2009 there was
a decrease of about 25% mainly as a result of the global negative effects of
the economic crisis, especially on the construction industry. After that the
consumption started to recover and increased in total by 24% from 2009 to the
IP but it was still below the initial level of 2008.
4.4.        Imports from the country
concerned and market share
(469)   Imports
into the Union from the PRC developed as follows during the period considered:
   || 2008 || 2009 || 2010 || IP 
 Volume of imports from the PRC (tonnes) || 472 988 || 150 497 || 464 582 || 702 452 
 Index (2008=100) || 100 || 32 || 98 || 149 
 Market share || 9.1% || 3.9% || 10.2% || 14.6% 
 Index (2008=100) || 100 || 43 || 112 || 160 
Source: Eurostat
(470)   Despite the fall in
consumption, the volume of imports from the PRC increased significantly by 49%
over the period considered. Due to the negative effects of the economic crisis,
the volume of imports from the PRC sharply decreased in 2009. However, the
imports from the PRC started to recover at an extremely fast pace, so that the
increase from 2009 to the IP was a staggering 367%.
(471)   Similarly, the market share
held by those imports increased by 60% over the period considered. Although it
dropped from 2008 to 2009 by more than half, it showed an impressive increasing
trend from 2009 to the IP and rose by 275%.
4.4.1.     Prices of imports and price
undercutting
 Imports from the PRC || 2008 || 2009 || 2010 || IP 
 Average price in EUR/tonne || 875 || 728 || 768 || 801 
 Index (2008=100) || 100 || 83 || 88 || 91 
Source: Eurostat
(472)   The average import price
from the PRC decreased by 9% during the period considered. Between 2008 and
2009, it decreased significantly by 17%, then it increased by five percentage
points between 2009 and 2010 and by further three percentage points in the IP. 
(473)   The import prices from the
PRC consistently remained below the sales prices of the Union industry during
the whole period considered. As highlighted in the table above, while in 2009
during the height of the economic crisis, even the price cut of 17% could not
help the Chinese imports to keep the market share in a situation of suddenly
shrinking consumption and significant market slowdown, continuous undercutting
in the subsequent years explains the steady impressive increase in the market
share held by the imports from the PRC between 2009 and the IP. 
(474)   In order to determine price
undercutting during the IP, the weighted average sales prices per product type
of the sampled Union producers charged to unrelated customers on the Union
market, adjusted to an ex-works level, were compared to the corresponding
weighted average prices per product type of the imports from the cooperating
Chinese producers to the first independent customer on the Union market,
established on a CIF basis, with appropriate adjustments for post-importation
costs.
(475)   The post importation costs
referred to in the recital above were calculated based on verified data from
two unrelated importers of the product concerned.
(476)   The price comparison was
made on a type-by-type basis for transactions at the same level of trade, duly
adjusted where necessary, and after deduction of rebates and discounts. The
result of the comparison, when expressed as a percentage of the sampled Union
producers' turnover during the IP, showed weighted average undercutting margins
of up to 20.2% by the cooperating Chinese exporting producers.
(477)   Following disclosure one
exporting producer requested further information on the calculation of the
price undercutting, where there was no exact match between the product type
exported from the PRC and the product type sold on the Union market by the
Union industry. They also requested information as to whether an adjustment had
been made for physical differences where no exact match had been found.
(478)   Where no exact match existed
between the exported product type and the product type sold by the Union
industry, the Commission compared the exported product type to the closest
resembling product type sold by the Union industry. In these cases a comparison
was made to the closely resembling product type where the only difference was
the substrate thickness.
(479)   Where there was more than
one closely resembling product type, the Commission compared the exported
product type to the cheaper product type sold on the Union market, regardless of
whether this cheaper product type had a thicker, or thinner,
substrate.Therefore, no adjustment for physical differences was deemed
necessary
5.           ECONOMIC SITUATION OF THE UNION INDUSTRY
5.1.        Preliminary remarks 
(480)   Pursuant to Article 8(4) of
the basic Regulation, the institutions examined all relevant economic factors
and indices having a bearing on the state of the Union industry. 
(481)   The data provided by the
complainant for all producers of OCS in the Union, as cross-checked with other
available sources and verified data of the sampled Union producers, was used to
establish macroeconomic indicators such as Union industry production,
production capacity, capacity utilisation, sales volume, market share, growth,
captive sales, employment and productivity.
(482)   The data provided and
verified of the six sampled EU producers was used in order to establish
microeconomic indicators such as unit sales price, unit cost of production,
profitability, cash flow, investments, return on investments, ability to raise
capital, stocks and labour costs.
5.2.        Data relating to the Union
industry as a whole 
5.2.1.     Production, production
capacity and capacity utilisation
(483)   All available information
concerning the Union industry, including information provided in the complaint,
data collected from Union producers before and after the initiation of the
investigation, and the verified questionnaire responses of the sampled Union
producers, was used in order to establish the total Union production for the
period considered.
   || 2008 || 2009 || 2010 || IP 
 Production volume (tonnes) || 4 447 780 || 3 514 965 || 3 992 209 || 4 018 310 
 Index (2008=100) || 100 || 79 || 90 || 90 
 Production capacity (tonnes) || 6 007 536 || 6 128 301 || 6 099 587 || 5 923 311 
 Index (2008=100) || 100 || 102 || 102 || 99 
 Capacity utilisation || 74% || 57% || 65% || 68% 
 Index (2008=100) || 100 || 77 || 88 || 92 
Source: Complaint,
questionnaire replies
(484)   The table above shows that
production decreased by 10% over the period considered. In line with a decrease
in demand, production decreased sharply in 2009, after which it partially
recovered in 2010. Even though consumption increased in the IP, production
volume remained more or less at the same level as in 2010. 
(485)   Production capacity remained
stable over the period considered. Capacity utilisation followed the trend of
production and declined by 8% during the period considered.
5.2.2.     Sales volume, market share
and growth 
   || 2008 || 2009 || 2010 || IP 
 Sales volume (tonnes) || 2 951 468 || 2 280 304 || 2 643 923 || 2 592 540 
 Index (2008=100) || 100 || 77 || 90 || 88 
 Market share (tonnes) || 56.8% || 58.8% || 58.1% || 53.9% 
 Index (2008=100) || 100 || 104 || 102 || 95 
Source: Complaint,
questionnaire replies
(486)   In 2009 the Union industry
sales volume to unrelated customers decreased sharply by 23%. In 2010, sales
volume increased by thirteen percentage points, but then dropped by two
percentage points in the IP. 
(487)   The Union industry's market
share decreased by 2.9 percentage points over the period considered. After an
initial increase in market share in 2009, the Union industry saw its share
decrease in 2010 and the IP with the result that its share of the market was 5
percentage points less in the IP than in 2009. This occurred against the
background of an increase of more than 24% in consumption from 2009 to the end
of the IP. It was thus unable to benefit from the growing consumption and to
regain the sales volumes and some of the market share previously lost.
(488)   While Union consumption
declined by 7% during the period considered and the Union industry sales volume
to unrelated parties decreased by 12%, the market share of the Union industry
decreased by 2.9 percentage points from 56.8% in 2008 to 53.9% in the IP.
5.2.3.     Employment and productivity
   || 2008 || 2009 || 2010 || IP 
 Employment (in FTE) || 7 088 || 6 470 || 6 097 || 6 046 
 Index (2008=100) || 100 || 91 || 86 || 85 
 Productivity (tonnes/FTE) || 627 || 543 || 655 || 665 
 Index (2008=100) || 100 || 87 || 104 || 106 
Source: Complaint,
questionnaire replies, Eurofer
(489)   Employment in the Union
industry followed a progressively declining trend. Thus, the total number of
employees measured in full time equivalents (FTE) in the industry decreased by
15% over the period considered and reached its lowest level in the IP. However,
the productivity increased by 6% over the period considered, which shows that
the industry was trying to rationalise their production costs.
5.2.4.     Captive use and captive
sales 
   || 2008 || 2009 || 2010 || IP 
 Captive use and captive sales (tonnes) || 1 135 987 || 914 412 || 986 386 || 970 757 
 Index (2008=100) || 100 || 80 || 87 || 85 
 Market share (%) || 22% || 24% || 22% || 20% 
 Index (2008=100) || 100 || 108 || 99 || 92 
Source: Complaint and
verified questionnaire replies of the sampled producers
(490)   As indicated in recital (459),
there is a significant market for OCS in the EU that is formed by the
downstream use of OCS by the Union industry.
(491)   It was found that the
captive use and captive sales were destined for further transformation by the
companies themselves or their related companies dealing mainly with
construction material business, i.e. being end-users of OCS.
(492)   On the basis identified
above, it was established that the captive use and captive sales of the Union
industry constituted 24% of the total production volume in the IP. Over the
period considered, the captive use and related sales volumes decreased by 15%
and their market share dropped by 8%. 
(493)   The
investigation found that there was no material difference between captive use
and captive sales in terms of end use of the product. Captive use was reported
by companies where the downstream production was taking place in the same legal
entity, however, captive sales were the sales to other related legal entities
with an invoice. Furthermore, the pricing method in both captive use and sales
to related parties was similar, i.e. a fair value ("cost plus"
method) of the product was charged to both the related companies as well as to
internal downstream production units of the sampled companies.
(494)   The average value per tonne
remained stable during the period considered and was 3% lower than the sales
price to unrelated customers in the IP of the sampled Union producers. This
price difference was not considered significant and the trend in the price of
captive sales follows the trend in the price to unrelated customers.
   || 2008 || 2009 || 2010 || IP 
 Captive use and captive sales (EUR/tonne) || 962 || 802 || 901 || 965 
 Index (2008=100) || 100 || 83 || 94 || 100 
Source: Verified
questionnaire replies of the sampled producers
(495)   Considering that most of the
captive sales and captive use were destined for the downstream construction
material business of the Union producers, those sales and captive use were also
indirectly exposed to competition from other market players including the
subsidised imports from the PRC. The internal demand of the downstream
production depended on the chance to sell the downstream products on the free
market which was not affected by subsidised imports of OCS. Thus, it can be
concluded that the shrinking volumes and market share during the period
considered were due to competition from subsidised imports from the PRC.
5.3.        Data relating to the
sampled Union producers 
5.3.1.     Average unit sales prices in
the Union and cost of production 
   || 2008 || 2009 || 2010 || IP 
 Unit price in EU to unrelated customers (EUR/tonne) || 1 023 || 805 || 911 || 994 
 Index (2008=100) || 100 || 79 || 89 || 97 
 Unit cost of production (EUR/tonne) || 925 || 884 || 893 || 978 
 Index (2008=100) || 100 || 95 || 97 || 106 
Source: Verified
questionnaire replies of the sampled producers
(496)   The average sales prices of
the sampled Union producers to unrelated customers in the EU decreased by 3%
over the period considered. The biggest drop of 21% occurred in 2009 in line
with the decrease in consumption In the period from 2009 to the IP, in line
with an increasing consumption and sales volumes, prices recovered by 23% but
did not reach the level of 2008.
(497)   In parallel, the average
costs to produce and sell the like product increased by 6% over the period
considered which was caused by an increase of the raw material cost. 
(498)   After the drop in unit price
to unrelated customers by 21% in 2009, the unit price started to increase. In
2010 and during the IP, compared to 2009, the Union industry experienced an
increase in costs and could only moderately increase the prices to cover them,
enough just to keep the profitability on the same low level for 2010 and the
IP. However, this resulted in a further loss in market share since the Chinese
imports prices were constantly undercutting the Union industry prices.
5.3.2.     Profitability,
cash flow, investments, return on investment and ability to raise capital
   || 2008 || 2009 || 2010 || IP 
 Profitability of sales in the EU to unrelated customers (% of sales turnover) || 6.7% || -9.3% || 2.8% || 2.6% 
 Index (2008=100) || 100 || -138 || 41 || 39 
 Cash flow (EUR) || 328 190 880 || 211 298 356 || 152 030 083 || 204 650 414 
 Index (2008=100) || 100 || 64 || 46 || 62 
 Investments (EUR) || 55 717 957 || 4 537 128 || 12 530 132 || 15 302 264 
 Index (2008=100) || 100 || 8 || 22 || 27 
 Return on investments || 13.8% || -13.9% || 5.9% || 6% 
 Index (2008=100) || 100 || -101 || 43 || 44 
Source: Verified
questionnaire replies of the sampled producers
(499)   The profitability of the
Union industry was established by expressing the pre-tax net profit of the
sales of the like product to unrelated customers as a percentage of the
turnover of these sales. In 2009 the profitability of the Union industry
decreased dramatically and resulted in a loss of 9.3%. From 2010 it started to
recover but the increasing costs of production prevented from achieving the
level considered healthy and sustainable for the industry (6.7%). Over the
whole period considered, profitability dropped by 61%.
(500)   The trend in cash flow
followed to some extent the negative trend in profitability. The lowest level
was achieved in 2010. Similarly, the return on investment decreased by 56% from
13.8 % in 2008 to 6% in the IP.
(501)   The evolution of
profitability, cash flow and return on investment during the period considered
limited the ability of the Union industry to invest in its activities and
undermined its development. The Union industry managed to make substantial
investment in the beginning of the period considered, however, thereafter the
investments dropped sharply in 2009 and overall decreased by 73% over the
period considered.
(502)   Given the nature of the
Union industry, which is to some extent made up of large multinational
integrated steel companies, the ability of these companies to raise capital was
not affected by the poor financial performance of the OCS sector.
5.3.3.     Stocks
   || 2008 || 2009 || 2010 || IP 
 Closing stocks (tonnes) || 116 852 || 97 533 || 124 848 || 130 593 
 Index (2008=100) || 100 || 83 || 107 || 112 
Source: Verified
questionnaire replies of the sampled producers
(503)   For the six sampled Union
producers, stocks represented around 8% of the production volume in the IP. The
closing stock level increased by 12% during the period considered. Although, it
should be noted that stocks are not an important indicator for the industry as
the production mainly takes place on order, the main increase in stocks took
place from 2009 to the IP and coincided with the surge in the subsidised
imports from the PRC.
5.3.4.     Employment, wages and
productivity
 Average labour costs per employee (EUR, sampled EU producers) || 60,959 || 57,892 || 58,637 || 62,347 
 Index (2008=100) || 100 || 95 || 96 || 102 
(504)   The average labour costs of
the sampled Union producers rose by only 2% over the period considered which is
lower than the inflation rate. The investigation showed that the sampled
producers made significant cuts, especially in general and administrative
costs, and therefore made efforts to be more efficient.
5.3.5.     Effects of past dumping or
subsidisation
(505)   Since this is the first
anti-subsidy proceeding regarding the product concerned, no data are available
to assess effects of possible past dumping or subsidisation.
5.4.        Magnitude of the actual
subsidy margin
(506)   All margins established and
specified above in the subsidy section are significantly above the de minimis
level. Given the volume and the prices of subsidised imports from the PRC the
impact on the EU market of the actual margin of subsidy cannot be considered
negligible.
5.5.        Conclusion on injury
(507)   The investigation showed
that all injury indicators (except productivity) deteriorated or did not
develop in line with consumption during the period considered.
(508)   Over the period considered,
in the context of decreasing consumption, the volume of imports from the PRC
increased significantly. At the same time, the Union industry sales volume
decreased overall by 12% and its market share dropped from 56.8% in 2008 to
53.9% in the IP. Although consumption recovered by 24%, from 2009 to the IP,
after the year of economic crisis affecting demand, the Union industry market
share was decreasing. The Union industry was unable to regain the lost market
share in view of the significant expansion of the subsidised imports from the
PRC in the EU market. The low-priced subsidised imports increased over the
period considered, constantly undercutting the prices of the Union industry.
(509)   Furthermore, the injury
indicators related to the financial performance of the Union industry, such as
cash flow and profitability were seriously affected. This means that the
ability of the Union industry to raise capital and to invest was undermined.
(510)   In the light of the
foregoing, it was concluded that the Union industry suffered material injury
within the meaning of Article 8(5) of the basic Regulation.
6.           CAUSATION 
6.1.        Introduction
(511)   In accordance with Article
8(5) and 8(6) of the basic Regulation, it was examined whether the subsidised
imports originating in the PRC have caused injury to the Union industry to a
degree that enables it to be classified as material. Known factors other than
the subsidised imports, which could at the same time have injured the Union
industry, were examined to ensure that any injury caused by those other factors
was not attributed to the subsidised imports.
6.2.        Effect of the subsidised
imports
(512)   The investigation showed
that the Union consumption decreased by 7% over the period considered, while
the volume of subsidised imports from the PRC increased by about 49%, their
market share also increased by 60% from 9.1% in 2008 to 14.6% in the IP. At the
same time, the sales volume of the Union industry to unrelated parties
decreased by 12% and market share of those sales dropped by 2.9% from 56.8% in
2008 to 53.9% in the IP.
(513)   While the imports from the
PRC were also affected by the economic crisis and dropped by 68% from 2008 to
2009, they recovered from 2009 to the IP at a very fast pace increasing by 367%
at the end of the IP, even though Union consumption only increased by 24%
during this period. By lowering the unit price by 9% compared to 2008 and
undercutting the Union industry by up to 20.2% during the IP, Chinese imports
increased their market share from 2008 to the IP by 60% up to 14.6%.
(514)   At the same time, from 2008
to the IP the Union producers' sales volumes to unrelated parties overall
dropped by 12%. At the time of market recovery, from 2009 to the IP, the Union
industry could raise their sales volumes to unrelated parties by only 13% but
lost a market share of 8% thus benefiting to a limited extent from the
increased consumption. Chinese imports benefited most from the recovering
consumption leaving other market players far behind.
(515)   The average import prices
from the PRC dropped by 9% over the period considered. Although on a rising
trend after the sharp drop in 2009, from 2009 to the IP, they
remained constantly below the levels charged by the Union industry. The unit
price to unrelated customers in the EU decreased by only 3%, showing some
resistance to price pressure exerted by the Chinese imports. However, these
prices were obviously sustained at a cost of lower sales volumes and decreased
profitability on those sales as profitability dropped by 61% from 6.7% in 2008
to 2.6% in the IP.
(516)   Based on the above, it is
concluded that the surge of subsidised imports from the PRC at prices
constantly undercutting those of the Union industry have had a determining role
in the material injury suffered by the Union industry, which has prevented the
Union industry to fully benefit from the recovering Union consumption. 
6.3.        Effect
of other factors
6.3.1.     Imports from third countries
 Country ||   || 2008 || 2009 || 2010 || IP 
 South Korea || Volume (tonnes) || 228 123 || 226 568 || 173 935 || 237 164 
   || Index (2008=100) || 100 || 99 || 76 || 104 
   || Market share (%) || 4.4% || 5.8% || 3.8% || 4.9% 
   || Index (2008=100) || 100 || 133 || 87 || 112 
   || Av. price || 901 || 727 || 846 || 903 
   || Index (2008=100) || 100 || 81 || 94 || 100 
 India || Volume (tonnes) || 159 999 || 149 138 || 155 384 || 141 391 
   || Index (2008=100) || 100 || 93 || 97 || 88 
   || Market share (%) || 3.1% || 3.8% || 3.4% || 2.9% 
   || Index (2008=100) || 100 || 125 || 111 || 95 
   || Av. price || 932 || 667 || 773 || 824 
   || Index (2008=100) || 100 || 72 || 83 || 88 
 Other countries || Volume (tonnes) || 249 151 || 158 461 || 124 319 || 167 007 
   || Index (2008=100) || 100 || 64 || 50 || 67 
   || Market share (%) || 4.8% || 4.1% || 2.7% || 3.5% 
   || Index (2008=100) || 100 || 85 || 57 || 72 
   || Av. price || 951 || 809 || 924 || 955 
   || Index (2008=100) || 100 || 85 || 97 || 100 
 Total of all third countries except the PRC || Volume (tonnes) || 637 274 || 534 167 || 453 637 || 545 562 
   || Index (2008=100) || 100 || 84 || 71 || 86 
   || Market share (%) || 12.3% || 13.8% || 10.0% || 11.3% 
   || Index (2008=100) || 100 || 112 || 81 || 92 
   || Av. price || 929 || 735 || 842 || 898 
   || Index (2008=100) || 100 || 79 || 91 || 97 
Source: Eurostat
(517)   While imports from the PRC
constituted 56% of all imports in the EU during the IP, other important sources
of imports were from the Republic of India ('India') (11%) and South Korea
(19%). Unlike imports from the PRC, imports from India, although their average
price dropped sharply by 12%, overall decreased by 12% over the period
considered and lost market share by 5%. Imports from South Korea increased by
only 4% with the average price remaining on the same level as in 2008. The market
share of imports from India was 2.9% in the IP, while imports from South Korea
held a share of 4.9%.
(518)   Other imports, representing
14% of the total imports, decreased by 33% and their average price stayed at
the same level as in 2008.
(519)   Although the average price
of all other imports was below the price level of the Union industry, the
effect of these imports, if any, can possibly be only marginal. Firstly, is the
Commission received no evidence that the imports from other sources were
unfairly traded. Secondly, in contrast to the Chinese imports, the overall
price level from main sources of other imports was more stable over the whole
period considered, and thus shows that the Union industry can successfully
compete in the market segments with those imports. Thirdly, the imports from
other countries have generally declined over the period considered and still
remain at a low level, both overall and for main exporting countries
individually. Moreover, the dropping market share of other imports confirms
that those imports could not have caused injury to the Union industry. 
6.3.2.     Export performance of the
Union industry
   || 2008 || 2009 || 2010 || IP 
 Exports, Eurostat (tonnes) || 669 790 || 612 204 || 580 477 || 605 760 
 Index (2008=100) || 100 || 91 || 87 || 90 
 Average price (EUR/tonne) || 1 068 || 937 || 995 || 1 092 
 Index (2008=100) || 100 || 88 || 93 || 102 
 Exports by sampled Union producers || 53 542 || 46 516 || 48 102 || 46 228 
 Index (2008=100) || 100 || 87 || 90 || 86 
 Average selling price (EUR/tonne) || 1 086 || 826 || 984 || 1 132 
 Index (2008=100) || 100 || 76 || 91 || 104 
Source: Eurostat and verified
questionnaire replies
(520)   The total exports of OCS by
the Union industry to third countries according to Eurostat decreased by 10%
over the period considered. However, the average price has been relatively high
and increased by 2% over the period considered. Exports represented 15% of the
total EU production and as such helped the Union industry to achieve economies
of scales and reduce overall costs of production. Hence, it can be concluded
that the export activity of the Union industry could not be a potential cause
of the material injury. 
(521)   This general picture is
mirrored by the situation in exports to unrelated customers in third countries
by the sampled Union producers. They decreased by 14% over the period
considered, however, the export price per unit has been constantly higher (on
average by 2 to 14% depending on year) than the price in the EU. 
6.3.3.     Imports from the PRC by the
complainants
(522)   During the investigation and
following the final disclosure, it was claimed that the complainants (through
their related companies) were engaged in importing the product concerned from
the PRC themselves and that those imports allegedly constituted 20 to 40% of
the total imports from the PRC. However, no evidence was provided to support
this allegation. Having investigated these allegations, by examining the
verified data from the sampled Union producers, it was found that they imported
only about 10 000 tonnes during the IP, which was largely in line with the data
in the complaint. About a similar volume, not disclosed in accordance with
Article 29 of the basic Regulation, was found to be imported by related
companies of the sampled Union producers. These imports together accounted for
only about 2-3% of total imports from the PRC. Consequently, it cannot be
concluded that the complainants were importing from the PRC in such quantities
and in such a pattern as to put in question their own status as Union producers
according to Article 9(1)(a) of the basic Regulation, or to cause injury to
themselves. Therefore, the argument is rejected.
6.3.4.     Captive use and captive
sales
(523)   It has been alleged by some
interested parties that the injury to the Union industry was caused from its
engagement in the downstream business of producing construction materials (e.g.
sandwich panels, trapezoidal sheets etc.) either directly or through related
companies within the groups. Specifically, it was claimed that the Union
industry made OCS available to its own downstream business at lower prices than
to unrelated companies, thus "subsidising" them within the group and
enabling them to undercut their competitors in the downstream segment.
(524)   As
shown above, the average value of captive use and captive sales per tonne was
only 3% lower than the sales price to unrelated customers in the IP. The
investigation showed that the captive use and captive sales were most likely
themselves indirectly affected by the unfair competition from subsidised
imports. Should there have been any advantage for the downstream
business as alleged, it would have been reflected in the comparison between
captive sales prices and unrelated sales prices. Therefore, this argument is
rejected.
(525)   Following the final
disclosure CISA again claimed that the Union industry was making OCS available
to its related downstream businesses at a "subsidised" price, thereby
undercutting their competitors in the downstream segment. However, no evidence
was provided to change the Commission's conclusion in recital (524), i.e. that
the price difference between related and unrelated sales was small (2%) and
that this was not a case of self-inflicted injury.
(526)   CISA also challenged the
data on the cost of production of OCS and, in extension, the price of OCS to
related parties. Given the sales price of hot-dipped galvanised coils, a raw
material in the manufacture of OCS, they allege that the cost of production of
OCS in the investigation period could not exceed 900 EUR/tonne.
(527)   Firstly, it was not clear to
which extend all costs such as SG&A and finance costs were included in the
total cost to which CISA was refering to. Secondly, The Commission verified the
cost of production of OCS in all of the sampled Union producers and is
satisfied that the full cost of production included raw materials, processing,
coating, SG&A, finance costs etc.
(528)   CISA then claimed that the
sale of OCS to related parties is made at a loss and is therefore a cause of
injury to the Union industry. This is based on a comparison of the total cost
of production (978 EUR/tonne) versus the average price of related sale (965
EUR/tonne).
(529)   Whereas it is correct that a
simple mathematical comparison would suggest that related sales were made at a
loss, this would assume that the Union industry would incur the same level of
SG&A and other sales overheads on their captive sales as on their unrelated
ones. As stated in recital (493), sales to related parties were made on a 'cost
plus' basis and therefore the Union Industry was recovering their costs on
these sales.
6.3.5.     Economic crisis
(530)   The economic crisis and its
effect on the construction business at least partially explain the contraction
of demand and price pressure during the period considered. As mentioned above,
in 2009 the consumption shrunk by 25%. However, as of 2010, the market started
recovering and, between 2009 and the end of the IP, consumption increased by
24%.
(531)   However, the injury and
causality analysis has separated the market breakdown of 2009 and the
subsequent recovery from 2009 to the IP. It has been clearly demonstrated in
the injury and causality analysis that the imports from the PRC took full
advantage of the recovering consumption and in addition constantly undercut the
Union industry's prices, and thus turning the possibility of equal chance to
all players to recover from the drop, into a continuous battle for survival.
(532)   After the deadline for
comments to the final disclosure an interested party noted the announced
closure of a plant in Belgium, and that force majeure was causing difficulties
to normal production and shipment from other facilities in Belgium. The
interested party alleged that this shows the lack of security of supply of OCS
in the EU and was a reason to allow importers and users to freely source their
OCS from the EU and from China.
(533)   These arguments are
rejected. Given that capacity utilisation in the EU is low, the issue is not
one of problem of supply as the Union industry has adequate available capacity.
In any case the facilities being closed in Belgium did not manufacture OCS.
Security of supply is of course important, but the proposed duties in this case
are not designed to stop supply of OCS from China, merely to prevent that
supply being dumped onto the EU market.
6.3.6.     Structural overcapacity
(534)   It has been claimed by some
interested parties that the cause of injury to the Union industry, which mostly
are vertically integrated steel producers, has not been the imports from the
PRC but that it was due to structural problems of the EU steel industry such as
overcapacity. It was also argued that the consolidation of the steel industry
that took place before the period considered had led to overcapacity and that
any injury suffered was a consequence of too many production facilities.
(535)   It is the case that
production of the OCS is capital intensive and the industry has relatively high
fixed costs. The consolidation of the steel industry - that took place before
the start of the period considered – however did not result in overcapacity.
After a small increase in installed capacity in 2009, the industry slightly
decreased its capacity in 2010 and again in the IP. Installed capacity during
the IP was lower than total Union consumption and if demand in the IP had
recovered to the level of 2008 and the Union industry had been able to take
advantage of that increased demand, capacity utilisation would have been around
74%.
(536)   The negative effect of
overcapacity can only be attributed to a minimal extent to the EU producers of
OCS. First, the investigation showed that the Union industry has obviously been
taking steps to sustain its efficiency, as productivity increased by 6% for the
whole industry. Second, continued investment in the production lines and
flexibility in their use for producing other products helped to achieve
economies of scale and reduced fixed costs. Thus, with capacity utilisation of
the sampled companies going down by 18% over the period considered, the average
costs of production increased by only 6%, and that including the increase of
raw material costs. Thus, it cannot be concluded that the overcapacity would
break the causal link. This argument is therefore rejected.
6.4.        Conclusion on causation
(537)   It has been demonstrated
that there was a substantial increase in the volume and market share of the
subsidised imports originating in the PRC in the period considered, especially
from 2009 to the IP. It was also found that these imports were constantly
undercutting the prices charged by the Union industry on the Union market and
in particular during the IP.
(538)   This increase in volume and
market share of the low priced subsidised imports from the PRC coincided with
the negative development in the economic situation of the Union industry. This
situation worsened in the IP, when, despite recovering consumption, the Union
industry was unable to regain its lost market share and profitability. Other
financial indicators such as return on investments stagnated at the level of
2010, and employment reached its lowest level.
(539)   The examination of the other
known factors which could have caused injury to the Union industry revealed
that these factors are not such as to break the causal link established between
the subsidised imports from the PRC and the injury suffered by the Union
industry.
(540)   Based on the above analysis,
which has properly distinguished and separated the effects of all known factors
on the situation of the Union industry from the injurious effects of the
subsidised exports, it was concluded that the subsidised imports from the PRC
have caused material injury to the Union industry within the meaning of Article
8(6) of the basic Regulation.
7.           UNION INTEREST
7.1.        Preliminary remarks
(541)   In accordance with Article
31 of the basic Regulation, the institutions examined whether, despite the
above findings, compelling reasons existed for concluding that it is not in the
Union interest to adopt countervailing measures. The analysis of the Union
interest was based on an appreciation of all the various interests involved,
including those of the Union industry, importers, and users of the product
concerned.
7.2.        Interest of Union industry
(542)   The Union industry as a
whole is composed of 22 known producers representing all of the Union OCS
production. The producers are located in different Member States of the Union,
employing directly over 5 400 people in relation to the like product.
(543)   None of the producers
opposed the initiation of the investigation. As shown above in the
macroeconomic indicators, the whole EU industry experienced a deterioration of
their situation and was negatively affected by the subsidised imports.
(544)   The Union industry has
suffered material injury caused by the subsidised imports from the PRC. All
injury indicators showed a negative trend during the period considered. In
particular, injury indicators related to the financial performance of the Union
producers, such as profitability and return on investments, were seriously
affected. In the absence of measures, a further deterioration in the Union
industry’s economic situation appears very likely.
(545)   It is expected that the
imposition of countervailing duties will restore fair trade conditions on the
Union market, allowing the Union industry to align the prices of OCS to reflect
the costs of the various components and the market conditions. It can also be
expected that the imposition of countervailing measures would enable the Union
industry to regain at least part of the market share lost during the period
considered, with a positive impact on its profitability and overall financial
situation.
(546)   Should measures not be
imposed, further losses in market share could be expected and the Union
industry's profitability would deteriorate. This would be unsustainable in the
medium to long-term. It is also likely that some individual producers would
have to close down their production facilities, as they have been lossmaking
over the period considered. In view of the losses incurred and the high level
of investment in production made at the beginning of the period considered, it
can be expected that most Union producers would be unable to recover their
investments, should measures not be imposed.
(547)   It is therefore concluded
that the imposition of countervailing duties would be in the interest of the
Union industry. 
7.3.        Interest of users and
importers
(548)   As mentioned above in
recital (14) five importers came forward but only two replied to the
questionnaire. Out of about 100 users listed in the complaint, 19 came forward
expressing interest in the proceeding. Subsequently, ten companies provided
questionnaire replies.
(549)   The most active users and
importers have made joint written submissions and several hearings were held in
the course of the investigation. Their main arguments regarding imposition of
measures are analysed below.
(550)   Following the final
disclosure, comments were received from importers and other interested parties.
However, no new elements other than the ones below were provided.
7.3.1.     Competition on the EU market
(551)   Users and importers alleged
that the EU market of OCS was not sufficiently competitive and that imports
from the PRC were necessary to give more bargaining power to companies
importing and using OCS. They also suggested that the Union industry was
engaged in oligopolistic arrangements to control the market. The Union
producers were competing on the same markets and often selling to the same
customers, or to the construction companies of each other. Considering that no
evidence beyond anecdotal complaints about difficulties in price negotiations
was provided and that apart from the five groups of complaining Union
producers, 11 other producers of OCS operate in the EU, among which some are
very large, and that there is a variety of other import sources, these claims
were rejected.
7.3.2.     Shortage of supply
(552)   Users and importers also
alleged that imposition of measures on Chinese imports would create a shortage
of OCS on the EU market. However, considering the wide variety of supply
sources described above, as well as the free production capacity of the Union
industry, it is not considered likely that such shortage could take place.
Therefore, the argument is rejected.
7.3.3.     Conclusion on the interests
of users and importers
(553)   The ten cooperating users
represented 7% of total imports from the PRC during the IP. The investigation
showed that all users maintain various sources of supply. On average, purchases
from the PRC constituted around 15% of their total purchases of the OCS
products; moreover, the largest volumes were found to be sourced from the EU
producers (73%) and 12% were imported from other third countries. Indeed, as
the product concerned is highly standardised, the importance of customer
binding is rather relative, and both users and importers can quite easily change
the sources of supply as far as the product quality is concerned.
(554)   The investigation showed
that all cooperating users, except one, were profitable in the sector which
uses the product concerned and their profitability during the IP ranged from 1%
to 13%, depending on the company. The profitability of those companies did not
significantly depend on imports of the product concerned from the PRC.
(555)   On the basis of
questionnaire replies from the users, the likely effect of the proposed
measures was estimated. Thus, even assuming the unlikely worst-case scenario
for cooperating users, i.e. that no price increase could be passed on and they
would be bound to import from the PRC in the same volumes as in the IP, the
impact of the duty level on their cost of production would be an increase
between 1 to 5% and a decrease by 1 to 2.8 percentage points in profitability
for most of the imports and by about 4 percentage points for importing under
residual duty. However, the more likely scenario is an impact significantly
less than this. Imports from the PRC represent a rather small part of the
users' business and it can be expected that the cost increase from the
countervailing measures will be relatively easily passed on. Furthermore, given
that in addition to the many EU producers alternative significant import
sources, not subject to measures, are available e.g. India and South Korea, it
is expected that prices in the market, following the imposition of measures
will take into account these factors as well. 
(556)   The two cooperating
importers represented around 6% of total imports from the PRC during the IP,
the exact amount could not disclosed in accordance with Article 29 of the basic
Regulation. Similarly as for the users, the importers also maintained different
sources of supply besides the PRC. Furthermore, it was established that the
profitability of the importers would be possibly more affected by the measures
than that of the users, if they were to maintain the importing pattern
practiced during the IP. However, in practice importers as traders tend to be
even more flexible than users, and they would most likely be first to turn to
the alternative sources of supply. 
(557)   Part of the benefit from
Chinese imports on the user and importer side is effectively drawn from and
made possible by the unfair price discrimination practiced by the Chinese
exporters, and not from a natural competitive advantage. Thus, reinstating the
level playing field on the EU market by correcting the trade distortion coming
from subsidised imports, will actually enable the OCS market to return to
healthy, market-economy-driven dynamics and price development, while at the
same time not disadvantaging other players (users, producers, end-consumers)
who are not immediately able to benefit from subsidised imports.
7.4.        Conclusion on Union
interest
(558)   In view of the above, it is
concluded that based on the information available concerning the Union
interest, there are no compelling reasons against the imposition of measures on
imports of the product concerned originating in the PRC.
8.           DEFINITIVE COUNTERVAILING
MEASURES
8.1.        Injury elimination level
(559)   In view of the conclusions
reached with regard to subsidisation, injury, causation and Union interest,
countervailing measures should be imposed in order to prevent further injury
being caused to the Union industry by the subsidised imports.
(560)   For the purpose of
determining the level of these measures, account was taken of the subsidy
margins found and the amount of duty necessary to eliminate the injury
sustained by the Union industry. 
(561)   When calculating the amount
of duty necessary to remove the effects of the injurious subsidisation, it was
considered that any measures should allow the Union industry to cover its costs
of production and to obtain a profit before tax that could be reasonably
achieved by an industry of this type in the sector under normal conditions of
competition, i.e. in the absence of subsidised imports, on sales of the like
product in the Union. It is considered that the profit that could be achieved
in the absence of subsidised imports should be based on the year 2008 when
Chinese imports were less present on the Union market. It is thus considered
that a profit margin of 6.7% of turnover could be regarded as an appropriate
minimum which the Union industry could have expected to obtain in the absence
of injurious subsidisation. 
(562)   On this basis, a
non-injurious price was calculated for the Union industry for the like product.
The non-injurious price was obtained by adding the above-mentioned profit
margin of 6.7% to the cost of production.
(563)   The necessary price increase
was then determined on the basis of a comparison of the weighted average import
price of the cooperating exporting producers in the PRC, duly adjusted for
importation costs and customs duties with the non-injurious price of the Union
industry on the Union market during the IP. Any difference resulting from this
comparison was then expressed as a percentage of the average CIF import value
of the compared types.
(564)   Following final disclosure
interested parties challenged the use of 6,7% as the target profit of the Union
industry and the description of 2008 as a representative year for
profitability. However, their argument that the profit made by the Union
industry in 2008 was affected by the financial crisis, making 2008 an
exceptional year, would seem to point to an argument that the profit realised
in 2008 is lower than the industry would expect in a normal year. This argument
is rejected as no evidence as to what the profit of the Union industry would
have been in 2008 in the absence of the financial crisis was provided.
(565)   Interested parties also
pointed to the fact that import volumes from the PRC were at their lowest in
2009 rather than in 2008. However, given that the Union industry was not
profitable in 2009, it is impossible to use 2009 data to set a target profit
for the Union industry.
(566)   CISA have further alleged
that the profit to unrelated customers in 2008 cannot be used as the target
profit because that year shows the largest price difference between related and
unrelated sales. This argument was rejected, as this price difference is not
relevant to the calculation of the profit of sales to unrelated customers. 
(567)   CISA then proposed that the
target profit for sales of OCS to unrelated parties in the Union be based on
the average overall profit for the multinational corporation ArcelorMittal for
the years 2010 and 2011. This was rejected as a reliable source for the profit
on OCS in the Union in the absence of dumped imports, because taking the profit
of the entire worldwide ArcelorMittal group is clearly not representative of
profit on sales of OCS in the Union.
(568)   One interested party
challenged the Commission's methodology for the calculation of the underselling
margin. However, this challenge was based on the erroneous assumption that the
Commission had calculated the underselling margin by removing the average
profit of the Union industry in the IP (2.6%) from the market price to get to
the 'break-even point' (i.e. a price that would result in zero profit) and then
adding the target profit onto this 'break-even point'.
(569)   The Commission calculated
the underselling margin by adding the target profit to the cost of production
of each product type. The methodology suggested by this interested party is
flawed, because the average profit of 2.6% was not automatically achieved on
each sale of each model by all companies from which the data was used.
(570)   One interested party also
challenged the Commission's injury calculations. Given that that party did not
have full access to the data used by the Commission to calculate the injury
margin, it attempted to calculate it on its own, based on its understanding of the
price difference on the market between aluminium zinc coated and zinc coated
substrate, which it had calculated at USD 50 per MT. This 'recalculation',
based on incomplete data, resulted in a lower injury margin than that which the
Commission had calculated and disclosed.
(571)   Their arguments were
rejected because the analysis of the full data from both the exporting
producers and the Union industry, the alleged price difference could not be
found. Consequently, it should be underlined that the data which the interested
party was using was incomplete and thus could not be relied upon to reproduce
the Commission's injury calculations.
8.2.        Definitive measures
(572)   In view of the conclusions
reached with regard to subsidisation, injury, causation and Union interest, and
in accordance with Article 15 of the basic Regulation, a definitive
countervailing duty should be imposed on imports of OCS originating in the PRC
at the level of the lower of the subsidy or injury margins found, in accordance
with the lesser duty rule. In this case, the duty rate should accordingly be
set at the level of the subsidy margins found. On the basis of the above, the
rates at which such duties will be imposed are set as follows: 
 Company Name || Subsidy margin || Injury margin || Countervailing duty 
 Zhangjiagang Panhua Steel Strip Co., Ltd.; Chongqing Wanda Steel Strip Co., Ltd.; Zhangjiagang Free Trade Zone Jiaxinda International Trade Co., Ltd. || 29,7% || 55,8% || 29,7% 
 Zhejiang Huadong Light Steel Building Material Co. Ltd.; Hangzhou P.R.P.T. Metal Material Co., Ltd. || 23,8% || 29,7% || 23,8% 
 Union Steel China || 26,8% || 13,7% || 13,7% 
 Other cooperating companies || 26,8% || 43,0% || 26,8% 
 Residual duty || 44,7% || 58,3% || 44,7% 
(573)   The individual company
countervailing duty rates specified in this Regulation were established on the
basis of the findings of the present investigation. Therefore, they reflect the
situation found during that investigation with respect to these companies.
These duty rates (as opposed to the countrywide duty applicable to ‘all other
companies’) are thus exclusively applicable to imports of products originating
in the country concerned and produced by the companies and thus by the specific
legal entities mentioned. Imported products produced by any other company not
specifically mentioned in Article 1 with its name and address, including
entities related to those specifically mentioned, cannot benefit from these
rates and shall be subject to the duty rate applicable to ‘all other
companies’. 
(574)   Any claim requesting the
application of an individual company countervailing duty rate (e.g. following a
change in the name of the entity or following the setting-up of new production
or sales entities) should be addressed to the Commission[104] forthwith with all relevant
information, in particular any modification in the company's activities linked
to production, domestic and export sales associated with, for example, that
name change or that change in the production and sales entities. If
appropriate, the Regulation will then be amended accordingly by updating the
list of companies benefiting from individual duty rates. 
(575)   In order to ensure proper
enforcement of the countervailing duty, the residual duty level should not only
apply to the non-cooperating exporting producers but also to those producers
which did not have any exports to the Union during the IP,
HAS ADOPTED THIS REGULATION:
Article 1
1. A definitive countervailing duty is
hereby imposed on imports of certain organic coated steel products , 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, 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 (TARIC codes 7210 70 80 11, 7210 70 80 91, 7212 40 80 01,
7212 40 80 21, 7212 40 80 91, 7225 99 00 11, 7225 99 00 91, 7226 99 70 11 and
7226 99 70 91), and originating in the People's Republic of China.
2. The rate of the definitive
countervailing duty applicable to the net, free-at-Union-frontier price, before
duty, of the products described in paragraph 1 and manufactured by the
companies listed below shall be as follows:
 Company || Duty || TARIC additional code 
 Union Steel China || 13,7% || B311 
 Zhangjiagang Panhua Steel Strip Co., Ltd.; Chongqing Wanda Steel Strip Co., Ltd.; Zhangjiagang Free Trade Zone Jiaxinda International Trade Co., Ltd. || 29,7% || B312 
 Zhejiang Huadong Light Steel Building Material Co. Ltd.; Hangzhou P.R.P.T. Metal Material Co., Ltd. || 23,8% || B313 
 Angang Steel Company Ltd. || 26,8% || B314 
 Baoutou City Jialong Metal Works Co., Ltd. || 26,8% || B317 
 Changshu Everbright Material Technology Co., Ltd. || 26,8% || B318 
 Changzhou Changsong Metal Composite Material Co., Ltd. || 26,8% || B319 
 Inner Mongolia Baotou Steel Union Co., Ltd. || 26,8% || B321 
 Jigang Group Co., Ltd. || 26,8% || B324 
 Maanshan Iron & Steel Company Limited || 26,8% || B325 
 Qingdao Hangang Color Coated Sheet Co., Ltd. || 26,8% || B326 
 Shandong Guanzhou Co., Ltd. || 26,8% || B327 
 Shenzen Sino Master Steel Sheet Co, .Ltd. || 26,8% || B328 
 Tangshan Iron & Steel Group Co., Ltd. || 26,8% || B329 
 Tianjin Xinyu Color Plate Co., Ltd. || 26,8% || B330 
 Wuhan Iron and Steel Company Limited || 26,8% || B331 
 Zhejiang Tiannu Color Steel Co., Ltd. || 26,8% || B334 
 All other companies || 44,7% || B999 
3. Unless otherwise specified, the
provisions in force concerning customs duties shall apply.
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
[1]               OJ L 188, 18.7.2009, p. 93.
[2]               OJ C 52, 22.2.2012, p. 4.
[3]               OJ C 373, 21.12.2011, p. 16.
[4]               OJ L 252, 19.09.2012, p.33.
[5]               Document WT/DS379/AB/R, 11 March 2011
[6]               Para 317 of the AB report
[7]               Para 290 of the AB report
[8]               Para 297 of the AB report
[9]               Page 33 of the English version of 12th 5
year Development Plan for Steel Industry
[10]             Article 36 of the Law of the People's Republic of China on the State-owned Assets of Enterprises reads: "A state-invested enterprise
making investment shall comply with the national industrial policies,…"
[11]             Article 6 of Tentative Measures for the supervision and
Administration of the Investments bt Central Enterprises reads: "the
principle of meeting the development plans and industrial policies of the state
shall be observed for the investment activities of the enterprises as well as
SASAC supervision ad administration over the enterprises' investment
activities"
[12]             Articles 13(1) and 13(2) of the Measures for the
Administration of Development Strategies and Plans of Central Enterprises
[13]             Chinese Vice Premier Zheng Peiyan said the replocation
of the Capital Steel in Hebei represents a major policy decision made by the
Comunist Party of China Central Committee and the State Council ( Xinhua News
Agency, October 23, 2005)
[14]             see e.g. "China approves Anshan Steel merger with
Panzhihua, http://www.reuters.com/article/2010/05/25/us-china-steel-merger-idUSTRE64O2G020100525
"Steel merger will become China's biggest, http://www.chinadaily.com.cn/bizchina/2010-04/19/content_9747309.htm
"Four Chinese steel makers agree
to merge, http://online.wsj.com/article/SB10001424052748703792704575366830150284538.html
"New steel group formed by
merger in China's Hubei Province,
http://www.steelorbis.com/steel-news/latest-news/new-steel-group-formed-by-merger-in-chinas-hubei-province-685647.htm
[15]             " …..in our view, that evidence that a government
exercises meaningful control over an entity and its conduct may serve, in
certain circumstances, as evidence that the relevant entity possesses
governmental authority and exercises such authority in the performance of
governmental functions." DS379 Appellate Body Report para.318
[16]             The 17 companies listed in the Annex belong to some of
the biggest state-owned steel producers in China. 
[17]             e.g http://en.wikipedia.org/wiki/Shougang_Corporation, http://en.wikipedia.org/wiki/Hebei_Iron_and_Steel, http://companies.china.org.cn/trade/company/559.html,
http://companies.china.org.cn/trade/company/557.html
etc.
[18]             Article 7 of Interim Measures for the Supervision and
Administration of State-owned Assets of Enterprises: "the people's
governments at various levels shall strictly execute the laws and regulations
on the administration of state-owned assets, shall stick to the separation of
the government's function of administration of public affairs and the function
as the contributor of state-owned assets, and stick to the separation of
government bodies and enterprises and the separation of ownership and
management power. The state-owned assets supervision and administration bodies
shall not exercise the government's function of administration of public
affairs, and the other bodies and departments of the government shall not
perform duties of the contributor of state-owned assets in enterprises"
[19]             The state-business nexus in China's steel industry –
Chinese market distortions in domestic and international perspective, 2009
study prepared by Think!Desk – China research & Consulting for Eurofer,
Analyses of State-owned Enterprises and State Capitalism in China, 2011,
Capital Trade Incorporated prepared for the U.S.-China Economic and Security
Review Commission
[20]             Articles 22,27, 29 of the Law of the People's Republic
of China on the State-owned Assets of Enterprises
[21]             The state-business nexus in China's steel industry –
Chinese market distortions in domestic and international perspective, 2009
study prepared by Think!Desk – China research & Consulting for Eurofer,
Analyses of State-owned Enterprises and State Capitalism in China, 2011,
Capital Trade Incorporated prepared for the U.S.-China Economic and Security
Review Commission and Annex 10 to the complaint, 
[22]             Twelfth 5 Year Development Plan for the Steel
Industry, Section IV(VII) – Accelarate merging and
reorganisation
[23]             Pages 108-109 of the complaint
[24]             e.g Chongqing Iron and Steel website (http://en.cqgtjt.com/), Baosteel website 
(http://www.baosteel.com/group_e/01news/ShowArticle.asp?ArticleID=2553)
[25]             E.g. Tentative Measures for the supervision and
Administration of the Investments by Central Enterprises, Measures for the
Administration of Development Strategies and Plans of Central Enterprises, Law
of the People's Republic of China on the State-owned Assets of Enterprises,
Order No. 35 of the NDRC – Policies for Development of Iron and Steel Industry
[26]             DS 379 AB report Para 441
[27]             DS 379 AB report Para 444
[28]             The GOC submitted a table with figures relating to the
output of HRS and CRS produced by SOEs and private companies but during the
verification it was found that this table is not complete and the GOC refused
to provide the information used for preparation of this table which would allow
for proper verification
[29]             The responses of 4 Chinese exporting producers (2
sampled, 2 voluntary responses) concerning their purchases of HRS (and CRS).
The similar investigations by other investigating authorities confirm these
figures. For example the USDOC established that the following proportions of
HRS in China were produced by SOEs in the past: High Pressure Steel
Cylinders (70%), Wire Decking ( OSDOC determined that government
authorities accounted for a majority of the HRS produced during the POI), Light-Walled
Rectangular Pipe and Tube (70.81%), 
[30]             According to the World Steel capacity Book, the
production capacity of CRS in China is around 81,035,000 tonnes per year and on
the basis of publicly available data on ownership around 57,490,000 tonnes is
produced by state-owned companies.
[31]             The price difference between the SOE prices and prices
of private suppliers were on average only 3.75% different during the IP.
[32]             Article 18 of Order No.35-The policies of
imported technologies and equipment: enterprises are encouraged to use
home-made equipment and technologies and reduce export.
Article 20 of Order No. 35-The iron and steel enterprises are encouraged to
develop into groups and carry out strategic reorganisation by way of alliance
between mighty enterprises…
[33]             Article 22 of Order No. 35-The investment in any
iron and steel project shall be subject to the examination and approval or
verification of the NDRC according to relevant provisions
Article
23 of Order No.35- For any foreign investment in
the iron and steel industry of China, foreign investors are not allowed to have
a controlling share as is the general principle.
[34]             Article 24of the Order No.35- For any project
that fails to comply with the development policies for the iron and steel
industry and hasn't been subject to examination and approval or where the
examination and approval thereof fails to comply with the relevant provisions,
the department of state land and resources shall not handle the formalities for
land use and the department of industry and commerce shall not accept its
registration, the administrative department of commerce shall not approve its
contract and constitution, the financial institution shall not provide any loan
or give credit support in any other form…
Article
25 of the Order No.35-To grant mid- and long-term
loans for the fixed asset investment to the projects of iron smelting, steel
smelting and steel rolling, a financial institution shall comply with the
development policies for the iron and steel industry, and strengthen their risk
management.
[35]             Article
30 Where two or more domestic enterprises are engaged in vicious
competition for overseas resource, the state may adopt administrative
coordination to hold alliance or select one of them to make investment so as to
avoid vicious competition.
[36]             Section III (III)6 of the Twelfth 5 Year Development
Plan for the Steel Industry.-Industrial clustering level: significantly
reduce the quantity of the steel enterprises; the proportion of the steel
production of the top-10 steel enterprises to the national aggregate rises to
approximately 60% from 48.6%
III.(V) of the 12th FYP
for I&S -Optimising the Industry Layout
This chapter describes how the steel
and iron industry should be reconstructed with the help of mergers,
relocations, control of production capacity, bans in some provinces and support
in others
[37]             Annex
24 to the complaint – compilation of relevant citations from various plans and
legislations
[38]             e.g.
Jiangsu Shagang Group on its website (http://www.sha-steel.com/eng/index.html)
stated: Shagang Group will conscientiously implement tha State policy
concerning the steel industry development. With the guidance of Scientific
Outlook on development, Shagang would pursue the sustainable development
strategy, take a new road to industrialisation, speed up transformation and
upgrading, vigorously promote the readjustment of product structure, further
extend its industrial chain, pay adequate attention to supporting enterprises,
build modern logistics, implement capital operation, constantly improve its
overall competitiveness in order to further make Shagang perfect, strong and
excellent and try to our best to build Shagang as a famous brand of
"Hundred-year Old Factory". Also Shagang people will make new
contributions to building harmonious Jiangsu nd making China become a powerful steel country.
[39]             Appellate Body Report, US – Countervailing Duty
Investigation on DRAMS, paras. 111 and 116 
[40]             Dispute No DS194 United States – Measures treating
export restraints as subsidies (Panel report 29 June 2001)
[41]             Paras 8.28 -8.30 of panel report. Although the
government "action" was originally qualified as "explicit and
affirmative", subsequent findings of the Appellate Body suggest that this
may be too rigid a standard.
[42]             As
regards the land used for purposes of industry, business, entertainment or
commercial dwelling houses, etc. as well as the land with two or more intended
users, the alienation thereof shall adopt such means as auction, bid invitation
or any other public bidding method.
[43]             Article 24 of the Order of the NDRC No.35 (Policies for
Development of Iron and Steel Industry): For any project that fails to comply
with the development policies for the iron and steel industry and has not been
subject to examination and approval or where the examination and approval thereof
fails to comply with the relevant provisions, the department of state land and
resources shall not handle the formalities for land-use rights 
[44]             George E. Peterson, Land leasing and land sale as an
infrastructure-financing option, World Bank Policy Research Working Paper 4043,
at 7 November 2006
[45]             2006 Deutsche Bank Research on China's banking sector
[46]             Documents WT/TPR/S/230 p. 79
and WT/TPR/C/264 p.122
[47]             Council
Implementing Regulation (EU) No 452/2011 of 6 May 2011
imposing a definitive anti-subsidy duty on imports of coated fine paper
originating in the People's Republic of China.
[48]             http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000204417.PDF
[49]             Document
WT/TPR/S/230 p. 79, April 2010
[50]             Document WT/TPR/S/264 p.122, July 2012
[51]             Ibid
[52]             Information retrieved from the 2006 Deutsch Bank
Research on China's banking sector, pages 3-4. 
[53]             Information retrieved from the
China Monetary Report Quarter Two, 2010 of the Monetary Policy Analysis Group
of the People's Bank of China, dated 5 August 2010, page 10. 
[54]             Recitals 87 and 90 of the Council implementing
regulation (EU) No 452/2011 of 60 May 2011
[55]             See finding on public bodies in paragraph recital 53.
[56]             Article 34 of the Commercial Banking Law
[57]             IMF Working Paper, "Progress in China's Banking Sector Reform: Has Bank Behaviour Changed?", WP/06/71, March 2006,
(see pages 3-4, 13, 18-20). 
[58]             IMF Working Paper, "Interest Rate Liberalization
in China", WP/09/171, August 2009, (see pages 3-4, 21-23).
[59]             IMF Country Report, PRC: 2010 Article IV Consultation,
No 10/238, July 2010, (see pages 22, 24 and 28-29).
[60]             OECD 2010 Economic Survey of China, February 2010, (see
Chapter 3, pages 71, 73-81, 97). 
[61]             OECD China's Financial Sector Reforms, Economic
Department Working Paper No. 747, ECO/WKP (2010) 3, 1 February 2010, (see pages
2, 8-15, 36). 
[62]             Articles 16, 24 and 25
[63]             Notice concerning implementation measures for the
adjustment and revitalisation of ten key industries for Hubei Province suggest to "actively integrate the supportive provincial financial capital
for industrial development, optimize capital investment, be innovative in
various supporting ways. Increase the support intensity for innovation and
technological progress of iron and steel…", "Make use of financial
measures to promote industry consolidation and make it easier for competitive
enterprises to obtain financing for M&A", Implement supporting plans
for pillar industries. Iron and Steel industry: All financial institutions
should improve and optimize the credit service to deep processing projects of
the steel and nonferrous metals industries to meet the financial needs of
relevant companies with regard to investments, export sales and other essential
areas" etc.
[64]             Detailed rules for implementing the adjustment and
revitalisation program for the steel industry [2009] provides for "increasing
the financial support for key backbone enterprises"
[65]             Article 116 of Council Implementing Regulation (EU) No
452/2011 of 6 May 2011 imposing a definitive anti-subsidy duty on imports of
coated fine paper originating in the PRC, OJ of the EU L128, 14 May 2011
[66]             Article 117 of Council Implementing Regulation (EU) No
452/2011 of 6 May 2011 imposing a definitive anti-subsidy duty on imports of
coated fine paper originating in the PRC, OJ of the EU L128, 14 May 2011
[67]             The methodology for the calculation of the subsidy
amount is explained on pages 25 and 26 of the US Decision Memorandum of 17
November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Page No. 26) (Federal Register / Vol. 73, No. 227, page
70961 / 24 November 2008).
[68]             Certain Steel Wheels From the People's Republic of China, Preliminary Affirmative Countervailing Duty Determination, 6 September 2011, US
Federal Register, document number 2011-22720
[69]             Both programmes relate to similar preferential                income
tax treatment in the same geographical region
[70]             The methodology for the calculation of the subsidy
amount is explained on page 25 of the US Decision Memorandum of 3 June 2010 on
Wire Decking (Page No. 25) (Federal Register / Vol. 75, No. 111, page 32902 / 10 June 2010).
[71]             The methodology for the calculation of the subsidy
amount is explained on page 11 of the US Decision Memorandum of 12 June 2009 on
Certain Tow Behind Lawn Groomer and Certain Parts Thereof (Federal Register / Vol. 74, No. 117,
page 29180 / 19 June 2019).
[72]             , Recitals 125-136 of the Council Implementing
Regulation (EU) No 452/2011 of 6 May 2011, OJ L128 14 May 2011
[73]             Recitals 137-147 of the Council Implementing Regulation
(EU) No 452/2011 of 6 May 2011 imposing a definitive anti-subsidy duty on
imports of coated fine paper originating in the PRC, OJ L128 14 May 2011
[74]             , Recitals 148-159 of the Council Implementing
Regulation (EU) No 452/2011 of 6 May 2011, OJ L128 14 May 2011
[75]             Issues and Decision Memorandum for the Final
Determination in the Countervailing Duty Investigation of Coated Free Sheet
from the People's Republic of China, 17 October 2007; US Federal Register,
C-570-907.
[76]             The methodology for the calculation of the subsidy
amount is explained on page 18 of the US Decision Memorandum of 28 May 2010 on
Certain Steel Grating (Federal Register Vol. 75, No.
109, page 32362 / 8 June 2010)
[77]             Recitals. 172-181 of the Council Implementing Regulation (EU) No 452/2011 of 6 May
2011, OJ L128 14 May 2011
[78]             The methodology for the calculation of the subsidy
amount is explained on page 18 of the US Decision Memorandum of 28 May 2010 on
Certain Steel Grating (Federal Register Vol. 75, No.
109, page 32362 / 8 June 2010)
[79]             E.g. Conference of the High Tech Industries of the
Chinese Academy of Sciences, 11 November 2002, Issues and Decision Memorandum
for the Final Affirmative CVD Determination: OTR tires from the PRC, 188 April
2011; US Federal Register, C-570-913, p.24 
[80]             Issues and Decision Memorandum for the Final
Affirmative Countervailing Duty Determination: Laminated Woven sacks for the
PRC, 16 June 20087; US Federal Register, C-570-917, p.27; Issues and Decision
Memorandum for the Final Determination in the Countervailing Duty Investigation
of Circular Welded Carbon Quality Steel Line Pipe from the PRC, 23 March 2009,
US Federal Register, C-570-936, p.18, Issues and Decision Memorandum for the
Final Determination in the Countervailing Duty Investigation of Light –Walled
Rectangular Pipe and Tube from the PRC,13 June 2008, US Federal Register , C-570-915,
p.13 
[81]             Recital 202 of the Council implementing Regulation (EU)
No 452/2011of 6 May 2011 imposing a definitive anti-subsidy duty on imports of
coated fine paper originating in the PRC
[82]             Certain Seamless Carbon and Alloy Steel Standard,
Line, and Pressure Pipe From the People's Republic of China, Final
Affirmative Countervailing Duty Determination, 21 September 2010, US Federal
Register Vol. 75, No. 182, p. 57444.
[83]             The methodology for the calculation of the subsidy
amount is explained on pages 20 and 21 of the US Decision Memorandum of 10
September 2010 on Certain Seamless Carbon and Alloy Steel Standard, Line, and
Pressure Pipe (Federal Register Vol. 75, No. 182, page 57444 / 21 September
2010)
[84]             The methodology for the calculation of the subsidy amount
is explained on pages 20 and 21 of the US Decision Memorandum of 17 November
2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Federal
Register Vol. 73, No. 227, page 70961 / 24 November 2008)
[85]             The methodology for the calculation of the subsidy
amount is explained on page 23 of the US Decision Memorandum of 17 November
2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Federal
Register Vol. 73, No. 227, page 70961 / 24 November 2008)
[86]             The methodology for the calculation of the subsidy
amount is explained on page 23 of the US Decision Memorandum of 17 November
2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Federal
Register Vol. 73, No. 227, page 70961 / 24 November 2008)
[87]             The methodology for the calculation of the subsidy
amount is explained on page 23 of the US Decision Memorandum of 17 November
2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Federal
Register Vol. 73, No. 227, page 70961 / 24 November 2008)
[88]             Pre-Stressed Concrete Steel Wire Strand from the
People's Republic of China, Preliminary Affirmative Countervailing Duty
Determination, 2 November 2009, US Federal Register, document number E9-26322,
p. 56576-56592.
[89]             The methodology for the calculation of subsidy amount
is explained on page 35 of the US Decision Memorandum of 14 May 2010 on
Pre-Stressed Concrete Steel Wire Strand (Federal Register Vol. 75, No. 98, page
28557 / 21 May 2010)
[90]             Panel report on China – Countervailing and Anti-Dumping
Duties on Grain Oriented Flat-rolled Electrical Steel from the United States
[91]             ibid
[92]             Panel report on China – Countervailing and Anti-Dumping
Duties on Grain Oriented Flat-rolled Electrical Steel from the United States
[93]             Decision No. 40 of the State Council on Promulgating
and Implementing the Temporary Provisions on Promoting Industrial Structure
Adjustments
[94]             Panel report on China – Countervailing and Anti-Dumping
Duties on Grain Oriented Flat-rolled Electrical Steel from the United States
[95]             From the Commission's understanding, such a list would
be exhaustive and would therefore remove any flexibility from the verification
and preclude the asking of follow-up questions or questions arising from
arguments or facts raised during the verification.
[96]             Question 5.12 of the deficiency letter to the GOC
[97]             AB in the US-Countervailing Duty Investigation on DRAMS
from Korea: the entrustment and direction do not cover "the situation in
which the government intervenes in the market in some way, which may or may not
have a particular result simply based on the given factual circumstances and
the exercise of free choice by the actors in that market. This, government
"entrustment" or "direction" cannot be inadvertent or a
mere by-product of governmental regulation."
[98]             "Banks large exposures to state-owned enterprises,
guaranteed margins provided by interest regulations, still limited liability
and willingness to differentiate loan rates, coupled with the implicit guidance
on the pace and direction of new lending, undermine development of effective credit
risk management of the banks. It is important that banks have tools and
incentives to make lending decisions based upon purely commercial goals.
[99]             A large share of the banking sector is state owned as
is much of the banks' corporate client base. As the principal shareholder, the
state appoints senior management in all major banks. In the absence of an
explicit deposit insurance system and resolution framework, the state also
implicitly insures all deposits. The heavy involvement by the state in many aspects
of the financial system reduces market discipline, weakens corporate
governance, and is likely to create soft budget constraints. 
[100]            2011 International Monetary Fund, November 2011, IMF
Country Report No 11/321, People's Republic of China: Financial System
Stability Assessment
[101]            Information retrieved from http://www.taiwanembassy.org/be/ct.asp?xItem=306196&CtNode=3382&mp=102&xp1=
and http://en.wikipedia.org/wiki/Taiwan
[102]            Information retrieved from http://en.wikipedia.org/wiki/Jiangsu;
http://en.wikipedia.org/wiki/Zhejiang#Economy
and http://en.wikipedia.org/wiki/Chongqing#Economy
[103]            Information retrieved from https://www.cia.gov/library/publications/the-world-factbook/rankorder
[104]            European Commission, Directorate-General for Trade,
Directorate H, B-1049 Brussels.
EN
TRADE
TIMETABLE
15.02.2013                              Adoption
by the Commission
15.02.2013                              Transmission
to the Council
15.03.2013                              Publication
of Council Regulation
ZEITPLAN
15.02.2013                              Annahme
durch die Kommission
15.02.2013                              Übersendung
an den Rat
15.03.2013                              Veröffentlichung
der Ratsverordnung
CALENDRIER
15.02.2013                              Adoption
par la Commission
15.02.2013                              Transmission
au Conseil
15.03.2013                              Publication
du règlement du Conseil