Commission Regulation (EU) No 473/2010 of 31 May 2010 imposing a provisional countervailing duty on imports of certain polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates

THE EUROPEAN COMMISSION,

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

Having regard to 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’) (1), and in particular Article 12 thereof,

After consulting the Advisory Committee,

Whereas:

(1) On 3 September 2009 the 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 polyethylene terephthalate (‘PET’) originating in Iran, Pakistan and the United Arab Emirates (‘the countries concerned’).

(2) On the same day, the Commission announced, by a notice published in the Official Journal of the European Union (3), the initiation of an anti-dumping proceeding with regard to imports into the Union of certain polyethylene terephthalate originating in Iran, Pakistan and the United Arab Emirates and commenced a separate investigation (‘AD proceeding’).

(3) The anti-subsidy proceeding was initiated following a complaint lodged on 20 July 2009 by the Polyethylene Terephthalate Committee of Plastics Europe (‘the complainant’) on behalf of producers representing a major proportion, in this case more than 50 %, of the total Union production of certain polyethylene terephthalate. The complaint contained prima facie evidence of subsidisation of the said product and material injury resulting therefrom, which was considered sufficient to justify the initiation of an anti-subsidy proceeding.

(4) Prior to the initiation of the proceeding and in accordance with Article 10(7) of the basic Regulation, the Commission notified the Governments of Iran, Pakistan and the United Arab Emirates (‘UAE’) that it had received a properly documented complaint alleging that subsidised imports of PET originating in Iran, Pakistan and the UAE were causing material injury to the Union industry. The respective Governments were invited for consultations with the aim of clarifying the situation as regards the contents of the complaint and arriving at a mutually agreed solution. All the Governments 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 countries concerned in regard to the allegations contained in the complaint regarding the lack of countervailability of the schemes. During or following the consultations, submissions were received from the governments of Pakistan and the UAE.

(5) The Commission officially advised the complainant producers, other known Union producers, importers/traders and users known to be concerned, the exporting producers and the representatives of the exporting countries concerned, 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.

(6) All interested parties, who so requested and showed that there were particular reasons why they should be heard, were granted a hearing.

(7) In view of the apparently large number of Union producers and importers, the use of sampling techniques for the investigation of injury was envisaged in accordance with Article 27 of the basic Regulation. In order to enable the Commission to decide whether sampling would be necessary and, if so, to select a sample, all Union producers and 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 under investigation during the investigation period (1 July 2008 – 30 June 2009).

(8) Fourteen Union producers provided the requested information and agreed to be included in the sample. On the basis of the information received from the cooperating Union producers, the Commission selected a sample of five Union producers representing 65 % of the sales by all cooperating Union producers.

(9) Eight importers provided the requested information and agreed to be included in the sample. On the basis of the information received from the cooperating importers, the Commission selected a sample of two importers representing 83 % of imports by all cooperating importers and 48 % of all imports from the UAE, Iran and Pakistan.

(10) The Commission sent questionnaires to the authorities of the countries concerned, to the exporting producers, to the sampled Union producers, sampled importers and to all users and suppliers known to be concerned as well as to those that made themselves known within the deadlines set out in the notice of initiation.

(11) Questionnaire replies were received from the authorities of the countries concerned, one exporting producer in Iran and its related trader, one exporting producer in Pakistan and one exporting producer in the United Arab Emirates, from five sampled Union producers, one sampled importer, ten users in the Union, three suppliers of raw materials. In addition, seven cooperating Union producers provided the requested general data for the injury analysis.

(12) The Commission sought and verified all information deemed necessary for the determination of subsidisation, resulting injury and Union interest.

(15) The investigation of subsidisation and injury covered the period from 1 July 2008 to 30 June 2009 (‘investigation period’ or ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2006 to the end of the investigation period (‘period considered’).

(16) The product concerned is polyethylene terephthalate having a viscosity number of 78 ml/g or higher, according to the ISO Standard 1628-5, originating in Iran, Pakistan and the UAE (‘the product concerned’), currently falling within CN code 3907 60 20 .

(17) PET is a chemical product which is normally used in the plastics industry, for the production of bottles and sheets. Since this grade of PET is a homogeneous product, it was not further subdivided into different product types.

(18) The investigation showed that the PET produced and sold in the Union by the Union industry, and the PET produced and sold on the domestic markets of Iran, Pakistan and the United Arab Emirates, and exported to the Union have essentially the same basic chemical and physical characteristics and the same basic uses. They are therefore provisionally considered to be alike within the meaning of Article 2(c) of the basic Regulation.

(20) According to the legal provisions, a company established in an SEZ benefits from the duty-free import of input material under the condition that it is used in the production process of a product for subsequent exports. During the verification, it was also found that companies in SEZs also benefit from the duty-free import of capital goods.

(21) The full legal description of the SEZs scheme is currently set out in the following laws and regulations: ‘The Law for Establishment and Management of the Special Economic Zones in the Islamic Republic of Iran’ No. 257/184168, enacted on May 19, 2005; Approval of Commission of Art. 138 of Constitutional Act Secretariat of High Council of Free Industrial-Trade Zones, dated May 27, 2007; Executive By-law for Establishment and Management of Special Economic Zone of the Islamic Republic of Iran; Approval of Board of Ministers dated April 29, 2006.

(22) The Petrochemical SEZ was founded on 30 April 1997 (year 1376 according to the Persian calendar) by Act No. 58548, published in the Official Gazette No. 15275 on 25 May 1997.

(23) No specific rule on eligibility has been found in the set of Legislative/Administrative Acts provided by the Iranian Government during the investigation. The sole Iranian cooperating exporting producer has its factory premises established in the Petrochemical SEZ of Mahshahr, Bandar Imam Khomeini. According to the information made available by the Iranian authorities, this zone is the only Petrochemical SEZ in Iran.

(24) Each SEZ is considered as being situated outside the country’s Customs territory. Hence, all imports are exempted from duties under the condition that the imported input materials are used to produce the resulting export product.

(25) In order to monitor the amount of duty-free imported raw materials consumed in the production of the resultant export product, the Customs offices register both the import allowance and export obligation at the time of import and of export on the basis of standard input-output norms specified in a certificate entitled ‘Production Permit’ released by the Ministry of Health, General Department and which is valid for five years. For every transaction the Customs offices releases upon request a code-number (B-Jack) necessary for the company to clear goods through Customs.

(26) In addition, the company provides periodically to the relevant authority with the exports and domestic sales that it intends to carry out in the following year. On the basis of the aforesaid available information, the Customs offices supervise the correct use of the benefits availed by the company.

(27) As regards a domestic sale, i.e. a sale from the SEZ into the mainland, a customs duty will be imposed on the part of the imported duty-free input incorporated in the final product according to the standard input-output norms.

(28) During the verification visit, it has been found that there are no concrete, statutory and publicly available criteria that govern the decision of the granting authority on who is entitled to be established in the Petrochemical SEZ. A company willing to establish in that zone has to lodge an application to the relevant authority but no guidelines are available in order to show on what basis the request can be accepted or rejected. Moreover, the founding Act of the Petrochemical SEZ entrusts National Petrochemical Company (‘NPC’) (shareholder of the sole cooperating exporting producer) to manage and organize this zone for the purpose of petrochemical activities.

(29) Serious discrepancies and malfunctions of the system have been found. The Iranian authorities did not establish a proper verification system to monitor the amount of duty-free imported raw materials consumed in the production of the resultant export product. STPC, the sole cooperating producer in Iran, did not report the actual raw material yields and no verification system has been implemented in practice by NPC in order to confirm that the inputs for which exemption has been granted are consumed in the production of the exported product and their amounts. The standard input-output norms are production ratios proposed by the company and accepted by the Government that derive from the standard applied in the Petrochemical Industry.

(30) The sole cooperating exporting producer benefited from the above scheme and also from a duty-free import of capital goods.

(31) Account taken of all the above, the import of duty-free inputs in the SEZ has to be considered a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation, i.e. a financial contribution of the Iranian Government which conferred a benefit upon the investigated exporter.

(32) Moreover, the scheme is specific within the meaning of the Article 4(2)(a) of the basic Regulation, given that the legislation, pursuant to which the granting authority operates, explicitly limits access to this zone to certain enterprises belonging to the petrochemical sector of production.

(33) In addition, the scheme is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4)(a) of the basic Regulation. Without an export commitment, a company cannot obtain benefits under this scheme.

(34) This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation since it does not conform to the rules laid down in Annex I, in particular point (i), Annex II and Annex III of the basic Regulation.

(35) Specifically, the Iranian Government has no verification system or procedure in place to confirm whether and in what amounts inputs were consumed in the production of the exported product (in accordance with Annex II, part (II), point (4) of the basic Regulation and, in the case of substitution drawback schemes, Annex III, part (II), point (2) of the basic Regulation). The standard input-output norms themselves cannot be considered company specific standards nor a verification system of actual consumption. This type of process does not enable the Government to verify with sufficient precision what amounts of inputs were consumed in the export production and under which standard input-output norm benchmark they should be compared. Furthermore, the Government did not perform an effective control based on a correctly kept actual consumption register. In fact, the Government of Iran did not carry out a further examination, based on actual inputs involved, although this would normally need to be carried out in the absence of an effectively applied verification system (in accordance with Annex II, part (II), point (5) and, in the case of substitution drawback schemes, Annex III, part (II), point (3) of the basic Regulation).

(36) In addition, the benefit derived from the duty unpaid from the import of capital goods is also a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation, i.e. a financial contribution of the Iranian Government which conferred a benefit upon the investigated exporter. In addition, the scheme is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4)(a) of the basic Regulation. Without an export commitment, a company cannot obtain benefits under this scheme.

(37) It cannot be considered a permissible duty drawback system because it concerns capital goods which are not consumed in the production process and thus are not covered by the scope of permissible duty drawback systems set out in Annex I, point (i) of the basic Regulation.

(38) Account taken of above, the subsidies in question are considered countervailable.

(39) In the absence of permitted duty drawback systems or substitution drawback systems, the benefit consists in the remission of total import duties normally due upon importation of inputs. In this respect, it is noted that the basic Regulation does not only provide for the countervailing of an ‘excess’ remission of duties. According to Article 3(1)(a)(ii) and Annex I, point (i) of the basic Regulation, only an excess remission of duties can be countervailed, provided the conditions of Annexes II and III of the basic Regulation are met. However, these conditions were not fulfilled in the present case. Thus, if an absence of an adequate monitoring process is established, the above exception for drawback schemes is not applicable and the normal rule of countervailing of the amount of (revenue forgone) unpaid duties applies, rather than any purported excess remission.

(40) The subsidy amount for the exporter with regard to the duty-free import of input products was calculated on the basis of import duties forgone (basic customs duty) on the material imported for the product concerned during the IP (nominator). In accordance with Article 7(2) of the basic Regulation, this subsidy amount has been allocated over the export turnover generated by the product concerned during the IP, because the subsidy is contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(41) The subsidy rate established in respect of this scheme during the IP for the exporting producer amounts to 1,13 %.

(42) In addition, the benefit derived from the unpaid duty from the import of capital goods cannot be considered a permissible duty drawback system because it concerns capital goods which are not consumed in the production process. The subsidy amount was calculated, in accordance with Article 7(3) of the basic Regulation, on the basis of the unpaid customs duty on imported capital goods spread across a period of 15 years which reflects the minimum depreciation period that has been found in all the three countries involved in the current investigation in relation to the industry concerned. In accordance with the established practice, the amount so calculated, which is attributable to the IP, has been adjusted by adding interest during this period in order to reflect the full value of the benefit over time. The commercial interest rate during the IP in Iran was considered appropriate for this purpose.

(43) In accordance with Articles 7(2) and 7(3) of the basic Regulation, this subsidy amount (as nominator) has been allocated over the total export turnover during the IP, because the subsidy is contingent upon export performance and it was not granted by reference to the quantities manufactured, produced, exported or transported. The subsidy rate established in respect of this subsidy during the IP for the exporting producer amounts to 0,93 %.

(44) The total subsidy rate established in respect of the above measures during the IP for the exporting producer amounts to 2,06 %.

(45) This scheme consists of a direct transfer of non-repayable funds from NPC to the sole cooperating Iranian exporting producer.

(46) The investigation established that NPC is the main shareholder of STPC, owning 75 % of its shares. The remaining shareholders are the Petroleum Ministry Retirement & Welfare Fund, which owns 15 % of shares and the Justice Shares Broker Co., which owns 10 % of shares. It was established during the verification visit that NPC has financed a substantial part of STPC’s capital cost and its circulating/working capital as well as the instalments of bank loans of STPC on their due dates. Therefore, as the Audited Financial Statements for the financial year covering the IP clearly show, the continuation of the cooperating exporting producer’s activity depends on the financial support of the main shareholder that is fully owned by National Iranian Oil Company, which belongs to the Iranian Ministry of Petroleum.

(47) Furthermore, the liquidity injections to STPC are not reported in the company’s accounts as loans provided.

(48) STPC’s debt towards NPC, as clearly stated in the STPC Audited Financial Statements ending on March 20, 2009, equals to 51 % of its total assets. In this respect it is noted that Article 141 of the Iranian Amendment Bill of Commercial Code requires the shareholder to decide on the dissolution or continuation of the company whenever any company has to allocate at least half of its capital to cover losses occurred.

(49) Until now no action has been taken by NPC, as principal shareholder of STPC, in order to increase the STPC’s capital against the financial situation, although on 3 June 2009 the General Assembly Meeting of STPC decided that the situation of the company’s debts to NPC should be clarified.