Commission Regulation (EU) No 1035/2010 of 15 November 2010 imposing a provisional anti-dumping duty on imports of melamine originating in the People's Republic of China

THE EUROPEAN COMMISSION,

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

Having regard to Council Regulation (EC) No 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community (1) (the basic Regulation), and in particular Article 7 thereof,

After consulting the Advisory Committee,

Whereas:

(1) On 4 January 2010, the Commission received a complaint concerning imports of melamine originating in the People’s Republic of China lodged pursuant to Article 5 of the basic Regulation by Borealis Agrolinz Melamine GmbH, DSM Melamine BV and Zakłady Azotowe Puławy (‘the complainants’), representing a major proportion, in this case more than 50 %, of the total Union production of melamine.

(2) This complaint contained prima facie evidence of dumping and of material injury resulting there from, which was considered sufficient to justify the opening of a proceeding.

(3) On 17 February 2010, the Commission announced, by a notice published in the Official Journal of the European Union (2) (‘the notice of initiation’), the initiation of an anti-dumping proceeding with regard to imports into the Union of melamine originating in the People’s Republic of China (‘the country concerned’ or ‘the PRC’).

(4) The Commission officially advised the complainants, 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.

(5) In view of the apparent high number of exporting producers in the PRC sampling was envisaged in the notice of initiation for the determination of dumping and injury in accordance with Article 17 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 exporting producers in the PRC 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 investigation period (1 January 2009-31 December 2009).

(6) Seven replies were received to the sampling exercise from exporting producers or groups of exporting producers in the PRC. However two companies withdrew from further cooperation with the investigation at an early stage. Sampling was therefore no longer necessary and all parties were informed that a sample would not be selected.

(7) In order to allow exporting producers in the PRC to submit a claim for market economy treatment (MET) or individual treatment (IT), if they so wished, the Commission sent claim forms to the Chinese exporting producers known to be concerned, the Chinese authorities and to other Chinese exporting producers that made themselves known within the deadlines set out in the notice of initiation. Three Chinese exporting producer groups and one individual company requested MET pursuant to Article 2(7) of the basic Regulation, or IT should the investigation establish that they did not meet the conditions for MET. One further group requested IT only.

(8) Questionnaires were sent to all parties known to be concerned and to all other companies that made themselves known within the deadlines set out in the notice of initiation. Replies were received from five exporting producers and related companies in the PRC, one producer in the United States of America which was the proposed analogue country as mentioned in the notice of initiation, and one producer in another possible analogue country, Indonesia. Questionnaire replies were also received from three Union producers and seven users cooperated by submitting a questionnaire reply. None of the importers supplied the Commission with any information or made themselves known in the course of this investigation.

(11) The investigation of dumping and injury covered the period from 1 January 2009 to 31 December 2009 (‘investigation period’ or ‘IP’). The examination of the trends relevant for the assessment of injury covered the period from 1 January 2006 to the end of the investigation period (period considered).

(12) The product concerned is melamine, currently falling within CN code 2933 61 00 and originating in the People’s Republic of China.

(13) Melamine is a white crystalline powder obtained from urea. Melamine is mainly used in laminates, moulding powders, wood based panels and coating resins.

(14) The investigation has shown that melamine produced and sold by the Union industry in the Union, melamine produced and sold on the domestic market of the PRC and melamine imported into the Union from the PRC, as well as that produced and sold in Indonesia, which served as an analogue country, has essentially the same basic physical and chemical characteristics and the same basic end uses.

(15) Therefore these products are provisionally considered to be alike within the meaning of Article 1(4) of the basic Regulation.

(17) Three exporting producer groups and one exporting producer from the PRC requested MET and replied to the MET claim form within the given deadline.

(18) For all these cooperating companies in the PRC, the Commission sought all information deemed necessary and verified information submitted in the MET claim at the premises of the companies in question.

(19) All of the cooperating exporting producers and groups in the PRC were found not to meet criteria to be granted MET. All companies involved in the production or commercialisation of melamine located in the PRC were invited to claim MET. Should one company in a group be denied MET then the group as a whole is also denied.

(20) For those companies producing urea from natural gas to manufacture melamine this denial was based on the grounds that the costs of the major input, natural gas, did not substantially reflect market values, as required by Article 2(7)(c) of the basic Regulation. The MET investigation determined that this was due to State interference in the natural gas market in the PRC.

(21) The natural gas market in the PRC is dominated by three State-owned companies. Companies that produce urea, which is then used by them to produce melamine, benefit from a low government fixed gas price for the production of urea. A company producing urea, which is a fertiliser and important for the Chinese agricultural and food industry, pays a significantly lower price for its gas compared to companies which need gas for other industrial uses. In addition to this dual-pricing mechanism, the price of natural gas for industrial use is itself distorted by State interference and is itself considerably lower than the world market price for gas.

(22) This low gas price allows these melamine producers to produce it at unnaturally reduced prices, taking advantage of the distorted low price of natural gas. Since natural gas forms a major part of the cost of urea (around 80 %) and that urea represents between 50 and 60 % of the cost of production of melamine, criterion 1 cannot be considered to be met for those companies in the PRC that produce urea from natural gas.

(23) Some companies do not produce urea themselves but purchase it from unrelated suppliers. However the urea market itself is also distorted by three main types of State interference. Firstly the existence of strict import quotas for urea and export taxes of 110 % during mid-season and 10 % during off-season in the IP. Secondly the Chinese government has exempted the domestic sale of urea from VAT since 1 July 2005. Thirdly the Chinese government is directly involved in the market through the State Fertilizer System, operating since 2004, whereby the State purchases urea directly from producers to keep in a strategic reserve and can also release quantities of urea in the domestic market. Urea producers also benefit from preferential electricity rates, preferential railway freight rates and, as mentioned above, preferential natural gas prices.

(24) The restraints on exports, in combination with the benefits in the case of domestic sales, have the effect of reducing export volumes of urea, thereby diverting supplies to the domestic market and creating a downward pressure on the domestic price. This low domestic price is directly caused by State interference in the urea market in the PRC. Accordingly, criterion 1 cannot be considered to be met for those companies in the PRC that do not produce urea but purchase it from third parties.

(25) In addition to the general situation described above, one group of companies did not meet the other requirements of criterion 1 as the holding company is fully State-owned and the individual companies within the group are majority State-owned. Accordingly, this group is subject to significant State interference in relation to important business decisions.

(26) Two companies did not meet either criterion 2 or criterion 3. One of them was not able to show complete accounting records and received office space from a public body for free. The other company did not keep its accounts in line with international accounting standards and was not able to demonstrate that their take over of a State-owned company was done at a fair value.

(27) One company did not demonstrate that it met criterion 3 as no interest was paid on the debt regarding the sale of its shares emanating from the privatisation process. More specifically, at the beginning of the privatisation process a shareholder was loaned back the capital it had invested. At subsequent transfers of the shares, the liability of the debt was used as a payment. Only after 10 years was the loan repaid by the then privately-owned holder of those shares without any interest ever charged or paid on the amount.

(28) One company was refused MET as its related sales company, dealing with the product concerned as well, failed to complete a MET claim form.

(29) The Commission officially disclosed the results of the MET findings to the companies concerned in the PRC, the authorities of the PRC and the complainants. They were also given an opportunity to make their views known in writing and to request a hearing if there were particular reasons to be heard.

(30) Several written submissions were provided and a hearing with some exporting producers took place. The exporting producers argued that in the PRC some 70 % of urea is mainly produced by using coal as the major input and only some 30 % of urea is produced from natural gas. However, as the State also interferes in the urea market, as set out in recitals 23 and 24, it does not change the conclusion that the costs of production of melamine are significantly distorted. The argument is therefore rejected.

(31) Other arguments brought forward in the written submissions and the hearing following disclosure were not such as to change the proposal to refuse MET to all companies that requested so.

(32) On the basis of the above, none of the cooperating companies in the PRC that had requested MET could show that they fulfilled the criteria set out in Article 2(7)(c) of the basic Regulation. It was therefore considered that MET should be refused for all these companies. The Advisory Committee was consulted and did not object to these conclusions.

(33) Pursuant to Article 2(7)(a) of the basic Regulation a countrywide duty, if any, is established for countries falling under Article 2(7) of the basic Regulation, except in those cases where companies are able to demonstrate that they meet the criteria set out in Article 9(5) of the basic Regulation.

(34) All of those companies and groups which requested MET also claimed IT in the event they would not be granted MET. In addition one group only claimed IT. On the basis of the information available, it was provisionally established that three of the five exporting producer companies or groups in the PRC met all the requirements for IT. One group of companies in the PRC was refused IT on the grounds that the holding is fully State-owned and the individual companies within the group are majority State-owned. Another company was refused IT as a related sales company failed to complete a MET/IT claim form. It was therefore not possible to assess the criteria for IT.

(35) According to Article 2(7)(a) of the basic Regulation, normal value for exporting producers not granted MET has to be established on the basis of the domestic prices or constructed normal value in an analogue country.

(36) In the notice of initiation, the Commission indicated its intention to use the United States of America as an appropriate analogue country for the purpose of establishing normal value and interested parties were invited to comment on this.

(37) The Commission examined whether other countries could be a reasonable choice of analogue country and questionnaires were sent to melamine producers in India, Iran, Indonesia and the United States of America. Only the melamine producers in the USA and Indonesia replied to the questionnaires.

(38) Following the examination of the replies, Indonesia was chosen as an analogue country which appears to be an open market with a low import duty and with significant imports from several third countries. In addition, it was found that the cost structure of an Indonesian producer was more comparable to a Chinese producer than the cost structure of a US producer and would therefore result in a more realistic normal value. The investigation showed no reason to consider that Indonesia was not adequate for the purpose of establishing normal value.

(39) Eventually, no interested party, including the complainants, argued that the USA was to be used as an appropriate analogue country for the present investigation.

(40) The data submitted in the cooperating Indonesian producer’s reply were verified in situ and found to be reliable information on which a normal value could be based.

(41) It is therefore provisionally concluded that Indonesia is an appropriate and reasonable analogue country in accordance with Article 2(7) of the basic Regulation.

(42) Pursuant to Article 2(7)(a) of the basic Regulation normal value was established on the basis of verified information received from the producer in the analogue country.

(43) The product concerned was sold in representative quantities on the Indonesian domestic market.

(44) As sales on the domestic market to unrelated customers were not profitable during the investigation period, normal value was constructed using the cost of manufacturing of the Indonesian producer plus a reasonable amount for SG&A and for profit on the domestic market.

(45) SG&A costs and profit were established pursuant to Article 2(6)c on the basis of another reasonable method by comparing the SG&A costs and profit to the Union industry. The amount for SG&A used was considered reasonable as it was in line with the SG&A for the Union industry. The amount for profit was close to that achieved by the Union industry in profitable years. There were no indications that such a profit would exceed the profit normally realised by other exporters or producers on sales of products of the same general category in the domestic market of the country or origin.

(46) As all cooperating exporting producers granted IT made export sales to the Union directly to independent customers in the Union, the export prices were based on the prices actually paid or payable for the product concerned, in accordance with Article 2(8) of the basic Regulation.

(47) The normal value and export prices were compared on an ex-works basis. For the purpose of ensuring a fair comparison between the normal value and the export price, due allowance in the form of adjustments was made for differences affecting prices and price comparability in accordance with Article 2(10) of the basic Regulation. Adjustments were made, where appropriate, in respect of transport, insurance, handling and ancillary costs, packing, credit, bank charges and commissions in all cases where they were found to be reasonable, accurate and supported by verified evidence.

(48) It is noted that normal value and export price were compared at the same level of indirect taxation, i.e. VAT included.

(49) Pursuant to Articles 2(11) and (12) of the basic Regulation, the dumping margins for the cooperating exporting producers granted IT were established on the basis of a comparison of a weighted average normal value established for the analogue country with each company’s weighted average export price of the product concerned to the Union as established above.

(51) In order to calculate the countrywide dumping margin applicable to all other exporting producers in the PRC, the level of cooperation was first established by comparing the volume of exports to the Union reported by the cooperating exporting producers with the equivalent Eurostat statistics.

(52) Given that cooperation from the PRC was low, i.e. 30 %, the countrywide dumping margin applicable to all other exporters in the PRC was established by comparing the normal value as established for Indonesia with export price data of the cooperating exporting producers to which neither MET nor IT was granted.

(53) On this basis the countrywide level of dumping was provisionally established at 65,6 % of the cif Union frontier price, duty unpaid.

(54) The complaint was lodged by the three main Union producers of melamine, having production facilities in Austria, Germany and Italy (Borealis), The Netherlands (DSM) and Poland (Puławy) which together accounts for over 90 % of total Union production during the IP. Two other producers with limited production did not object to the initiation of the investigation.

(55) All available information concerning Union producers, including information provided in the complaint and data collected from Union producers before and after the initiation of the investigation, was used in order to establish the total Union production.

(56) On that basis, the total Union production was estimated to be around 340 000 tonnes during the IP. This amount included the production of all Union producers that made themselves known and the estimated production of other producers which remained silent in the proceeding (‘silent producers’). In the absence of any other information, the data indicated in the complaint in respect of the silent producers was used to establish the total Union production and consumption.

(58) Consumption increased by 5 % between 2006 and 2007 and then decreased by 17 % between 2007 and 2008, and by 16 % during the IP. Overall, consumption decreased by 28 % during the period considered.

(59) The fall in melamine consumption can be attributed to the conjuncture, and in particular to the temporary contraction of the housing and construction markets which are the main markets for the main applications of melamine. Melamine is an important input material in this sector and is not expected to be replaced by any other materials. Hence, melamine demand is expected to resume together with the overall economic recovery.