Commission Implementing Regulation (EU) 2020/379 of 5 March 2020 imposing a provisional countervailing duty on imports of continuous filament glass fibre products originating in Egypt

THE EUROPEAN COMMISSION,

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

Having regard to Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union (1) (‘the basic Regulation’), and in particular Articles 12 and 24(1) thereof,

After consulting the Member States,

Whereas:

(1) On 7 June 2019, the European Commission (the ‘Commission’) initiated an anti-subsidy investigation with regard to imports into the European Union (the ‘Union’) of continuous filament glass fibre products (‘GFR’) originating in Egypt (or the ‘country concerned’) pursuant to Article 10 of the basic Regulation. It published a Notice of Initiation in the Official Journal of the European Union (2) (the ‘Notice of Initiation’).

(2) The Commission initiated the investigation following a complaint lodged on 24 April 2019 by the European Glass Fibre Producers Association (‘the complainant’ or ‘APFE’) on behalf of producers representing more than 25 % of total Union production. Producers representing 71 % of the total Union production of continuous filament glass fibre products supported the complaint.

(3) Prior to the initiation of the anti-subsidy investigation, the Commission notified the Government of Egypt (‘GOE’) that it had received a properly documented complaint, and invited the GOE for consultations in accordance with Article 10(7) of the basic Regulation. The GOE refused the offer for consultations, which were not held but submitted two set of comments concerning the initiation of the investigation, one before the publication of the Notice of Initiation and one after.

(4) On 3 May 2019 the Commission initiated a separate anti-dumping investigation with regard to imports into the Union of the same continuous filament glass fibre products originating in Egypt and Bahrain (3). The Commission notified all interested parties on 12 December 2019 that the investigation would continue without imposition of provisional anti-dumping duties.

(5) Prior to the initiation of the investigation the GOE submitted that the complaint did not include sufficient evidence of subsidisation or injury to warrant an opening of a proceeding. Their comments regarding subsidisation were dealt with in the memorandum on sufficiency of evidence which was placed on the open file, and their comments regarding injury are dealt with below.

(6) Following initiation the Commission received further comments from the GOE, again noting their comments on subsidy, but also making a submission regarding the allegations of injury caused by imports from Egypt that were set out in the complaint.

(7) The GOE first analysed the data in the complaint showing prices on the Union market in 2017 and 2018, and noted that EU sales prices did not fall, and import prices from Egypt only dropped by 2 %.

(8) This price analysis, however, only compared two years out of the period considered and thus did not take into account the full set of data in the complaint showing the full evolution of import prices and EU sales prices that show falling import prices and stagnant EU sales prices.

(9) The Commission also noted the data shown in recitals (84) to (91) below on price trends and the Commission’s conclusions based on the whole dataset.

(10) The GOE analysed the economic indicators set out in the complaint and concluded that they did not show material injury. This is not the Commission’s analysis of the data provided in the complaint which clearly shows injury on the basis of steeply declining profits from 2016 to 2018.

(11) The Commission’s analysis of the indicators, both macroeconomic and microeconomic, is set out in detail in the whole of Section 4.4 below.

(12) The GOE then posited other causes of material injury, should the Commission find evidence of it. They allege that injury would be caused by lack of technological development, insufficient production capacity, a contraction in demand, increased costs and imports from other countries.

(13) The complaint already addresses these factors, and provides evidence that the Union industry has invested in their facilities and also that there is no causal link between imports from other countries and the injury suffered by the Union industry.

(14) All of these factors have been investigated and the Commission’s provisional findings are set out in the whole of Section 5 below.

(15) The Commission also received a submission regarding the allegations of injury caused by imports from Egypt from a group of users of GFR in the Union.

(16) The group of users, who wished to remain anonymous, commented on the absence of injury in 2015; the volume of imports from Egypt; that the volume of imports was not likely to increase further; and the economic indicators set out in the complaint.

(17) Again all of these factors have been investigated and the Commission’s provisional findings are set out in the whole of Section 4 below. The Commission confirmed that, at the initiation stage, the complaint contained sufficient evidence of injurious subsidisation.

(18) The GOE and Jushi Egypt also stated that the remission of import duties on raw materials is not a subsidy to the extent that these imported products are re-exported as such or as processed into a downstream product.

(19) The Commission acknowledged that in particular when the conditions of Article 3(1)(a)(ii) of the basic Regulation and Annexes I, II and III referred to therein are met, only the excess remission of import duties on raw materials constitutes a countervailable subsidy, and paid particular attention to this during the investigation.

(20) The Commission further noted that the GOE’s comment did not concern import duty exemptions with respect to production equipment.

(21) On 12 February 2020, the Commission published a Notice amending the Notice of Initiation in the Official Journal of the European Union (4).

(22) During the investigation, the Commission found additional evidence of relevant subsidies, which were not fully included in the Notice of Initiation of 7 June 2019.

(23) In particular, the Commission identified additional evidence of preferential policy loans by Chinese State-owned or State-controlled entities, granted directly to Jushi Egypt and indirectly via the parent company of Jushi Egypt in the People’s Republic of China.

(24) With respect to these loans, the Commission found evidence that they involve a financial contribution that may be attributable to the Government of Egypt and confer a benefit to the exporting producer of the product concerned.

(25) In the course of the investigation, the Commission also identified other elements in the cooperation between Egypt and the People’s Republic of China which may be relevant for the examination of other subsidy practices already mentioned in the Notice of Initiation, such as the provision of land for less than adequate remuneration.

(26) Therefore, the Commission decided in accordance with Article 10(7) of the basic Regulation to include these subsidies within the scope of the current investigation and to amend accordingly the Notice of 7 June 2019. A note to the file was added in this respect and the GOE was invited to hold consultations on those additional subsidies.

(27) The investigation of subsidisation and injury covered the period from 1 April 2018 to 31 March 2019 (the ‘investigation period’ or the ‘IP’). The examination of trends relevant for the assessment of injury covered the period from 1 January 2016 to the end of the investigation period (the ‘period considered’). Where appropriate, the Commission also examined post-IP data.

(28) The Commission made imports of the product concerned subject to registration for the three-week period of pre-disclosure under Article 24(5a) of the basic Regulation by Commission Implementing Regulation (EU) 2020/199 (5) (‘the registration Regulation’).

(29) In the Notice of Initiation, interested parties were invited to contact the Commission in order to participate in the investigation. In addition, the Commission specifically informed the complainant, other known Union producers, the known exporting producers and the GOE, the known importers, suppliers and users, traders, as well as associations known to be concerned about the initiation of the investigation and invited them to participate.

(30) Interested parties had an opportunity to comment on the initiation of the investigation and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings.

(31) Interested parties that had already cooperated in the separate anti-dumping investigation were invited to state that they were cooperating in both investigations, and were considered to be interested parties in both when they had done so. That being said, the Commission considered the anti-dumping and anti-subsidy investigations as two separate proceedings and requested interested parties to clearly specify in their submissions whether they referred to the anti-dumping investigation, the anti-subsidy investigation or both.

(32) In its Notice of Initiation, the Commission stated that it might sample interested parties in accordance with Article 27 of the basic Regulation.

(33) In its Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of the highest representative quantity of production which could reasonably be investigated within the time available. The sample originally selected was the same as for the separate anti-dumping investigation concerning the same product originating in Egypt and Bahrain.

(34) No comments on the sample selection were received.

(35) To decide whether sampling was necessary and, if so, to select a sample, the Commission asked unrelated importers to provide the information specified in the Notice of Initiation.

(36) Given that only two unrelated importers provided completed sampling forms, sampling was not applied.

(37) The two unrelated importers were also selected for inspection in the separate anti-dumping investigation.

(38) The Commission did not resort to sampling in relation to exporting producers in Egypt as the Jushi Group is the only exporting producer of the product concerned in Egypt.

(39) The Commission sent questionnaires to the GOE, to the exporting producer, to the three sampled Union producers, and to two unrelated importers. A questionnaire was provided for users to complete, if they so wished, rather than making a submission.

(40) The Commission received questionnaire replies from the GOE, the exporting producer, all sampled Union producers and both unrelated importers. Two completed user questionnaires were also received.

(41) The Commission sought and verified all the information deemed necessary for a determination of subsidy, resulting injury and Union interest. A verification visit took place at the premises of the GOE, the General Authority for the Suez Economic Zone and the General Authority for Investment and Free Zones, during which officials from other relevant ministries also participated.

(42) The methodology and correctness of the data gathered by the complainants for the purposes of the macroeconomic indicators was subject to a verification visit under Article 26 of the basic Regulation carried out at the premises of the lawyers of the complainants.

(44) The product subject to this investigation is chopped glass fibre strands, of a length of not more than 50 mm (‘chopped strands’); glass fibre rovings, excluding glass fibre rovings which are impregnated and coated and have a loss on ignition of more than 3 % (as determined by the ISO Standard 1887) (‘rovings’); and mats made of glass fibre filaments excluding mats of glass wool (‘mats’) (‘the product under investigation’). The product under investigation is known as ‘glass fibre reinforcements’ or ‘GFR’.

(45) The product concerned is the product under investigation originating in Egypt.

(46) The product concerned is currently falling under CN codes 7019 11 00, ex 7019 12 00, 7019 31 00 (TARIC codes 7019120022, 7019120025, 7019120026 and 7019120039).

(48) The Commission decided that, for the purpose of this investigation, those products are therefore like products within the meaning of Article 2(c) of the basic Regulation.

(50) The alleged subsidisation in Egypt concerns Jushi Egypt for Fiberglass Industry S.A.E. (‘Jushi Egypt’), a company located in the China-Egypt Suez Economic and Trade Cooperation Zone (‘SETC-Zone’). The zone covers an area of 7,34 km2, which is divided into a starting area of 1,34 km2 and an expansion area of 6 km2.

(51) In 2002, the wider area of 20 km2 in which the SETC-Zone was located, the Northwest Gulf of Suez Economic Zone, was officially classified as a special economic zone (‘SEZone’) by the GOE (7). As such, the provisions of the Egyptian Law No 83/2002 on Economic Zones of a Special Nature (‘Law 83/2002’) were now also applicable to the SETC-Zone.

(52) In 2014, Egypt launched the ‘Suez Canal Corridor Development Plan’. In the context of this Plan, the SE Zone was officially incorporated in to the wider Suez Canal Economic Zone (‘SCZone’) in 2015, comprising the whole area around the Suez Canal of 461 km2. The entire area is now considered as an ‘economic area of special nature’ in accordance with Law 83/2002 and amendments thereof (8). As a special area, companies located therein benefit from preferential treatment as outlined in the subsidy programmes mentioned below.

(53) This programme provides an exemption from VAT and import tariffs for imports of equipment used in the production process of the companies located in the SCZone.

(55) According to Article 22 of Law 83/2002, as amended by Law 27/2015, the SCZone is part of a separate customs area by virtue of a decree issued by the Minister of Finance. This separate customs area functions under the supervision of a supreme customs committee, established by the Chairman of the Authority of the zone.

(56) Furthermore, according to Article 42 of Law 83/2002, imported equipment, tools, or apparatus shall be exempted from taxes and duties as long as they are allocated to produced goods or services for the licensed activity within the SCZone. On the other hand, as the SCZone is not an export only zone, all taxes and duties need to be paid for any products released into the domestic market outside of the zone.

(57) Finally, according to the relevant laws, companies located outside of the SCZone pay import VAT upfront and net it against the VAT on their domestic sales or, if applicable, refunded when finished goods are exported.

(58) For companies located in the SCZone, import VAT is initially not charged in accordance with a letter of understanding on this point between the Ministry of Finance and the General Authority of the SCZone.

(59) The Commission found that Jushi Egypt’s VAT and import duties on imported equipment had indeed been withheld since 2017 and throughout the investigation period. Before 2017, the company actually paid its import duties and VAT/general sales tax (‘GST’) (9) on imported equipment since it had not yet entered the SCZone. However, through the 2017 opt-in of the company to the SCZone’s tax and administrative regime, Jushi Egypt benefits from the preferential tax treatments within the zone, including the VAT and tariff exemptions.

(60) As a general rule in Egypt, companies buying machines subject to the 5 % VAT rate should utilize the amounts as a credit against future payments (10). However, where the credit balance is retained for more than 6 consecutive tax periods (months), which is the case of companies heavily engaging in exports that cannot offset any input VAT as a credit against future payments, the registered person shall apply in writing, showing the amount of the credit balance. The Egyptian Tax Authority should check the correctness of the balance and refund within 45 days of the date of submitting the application.

(61) However, the investigation revealed that in practice, the GOE does not reimburse the VAT paid upfront so that the tax constitutes an actual cost for such companies. Indeed, an analysis of the GST/VAT credits of Jushi Egypt listed in the 2016-2018 Annual Reports showed that amounts due by the GOE to Jushi Egypt were still outstanding after several years (11) and Jushi Egypt confirmed that it did not expect to receive the reimbursements (12).

(62) It also needs to be considered that since equipment used in the manufacturing of products, including the product under investigation, will in all likelihood be used for its entire useful life within the Egyptian territory without being re-exported or sold domestically, there is no rationale for granting an exemption from customs duties and VAT on its purchase, other than benefiting the companies located in the SCZone. This therefore constitutes revenue foregone in the form of customs duties and VAT not payable without any justification, as this equipment is used for the local production of the product under investigation on which customs duty and VAT are normally due for producers located outside of the SCZone.

(63) Therefore, since Jushi Egypt became subject to the preferential treatment under the legal regime of the SCZone in 2017, it benefitted from a de facto VAT exemption on the import of machinery. This exemption constitutes revenue foregone because, as stated in the preceding paragraphs, even though VAT should eventually be refunded, in essence there is no evidence that the GOE reimbursed Jushi Egypt the VAT paid on machinery in the past. The evidence available indeed showed that Jushi Egypt was not obtaining those refunds when it was located outside the zone.

(64) Companies located in the SCZone, which do not have to pay VAT upfront, receive a de facto VAT exemption that saves them from incurring an actual cost in addition to saving the administrative burden of having to claim VAT reimbursements or offsetting VAT credits. The same conclusion applies even more clearly with respect to the exemption of paying import tariffs on imported equipment.

(65) In light of the above, the Commission provisionally concluded that this programme provides a financial contribution in the form of revenue forgone by the GOE within the meaning of Article 3(1)(a)(ii) of the basic Regulation as eligible enterprises are relieved from payment of VAT and/or tariffs which would be otherwise due. It also confers a benefit on the recipient companies in the sense of Article 3(2) of the basic Regulation since they are placed in a better financial position than they would be absent the scheme. In fact, without the scheme they would have paid the VAT and import tariffs upon importation of the equipment.

(66) The programme is specific within the meaning of Article 4(2)(a) of the basic Regulation as it is not generally applicable in Egypt, and applies only to the companies located in Economic Zones of a Special Nature, such as the SCZone. The legislation pursuant to which the granting authority operates limits its access to enterprises that are located within such Economic Zones of a Special Nature.

(68) The amount of subsidy provisionally established with regard to this type of subsidies during the investigation period for the exporting producer was 0,78 %.