Commission Implementing Regulation (EU) 2020/508 of 7 April 2020 imposing a provisional anti-dumping duty on imports of certain hot rolled stainless steel sheets and coils originating in Indonesia, the People’s Republic of China and Taiwan

COMMISSION IMPLEMENTING REGULATION (EU) 2020/508 of 7 April 2020 imposing a provisional anti-dumping duty on imports of certain hot rolled stainless steel sheets and coils originating in Indonesia, the People’s Republic of China and Taiwan

THE EUROPEAN COMMISSION,

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

Having regard to Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (1) (‘the basic Regulation’), and in particular Article 7 thereof,

After consulting the Member States,

Whereas:

(1) On 12 August 2019, the European Commission (‘the Commission’) initiated an anti-dumping investigation with regard to imports into the Union of certain hot rolled stainless steel sheets and coils (‘SSHR’ or ‘the product under investigation’) originating in Indonesia, the People’s Republic of China (‘PRC’) and Taiwan (‘the countries concerned’), on the basis of Article 5 of Regulation (EU) 2016/1036. It published a Notice of Initiation in the Official Journal of the European Union (2) (‘Notice of Initiation’).

(2) The Commission initiated the investigation following a complaint lodged on 28 June 2019 by the European Steel Association (‘Eurofer’ or ‘the complainant’) on behalf of four Union producers representing the entirety of Union production of the product under investigation. The complaint contained evidence of dumping from the countries concerned and resulting material injury that was sufficient to justify the initiation of the investigation.

(3) The Commission made imports of the product concerned subject to registration under Article 14(5) of the basic Regulation by Commission Implementing Regulation (EU) 2020/104 (3).

(4) In the Notice of Initiation, the Commission invited interested parties to contact it in order to participate in the investigation. In addition, the Commission specifically informed the complainant, known exporting producers in the countries concerned and the authorities of the countries concerned, known importers and users in the Union about the initiation of the investigation, and invited them to participate.

(5) Interested parties had the 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. The Commission received comments that are addressed in Sections 2.3 and 5.2.3.

(6) In the Notice of Initiation, the Commission stated that it might sample the interested parties in accordance with Article 17 of the basic Regulation.

(7) In the Notice of Initiation, the Commission stated that it had decided to limit to a reasonable number the Union producers that would be investigated by applying sampling, and that it had provisionally selected a sample of Union producers. The Commission selected the provisional sample on the basis of production and Union sales volumes reported by the Union producers in the context of the pre-initiation standing assessment analysis, taking also into account their geographical location. The provisional sample thus established consisted of three Union producers accounting for over 78 % of production and 88 % of sales in the Union of the like product, and located in three different Member States. Details of this provisional sample were made available in the file for inspection by interested parties, with the possibility for them to make comments. No comments were made.

(8) As a result of the above, the provisional sample of Union producers was confirmed. It consisted of Aperam Belgium (‘Aperam’), Acciai Speciali Terni S.p.A. (‘AST’) and OTK Stainless Oy (‘OTK’). The definitive sample is representative of the Union industry.

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

(10) Two unrelated importers made themselves known as interested parties and provided the requested information. In view of the low number of replies received, sampling was not necessary. Both importers were invited to complete a questionnaire.

(11) Taking into account the number of known producers of the product concerned in the countries concerned, the Notice of Initiation provided only for sampling in the PRC and therefore, the Commission asked all Chinese exporting producers to provide the information specified in the Notice of Initiation to decide whether sampling was necessary and, if so, to select a sample.

(12) In addition, the Commission asked the Embassy of the Republic of Indonesia in Brussels, the Mission of the People’s Republic of China to the European Union and the Taipei Representative Office in the European Union to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(13) There were only two exporting producers in Indonesia known to the Commission at the initiation of the investigation. Therefore, the Commission did not intend to select a sample. No further exporting producers came forward. Consequently, the Commission carried out the investigation on the two exporting producers in Indonesia.

(14) Five exporting producers in the PRC provided the information requested in the Notice of Initiation and agreed to be included in the sample. In accordance with Article 17(1) of the basic Regulation, the Commission selected a sample of three companies, which could reasonably be investigated within the time available. The basis for the selection of the sample were the largest volumes of exports to the Union.

(15) In accordance with Article 17(2) of the basic Regulation, all known exporting producers concerned, and the authorities of the PRC, were consulted on the selection of the sample. No comments were made.

(16) Following the verification visits, given the shortcomings of the information provided by one sampled Chinese exporting producer, the Commission decided to disregard the information given by this producer on the basis of Article 18(1) of the basic Regulation (4).

(17) As a result of the above, the sample of the Chinese exporting producers was reduced to two companies, covering around 92 % of Chinese exports of the product concerned to the Union in the investigation period, which was still considered a high level of cooperation.

(18) In the Notice of Initiation, sampling was not foreseen for Taiwan as there was only one exporting producer known to the Commission. However, shortly before the initiation, the Commission was informed by the Taipei Representative Office in the European Union that there might be a total of 12 additional exporting producers of the product concerned in Taiwan. Therefore, upon initiation, the Commission asked the 13 parties to reply to sampling questions and, subsequently, to reply to a couple of other questions destined to clarify their role and exact activities. On that basis, the Commission could eventually identify two exporting producers of the product concerned in Taiwan. Therefore, sampling was not necessary.

(19) The two exporting producers represented around 56 % of the total volume of exports from Taiwan to the Union. The replies of 7 of the Taiwanese parties contacted by the Commission upon initiation revealed that these companies were in fact independent service centres and/or traders and that most if not all of the remaining Taiwanese exports to the Union were eventually made by these parties. These service centres did not have any hot-rolling or cold-rolling facilities and therefore did not qualify as a producer of the product concerned. In addition, their added value was minor in relation to the cost of their inputs. However, in view of the replies received from them on the questions referred to in recital (18) above, the Commission followed up by providing these parties with a concise questionnaire in order to obtain a sound understanding of the functioning of the Taiwanese domestic and export sales of the product under investigation.

(20) Originally, four Chinese exporting producers that returned the sampling form requested individual examination under Article 17(3) of the basic Regulation. The Commission made the questionnaire available online on the day of the initiation (5). Moreover, when announcing the sample, the Commission informed the exporting producers that were not sampled that they were required to provide a questionnaire reply if they wished to be examined individually. However, none of the companies provided a questionnaire reply. Therefore, no individual examination was granted.

(21) The Commission sent a questionnaire concerning the existence of significant distortions in the PRC within the meaning of Article 2(6a)(b) of the basic Regulation to the Government of the People’s Republic of China (‘GOC’).

(22) Furthermore, the complainant provided in the complaint sufficient prima facie evidence of raw material distortions in Indonesia and the PRC regarding the product concerned. Therefore, as announced in the Notice of Initiation, the investigation covered those raw material distortions to determine whether to apply the provisions of Article 7(2a) and 7(2b) of the basic Regulation with regard to Indonesia and the PRC. For this reason, the Commission sent additional questionnaires in this regard to the Government of Indonesia (‘GOI’) and the GOC.

(23) The Commission sent questionnaires to the three sampled Union producers, the complainant, the two unrelated importers and two users that had made themselves known, the nine exporting producers in the countries concerned and all other economic operators that made themselves known and requested a questionnaire. The same questionnaires had also been made available online (6) on the day of initiation.

(24) Questionnaire replies were received from the three sampled Union producers, two unrelated importers, two users, the two known exporting producers from Indonesia, the three sampled exporting producers from the PRC, the two exporting producers in Taiwan and an unrelated service centre in Taiwan. A questionnaire reply was also received from the GOI. No reply was received from the GOC for any of the two questionnaires sent.

(26) With regard to the procedure of Articles 7(2a) and 7(2b) of the basic Regulation, a consultation with the GOI took place.

(27) The investigation of dumping and injury covered the period from 1 July 2018 to 30 June 2019 (‘the investigation period’). 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’).

(28) In view of the sufficient evidence available at the initiation of the investigation pointing to the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation with regard to the PRC, the Commission considered it appropriate to initiate the investigation with regard to the exporting producers from this country having regard to Article 2(6a) of the basic Regulation.

(29) Consequently, in order to collect the necessary data for the eventual application of Article 2(6a) of the basic Regulation, in the Notice of Initiation the Commission invited all exporting producers in the PRC to provide the information requested in Annex III to the Notice of the Initiation regarding the inputs used for producing SSHR. Five Chinese exporting producers submitted the relevant information.

(30) In order to obtain information it deemed necessary for its investigation with regard to the alleged significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission sent a questionnaire to the GOC as described in recital (21). No reply was received from the GOC. Subsequently, the Commission informed the GOC that it would use facts available within the meaning of Article 18 of the basic Regulation for the determination of the existence of the significant distortions in the PRC.

(31) In the Notice of Initiation, the Commission also invited all interested parties to make their views known, submit information and provide supporting evidence regarding the appropriateness of the application of Article 2(6a) of the basic Regulation within 37 days of the date of publication of this Notice in the Official Journal of the European Union. Two exporting producers made comments on the existence of significant distortions.

(32) In the Notice of Initiation, the Commission also specified that, in view of the evidence available, it may need to select an appropriate representative country pursuant to Article 2(6a)(a) of the basic Regulation for the purpose of determining the normal value based on undistorted prices or benchmarks.

(33) On 9 September 2019, the Commission published a first note for the file (‘the Note of 9 September’) seeking the views of the interested parties on the relevant sources that the Commission may use for the determination of the normal value, in accordance with Article 2(6a)(e) second paragraph of the basic Regulation. In that note, the Commission provided a list of all factors of production such as materials, energy and labour used in the production of the product concerned by the exporting producers. In addition, based on the criteria guiding the choice of undistorted prices or benchmarks, the Commission identified possible representative countries (namely Brazil, Malaysia, South Africa and Turkey).

(34) The Commission gave all interested parties the opportunity to comment. The Commission received comments from two Chinese exporting producers and the complainant. The GOC did not provide any comments.

(35) The Commission addressed the comments received in the second note on the sources for the determination of the normal value of 10 October 2019 (‘the Note of 10 October’). The Commission also established a provisional list of factors of production and concluded that, at that stage, Brazil was the most appropriate representative country under Article 2(6a)(a), first indent of the basic Regulation. The Commission invited interested parties to comment and no comments were received.

(36) The product concerned by this investigation is flat-rolled products of stainless steel, whether or not in coils (including products cut-to-length and narrow strip), not further worked than hot-rolled and excluding products, not in coils, of a width of 600 mm or more and of a thickness exceeding 10 mm, currently falling under HS codes 7219 11, 7219 12, 7219 13, 7219 14, 7219 22, 7219 23, 7219 24, 7220 11 and 7220 12 and originating in the People’s Republic of China, Taiwan and Indonesia. The HS codes are given for information only.

(38) The Commission decided at this stage that those products are therefore like products within the meaning of Article 1(4) of the basic Regulation.

(39) Marcegaglia and the two exporting producers in Indonesia claimed that black coils should be excluded from the scope of the investigation. They claimed the present investigation covers two different types of stainless steel coils, namely white and black coils, and that although both black and white coils are classified under the same HS codes (as defined in the Notice of Initiation), their properties and intended uses differ. With regard to physical and chemical properties, Marcegaglia, inter alia, argued that black coils are, in terms of corrosion resistance, not even stainless steel products. According to Marcegaglia they are semi-finished products, neither annealed nor pickled.

(40) Moreover, according to Marcegaglia, black SSHR are made by hot rolling of slabs and they are mainly, if not exclusively, supplied to re-rollers. Marcegaglia argued that black SSHR can in fact only be used for further processing (re-rolling) into pickled coils or stainless steel cold-rolled coils and that there are only two re-rollers in the Union, namely Marcegaglia and another much smaller party. It claimed that black SSHR, as product category, is more similar to stainless steel slabs than to white SSHR due to its intrinsic nature of semi-finished product.

(41) Further according to Marcegaglia, white SSHR are a stainless steel finished product made by annealing and pickling of black SSHR. The latter are therefore the indispensable raw material to manufacture white SSHR to the same extent as slabs are the indispensable raw material to manufacture black SSHR. As such, white SSHR can be used without further processing by end-users for direct industrial application (e.g. automotive, machinery and petrochemical industries). It is supplied to plate cutting companies, tube manufacturers and cold rolling companies for further processing.

(42) Finally, the parties concerned claimed that the Union industry is not interested in supplying the market with black coils as they rather use themselves the black coils they produce for further conversion into white coils and further downstream products. Therefore, according to them, the security of supply of black coils is at stake if they wouldbe included in the scope of measures, if any.

(43) Eurofer opposed the claims referred to in recitals (39) to (42). It, inter alia, insisted that black and white coils are both flat stainless steel products with the same physical characteristics and chemical composition for the same grades, manufactured from the same raw materials (essentially chromium, stainless steel scrap and nickel) and that the added value for processing black coils into white coils is limited and represents less than 8 % of the production cost of a white coil. Eurofer also referred to an overall unused capacity of more than 2 million tonnes among Union producers and indicated that the Union industry can and is willing to satisfy the entire demand of SSHR on the Union market, regardless of the product type needed. Moreover, it submitted that several Union producers notified on their websites that they are capable and willing to deliver black coils. Consequently, it argued that the security of supply of black coils is not at risk but pointed at the risk of circumvention if black coils would be excluded.

(44) The Commission analysed the claims. On the product characteristics, the investigation found that black coils and white coils have the same chemical composition. In particular, black coils are manufactured from the same basic material and thus have the same characteristics as white coils depending on the steel grade. It follows that black coils fall under the same Combined Nomenclature headings as the white coils covered by the proceeding, starting with 7219 or 7220. These headings both fall under the Section ‘stainless steel’ in Chapter 72 (Iron and Steel) of the Combined Nomenclature. Black and white coils also have the same physical properties as they have similar dimensions. Black and white coils are interchangeable for re-rollers with annealing and pickling facilities, which indeed means that there is a risk of circumvention if black coils would be excluded from the scope of the product concerned.

(45) On the alleged lack of interest of the Union industry to sell black coils, this claim was not substantiated by any evidence. On the contrary, the investigation showed that the Union industry has a significant spare capacity, which is equally available for black and white coils, and that, in spite of the difficult market circumstances, it sold in the investigation period very significant volumes of black coils on the Union market, including (but not exclusively) to Marcegaglia. That shows it has a genuine interest in serving the market.

(46) On that basis, it is provisionally concluded that black and white coils share the same basic physical and chemical characteristics and that they form one product group. The claims referred to in recitals (39) to (42) are therefore rejected.

(47) Several parties claimed that SSHR of a width of 1 600 mm and more, including SSHR of a width of 2 000 mm, should be excluded from the scope of the investigation because introducing anti-dumping measures on this special material would further reduce the purchase possibility of a material which is already very hard to procure. It would also limit their competitiveness against non-Union producers of large diameter welded tubes.

(48) This claim is rejected. SSHR of a width of 1 600 mm or more have the same basic chemical characteristics as smaller SSHR. They also share the same basic physical characteristics except for the width. SSHR of larger width could easily be transformed into smaller SSHR by simple cutting operations. There is therefore a risk of circumvention if larger coils would be excluded from the scope of the product concerned.

(49) The Consortium for imports of SST HRF (7) claimed that coils with a thickness above 10 mm should be excluded, as there are only two plants in the Union able to produce SSHR with a thickness above 13 mm. The Commission sees no valid reasons to exclude these coils, which beyond any doubt share the same basic physical and chemical characteristics and uses as all other product types under the product scope. Moreover and as indicated by the Consortium itself, the Union industry has the capacity to supply them. The claim is therefore rejected.

(50) During the investigation period, there were two exporting producers in Indonesia, the companies ITSS and GCNS. The companies were related to each other via their ultimate parent, the Chinese steel producer Tsingshan Steel Group.

(52) Both exporting producers failed to provide a meaningful worldwide structure of the group in their questionnaire replies and during the verification visits. Furthermore, the related traders involved in export sales did not provide any questionnaire reply.

(53) Therefore, the Commission was not able to verify the relationship between the exporting producers and their suppliers of nickel ore, which is considered a crucial raw material giving the product under investigation its stainless characteristics. In particular, the Commission was not able to establish whether the allegedly unrelated suppliers were indeed independent from the exporting producers.

(54) Consequently, the Commission was not able to assess whether the nickel ore supplied by positively identified related parties was purchased at an arm’s length price.

(55) Moreover, the Commission was not able to verify the relationship with the allegedly unrelated customer of a related domestic trader. Thus, the Commission disregarded the sales between the related trader and the allegedly unrelated customer when determining the normal value.

(56) Finally, due to the non-cooperation of the related traders involved in export sales, the Commission was not able to determine the export price to the first unrelated customer and the actual costs incurred by those related traders. Thus, the Commission was not able to calculate the export price based on the data provided by the exporting producers producers although all information provided by GCNS and ITSS could be verified against the companies’ records.

(57) By a letter of 20 December 2019, the Commission informed GCNS and ITSS of its intention to apply Article 18 of the basic Regulation with regard to certain aspects of the dumping margin calculation. In this respect, the exporting producers submitted comments on 7 January 2020.

(58) In their comments on the application of Article 18 of the basic Regulation, the exporting producers submitted that the basic Regulation does not allow the Commission to conclude that the information provided by the exporting producers concerning the purchases of nickel ore are not reliable solely on the grounds that the relationship between the exporting producers and their suppliers could not be established. GCNS and ITSS referred to World Trade Organisation (‘WTO’) jurisprudence (9) and the WTO Customs Valuation Agreement (10), from which followed that transactions between related parties cannot be considered a priori unacceptable or not at arm’s length. Finally, the exporting producers recalled that the Commission verified the purchases of nickel ore during the verification visit.

(59) In this respect, the Commission confirmed that indeed the information provided by the companies in the group (GCNS, ITSS, SMI, and TSI) on the identity of the supplier, the volumes and values of the raw material purchases were verified. Nevertheless, and notwithstanding the WTO rules and jurisprudence on transactions between related parties, by not supplying the worldwide structure of the group, the exporting producers prevented the Commission from even examining whether the purchase transactions were carried out at arm’s length price.

(60) Therefore, the Commission confirmed its intention to disregard the reported purchase price of nickel ore and replace it with facts available under Article 18 of the basic Regulation.

(61) As for the calculation of the export price, the exporting producers reiterated their best efforts to secure the cooperation of the related traders involved in export sales. The exporting producers also suggested that the Commission use information available on the file as facts available.

(62) In this respect, the Commission provisionally decided to use the data available on the file provided by interested parties in the Union, which cooperated with the investigation from its initiation and sent questionnaire replies.

(63) As a conclusion, the Commission provisionally used facts available in order to establish or replace certain information in accordance with Article 18 of the basic Regulation to the extent described above.

(64) The Commission first examined whether the total volume of domestic sales for each cooperating exporting producer was representative, in accordance with Article 2(2) of the basic Regulation. The domestic sales are representative if the total domestic sales volume of the like product to independent customers on the domestic market per exporting producer represented at least 5 % of its total export sales volume of the product concerned to the Union during the investigation period.

(65) On this basis, the total sales by GCNS of the like product on the domestic market were found not to be representative.

(66) Therefore, where a product type was not sold on the domestic market, the Commission constructed the normal value in accordance with Article 2(3) and (6) of the basic Regulation.

(68) The cost of nickel ore was adjusted as explained in recitals (79) to (82).

(69) GCNS purchased certain services and inputs in the form of semi-finished products from the related suppliers located in IMIP. The Commission examined whether those purchases were carried out at an arm’s length price. In this respect, where available, the Commission compared the purchase price with the price of the related supplier to an unrelated customer. Where such price was not available, the Commission compared the purchase price with a constructed market price taking into account the costs of production, SG&A, and a reasonable profit of the related supplier. Where appropriate, the Commission adjusted the costs of those services and inputs incurred by GCNS in accordance with Article 2(5) of the basic Regulation.

(70) On the basis of the representativity test explained in recital (64), the total sales by ITSS of the like product on the domestic market were representative.

(71) The Commission subsequently identified the product types sold domestically that were identical or comparable with the product types sold for export to the Union for ITSS with representative domestic sales.

(72) The Commission then examined whether the domestic sales by ITSS on its domestic market for each product type that is identical or comparable with a product type sold for export to the Union were representative, in accordance with Article 2(2) of the basic Regulation. The domestic sales of a product type are representative if the total volume of domestic sales of that product type to independent customers during the investigation period represents at least 5 % of the total volume of export sales of the identical or comparable product type to the Union. The Commission established that the sales of one product type on the domestic market were representative.

(73) The Commission next defined the proportion of profitable sales to independent customers on the domestic market for this product type during the investigation period in order to decide whether to use actual domestic sales for the calculation of the normal value, in accordance with Article 2(4) of the basic Regulation.

(75) In this case, the normal value is the weighted average of the prices of all domestic sales of that product type during the investigation period.

(77) The analysis of domestic sales showed that 13,7 % of all domestic sales of the product type were profitable and that the weighted average sales price was higher than the cost of production. Accordingly, the normal value was calculated as a weighted average of the profitable sales only.

(78) Where a product type was not sold in representative quantities on the domestic market, the Commission constructed the normal value in accordance with Article 2(3) and (6) of the basic Regulation.

(80) The cost of nickel ore was adjusted as explained in recitals (79) to (82).

(81) ITSS purchased certain services and inputs from the related suppliers located in IMIP. The Commission examined whether those purchases were carried out at an arm’s length price. In this respect, where available, the Commission compared the purchase price with the price of the related supplier to an unrelated customer. Where such price was not available, the Commission compared the purchase price with a constructed market price taking into account the costs of production, SG&A, and a reasonable profit of the related supplier. Where appropriate, the Commission adjusted the costs of those services and inputs incurred by ITSS in accordance with Article 2(5) of the basic Regulation.

(82) As explained in recitals (52) to (54) and (57) to (60), the Commission disregarded the costs of nickel ore as reported by the two exporting producers and by their related suppliers of certain inputs mentioned in recitals (69) and (78). The Commission intended to use the market price of nickel ore in Indonesia as facts available and replace the actual costs of nickel ore with that price.

(83) In this respect, in the framework of the consultations with the GOI on potential raw material distortions under Article 7(2a) of the basic Regulation, the Commission requested statistical information on domestic sales volumes and values, which the GOI normally collected under the applicable legislation (11). The GOI, however, only provided information on domestic sales volumes. Thus, this information was incomplete and could not be used to establish a domestic Indonesian market price of nickel ore.

(84) As a consequence, the Commission used the actual price paid by the one exporting producer that provided information on the nickel content of the nickel ore for all its purchase transactions. The Commission considered that the nickel content, which influences the price of nickel ore, should be taken into account when replacing the costs of nickel ore reported by the companies in the group. The Commission identified the most expensive purchase transactions for each nickel content and considered that those transactions and prices were least likely to be affected by a relationship between the supplier and the buyer. The Commission established the adjusted costs of nickel ore based on the weighted average of the purchase price of the selected transactions taking into account the total volume purchased by the company within each nickel content group.

(85) The adjusted costs of nickel ore were also used to recalculate the production costs of semi-finished inputs bought from the related suppliers mentioned in recitals (69) and (78), when examining whether the relevant inputs were purchased by the exporting producers at arm’s length price. Where it was evident that the suppliers used nickel ore with a lower nickel content, the adjusted costs reflected the difference.

(86) The exporting producers provided information that they exported to the Union through related traders in third countries and an unrelated trader in a third country.

(87) As explained in recitals (52) and (56), the related traders involved in export sales did not cooperate with the investigation. Therefore, the export price was established in accordance with Article 18 of the basic Regulation on the basis of the information available on file and verified by the Commission. To determine the export price, the Commission first established the import price into the Union based on the information on the file provided by the cooperating interested parties in the Union. The Commission further adjusted that price for all costs incurred between importation and resale, including transport, insurance, handling and loading, SG&A expenses, and for profits accruing, based on verified information provided by the exporting producers or publicly available information (e.g. publicly available audited financial statements of one of the claimed related traders).

(88) The Commission compared the normal value and the export price of the exporting producers on an ex-works basis.

(89) Where justified by the need to ensure a fair comparison, the Commission adjusted the normal value and/or the export price for differences affecting prices and price comparability, in accordance with Article 2(10) of the basic Regulation. Adjustments to the normal value were made for transport, insurance, handling and loading. Adjustments to the export price were made for credit costs and the commission of the unrelated trader in a third country.

(90) The Commission compared the weighted average normal value of each type of the like product with the weighted average export price of the corresponding type of the product under investigation, in accordance with Article 2(11) and (12) of the basic Regulation.

(91) On this basis, the provisional weighted average dumping margins expressed as a percentage of the CIF Union frontier price, duty unpaid, are 19,3 % for GCNS and 16,2 % for ITSS.

(92) As explained in recitals (50) and (51), the exporting producers are related. Therefore, the Commission established a single weighted average dumping margin for both companies at the level of 19,2 %.

(93) As the imports of the cooperating exporting producers constituted 100 % of the total exports to the Union during the investigation period, the Commission considered it representative to set the residual dumping margin at the level of the cooperating exporting producers.

(95) As explained in the recital (16) with regard to one of the three sampled Chinese exporting producers the Commission decided to make use of the provisions of Article 18 of the basic Regulation and disregarded the information provided by this exporting producer.

(96) The Commission took this decision because during the verification visit the company failed to explain in time several figures presented in the questionnaire reply and link them with the audited accounts, cost management accounts and data in the internal IT applications used. Some figures, such as production volumes per product type, energy inputs consumption, by-products allocation and manufacturing overheads, that were considered crucial for the calculation of the individual dumping margin, could not be reconciled with the above mentioned documents or their allocation keys could not be sufficiently explained. Furthermore, due to delays in providing requested data and explanations, the Commission could not verify at all certain parts of the questionnaire replies related to the normal value determination. Therefore, the Commission did not receive the necessary information within the time limits set in the basic Regulation to establish a dumping margin for the company.

(97) In accordance with Article 18(4) of the basic Regulation, by letter of 18 December 2019, the interested party was informed of the reasons of the Commission’s intention to disregard the information provided and it was granted the opportunity to provide further explanations.

(98) The company replied to the Commission’s letter on 7 January 2020. In its reply, the company did not contest the fact that the deficiencies listed in the Commission’s letter had existed. However the company claimed that such deficiencies were not serious enough to apply Article 18 of the basic Regulation. The company argued that the deficiencies identified by the Commission in its letter were caused by the fact that the information supplied by one related company was generally compiled and treated manually rather than through an IT system. Hence, it was more prone to contain deficiencies. The company concluded that despite this, the Commission could calculate an individual dumping margin on the basis of the information verified on the spot.

(99) The Commission disagreed with the company’s statement that, on the basis of the information verified on the spot, it was possible to calculate an individual dumping margin. As set out in recital (93) above, the nature and amount of deficiencies identified onspot – irrespective of what their origin may have been – and the fact that the company was not able to resolve them during the entirety of the verification visit, effectively prevented the Commission from calculating a dumping margin on the basis of verified data. Accordingly, the Commission provisionally disregarded the information provided by the exporting producer and confirmed, at this stage, the use of facts available with regard to this exporting producer.

(100) Thus, the description of the dumping margin calculation below refers to the remaining two Chinese exporting producers in the sample.

(101) According to Article 2(1) of the basic Regulation, ‘the normal value shall normally be based on the prices paid or payable, in the ordinary course of trade, by independent customers in the exporting country’.

(102) However, according to Article 2(6a)(a) of the basic Regulation, ‘(i)n case it is determined […] that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks’, and ‘shall include an undistorted and reasonable amount of administrative, selling and general costs and for profits’. As further explained below, the Commission concluded in the present investigation that, based on the evidence available and in view of the lack of cooperation of the GOC, the application of Article 2(6a) of the basic Regulation was appropriate.

(104) According to Article 2(6a)(b) of the basic Regulation, the assessment of the existence of significant distortions within the meaning of Article 2(6a)(a) shall take into account, amongst others, the non-exhaustive list of elements in the former provision. Pursuant to Article 2(6a)(b) of the basic Regulation, in assessing the existence of significant distortions, regard shall be had to the potential impact of one or more of these elements on prices and costs in the exporting country of the product concerned. Indeed, as that list is non-cumulative, not all the elements need to be given regard to for a finding of significant distortions. Moreover, the same factual circumstances may be used to demonstrate the existence of one or more of the elements of the list. However, any conclusion on significant distortions within the meaning of Article 2(6a)(a) must be made on the basis of all the evidence at hand. The overall assessment on the existence of distortions may also take into account the general context and situation in the exporting country, in particular where the fundamental elements of the exporting country’s economic and administrative set-up provides the government with substantial powers to intervene in the economy in such a way that prices and costs are not the result of the free development of market forces.

(105) Article 2(6a)(c) of the basic Regulation provides that ‘[w]here the Commission has well-founded indications of the possible existence of significant distortions as referred to in point (b) in a certain country or a certain sector in that country, and where appropriate for the effective application of this Regulation, the Commission shall produce, make public and regularly update a report describing the market circumstances referred to in point (b) in that country or sector’.

(106) Pursuant to this provision, the Commission has issued a country report concerning the PRC (hereinafter ‘the Report’) (12), showing the existence of substantial government intervention at many levels of the economy, including specific distortions in many key factors of production (such as land, energy, capital, raw materials and labour) as well as in specific sectors (such as steel and chemicals). The Report was placed on the investigation file at the initiation stage. The complaint also contained some relevant evidence complementing the Report. Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation.

(108) As indicated in recital (30), the GOC did not comment or provide evidence supporting or rebutting the existing evidence on the case file, including the Report and the additional evidence provided by the complainant, on the existence of significant distortions and/or on the appropriateness of the application of Article 2(6a) of the basic Regulation in the case at hand.

(109) Comments in this regard were received from two of the exporting producers, which claimed that the calculation of the normal value pursuant to Article 2(6a) of the basic Regulation is incompatible with the WTO Anti-Dumping Agreement (‘ADA’). In this respect, the exporting producers claimed that the Commission should not deviate from the standard methodology in establishing the normal value, unless the ADA permits otherwise, and should follow the standard methodology in accordance with Article 2 of the ADA. Moreover, the interested parties also claimed that the notion of significant distortions does not even exist in the ADA.

(110) Furthermore, the exporting producers claimed that no evidence was presented on the file that the alleged governmental interventions listed in the Report and complaint had led to price distortions of inputs for the production of the product concerned.

(111) For the purpose of this investigation the Commission has concluded in recital (157) that it is appropriate to apply Article 2(6a) of the basic Regulation. The Commission considers that Article 2(6a) is thus applicable. In addition, the Commission considers that this provision is consistent with the European Union’s WTO obligations. It is the Commission’s view that, as clarified in DS473 EU-Biodiesel (Argentina), the provisions of the basic Regulation that apply generally with respect to all WTO Members, in particular Article 2(5), second subparagraph of the basic Regulation, permit the use of data from a third country, duly adjusted when such adjustment is necessary and substantiated. The Commission finally recalled that the dispute DS473 EU-Biodiesel (Argentina) did not concern the application of Article 2(6a) of the basic Regulation, which is the relevant legal basis for the determination of normal value in this investigation. Therefore, the Commission rejected this claim.

(112) The Commission examined whether it was appropriate or not to use domestic prices and costs in the PRC, due to the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation. The Commission did so on the basis of the evidence available on the file, including the evidence contained in the Report, which relied on publicly available sources. That analysis covered the examination of the substantial government interventions in the PRC’s economy in general, but also the specific market situation in the relevant sector including the product concerned.

(113) Regarding the second claim, the Commission noted that the existence of the significant distortions giving rise to the application of Article 2(6a) of the basic Regulation is not linked to the existence of a specific sectoral chapter covering the product under investigation. The Report describes different types of distortions present in the PRC which are cross-cutting and applicable throughout the Chinese economy and affect the prices and/or the raw materials and costs of production of the product under investigation. As explained in Sections b) to i) below, the SSHR industry is subject to a number of governmental interventions described in the Report (coverage by the Five-Years Plans and other documents, raw material distortions, financial distortions etc.), which are explicitly listed and referenced in this regulation. In addition, recitals (104), (121) to (122), (124) to (128), (135), (138), (141), (151), (153) to (154) of this Regulation have also detailed a number of distortions applicable to the SSHR sector and/or to its raw materials and inputs beyond the significant distortions already contained in the Report. The market circumstances and the underlying policies and plans giving rise to significant distortions are still applicable to the SSHR sector and that of its costs of production, despite the Report being released in December 2017. No party submitted any evidence to the contrary. Also the additional sources of significant distortions contained in the Regulation are still applicable and no party has submitted any evidence to the contrary.

(114) Therefore, the Commission provisionally rejected the claims made by the two exporting producers.

(115) The Chinese economic system is based on the concept of ‘socialist market economy’. That concept is enshrined in the Chinese Constitution and determines the economic governance of the PRC. The core principle is the ‘socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people’. The State-owned economy is the ‘leading force of the national economy’ and the State has the mandate ‘to ensure its consolidation and growth’ (13). Consequently, the overall setup of the Chinese economy not only allows for substantial government interventions into the economy, but such interventions are expressly mandated. The notion of supremacy of public ownership over the private one permeates the entire legal system and is emphasized as a general principle in all central pieces of legislation. The Chinese property law is a prime example: it refers to the primary stage of socialism and entrusts the State with upholding the basic economic system under which the public ownership plays a dominant role. Other forms of ownership are tolerated, with the law permitting them to develop side by side with the State ownership (14).

(116) In addition, under Chinese law, the socialist market economy is developed under the leadership of the Chinese Communist Party (‘CCP’). The structures of the Chinese State and of the CCP are intertwined at every level (legal, institutional, personal), forming a superstructure in which the roles of CCP and the State are indistinguishable. Following an amendment of the Chinese Constitution in March 2018, the leading role of the CCP was given an even greater prominence by being reaffirmed in the text of Article 1 of the Constitution. Following the already existing first sentence of the provision: ‘[t]he socialist system is the basic system of the People’s Republic of China’ a new second sentence was inserted which reads: ‘[t]he defining feature of socialism with Chinese characteristics is the leadership of the Communist Party of China.’ (15) This illustrates the unquestioned and ever growing control of the CCP over the economic system of the PRC. This leadership and control is inherent to the Chinese system and goes well beyond the situation customary in other countries where the governments exercise general macroeconomic control within the boundaries of which free market forces are at play.

(117) The Chinese State engages in an interventionist economic policy in pursuance of goals, which coincide with the political agenda set by the CCP rather than reflecting the prevailing economic conditions in a free market (16). The interventionist economic tools deployed by the Chinese authorities are manifold, including the system of industrial planning, the financial system, as well as the level of the regulatory environment.

(118) First, on the level of overall administrative control, the direction of the Chinese economy is governed by a complex system of industrial planning which affects all economic activities within the country. The totality of these plans covers a comprehensive and complex matrix of sectors and crosscutting policies and is present on all levels of government. Plans at provincial level are detailed while national plans set broader targets. Plans also specify the means in order to support the relevant industries/sectors as well as the timeframes in which the objectives need to be achieved. Some plans still contain explicit output targets while this was a regular feature in previous planning cycles. Under the plans, individual industrial sectors and/or projects are being singled out as (positive or negative) priorities in line with the government priorities and specific development goals are attributed to them (industrial upgrade, international expansion etc.). The economic operators, private and State-owned alike, must effectively adjust their business activities according to the realities imposed by the planning system. This is not only because of the binding nature of the plans but also because the relevant Chinese authorities at all levels of government adhere to the system of plans and use their vested powers accordingly, thereby inducing the economic operators to comply with the priorities set out in the plans (see also section e) below) (17).

(119) Second, on the level of allocation of financial resources, the financial system of the PRC is dominated by the State-owned commercial banks. Those banks, when setting up and implementing their lending policy need to align themselves with the government’s industrial policy objectives rather than primarily assessing the economic merits of a given project (see also section h) below) (18). The same applies to the other components of the Chinese financial system, such as the stock markets, bond markets, private equity markets etc. Also these parts of the financial sector other than the banking sector are institutionally and operationally set up in a manner not geared towards maximizing the efficient functioning of the financial markets but towards ensuring control and allowing intervention by the State and the CCP (19).

(120) Third, on the level of regulatory environment, the interventions by the State into the economy take a number of forms. For instance, the public procurement rules are regularly used in pursuit of policy goals other than economic efficiency, thereby undermining market based principles in the area. The applicable legislation specifically provides that public procurement shall be conducted in order to facilitate the achievement of goals designed by State policies. However, the nature of these goals remains undefined, thereby leaving broad margin of appreciation to the decision-making bodies (20). Similarly, in the area of investment, the GOC maintains significant control and influence over the destination and magnitude of both State and private investment. Investment screening as well as various incentives, restrictions, and prohibitions related to investment are used by authorities as an important tool for supporting industrial policy goals, such as maintaining State control over key sectors or bolstering domestic industry (21).

(121) In sum, the Chinese economic model is based on certain basic axioms, which provide for and encourage manifold government interventions. Such substantial government interventions are at odds with the free play of market forces, resulting in distorting the effective allocation of resources in line with market principles (22).

(122) In the PRC, enterprises operating under the ownership, control and/or policy supervision or guidance by the State represent an essential part of the economy.

(123) The GOC and the CCP maintain structures that ensure their continued influence over enterprises, and in particular State-owned enterprises (SOEs). The State (and in many aspects also the CCP) not only actively formulates and oversees the implementation of general economic policies by individual SOEs, but it also claims its rights to participate in operational decision making in SOEs. This is typically done through rotation of cadres between government authorities and SOEs, through presence of party members on SOEs executive bodies and of party cells in companies (see also section d)), as well as through shaping the corporate structure of the SOE sector (23). In exchange, SOEs enjoy a particular status within the Chinese economy, which entails a number of economic benefits, in particular shielding from competition and preferential access to relevant inputs, including finance (24).

(124) Specifically in the steel sector, a substantial degree of ownership by the GOC persists. While the nominal split between the number of SOEs and privately owned companies is estimated to be almost even, from the five Chinese steel producers ranked in the top 10 of the world’s largest steel producers four are SOEs (25). At the same time, while the top ten producers only took up some 36 % of total industry output in 2016, the GOC set the target in the same year to consolidate 60 % to 70 % of iron and steel production to around ten large-scale enterprises by 2025 (26). This intention has been repeated by the GOC in April 2019, announcing a release of guidelines on steel industry consolidation (27). Such consolidation may entail forced mergers of profitable private companies with underperforming SOEs (28). An example of a recent merger are the steel producers Baosteel Group Corp. and Wuhan Iron & Steel Group Corp. in 2016, creating worlds second largest steel producer (29). The major stainless steel producers are state-owned, for example Tisco, Baosteel, Ansteel Lianzhong, Jiujuan Iron and Steel and Tangshan.

(125) Furthermore, the PRC is the world’s leading consumer of nickel. Nickel is an important raw material giving, together with chromium, the stainless steel its stainless properties. The nickel content is also the cost driver for nickel ore, which, in turn, is the cost driver for the immediate inputs of the product concerned. It is used in the production of SSHR in various forms, e.g. nickel ore, nickel pig iron, ferronickel, pure nickel, nickel scrap, stainless steel scrap. The complainant estimated that nickel in its various forms accounted for more than 50 % of the production costs of stainless steel in the PRC (30). In 2016, the country used 1,04 million tonnes, accounting for 52 % of the global nickel consumption. In 2017, Chinese consumption was set to increase by 2,9 % to 1,07 million tonnes. The production of stainless steel represents the dominant use for nickel in the PRC (84 %). This proportion is significantly higher than the international average (64 %). The consumption of nickel has increased strongly in 2016 and 2017 (31), as Chinese stainless steel production expanded by 15,7 % to 24,9 million tonnes. Because output in the rest of the world grew by only 4,3 %, the PRC’s share of world production reached 54,5 %. The surge in output comes on the back of strong infrastructure spending by the GOC and robust real estate construction. Statistics indicated that much of the PRC’s fixed asset investment has been organized by the GOC and its SOEs, both of which have displayed higher investment growth than the private sector (32).

(126) With the high level of government intervention in the steel industry and non-ferrous metal industry (‘NFM’), and a high share of SOEs in these sectors, even privately owned steel producers are prevented from operating under market conditions. Indeed, both public and privately owned enterprises in the steel sector are also subject to policy supervision and guidance as set out in section e) below.

(127) On the basis of the above, it is concluded that the SSHR market in the PRC was served to a significant extent by enterprises subject to the ownership, control or policy supervision or guidance by the GOC.

(128) Apart from exercising control over the economy by means of ownership of SOEs and other tools, the GOC is in position to interfere with prices and costs through State presence in firms. While the right to appoint and to remove key management personnel in SOEs by the relevant State authorities, as provided for in the Chinese legislation, can be considered to reflect the corresponding ownership rights (33), CCP cells in enterprises, state-owned and private alike, represent another important channel through which the State can interfere with business decisions. According to the PRC’s company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution (34)) and the company shall provide the necessary conditions for the activities of the party organisation. In the past, this requirement appears not to have always been followed or strictly enforced. However, since at least 2016 the CCP has reinforced its claims to control business decisions in SOEs as a matter of political principle. The CCP is also reported to exercise pressure on private companies to put ‘patriotism’ first and to follow party discipline (35). In 2017, it was reported that party cells existed in 70 % of some 1,86 million privately owned companies, with growing pressure for the CCP organisations to have a final say over the business decisions within their respective companies (36). These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of SSHR and the suppliers of their inputs.

(129) Specifically in the steel sector, as already pointed out, many of the major producers are owned by the State (see recital (123)). Some are specifically referred to in the ‘Steel Industry Adjustment and Upgrading plan for 2016-2020’ (37). The main state-owned producing exporters are often the world leading producers of SSHR, whether integrated or not. For instance, the Chinese State-owned Shanxi Taiyuan Iron & Steel Co. Ltd. (‘TISCO’) mentions on its website that it is ‘a super iron and steel giant as well as leading enterprise in global stainless steel industry’, ‘the biggest stainless steel enterprise equipped with globally biggest capacity and most up-to-date technology and equipment’. Accordingly, ‘TISCO has developed into an extraordinary large-scale iron and steel complex, which is integrated with business of iron mining, iron and steel production, processing, delivery and trading’ (38). Baosteel is another major Chinese State-owned enterprise that engages in stainless steel manufacturing and is detained by the recently consolidated China Baowu Steel Group Co. Ltd. (formerly Baosteel Group and Wuhuan Iron & Steel) (39).

(130) The GOC is also present in the stainless steel enterprises by personal appointments. An example of such approach is the stainless steel producer TISCO, where the appointed Deputy Secretary of the CCP Committee was also nominated the President of TISCO by a decision from the Shanxi Province CCP Committee and Government (40).

(131) The State’s presence and intervention in the financial markets (see also section h) below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the SSHR market (41). Thus, the State presence in firms, including SOEs, in the steel and other sectors (such as the financial and input sectors including NFM) allow the GOC to interfere with respect to prices and costs.

(132) GOC directly intervenes in the pricing of capital, labour, land, raw-materials and basic inputs to the production process. Although the prices for final products are mostly determined by market mechanisms, the price distortions created at the beginning of the value chain cast long shadows at these very prices and create ‘wrong’ price signals that do not reflect the true scarcities in the industry and distort the profit/loss balances of all players involved.

(133) The direction of the Chinese economy is to a significant degree determined by an elaborate system of planning which sets out priorities and prescribes the goals the central and local governments must focus on. Relevant plans exist on all levels of government and cover virtually all economic sectors. The objectives set by the planning instruments are of binding nature and the authorities at each administrative level monitor the implementation of the plans by the corresponding lower level of government. Overall, the system of planning in the PRC results in resources being driven to sectors designated as strategic or otherwise politically important by the government, rather than being allocated in line with market forces (42).

(134) The steel industry is regarded as a key industry by the GOC (43). This is confirmed in the numerous plans, directives and other documents focused on steel, which are issued at national, regional and municipal level such as the ‘Steel Industry Adjustment and Upgrading plan for 2016-2020’. This Plan states that the steel industry is ‘an important, fundamental sector of the Chinese economy, a national cornerstone’ (44). The main tasks and objectives set out in this Plan cover all aspects of the development of the industry (45).

(135) The 13th Five-Year Plan on Economic and Social Development (46) envisages support to enterprises producing high-end steel product types (47). It also focuses on achieving product quality, durability and reliability by supporting companies using technologies related to clean steel production, precision rolling and quality improvement (48).

(136) The ‘Catalogue for Guiding Industry Restructuring (2011 Version) (2013 Amendment)’ (49) (‘the Catalogue’) lists iron and steel as encouraged industries.

(137) The GOC further guides the development of the sector in accordance with a broad range of policy tools and directives related to, inter alia: market composition and restructuring, raw materials, investment, capacity elimination, product range, relocation, upgrading, etc. Through these and other means, the GOC directs and controls virtually every aspect in the development and functioning of the sector (50). The current problem of overcapacity is arguably the clearest illustration of the implications of the GOC’s policies and the resulting distortions.

(138) In sum, the GOC has measures in place to induce operators to comply with the public policy objectives of supporting encouraged industries, including the production of SSHR, as part of the encouraged steel sector. Such measures impede market forces from operating normally.

(139) According to the information on file, the Chinese bankruptcy system delivers inadequately on its own main objectives such as to fairly settle claims and debts and to safeguard the lawful rights and interests of creditors and debtors. This appears to be rooted in the fact that while the Chinese bankruptcy law formally rests on principles that are similar to those applied in corresponding laws in countries other than the PRC, the Chinese system is characterised by systematic under-enforcement. The number of bankruptcies remains notoriously low in relation to the size of the country’s economy, not least because the insolvency proceedings suffer from a number of shortcomings, which effectively function as a disincentive for bankruptcy filings. Moreover, the role of the State in the insolvency proceedings remains strong and active, often having direct influence on the outcome of the proceedings (51).

(140) In addition, the shortcomings of the system of property rights are particularly obvious in relation to ownership of land and land-use rights in the PRC (52). All land is owned by the Chinese State (collectively owned rural land and State-owned urban land). Its allocation remains solely dependent on the State. There are legal provisions that aim at allocating land use rights in a transparent manner and at market prices, for instance by introducing bidding procedures. However, these provisions are regularly not respected, with certain buyers obtaining their land for free or below market rates (53). Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land (54).

(141) Much like other sectors in the Chinese economy, the producers of SSHR are subject to the ordinary rules on Chinese bankruptcy, corporate, and property laws. That has the effect that these companies, too, are subject to the top-down distortions arising from the discriminatory application or inadequate enforcement of bankruptcy and property laws. The present investigation revealed nothing that would call those findings into question. As such, the Commission preliminarily concluded that the Chinese bankruptcy and property laws do not work properly, thus generating distortions when maintaining insolvent firms afloat and when allocating land use rights in the PRC. Those considerations, on the basis of the evidence available, appear to be fully applicable also in the stainless steel sector.

(142) In light of the above, the Commission concluded that there was discriminatory application or inadequate enforcement of bankruptcy and property laws in the steel sector, including with respect to the product concerned.

(143) A system of market-based wages cannot fully develop in the PRC as workers and employers are impeded in their rights to collective organisation. The PRC has not ratified a number of essential conventions of the International Labour Organisation (‘ILO’), in particular those on freedom of association and on collective bargaining (55). Under national law, only one trade union organisation is active. However, this organisation lacks independence from the State authorities and its engagement in collective bargaining and protection of workers’ rights remains rudimentary (56). Moreover, the mobility of the Chinese workforce is restricted by the household registration system, which limits access to the full range of social security and other benefits to local residents of a given administrative area. This typically results in workers who are not in possession of the local residence registration finding themselves in a vulnerable employment position and receiving lower income than the holders of the residence registration (57). Those findings lead to the distortion of wage costs in the PRC.

(144) No evidence was submitted to the effect that the steel sector, including the producers of SSHR, would not be subject to the Chinese labour law system described. The SSHR part of the steel sector is thus affected by the distortions of wage costs both directly (when making the product concerned) as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in the PRC).

(145) Access to capital for corporate actors in the PRC is subject to various distortions.

(146) Firstly, the Chinese financial system is characterised by the strong position of State-owned banks (58), which, when granting access to finance, take into consideration criteria other than the economic viability of a project. Similarly to non-financial SOEs, the banks remain connected to the State not only through ownership but also via personal relations (the top executives of large State-owned financial institutions are ultimately appointed by the CCP) (59) and, again just like non-financial SOEs, the banks regularly implement public policies designed by the government. In doing so, the banks comply with an explicit legal obligation to conduct their business in accordance with the needs of the national economic and social development and under the guidance of the industrial policies of the State (60). This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (61).

(147) While it is acknowledged that various legal provisions refer to the need to respect normal banking behaviour and prudential rules such as the need to examine the creditworthiness of the borrower, the overwhelming evidence, including findings made in trade defence investigations, suggests that these provisions play only a secondary role in the application of the various legal instruments.

(148) Furthermore, bond and credit ratings are often distorted for a variety of reasons including the fact that the risk assessment is influenced by the firm’s strategic importance to the GOC and the strength of any implicit guarantee by the government. Estimates strongly suggest that Chinese credit ratings systematically correspond to lower international ratings (62).

(149) This is compounded by additional existing rules, which direct finances into sectors designated by the government as encouraged or otherwise important (63). This results in a bias for lending to SOEs, large well-connected private firms and firms in key industrial sectors, which implies that the availability and cost of capital is not equal for all players on the market.

(150) Secondly, borrowing costs have been kept artificially low to stimulate investment growth. This has led to the excessive use of capital investment with ever lower returns on investment. This is illustrated by the recent growth in corporate leverage in the state sector despite a sharp fall in profitability, which suggests that the mechanisms at work in the banking system do not follow normal commercial responses.

(151) Thirdly, although nominal interest rate liberalization was achieved in October 2015, price signals are still not the result of free market forces, but are influenced by government induced distortions. Indeed, the share of lending at or below the benchmark rate still represents 45 % of all lending and recourse to targeted credit appears to have been stepped up, since this share has increased markedly since 2015 in spite of worsening economic conditions. Artificially low interest rates result in under-pricing, and consequently, the excessive utilization of capital.

(152) Overall credit growth in the PRC indicates a worsening efficiency of capital allocation without any signs of credit tightening that would be expected in an undistorted market environment. As a result, non-performing loans have increased rapidly in recent years. Faced with a situation of increasing debt-at-risk, the GOC has opted to avoid defaults. Consequently, bad debt issues have been handled by rolling over debt, thus creating so called ‘zombie’ companies, or by transferring the ownership of the debt (e.g. via mergers or debt-to-equity swaps), without necessarily removing the overall debt problem or addressing its root causes.

(153) In essence, despite the recent steps that have been taken to liberalize the market, the corporate credit system in the PRC is affected by significant distortions resulting from the continuing pervasive role of the state in the capital markets.

(154) No evidence was submitted to the effect that the steel sector, including stainless steel production, would be exempted from the above-described government intervention in the financial system. Therefore, the substantial government intervention in the financial system leads to the market conditions being severely affected at all levels.

(155) The Commission noted that the distortions described in the Report were characteristic for the Chinese economy. The evidence available shows that the facts and features of the Chinese system as described above in Sections a)–e) as well as in Part A of the Report apply throughout the country and across the sectors of the economy. The same holds true for the description of the factors of production as set out above in Sections f)–h) above and in Part B of the Report.

(156) The Commission recalls that in order to produce SSHR, a broad range of inputs is needed. When the producers of SSHR purchase/contract these inputs, the prices they pay (and which are recorded as their costs) are clearly exposed to the same systemic distortions mentioned before. For instance, suppliers of inputs employ labour that is subject to the distortions. They may borrow money that is subject to the distortions on the financial sector/capital allocation. In addition, they are subject to the planning system that applies across all levels of government and sectors.

(157) As a consequence, not only the domestic sales prices of SSHR are not appropriate for use within the meaning of Article 2(6a)(a) of the basic Regulation, but all the input costs (including raw materials, energy, land, financing, labour, etc.) are also tainted because their price formation is affected by substantial government intervention, as described in Parts A and B of the Report. Indeed, the government interventions described in relation to the allocation of capital, land, labour, energy and raw materials are present throughout the PRC. This means, for instance, that an input produced in the PRC by combining a range of factors of production is exposed to significant distortions. The same applies for the input to the input and so forth. No evidence or argument to the contrary has been adduced by the GOC or the exporting producers in the present investigation.

(158) The analysis set out in points a) to i) of this section, which includes an examination of all the available evidence relating to the PRC’s intervention in its economy in general as well as in the steel sector showed that prices or costs of the product concerned, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation as shown by the actual or potential impact of one or more of the relevant elements listed therein. On that basis, and in the absence of any cooperation from the GOC, the Commission concluded that it is not appropriate to use domestic prices and costs to establish normal value in this case.

(159) Consequently, the Commission proceeded to construct the normal value exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, that is, in this case, on the basis of corresponding costs of production and sale in an appropriate representative country, in accordance with Article 2(6a)(a) of the basic Regulation, as discussed in the following section.

(161) As explained in recitals (33) to (35) the Commission published two notes for the file on the sources for the determination of the normal value.

(162) In the Note of 9 September, the Commission informed interested parties that, on the basis of the criteria listed in recital (157), it had identified the following four possible representative countries: Brazil, Malaysia, South Africa, and Turkey.

(163) The Commission received comments from three interested parties: the complainant and two of the sampled Chinese exporting producers.

(164) Both Chinese exporting producers claimed in their submissions that Malaysia would be the best representative country because it fulfils all the criteria of Article 2(6a)(a) of the basic Regulation, while Brazil and South Africa allegedly have a lower level of social and environmental protection.

(165) On the other hand, the complainant indicated in its submission that there was no production of the product under investigation in Malaysia or Turkey.

(166) The Malaysian company identified as potential producer of the product under investigation is, according to the submission of the complainant, engaged only in the rerolling of hot-rolled coils into cold-rolled coils and it apparently did not possess either a melting workshop or a hot-rolling line. The complainant based its claims in this regard on the consolidated audited financial statement of the Acerinox Group of 2017. The financial report of the Group of 2018 also confirmed this allegation.

(167) With regard to Turkey, the complainant claimed that the company in question was only engaged in the production of an insignificant amount of stainless steel products. Furthermore, this production was limited to long products of martensitic steel with billets as a raw material, which would actually exclude the production of the product under investigation.

(168) The Commission’s own research confirmed the claims of the complainant on the basis of the consolidated audited report of 2018 of the Acerinox Group and the official websites of the two companies in question.

(169) The complainant confirmed that the product under investigation is produced in South Africa by one of the companies of the Acerinox Group, as indicated by the Commission in the Note of 9 September. However, the complainant raised several arguments in favour of choosing Brazil as a representative country rather than South Africa.

(170) First, the complainant indicated that in terms of economic development measured by the GNI index Brazil is much closer to the PRC than South Africa is (South Africa has a significantly lower position in these statistics).

(171) However, even if in terms of actual GNI data South Africa is more distant from the PRC than Brazil, all three countries are still classified as upper-middle income countries by the World Bank. Therefore, the Commission rejected this claim.

(172) Second, the complainant claimed that South Africa was the world’s biggest producer of chromium, an important input for stainless steel, and therefore the price level of this input would not be representative.

(173) The fact that a country produces an input of the product under investigation does not automatically make the price level of imports of that product into that country not representative. The complainant did not provide evidence of the impact of the large domestic production on the import price. Therefore, the Commission found this claim unsubstantiated.

(174) Finally, the complainant provided the Commission with the publicly available audited accounts of the Brazilian producer of the product under investigation mentioned in the Note of 9 September, which could be used as a source of data for the SG&A costs and profit needed in the calculation of the normal value. For the South African producer identified in the same Note, such data were only available on the consolidated group level.

(175) Based on the quality and detail of the readily available financial data in Brazil, as provided by the complainant, and also considering the representativeness of the factors of production as explained in section 3.2.2.3 below, the Commission concluded that Brazil should be considered an appropriate representative country in its Note of 10 October.

(176) Having established Brazil as an appropriate representative country in terms of level of development and availability of relevant import statistics and financial data, the Commission did not consider it necessary to assess the level of social and environmental protection of the potential representative countries.

(177) No comments from interested parties were received with regard to the Note of 10 October.

(178) In view of the above analysis, Brazil meets all the criteria laid down in Article 2(6a)(a), first indent of the basic Regulation in order to be considered as an appropriate representative country. In particular, in addition to having a level of economic development similar to the PRC, Brazil has a substantial production of the product under investigation and a complete set of data available for the factors of production, SG&A and profit during the investigation period.

(179) On the basis of the information submitted by the interested parties and other relevant information available in the file, the Commission established in the Note of 9 September an initial list of factors of production and sources intended to be used for all factors of production such as materials, energy and labour used in the production of the product under investigation by the exporting producers. The Commission stated that in order to construct the normal value in accordance with Article 2(6a)(a) of the basic Regulation, it would use as much as possible Global Trade Atlas (‘GTA’) to establish the undistorted cost of the factors of production, the statistics of the International Labour Organisation (‘ILO’) and national statistics to establish the undistorted costs of labour, and other sources depending on the selected representative country to establish the undistorted costs of energy (such as electricity, natural gas, and water). In the same note, the Commission identified the Harmonised System (HS) codes of factors of production which, on the basis of information provided by the interested parties, were initially considered to be used for the GTA analysis.

(180) In this regard, a comment was received only from the complainant indicating that for some factors of production the HS codes proposed by the Commission had too wide a coverage and might include a mix of products not being representative of the chemical composition of the inputs actually used in the production of the product under investigation. The Commission took note of this remark. It was taken into account in further stages of the investigation depending on the goods codes of the representative country and on the findings from the verification visits of the exporting producers.

(181) The Commission further analysed the initial information received on HS codes from interested parties and found that certain factors of production, i.e. certain raw materials and consumables, were possibly not correctly classified. The amended HS codes and list of factors of production were published in the Note of 10 October. The Commission analysed also the availability of import data which would be used for the calculation of benchmarks for undistorted costs and checked the existence of restrictions in the representative country concerning exports of the factors of production.

(182) In the Note of 10 October the Commission confirmed that it would use GTA to establish undistorted costs of the factors of production, the ILO statistics and other publicly available sources (65) to establish undistorted labour costs, and the tariffs charged by selected Brazilian suppliers of electricity, natural gas and water to establish undistorted costs of those types of energy.

(183) In the same note, the Commission also informed interested parties that, to establish the undistorted SG&A and profit, it would use the financial data of the sole known Brazilian producer of the product under investigation for which detailed financial data is publicly available – Aperam Inox America do Sul S.A. Interested parties did not submit, and the Commission did not find, publicly available financial data of any other producer of the product under investigation in Brazil.

(184) Following the Note of 10 October, the Commission did not receive any further comments concerning the sources for undistorted costs and benchmarks. Therefore, the sources listed in recitals (178) to (180) were provisionally confirmed.

(185) As already stated in recitals (176) and (178) to (179), the Commission sought to establish an initial list of factors of production and sources intended to be used for all factors of production such as materials, energy and labour used in the production of the product concerned by the exporting producers.

(186) The Commission did not receive any comments concerning the list of factors of production following the Note of 10 October where, based on the information received from interested parties, the Commission established a list of all the potential HS codes corresponding to the factors of production used in the manufacturing of the product concerned.

(187) The Commission then established a definitive list of factors of production and corresponding HS codes after the verification visits at the premises of the sampled exporting producers.

(189) During the verification visits, the Commission verified the raw materials and auxiliary materials used in the manufacture of the product concerned.

(190) For all raw materials and auxiliary materials, with the exception of those described in recitals (190) and (192) below, the Commission relied on import prices in the representative country. The import price in the representative country was determined as a weighted average of unit prices of imports from all third countries excluding the PRC. The Commission decided to exclude imports from the PRC into the representative country as it concluded in recital (156) that it is not appropriate to use domestic prices and costs in the PRC due to the existence of significant distortions in accordance with Article 2(6a)(b) of the basic Regulation. Given that there is no evidence showing that the same distortions do not equally affect products intended for export, the Commission considered that the same distortions affected export prices. Furthermore, it appears that the import price of the main raw materials exported by the PRC into Brazil are lower than the weighted average of the imports of other countries. Similarly, import data on imports in the representative country from non-WTO members listed in Annex 1 of Regulation (EU) 2015/755 (67) were also excluded. Article 2(7) of the basic Regulation considers that domestic prices in those countries cannot be used for the purpose of determining normal value and, in any event, such import data was negligible.

(191) In order to establish the undistorted price of raw materials, delivered at the gate of the exporting producer’s factory as provided by Article 2(6a)(a), first indent of the basic Regulation, the Commission added international transport and insurance costs (68)and applied the import duty of the representative country. At a later stage, during the individual dumping margin calculations, the Commission added company specific domestic transport costs to the import price. The international and domestic transport costs for all raw materials as well as insurance costs were estimated based on the verified data provided by the sampled exporting producers.

(193) Where the export price (73) was used to determine the undistorted price of a raw material, no further adjustments to the data from GTA were made. The Commission considered that the costs between a Brazilian supplier and an international port accounted for the costs between such supplier and its Brazilian customer. The price from GTA could, therefore, be accepted as price of a raw material as delivered at the gate of the exporting producer’s factory.

(194) For some raw materials and auxiliary materials (74), the sampled exporting producers were not able to determine the consumption volume in their records or no proper benchmark could be established in the representative country. Overall, those inputs were negligible in terms of costs. Those costs were included in the manufacturing overheads as explained in recital (198), as the actual costs of those raw materials represented a negligible share on the total actual costs of manufacturing of the sampled exporting companies. The factors of production moved to overheads were listed in the company-specific disclosures.

(195) To establish the benchmark for labour costs, the Commission used the ILO statistics together with publicly available information on additional labour costs incurred by an employer in Brazil.

(196) The ILO statistics (75) provided data on the mean weekly hours actually worked per employed person and monthly earnings of employees in manufacturing during the investigation period. Using that data, the Commission calculated an hourly salary in manufacturing, to which additional labour related costs (76) (social security and unemployment contributions born by the employer) were added.

(197) The electricity price charged by one of the largest electricity suppliers in Brazil, the company EDP Brazil, was readily available (77). The information was detailed enough to identify the price of electricity and the price for the use of the distribution system (modalidade tarifaria azul) paid by industrial users.

(198) It should be noted that in Brazil, the regulatory authority Agência Nacional de Energia Elétrica (78) (‘ANEEL’), obliges the electricity suppliers to increase their tariffs by a certain percentage to regulate the consumption of electricity in the country. ANEEL uses a flag system (79) (green, yellow, red 1, red 2) to signal whether the electricity price should remain as proposed by the supplier (green) or increased by 0,010 BRL/kWh (yellow), 0,030 BRL/kWh (red 1), or 0,050 BRL/kWh (red 2). The flags are published by ANEEL on a monthly basis and for the investigation period were readily available on the website of EDP Brazil (80). When determining the undistorted costs of electricity, the Commission took into account the flags applied during the investigation period and adjusted the price accordingly.

(199) The water tariff is readily available as charged by the company Sabesp that is responsible for water supply, sewage collection and treatment in the State of Sao Paulo. The information enables to identify tariffs (81) applicable for industrial users in the investigation period for various sub-regions and municipalities of the State of Sao Paulo (82). The Commission based its determination of undistorted costs for water and sewage collection on the tariff applicable to industrial customers in the Metropolitan area of the State of Sao Paulo during the investigation period.

(200) The price of natural gas is readily available as charged by the biggest gas distributor in Brazil, the company Comgas, which focuses on the State of Sao Paulo. The information provided on Comgas’ website (83) enables to determine the price of natural gas supplied to industrial users.

(201) The manufacturing overheads incurred by the cooperating exporting producers were increased by the costs of raw materials and auxiliary materials referred to in recital (192) and subsequently expressed as a share of the costs of manufacturing actually incurred by each of the sampled exporting producers. This percentage was applied to the undistorted costs of manufacturing.

(202) For SG&A and profit, the Commission used the financial data of the sole known Brazilian producer of the product under investigation for which detailed financial data is publicly available – Aperam Inox America do Sul S.A. Publicly available audited accounts of the company were made known to the interested parties as an attachment to the Note of 10 October.

(203) In order to establish the constructed normal value, the Commission took the following steps.

(204) Firstly, the Commission established the undistorted costs of manufacturing. It applied the undistorted unit costs to the actual consumption of the individual factors of production of the sampled exporting producers. The costs of manufacturing were reduced by the undistorted costs of by-products re-used in the production process as reported by the companies.

(205) Secondly, to arrive at the undistorted costs of production, the Commission added the manufacturing overheads determined as described in recital (199) to the undistorted costs of manufacturing.

(206) Finally, to the costs of production established as described in recital (203), the Commission applied SG&A and the profit of Aperam Inox America do Sul S.A. as explained in recitals (200).

(207) The SG&A expressed as a percentage of the Costs of Goods Sold (‘COGS’) and applied to the undistorted costs of production amounted to 13,90 %.

(208) The profit expressed as a percentage of the COGS and applied to the undistorted costs of production amounted to 7,65 %.

(209) The normal value calculated as described in recitals (202) to (206) was reduced by the undistorted value of the by-products sold by the sampled companies.

(210) On that basis, the Commission constructed the normal value per product type on an ex-works basis in accordance with Article 2(6a)(a) of the basic Regulation. Since only two Chinese exporting producers were left in the sample, the Commission constructed the normal value per product type for these exporting producers only.

(211) The Chinese exporting producers in question exported to the Union directly to independent customers or through related companies acting as related exporters in a third country or related importers in the Union.

(212) Where the exporting producers exported the product concerned directly to independent customers in the Union, the export price was the price actually paid or payable for the product concerned when sold for export to the Union, in accordance with Article 2(8) of the basic Regulation.

(213) Where the exporting producers exported the product concerned to the Union through related importers in the Union, the export price was established on the basis of the price at which the imported product was first resold to independent customers in the Union, in accordance with Article 2(9) of the basic Regulation. In this case, adjustments to the price were made for all costs incurred between importation and resale, including SG&A expenses and a reasonable profit.

(214) The Commission compared the normal value and the export price of the Chinese sampled exporting producers on an ex-works basis.

(215) Where justified by the need to ensure a fair comparison, the Commission adjusted the normal value and/or the export price for differences affecting prices and price comparability, in accordance with Article 2(10) of the basic Regulation. Adjustments were made where appropriate for transport, insurance, handling, loading and ancillary costs; credit cost; bank charges; SG&A costs of the related exporters, including mark-up.

(216) The PRC applies a policy of reimbursing VAT only partially upon export and in this case, depending on the month of the IP, from 0 % to 3 % VAT was not reimbursed. To ensure that the normal value was expressed at the same level of taxation as the export price, the normal value was adjusted upward by that part of VAT charged on exports of the product concerned that was not refunded to the Chinese exporting producers.

(217) For the sampled exporting producers, the Commission compared the weighted average normal value of each type of the like product with the weighted average export price of the corresponding type of the product concerned, in accordance with Article 2(11) and 2(12) of the basic Regulation.

(218) On that basis, the provisional weighted average dumping margins expressed as a percentage of the CIF Union frontier price, duty unpaid, are 108,4 % for STSS and 55,6 % for FSS.

(219) The dumping margin of the cooperating non-sampled Chinese companies, Xiangshui Defeng Metals Co., Ltd and Fujian Dingxin Technology Co., Ltd., is the weighted average between the two individual dumping margins for the sampled companies and established at 87,9 %.

(220) Taking into account the high level of the cooperation of the Chinese exporting producers at a level of 92 % of the total Chinese exports of the product under investigation to the Union, the Commission considered it representative to set the residual dumping margin applicable to all other (non-cooperating) exporting producers, including the company which received Article 18, at a level of 108,4 %, corresponding to the highest individual dumping margin of the sampled Chinese companies.

(222) As mentioned in recital (24), two exporting producers in Taiwan, Yusco Group and Walsin, cooperated with the investigation by providing a questionnaire reply. No other exporting producers in Taiwan were identified or came forward.

(223) In addition, as also indicated in recital (24), the unrelated service centre YC Inox cooperated with the investigation by providing a questionnaire reply. This company was not related with the two Taiwanese cooperating producers. Its cooperation enabled the Commission to obtain a sound understanding of the functioning of the Taiwanese domestic and export markets of the product under investigation. In particular, on the basis of the information supplied by this party and the verification thereof, the Commission could draw reasonable conclusions as to the most likely destination of the reported domestic sales of the two cooperating exporting producers.