Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/492 imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt

• (618) The Commission has already demonstrated the specificity of grants in recitals (597), (601) and (609) above. Indeed, only companies operating in key areas or technologies as listed in the guidelines, administrative measures and catalogues are eligible. Furthermore, the cooperating exporting producers provided grants-related documents, such as legal documents and granting notices, which demonstrated that the grants have been provided to companies belonging to certain specified industries or sectors and/or involved in specific industrial projects encouraged by the State. Therefore, the Commission reiterated its conclusion that these grants are only available to “certain enterprises” and are not “broadly available throughout the economy”. In addition, the investigation showed that the eligibility conditions of these grants were not clear and objective and they did not apply automatically; consequently, they did not meet the non-specificity requirements of Article 4(2)(b) of the basic Regulation.

• (619) Regarding ad hoc grants, the GOC did not provide any further evidence backing its claim that they are non-specific. Consequently, the Commission reiterated that on the basis of the evidence at its disposal it concluded that these grants do not meet the non-specificity requirements of Article 4(2)(b) of the basic Regulation.

• (620) In the light of the above, the Commission rejected the claims of the GOC.

3.8.6.   Total for all grants

• (621) Since the parent company CNBM did not cooperate, the benefit for grants provided at the level of CNBM was established by using the methodology explained in Sections 3.8.1 to 3.8.3 above, based on the publicly available information in the 2018 annual report of this company, such as amounts recorded under government subsidies, government funding and other income.

• (622) The total subsidy amounts established with regard to all grants during the investigation period for the sampled exporting producers were as follows:

Grants

3.9.   Conclusion on subsidisation

• (623) Based on the information available at this point of the investigation, the Commission calculated the amount of countervailable subsidies for the sampled companies in accordance with the provisions of the basic Regulation by examining each subsidy or subsidy programme, and added these figures together to calculate a total amount of subsidisation for each exporting producer for the investigation period. To calculate the overall subsidisation below, the Commission first calculated the percentage subsidisation, being the subsidy amount as a percentage of the company's total turnover. This percentage was then used to calculate the subsidy allocated to exports of the product concerned to the Union during the investigation period. The subsidy amount per tonne of product concerned exported to the Union during the investigation period was then calculated, and the margins below calculated as a percentage of the Costs, Insurance and Freight (‘CIF’) value of the same exports per tonne.

• (624) Following the definitive as well as the additional definitive disclosures, the CNBM Group claimed that by calculating the total benefit in percentage based on the subsidy amounts for the exporting producers taken together and applying this total benefit in percentage to the value of GFF exported to the EU by both exporting producers taken together, the Commission wrongly allocated the alleged subsidies received by one of the exporting producers (Jushi Group) to the turnover of both exporting producers taken together (Jushi Group and Hengshi). This inflated the subsidy rate of the group. According to the CNBM Group, the Commission should first have calculated the subsidy amount per unit exported to the EU separately per company. Only then should the subsidy amount of each company be combined for the purposes of calculating a joint subsidy rate.

• (625) As mentioned in recital (97) above, the Commission recalled that in order to ensure that measures can be enforced effectively, particularly to avoid channelling exports through a related company with the lowest duty, it is the Commission's practice to establish the relationship between exporting producers through the criteria laid down in Article 127 of the Union Customs Code Implementing Act. Moreover, the calculation of the amount of countervailable subsidies on the basis of the product concerned exported into the Union implies that, when companies are related, since money is fungible, they can use those benefits for the product concerned indistinctly, and thus, regardless of the exporting producer in particular. In this case, since Henghsi and Jushi Group both manufacture and export the product concerned, and since Jushi Group also produces the main raw material which is used in the product exported by Hengshi, the amount of countervailable subsidies granted upon them should take into account the fact that, because of their relationship, they are capable of channelling those benefits to the product concerned exported to the Union as they see fit. Consequently, the benefits granted to those exporting producers with respect to the product concerned should result in one single amount for the group.

• (626) The methodology proposed by the CNBM disregards this fact, and would lead to erroneous results. As an example, one can take the case of two related GFF producers (companies A&B), where all subsidies would be granted to company A, and none to company B. It is further assumed that company A sold its entire GFF production domestically to B, and B re-exported all of A’s products on top of all of its own products. According to the calculation methodology proposed by CNBM, this scenario would result in a 0 % amount of subsidisaton, since the subsidy amount per unit exported to the EU would be 0 for A, and since subsidies granted to A could not be allocated to the products exported by B. The Commission thus rejected the claim of the CNBM Group.

• (627) The CNBM Group also submitted that the Commission made various errors when establishing a pass through of subsidies between related companies. First, the Commission wrongly summed up percentage values containing different denominators, since subsidy amounts allocated over Jushi Group’s turnover were added with subsidies amounts allocated over Jushi and Hengshi’s combined turnover.

• (628) Second, the Commission determined that subsidies received by China Jushi and Zhengshi Holding Group were passed through to the exporting producers on the basis of “investments in subsidiaries”. However, there is no basis under which an existing shareholding ipso facto passed through any alleged benefit to Jushi Group. Second, the Commission should not only have taken into account China Jushi’s long-term equity investments in its subsidiaries, but also in its “associate and joint ventures”. Third, if the Commission wanted to carry out a pass-through analysis, the Commission would in any event have had to allocate the alleged subsidies that China Jushi received over China Jushi’s total turnover. Fourth, if the presumption would be that a parent company passes on all of the subsidies received to its subsidiaries, Jushi Group must have passed on all of its subsidies to its own subsidiaries. Therefore, the Commission would have to calculate a 0 % subsidy rate for Jushi Group.

• (629) Third, following the additional definitive disclosure, the CNBM Group submitted that the Commission did not demonstrate how the subsidies allegedly received by Zhengshi Holding benefited the exports of GFF to the Union. Without a link between the subsidies allegedly provided by the government and the production and exportation of the product concerned, it could thus not be shown that the exported product benefited from those subsidies. In this context, the CNBM Group noted that, as explained by Zhengshi Holding in its questionnaire response, its main business is to purchase raw materials for a related company, which is a stainless steel producer. Furthermore, Zhengshi Holding had a significant turnover amount, which should have been used as an allocation key instead.

• (630) Fourth, the benefit allegedly passed through to Jushi Group was based on Jushi Group’s shareholding in Hubei Hongija, although Hubei Hongjia is a provider of input materials for the GFF producers.

• (631) Fifth, the allocation key for Jushi Hong Kong was based on the turnover and assumed that all sales were made to Jushi Group.

• (632) Sixth, the Commission provided no explanation as to how the alleged benefits received by CNBM were passed through to Jushi Group and Hengshi. The Commission should have proceeded in the same way as it did concerning Jushi Group’s related companies and carried out a pass-through analysis based on sales. If the Commission insists that a pass through analysis between related entities would be unnecessary (quod non), then the subsidies received should have been allocated over the total turnover of all companies in the purported corporate group.

• (633) In order to respond to these comments, the Commission first explained how subsidies in the various related companies of the CNBM Group were aggregated. For each related company, the Commission first determined the amount of subsidies received. The Commission then used an allocation key to determine which part of these subsidies were linked to the exporting producers. For example, for providers of materials, inputs or assets used in the production process, this allocation key was based on the part of the turnover of these providers with the exporting producers. The allocation key was then applied to the subsidy amount received. The resulting “allocated” subsidy amount was added to the subsidy amount of the exporting producers. Finally, the total subsidy amount of the exporting producer (including subsidy amounts allocated from related companies) was divided by the turnover of the exporting producer to calculate a percentage of subsidization, i.e. a subsidy rate.

• (634) As a result, concerning the first point claimed by the CNBM Group, there was in fact no addition of percentage values containing different denominators: there was only an an allocation and subsequent addition of subsidy amounts. Only one denominator was used in the end to calculate the subsidy percentage.

• (635) Concerning the holding companies China Jushi and Zhengshi Holding Group mentioned in the second point above, the allocation key was indeed based on the part of the exporting producer in the investments made by the holding company. In the case of holding companies, allocation keys based on turnover are often meaningless, as the core business of such companies is not to sell goods or to provide inputs, but to invest.

• (636) The case of China Jushi is unique in this respect, because the company combines several functions. On one hand, it acts as the central purchasing entity for most raw materials used by the exporting producers in the group. On the other hand, it resells the finished goods of the exporting producers on the domestic market. On top of this, China Jushi exercises some headquarter functions as a parent company, such as e.g. a central financing function for the exporting producers or providing the administrative building for the management functions of the Jushi Group. As such, using turnover as an allocation key is not possible, because it would result in circular reference. Indeed, a certain percentage of the subsidies would have to be allocated to the exporting producers based on the sales of materials to the producers, but subsequently also a certain part of the subsidies of the producers would have to be re-allocated to China Jushi based on the sales of finished goods to China Jushi.

• (637) Since China Jushi was at the same time also the main investor of Jushi Group, and was exercising some functions, which are typical for holding/parent companies, the Commission considered that an allocation based on investments would better represent the reality of the links between China Jushi and the exporting producer. However, the Commission acknowdged that investments in associated companies and joint ventures should also have been taken into account, and adapted the allocation key accordingly.

• (638) Following the additional definitive disclosure, the CNBM Group added that China Jushi’s main business is that of a trading company, based on its actual business activities, its audited accounts, and its large income from trading activities. Circular issues should not be an issue, since they also arise for intercompany transactions between the exporting producer and other related companies. Moreover, the Commission did not demonstrate that China Jushi had significant investment activities, or that there were specific headquarter activities, financing activities or financial transfers which would suggest that China Jushi was funnelling its subsidies to its subsidiaries. On the contrary, the exporting producer actually paid dividends to China Jushi in the investigation period. Furthermore, the Commission did not demonstrate that there was any link between the subsidies received by China Jushi and the production and exportation of the product concerned. Finally, since China Jushi is also the parent company of the other Jushi companies which it controls through its 100 % ownership of Jushi Group, it must be presumed that subsidies were not only transferred to Jushi Group but also to its many other subsidiaries.

• (639) The Commission disagreed with the analysis made by the CNBM Group. China Jushi indeed had a large turnover from trading activities, as already described in recital (636) above. However, China Jushi also had significant investment activities, as shown in its asset, income and cash flow accounts. In fact, 94 % of its operating profits were derived from income on investments. In addition, as already mentioned, China Jushi was also exercising some functions, which are typical for holding/parent companies, such as a central financing activity. For example, the Commission noted that the purpose of one of the bonds issued by China Jushi was to “repay bank loans of the issuer and its subsidiary Jushi Group”. Furthermore, the investigation found that loans were taken out “on behalf of China Jushi and of its subsidiaries”, and in one case, the repayment of the capital of a loan issued to China Jushi was to be made by its subsidiary Jushi Group. Therefore, the Commission maintained its position with regards to the use of investment as an allocation key. At the same time, these transactions also showed that there is a clear link between the subsidies received by China Jushi and the production and exportation of the product concerned. Finally, the fact that Jushi Group also has some subsidiaries is irrelevant as such, since investments were not used as an allocation key at the level of the exporting producer. The company’s claims were thus rejected.

• (640) Concerning Zhengshi Holding, the Commission agreed with the fact that Zhengshi Holding’s turnover mainly consists of the re-sales of purchased raw materials to its related steel producer, a company which is not linked in any way to GFF or to this investigation. However, the Commission also found that Zhengshi Holding holds the land use rights for a plot of land, which is used by another related company subject to this investigation. In this respect, there is a clear link between the subsidies received by Zhengshi Holding and the production and exportation of the product concerned. Since the sales of Zhengshi Holding are completely disconnected from the existing link with the GFF production, and since Zhengshi Holding is at the same time also a holding company with significant investment activities, as shown in its asset, income and cash flow accounts, the Commission considered that an allocation based on its investments would better represent the reality of the links between Zhengshi Holding and the GFF producer. Nevertheless, when reviewing the subsidies for preferential financing received by Zhengshi Holding, the Commission noticed that it had made an error in its assessment, since all of the financing had been clearly earmarked for the benefit of the stainless steel production. The calculation of the benefit was thus adapted accordingly.

• (641) Concerning Hubei Hongjia, the allocation key should indeed have been on sales of the materials produced by Hubei Hongjia. The allocation key was therefore changed accordingly. Concerning Jushi Hong Kong, the Commission also accepted the company’s comments, and changed to a more precise allocation key, namely the proportion of the goods sold by Jushi Hong Kong, which were purchased from Jushi Group.

• (642) Following the additional definitive disclosure, the CNBM Group asserted that if there were no sales from Jushi Hong Kong to Jushi Group, then Jushi Hong Kong should have been excluded. The Commission reminds that Jushi Hong Kong is the related trader of the exporting producer Jushi Group, and is as such exporting the GFF produced by Jushi Group. Since there is a direct link between the subsidies received by Jushi Hing Kong and the exportation of the product concerned, it makes sense to use the proportion of exports sourced from Jushi Group (compared to the exportation of products coming from other sources) as an allocation key. The Commission therefore did not accept this claim.

• (643) On the last point, relating to the pass through of the subsidy amounts of CNBM, the Commission recalls that CNBM did not cooperate in the investigation, and that a determination of the amount of subsidies had to be made based on facts available. Under these circumstances, the Commission decided that the most reasonable approach would be to calculate the subsidies received by CNBM in proportion of the total consolidated turnover of the corporate group. In fact, the Commission thus used the calculation methodology proposed by the CNBM Group itself. This claim was thus rejected.

• (644) In accordance with Article 15(3) of the basic Regulation, the total subsidy amount for the cooperating companies not included in the sample was calculated on the basis of the total weighted average amount of countervailing subsidies established for the cooperating exporting producers in the sample with the exclusion of negligible amounts as well as the amount of subsidies established for items which are subject to the provisions of Article 28(1) of the basic Regulation. However, the Commission did not disregard findings partially based on facts available to determine those amounts. Indeed, the Commission considers that the facts available used in those cases did not affect substantially the information needed to determine the amount of subsidisation in a fair manner, so that exporters who were not asked to cooperate in the investigation will not be prejudiced by using this approach ¹³⁷.

• (645) Given the high rate of cooperation of Chinese exporting producers and the representativeness of the sample also in terms of subsidy eligibility, the Commission set the amount for ‘all other companies’ at the level of the highest amount established for the sampled companies. The ‘all other companies’ amount was applied to those companies which did not cooperate in the investigation.

4. SUBSIDISATION: EGYPT

4.1.   Subsidies and subsidy programmes within the scope of the current investigation

• (646) On the basis of the information contained in the complaint, the Notice of Initiation and the replies to the Commission's questionnaire, the alleged subsidisation through the following subsidies by the GOE were investigated:

• (i) Preferential policy loans, credit lines, other financing, insurance and guarantees;

• (ii) Revenue foregone through Direct Tax Exemption and Reduction programmes

• — EIT privileges for Enterprises located in a Special Economic Zone;

• (iii) Revenue foregone through Indirect Tax and Import Tariff Programmes

• — Value Added Tax (‘VAT’) exemptions and import tariff rebates for the use of imported equipment;

• — VAT exemptions and import tariff waivers for imported input materials used in exported finished goods;

• (iv) Government provision of goods and services for less than adequate remuneration (LTAR)

• — Government provision of power for less than adequate remuneration;

• — Government provision of land for less than adequate remuneration.

4.2.   The Suez Economic and Trade Cooperation Zone (‘SETC-zone’)

4.2.1.   Introduction and factual context

• (647) The alleged subsidisation in Egypt concerns two related companies in the China-Egypt Suez Economic and Trade Cooperation Zone (‘SETC-Zone’). The zone covers an area of 7,34 km², which is divided into a starting area of 1,34 km² and an expansion area of 6 km².

• (648) This special economic zone was set up together by China and Egypt, and its history goes back to the 1990s. At that time, the then Egyptian President visited China's special economic zones, and expressed the wish to draw on China’s experience concerning such zones, in order to establish a similar setup in Egypt. As a result, in 1997, the Prime Ministers of China and Egypt signed a memorandum of understanding, in which the two countries “agree to cooperate in developing the free economic zone in the north of the Gulf of Suez, by sharing the Chinese experience in establishing special economic zones, participating in modernizing the studies relating to the zone and encouraging relevant business sector in China to provide contributions for the projects to be established within the zone” ¹³⁸.

• (649) In the wake of this agreement, China appointed Tianjin Teda Investment Holding Co., Ltd. (‘Tianjin TEDA’), an SOE under the Tianjin Municipal Government, to undertake the task on the Chinese side. Tianjin TEDA then joined the Egyptian Suez Canal Administration, the National Bank of Egypt, and four more Egyptian State-owned enterprises to create the Egypt China Joint Venture Company (‘ECJV’), in order to develop and construct the economic zone. The Chinese side held 10 % of the shares of the ECJV, and the Egyptian side 90 %. In 1998, the corresponding land in the Northwest Gulf of Suez Zone was transferred from the Suez Governorate to the ECJV. However, after that, the project did not advance much for several years ¹³⁹.

• (650) In 2002, the wider area of 20 km², in which the SETC-Zone was located, the Northwest Gulf of Suez Economic Zone, was officially classified as a special economic zone (‘SEZone’) by the GOE ¹⁴⁰. As such, the provisions of the Egyptian Law No. 83/2002 on Economic Zones of a Special Nature (‘Law 83/2002’) were now also applicable to the SETC-Zone.

• (651) A new impetus started in 2006, when China decided to further encourage the ‘Go Global Policy’ for Chinese companies to invest abroad. In this context, MOFCOM proposed the establishment of so-called “overseas trade and cooperation zones”, and the SETC-Zone became one of the first of 18 officially approved zones ¹⁴¹. At the Beijing Summit of the Forum on China-Africa Cooperation in 2006, Chinese president Hu Jintao announced that “three to five overseas economic and trade cooperation zones will be established in African countries in the next three years.” ¹⁴²

• (652) In 2007, MOFCOM organized a tender to appoint developers for the second batch of officially approved overseas trade and economic cooperation zones. Tianjin TEDA won the bid for the SETC-Zone. In October 2008, Tianjin TEDA established a joint venture with the China-Africa Development Fund to set up China-Africa TEDA Investment Co., Ltd. (‘China-Africa TEDA’), as the main Chinese investment entity in the cooperation zone. China-Africa TEDA united with the ECJV to create a new company, called Egypt TEDA Investment Co. (‘Egypt TEDA’) in order to drive the development of the SETC-Zone in Egypt. This time, the Chinese side held 80 % of the shares, and the Egyptian side (represented by the ECJV) 20 %. After the company was formally established in 2008, work in the zone advanced rapidly. On 7 November 2009, the then Prime Ministers of the two countries inaugurated the starting area, and listed the SETC-Zone as an important cooperation project of economy and trade between the two countries ¹⁴³. By the end of 2011, all the infrastructure in the starting area had been completed ¹⁴⁴.

• (653) In 2012, after the civil unrest in Egypt, President Morsi paid a State visit to China, during which he referred to the Zone as a key project of the bilateral cooperation between the two countries, and hoped that more and more Chinese enterprises would invest in Egypt through the zone and through subsequent projects, and thus participate in Egypt’s Recovery program ¹⁴⁵.

• (654) In 2013, Egypt TEDA and the Egyptian authorities signed a contract for the land of the 6 km² expansion area. As of 2013, the overseas trade and economic cooperation zones, such as the SETC-Zone, have also been further developed under the umbrella of the ‘Belt and Road Initiative’. Overseas parks have thus become an important carrier for the “going out” investments of Chinese companies. As a result, especially since 2013, the SETC-zone has been included in almost all important cooperation texts between the two governments ¹⁴⁶.

• (655) In 2014, Egypt launched the ‘Suez Canal Corridor Development Plan’. In the context of this Plan, the SE Zone was officially incorporated into the wider Suez Canal Economic Zone (‘SCZone’) in 2015, comprising the whole area around the Suez Canal of 461 km². The entire area is now considered as an “economic area of special nature” in accordance with Law 83/2002 and amendments thereof ¹⁴⁷.

• (656) In December 2015, President Sisi paid a visit to China, where he declared Egypt’s acceptance of President Xi Jinping’s offer to cooperate in the ‘One Belt, One Road’ initiative and to further develop projects in Egypt. On 21 January 2016, the two Presidents officially inaugurated the SETC-zone expansion project for the expansion area of 6km². During the State visit of Xi Jinping in Egypt, the two governments also signed the ‘Agreement between the Ministry of Commerce of the People’s Republic of China and the General Authority for the Suez Canal Economic Zone of the Arab Republic of Egypt on the Suez Economic and Trade Cooperation Zone’ of 21 January 2016 (‘the Cooperation Agreement’). The Cooperation Agreement further clarified the significance and legal status of the SETC-Zone ¹⁴⁸.

• (657) During the verification visit at the GOE, the latter confirmed that this Cooperation Agreement codified established practice in the zone since 2006. The main purpose of the Cooperation Agreement was thus to provide a clear written framework for this cooperation and to formalize it within the framework of the ‘One Belt, One Road’ initiative, including the GOC’s support to companies abroad. However, no further details were provided on the preparatory works of the Cooperation Agreement despite explicit requests from the Commission.

• (658) According to the Cooperation Agreement, the governments jointly develop the SETC-Zone. They do so in line with their respective national strategies (Belt & Road Initiative for China on the one hand, and the Suez Canal Corridor Development Plan for Egypt on the other hand). For that purpose, the GOE provides the land, the labour and certain tax breaks, whereas the Chinese companies operating in the zone run the production facility with their assets and managers. Compensating for a lack of Egyptian funds, the GOC also supports this project by making the necessary financial means available to Egypt TEDA and to the Chinese firms operating in the SETC-Zone.

• (659) The GFF producers operating in the SETC-Zone, Jushi Egypt and Hengshi Egypt, are incorporated under Egyptian law and have been established by Chinese parent companies (Jushi China and Hengshi China). The parent companies of the GFF producers are related and the ultimate parent company of these two companies is owned by the State-owned assets Supervision and Administration Commission (SASAC). They have received approval from relevant Chinese government authorities ¹⁴⁹ for setting up a subsidiary in Egypt. The daughter companies are financed with funds coming from China, they are using input materials and equipment imported from China, they are directed by Chinese managers and they are using Chinese know-how. They produce GFF in Egypt, which is exported to the EU from the SETC-Zone.

• (660) In order to ensure the smooth implementation of the above-mentioned Cooperation Agreement, the two governments also established a three-level consultation mechanism. In this context, the General Authority for the Suez Canal Economic Zone of the Arab Republic of Egypt and the Tianjin Municipal Commission for Commerce of the People’s Republic of China signed a ‘Cooperation Agreement on Establishment of the Administration Commission for the China-Egypt Suez Economic and Trade Cooperation Zone’ for the first-level inter-governmental consultations. At the second level, the Suez Economic and Trade Cooperation Management Committee was set up to ensure discussions at technical level between China Tianjin Municipality Government’s competent administration departments and the Egypt Suez Canal Economic Area Authority’s relevant competent departments. Regular meetings of these Commissions have taken place since 2017. At the third level, Egypt TEDA and the relevant Egyptian counterparts report the problems and difficulties arising to the governmental levels above.

4.2.2.   Partial non-cooperation and use of facts available in relation to the SETC-Zone

4.2.2.1.   Application of the provisions of Article 28(1) of the basic Regulation in relation to the GOE

• (661) The Commission requested the GOE in its questionnaire, in the deficiency letter, and during the verification visit to provide certain information relating to the Suez Economic and Trade Cooperation Zone in Egypt. Those information requests included among others questions on the legal and institutional framework, and the existence of intergovernmental agreements between China and Egypt.

• (662) The GOE provided in this context the 2016 Agreement between the Ministry of Commerce of the PRC and the General Authority for the Suez Canal Economic Zone of the Arab Republic of Egypt on the Suez Economic and Trade Cooperation Zone. However, the Commission is still missing information relating to any previous agreements, memoranda of understanding or other documents signed between the GOC and the GOE in relation to the SETC-Zone. For example, the Commission found publicly available references to a 1997 Memorandum of Understanding between the Government of the People’s Republic of China (‘GOC’), represented by Premier Li Peng and the GOE, represented by Prime Minister Kamal alGanzouri, on the establishment of a free trade zone in Egypt.

• (663) The Commission is also missing documentation relating to the implementation of the 2016 Agreement, and the consultation mechanisms put into place by the GOE and the GOC. As an example, the Commission found publicly available references to a Cooperation Agreement on Establishment of the Administration Commission for China-Egypt Suez Economic and Trade Cooperation Zone, signed by the General Authority of the Suez Canal Economic Zone and the Tianjin Commission of Commerce of the PRC. Furthermore, a joint management committee of the China-Egypt TEDA Suez Economic and Trade Cooperation Zone was formally established in April 2017. In July of 2017, the Intergovernmental Coordination Committee was established and held its first joint meeting. The Commission did not receive written documentation concerning the meetings held under these various consultation mechanisms, except for one meeting held by the Administration Commission.

• (664) In the absence of such information, the Commission considered that it had not received crucial information relevant to this aspect of the investigation.

4.2.2.2.   Application of the provisions of Article 28(1) of the basic Regulation in relation to the GOC

• (665) The Commission also requested the GOC in its questionnaire, in the deficiency letter, and during the verification visit to provide information relating to overseas investment in general, to overseas economic and trade cooperation zones in general, and more specifically to the SETC Zone in Egypt. Those information requests included among others questions on the legal and institutional framework for overseas economic and trade cooperation zones approved by the Chinese Ministry of Commerce, the existence of intergovernmental agreements between China and Egypt, as well as the role and the functioning of various Chinese State-owned entities in the SETC Zone.

• (666) The GOC reiterated several times that it considered the requests of the Commission to be inconsistent with Articles 1, 2, 4, 11.2 and 11.3 of the SCM Agreement as well as Articles 2, 3, 4, 10(2) and 10(3) of the Regulation (EU) 2016/1037 (‘the basic Regulation’), among other provisions, and therefore did not reply to any of the questions asked by the Commission. The Commission disagreed. In view of its involvement in the operations within the SETC-Zone and agreements with the GOE, the Commission considered that the GOC should have engaged also in this part of the investigation in order to provide further clarity.

• (667) In the absence of such information, the Commission considered that it has not received crucial information relevant to this aspect of the investigation.

• (668) Therefore, the Commission informed the GOE and the GOC that it might have to resort to the use of facts available under Article 28(1) of the basic Regulation when examining the existence and the extent of the alleged subsidisation for companies located in the SETC-Zone. The GOE and the GOC objected and stressed that they had fully cooperated with the Commission. However, the Commission considered that information about the precise collaboration between the two governments in the set-up and administration of the SETC-Zone was crucial for the legal assessment of the case as explained in the next Section 4.2.3. Unfortunately, it had only received two relevant documents after the respective verification with the consequence that it could not verify the authenticity thereof. Moreover, it could not engage in any follow-up discussion with the GOE about significant details, which could shed light on the extent and, degree of cooperation between the two governments in the zone.

• (669) Therefore, the Commission applied Article 28 of the basic Regulation and relied on facts available with respect to these points.

4.2.3.   Legal assessment

• (670) The operation of the SETC-Zone constitutes a close cooperation between the GOE and the GOC within the territory of the exporting country. The governments of Egypt and China have pooled their resources to provide the companies manufacturing in the SETC-Zone with favorable conditions that confer benefits to them. This pooling of resources via such close cooperation serves a common purpose and benefits a common beneficiary (Jushi Egypt and Hengshi Egypt).

• (671) In its comments of 7 August 2019, the GOC stated that the Commission cannot legally investigate the Chinese part of this close cooperation, i.e. the alleged financial contributions by Chinese banks to the companies operating in Egypt. Under Article 1.1(a) of the SCM Agreement, a subsidy only exists where there is a financial contribution by a government – or a public body – within the territory of the WTO member. Thus, according to the GOC, any alleged direct transfer of funds by a financial institution operating in China to producers/exporters of GFF in third countries “cannot be attributed to China or considered a financial contribution given by the GOC” ¹⁵⁰. In the GOC’s view, the Commission itself had supported a “territorial limit of subsidization” in the HRF case, when it declared “that there must be a financial contribution by a government or a public body within the territory of the subsidizing country” under recital 5 of the Basic Regulation ¹⁵¹. Moreover, the context of Article 1.1(a)(1) of the SCM Agreement, such as Articles XVI GATT, 2.1 and 2.2. SCMA on specificity, Article 14 SCMA on benefit calculations, Article 25.2 SCMA on notification requirements all contain references that the beneficiary should be located in the territory of the subsidizing WTO Members; in the same vein, also Section 10 of China’s Accession Protocol requires the country to notify any subsidy “granted or maintained on its territory” ¹⁵². Finally, the negotiating history of the Agreement demonstrates – in the GOCs view – that payments given by a government outside its territory would not be covered by the agreement.

• (672) The Commission observed that these comments tackle the question of whether the GOC is accountable under the SCM Agreement for granting subsidies for the production of goods overseas, which are exported to third WTO members. However, they do not speak to the separate question whether, in specific cases, the government of the exporting country is accountable under the SCM Agreement for having actively sought, acknowledged and adopted such subsidies for the benefit of the products made therein.

• (673) The Commission was therefore entitled to verify whether the resources provided to Jushi and Hengshi Egypt can be qualified as countervailable subsidies granted by the GOE within the meaning of Articles 2, 3 and 4 of the basic Regulation.

4.2.3.1.   Financial contribution of a government or a public body

• (674) According to Article 3(1)(a) of the basic Regulation, a subsidy exists if there is a financial contribution by a government in the country of origin or export. Similarly, Article 1.1(a)(1) of the SCM Agreement states that a subsidy shall be deemed to exist “if there is a financial contribution by a government or any public body”.

• (675) The GOE has provided to the two companies land and offered several tax breaks. These subsidies are thus operated and granted directly by the government of Egypt.

• (676) However, ever since the conclusion of the MoU in 1997, the GOE has actively sought to support the zone not only directly by the provision of land and tax breaks but also indirectly, through agreed assistance of the Chinese government for the development of the SETC-Zone in its territory. Indeed, under the terms of the MoU, the GOE expressly “encourag(ed) relevant business sector in China to provide contributions for the projects to be established within the zone”. Following the visit of President Morsi to China in August 2012, the SETC Zone received “unprecedented attention and support from the Egyptian government” ¹⁵³. Under Article 1 of the Cooperation Agreement 2016, both sides agreed to develop the zone “in accordance with (…) existing laws and regulations of the two countries”. Article 1 of the legislation implementing the Cooperation Agreement further specifies that “The Management Committee [responsible for coordinating and handling daily work of the Cooperation Zone] is established in line with multilateral and bilateral agreements and existing laws and regulations signed or participated by the People’s Republic of China and the Arab Republic of Egypt”. Under Article 4 of the Cooperation Agreement, both sides promise “support and facilitation for the construction, business facilitation and operation of the Cooperation Zone”. For that purpose, Egypt has agreed that China designates it as “overseas trade and cooperation zone”. China confirmed in Article 4(1) of the Cooperation Agreement that the zone in question “is entitled to relevant policy support and facilitation provided by the Chinese Government for overseas economic and trade cooperation zones”. In addition, in Article 5 of the Cooperation Agreement the GOC explicitly committed that it “shall support” the zone by, among others, “encouraging relevant financial institutions to provide financial facility” for companies and investments in the zone. Finally, under Article 7 of the same Agreement, both GOE and GOC committed themselves that any existing or future laws, which grant more favourable treatment than the Cooperation Agreement, shall prevail over the latter. The GOC’s preferential financing for the two GFF producers in the zone are the result of those engagements and should be seen in that context.

• (677) The joining forces by the GOE and the GOC served several purposes.

• (678) For the Egyptian side, as expressed at the highest political level ¹⁵⁴, the aim was to attract Chinese investments, know-how and capital in order to promote the economic development of the Suez Canal Area and create jobs. According to the 2022 Egyptian Perspective Long-Term Planning, published by the Planning Department of Egypt in November 2013, the SETC-Zone will play a great role for Egypt’s industry upgrade, earning foreign exchange through export, creating taxation, and solving unemployment ¹⁵⁵.

• (679) For the Chinese side, the motivation was different. From the perspective of the companies itself, Egypt has certain advantages in terms of lower labour costs and shorter delivery times to main markets, such as the EU. In addition, as mentioned in the bond prospectus issued by Jushi China in 2014: “trade protective barriers have increased the market prices of China’s fiberglass exports in disguise, which has a negative impact on Jushi Group’s fiberglass exports. … after the launch of Jushi Egyptian Glass Fiber Co., Ltd. in 2013, the product demand of the above three regions will be met by Jushi Egypt. The above three regions will not impose anti-dumping duties on Jushi Egyptian products, and the impact of anti-dumping policies on Jushi Group will be greatly reduced. The preliminary pricing principle of Jushi Egyptian fiberglass products for the customers in the above three regions is to share the tariff savings with the customers and to enjoy the savings of anti-dumping duties and shipping costs in full by the issuer”. Indeed, since 2011 ¹⁵⁶ and the end of 2014 ¹⁵⁷ imports of GFR (the main input for making GFF, representing around 70 % of its manufacturing costs) originating in China have been subject to anti-dumping and countervailing duties in the EU and the EU is one of the “three regions” that is referred to in the bond prospectus.

• (680) From the perspective of the GOC, according to MOFCOM’s 13^th Five-Year Plan for the Development of Foreign Trade, one of the main tasks under this plan is to enhance the trade cooperation with countries along the ‘One Belt and One Road’ initiative in order to promote and expand exports of, among others, high-tech products, such as GFF. The plan contains the following statement: “Stabilize exports of advantageous products such as labor-intensive products to the aforesaid countries, seize the opportunities of constructing infrastructure for such countries, and impel exports of large-sized complete sets of equipment, technologies, standards and services. Adapt to the trend of transformation and upgrade of industries of these countries, and accelerate exports of electromechanical and high-tech products. … Intensify the expansion of emerging markets, and after comprehensively considering economic scale, growth speed, resource endowment, risk degree and other factors, select several emerging markets for primary expansion. Expand exports of advanced technical equipment, and promote exports of high-quality, high-grade and comparatively advantageous industries and products” Envisaged measures to achieve these tasks include the “development of State-level economic and technological development zones and various parks”.

• (681) As expressed in one article, ‘Under the government departments’ guidance in the framework of the ‘One Belt, One Road’, and in connection with the host country strategy at the highest level, overseas cooperation zones have become a vehicle to implement the ‘One Belt, One Road’ and international production capacity cooperation’ ¹⁵⁸.

• (682) Overseas zones thus serve several strategic objectives for China. First, they could help increase demand for Chinese-made machinery and equipment. Second, by producing overseas and exporting to Europe or North America, Chinese companies would be able to avoid trade frictions and barriers imposed on exports from China. Third, they could assist China’s efforts to boost its own domestic restructuring and move up the value chain at home ¹⁵⁹.

• (683) It follows from the above that the Egyptian government was expecting and welcoming Chinese financing for the close cooperation within the SETC-Zone, in order to boost the development of one of its poorest regions. The Chinese government was hoping that Chinese companies could operate outside Chinese territories and expand their exports under the ‘One Belt, One Road’ initiative (possibly to avoid being caught by trade defence measures).

• (684) Under these circumstances, the Commission considered that the term ‘by the government’ in Article 3(1)(a) of the basic Regulation should include not only measures directly emanating from the GOE but also those measures by the GOC which can be attributed to the GOE on the basis of the available evidence.

• (685) As the Appellate Body (‘AB’) held in the US-Gasoline case ¹⁶⁰, WTO law cannot be read in clinical isolation from general international law. In particular, general international law principles thus form part of the WTO legal order, which is not a self-contained regime ¹⁶¹. In line with Article 3.2 DSU and Article 31(3) (c) of the Vienna Convention on the Law of Treaties (VCLT), “[a]ny relevant rules of international law applicable in the relations between the parties” must be taken into account in the assessment of the context of the terms of a treaty.

• (686) These “rules” include customary international law ¹⁶², which are by definition binding on all WTO members, including Egypt, China and the European Union. An important branch of customary international law is the rules on State responsibility, which have been codified by the International Law Commission (ILC Articles on the Responsibility of States for Internationally Wrongful Acts) ¹⁶³ in accordance with its mandate under Article 13(1) (a) of the UN-Charter.

• (687) The rules in the ICL Articles are also “relevant” within the meaning of Article 31(3) (c) VCLT because they provide guidance for the interpretation of the notion of attribution, i.e. when certain acts or omission can be attributed to one State, even when those acts or omissions do not emanate from that State directly. In this respect, the notion of attribution becomes relevant to interpret the terms “by the government” in the chapeau of Article 1.1(a)(1) of the SCM Agreement, and more in particular, to determine the correct attribution of a conduct in a situation of cooperation between two States with respect to subsidies, as in the case at hand ¹⁶⁴.

• (688) The ILC Articles can thus be used to interpret the terms “by the government” in the chapeau of Article 1.1(a)(1)of the SCM Agreement in order to attribute the conduct (granting of a subsidy) to the GOE, even in cases where the financial contribution has not been made directly by the GOE.

• (689) In this respect, the Commission noted that Article 11 of the ILC Articles provides, in particular, that “conduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own”. The commentary of the ILC to Article 11 explains that “instances of the application of the principle [of State attribution through acknowledgement and adoption of behavior] can be found in judicial decisions and State practice” ¹⁶⁵. As recalled in recital 6 of the same commentary, it is required that a State “identifies the conduct in question and makes it its own”.

• (690) From the inception of the project in 1997, the Egyptian government made Chinese financing of Jushi Egypt and Hengshi Egypt part of its own policy for the zone. President Morsi publicly welcomed Chinese investment and capital during his visit to China in August 2012, and the Planning Department of Egypt acknowledged in November 2013 that the Chinese financed SETC-Zone will play a great role for Egypt’s industry upgrade. On another visit to China in December 2014, President Sisi “expressed that the proposal from President Xi Jinping of jointly establishing the ‘One Belt and One Road’ provided a significant opportunity for Egyptian recovery and Egyptian party was ready for active involvement and giving support. Egyptian party wished to cooperate with China in developing the projects of Suez Canal Corridor, Suez Economic and Trade Cooperation Zone and so on, and attract Chinese enterprises to invest in Egypt” ¹⁶⁶.

• (691) The characteristics of the Chinese ‘One Road One Belt’ initiative are public knowledge. Articles 30 to 36 of the Guiding Opinions of the State Council on the Promotion of International Production Capacity and Equipment Manufacturing Cooperation of 13 May 2015 list all the policy support that companies ‘going abroad’ can receive. They include fiscal and tax support policies, concessional loans, financial support through syndicated loans, export credits, and project financing, equity investment, and finally export credit insurance. Article 31 thereof refers to “concessional loans” which shall “support enterprises to participate in the export of large-scale complete sets of equipment, project contracting and large-scale investment projects”. In practice, this policy has led to numerous preferential financing by banks or the specifically set-up ‘Silk Road Fund’ under Article 35 of the Guiding Opinions, as recently established by the Commission in another case ¹⁶⁷.

• (692) As the Presidents of Egypt were no doubt aware that the Chinese ‘One Belt and One Road’ initiative involves heavy State financing through preferential financing and other financial instruments, there was hence a clear act of acknowledgment and adoption at the highest political level of such financing support from the GOC by jointly setting up the SETC-Zone with China.

• (693) The fact that Egypt acknowledged and adopted Chinese preferential financing is further sustained by the text of the 2016 Cooperation Agreement. As laid down in Article 1 of the Cooperation Agreement, Egypt explicitly accepted that China may apply its laws with respect to operators in the SETC-Zone or relating to operations in the SETC-Zone. For that purpose, the Egyptian government was also in agreement that China designated the SETC-Zone as an “overseas investment area” under its laws. Since “overseas investment areas” are a vehicle of the One-Road One Belt initiative as noted in recital (681), and since this initiative uses preferential financing as a tool as described in recital (691), such designation in Article 4 of the Cooperation Agreement where China also confirmed that the zone in question “is entitled to relevant policy support and facilitation provided by the Chinese Government for overseas economic and trade cooperation zones”, had the consequence that Jushi Egypt and Hengshi Egypt became eligible to ask for preferential lending from Chinese policy banks and preferential export insurance terms. Egypt also signed off to Article 5, according to which the Chinese Government shall also support the Cooperation Zone by “encouraging relevant financial institutions to provide financing facility for …investment projects located within the Cooperation Zone, provided that the lending conditions and the loan use requirements are met”. As already found in a previous investigation, the Chinese preferential financing is not operated by clearly prescribed funding programs with strict eligibility criteria, but rather by the identification at the highest level of a number of encouraged industries ¹⁶⁸. The official designation of the SETC-Zone in Egypt as overseas investment area for Chinese companies in the aftermath of a common agreement between the two Presidents and the “encouragement” in Article 5 fits perfectly well into the usual Chinese pattern of activating preferential financing by its policy banks.

• (694) The Chinese preferential measures in favour of the Chinese entities established in Egypt were thus “identified” and “made its own” by Egypt.

• (695) Moreover, Egyptian officials were continuously present in the three level implementation mechanism mentioned in recital (660). The task of the implementation mechanism is to “coordinate and facilitate relevant financial institutions, including but not limited to banking institutions, insurance institutions and various funds which provide credit support for the Cooperation Zone and residential enterprises, and help the Cooperation Zone and residential enterprises to explore more financing channels” under Article 2(V) of the Implementing Agreement. Article 2(4) of the same document mandates the officials to “try the utmost efforts to implement all incentive policies of the Chinese and Egyptian laws and regulations in a smooth manner”. This records the shared understanding of Egypt and China that the Chinese side is not providing money at market rates, which Jushi Egypt and Hengshi Egypt could have received from international market investors, but proactively provides State incentives, which is another word for benefits or preferences.

• (696) By implementing this provision, Egypt has also expressed its full endorsement of the Chinese preferential financing for the benefit of the GFF producers in the zone. In view of the partial non-cooperation of both governments (see Section 4.2.2) on this crucial aspect of the investigation, the Commission could not establish more details in this respect; however, the evidence available points to the fact that the two governments cooperated as described above for the benefit of the GFF’s exporting producers located in the zone.

• (697) It follows from the evidence that the financial contributions in the form of preferential financing from Chinese public bodies to Jushi and Hengshi Egypt can be attributed to the GOE as the government of the country of origin or export under Article 3.1 (a) of the basic Regulation. The evidence showed that the GOE endorsed the preferential financial support to the GFF producers in the zone by the GOC in line with the agreed commitments to develop and support the economic activities within the zone.

• (698) In this context, the Commission further noted that the possibility for governments to provide a financial contribution indirectly through private bodies is neither exogenous to the basic Regulation nor the SCM Agreement ¹⁶⁹. Indeed, in cases where governments entrust or direct private bodies into a particular conduct, a key issue is that there must be “a demonstrable link” between the government act and the conduct of the private body ¹⁷⁰. Similarly, in this case, there is a clear and explicit link between the affirmative actions taken by China in order to provide the agreed financial support to the GFF’s exporting producers and the GOE.

• (699) Consequently, the Commission considered that the preferential financing granted by the GOC to the GFF’s exporting producers in the zone amount to financial contributions by the GOE in the sense of Article 3(1)(i) of the basic Regulation ¹⁷¹.

4.2.3.2.   Benefit

• (700) The Commission then considered whether these financial contributions attributable to the GOE would confer a benefit on Jushi and Hengshi Egypt under Article 3(2) of the basic Regulation. It recalled that these two companies were operating in Egypt and incorporated under Egyptian law. Hence, it was in principle appropriate to inquire whether these recipients of the financing received better terms than they would have received on the Egyptian financial market. The Commission verified this point and was satisfied that this was the case by a high margin.

• (701) However, the Commission also took into consideration the exceptional circumstances of this case. As noted in recital (659), the exporting producers are related to Chinese mother companies, who are ultimately held by SASAC. Chinese public bodies granted the preferential financing after negotiation and signature of the relevant documents in China, and the recipients received them directly or indirectly through the channel of their mother company in China (inter-company loans). Moreover, as laid down in Article 1 of the Cooperation Agreement, the Egyptian government accepted that those entities receive preferential support, thus including cheap loans in line with Chinese law, i.e. under Chinese conditions. The Chinese public bodies provided such financing in line with Article 5 of the Cooperation Agreement according to the preferential financing policies implemented in China as detailed in Section 3.4. As explained in recital (657) above, these provisions of the Cooperation Agreement codified prior established practice.

• (702) The Commission therefore concluded that the adoption and acknowledgement by the Egyptian government of the financial contributions from the Chinese public bodies to Jushi and Hengshi Egypt included also the benefit element thereof. It hence established market rates for the preferential financing and calculated the benefit accordingly (see below Section 4.3). It noted that this reasonable approach resulted in lower subsidy amounts than the ones derived from applying a hypothetical Egyptian benchmark.

4.2.3.3.   Specificity

• (703) Concerning the third point on specificity, the Commission examined whether these subsidies were specific as required by Articles 4(2) through (4) of the basic Regulation.

• (704) By way of acknowledgment and adoption, the GOE was the granting authority with respect to the preferential financing. In particular, the GOE has acknowledged and adopted the designation by the GOC of the SETC Zone as an overseas investment territory under Article 4 of the Cooperation Agreement and endorsed the fully-fledged implementation thereof by, inter alia, the GOC’s provision of preferential financing.

• (705) These subsidies were limited to companies operating in the Suez Canal area (of which the SETC-Zone is a part). Consequently, the Commission concluded that they were regional subsidies within the meaning of Article 4(3) of the basic Regulation and falling within the jurisdiction of the granting authority in accordance with Articles 4(2) through (4) of the basic Regulation.

4.2.3.4.   Conclusion

• (706) In conclusion, the Commission found that both the subsidies granted to companies operating in the SETC-Zone directly by Egypt (provision of land, tax breaks) as well as the subsidies granted indirectly through the GOC’s preferential financing are countervailable under Articles 2-4 of the basic Regulation. The latter are attributable to Egypt by virtue of the acknowledgment and adoption of the GOC’s measures by Egypt as its own, for example through the Cooperation Agreement, the close cooperation and the various levels of cooperation mechanisms. The financial contributions also conferred benefits and were specific. The Commission examined all the relevant subsidies in more details below.

• (707) Upon disclosure, the GOE contested these findings by making five points: First, it was impossible under international law to attribute sovereign acts of the Government of China to the Government of Egypt. Second, the Commission had disregarded its own basic Regulation, according to which the granting authority must be based within its own territory. Third, the attribution of Chinese acts to Egypt also violated WTO law, which could not be interpreted in light of Article 11 of the ILC Articles on State Responsibility. Fourth, Article 11 of the ILC Articles was not even applicable to the facts at hand. Fifth, the financial contributions to Jushi and Hengshi China did not meet the requirements of specificity under Article 3 of the basic Regulation.

• (708) The GOC equally took issue with the Commission’s treatment of loans provided by Chinese financial institutions to Egyptian companies located in the SETC-zone and intra-company loans between companies located in Egypt and their parent as countervailable subsidies. It first argued that a subsidy could not be “created” for China and then “lumped on” to Egypt, as this would countervail legitimate foreign investment. The GOC considered next that the text, context, object and purpose of the SCM Agreement does not permit the stretching of the scope of “a government or public body” to a third country. Third, the GOC argued that Article 11 of the ILC Articles on State Responsibility could not be relied on as relevant context as it did not relate to the same subject matter as Article 1.1(a)(1) of the SCM Agreement. Even if Article 11 of the ILC Articles was relevant, there would be a clear inconsistency with Article 1.1(a)(1) of the SCM. In that case, the GOC maintains as its fourth point, the latter would prevail over the former as lex specialis.

• (709) At the outset, the Commission observed that neither the GOC nor the GOE made any comment on the accuracy of the facts regarding the cooperation between these two governments as described in Section 4.2.1 above.

• (710) The Commission noted that the objections from the GOE and the GOC partially overlapped and partially invoked separate arguments. The Commission analysed the overlapping points together and tackled the remaining arguments made by each government one by one.

• (711) In the GOC’s opening view, it argues that the Commission had been unable to establish a Chinese financial contribution in the context of companies operating in Egypt. It was thus “creating” a subsidy by the GOC which it could later on “lump on” Egypt, trying to “legalize” this technique by virtue of wrongfully applying Article 11 of the ILC Articles to a situation, where there was no countervailable subsidy from China in the first place. By this impermissible construction, the EU would start tackling “legitimate foreign investment”.

• (712) The Commission observed that this political argument is based on two questionable legal premises: First, Chinese action must satisfy all the criteria of a subsidy under the SCM Agreement to trigger liability. Second, if this is not the case, the SCM Agreement does not allow the countervailing by the EU of any support received by companies operating in Egypt. However, this argument mixes a factual and a normative dimension. As explained before, the GOE expected and welcomed the (fact of) preferential lending by Chinese financial institutions to the companies in Egypt, and acknowledged and adopted as its own such preferential lending. Whether or not such preferential lending triggered (from a normative point of view) also the international responsibility of China for a breach of the SCM Agreement is irrelevant. In other words, the Commission attributed Chinese “conduct” (namely, the granting of the preferential lending) to the GOE and not “wrongful acts”. Therefore, the Commission rejected the GOC’s first claim that it had to first show that the GOC had handed out a subsidy within the meaning of the SCM Agreement, and failing to do so had erroneously “created” a GOC subsidy for the benefit of the exporting producers of the product concerned.

• (713) The GOE stressed in its first point the principle of sovereignty in international law. From its perspective, an act can only be attributed to a State when that act is vested with authority of that State. Therefore, acts of entities vested with Chinese authority are only attributable to the Chinese State. In the hearing of 18 March 2020, the GOE specified its reasoning by citing the example of military forces of one state stationed with the consent of another state in the latter’s territory. In the view of the GOE, any action of the invited military forces could only be attributed to the invited state, but would not trigger the responsibility of the host State.

• (714) The Commission rejected this claim. The principle of sovereign equality in international law, as enshrined in Article 2(1) of the UN-Charter, prohibits that one State exercises its powers on the territory of another State against the will of the territorial State. However, States are free to authorize action of another State within their territory. Action of the invited State on the territory of the host State may then become attributable to the host State. In the example mentioned by GOE during the hearing, this rule follows directly from Resolution 3314 (XXIX) of the UN General Assembly of 1974 on the definition of aggression, which is widely regarded as codification of customary international law. Under Article 3 lit. (f) of that Resolution, aggression by one State against another State is defined not only as direct attacks through its own State organs, but also as “the action of a State in allowing its territory, which it has placed at the disposal of another State to be used by that other State for perpetrating an act of aggression against a third State”. Clearly, if Cuba had allowed the Soviet Union to attack the United States with Russian missiles from Cuban territory in 1962, this would have triggered the international responsibility of Cuba for acts of aggression against the United States. Accordingly, international law recognizes the possibility to attribute action of an invited State to the host State and even sanctions the host State for doing so, if the action of the invited State harms a third State.

• (715) Second, the GOE and the GOC argued that there is no room for attributing conduct of the Chinese government to Egypt under the EU’s basic Regulation. The definition of “government” under Article 2(b) of the basic Regulation was expressly linked to the territory of the granting authority. The words “within the territory” in that provision were aimed at providing legal security and could not be interpreted away in light of WTO or international law.

• (716) Article 2(b) of the basic Regulation provides: ‘ “Government” means a government or any public body within the territory of the country of origin or export.’ The Commission agreed with the GOE that this provision covers action of the government from whose territory the subsidized products are exported to the European Union. This is the case here. The product under consideration is manufactured in Egypt and exported from Egypt to the European Union. The government of Egypt is situated on the territory of Egypt. However, Article 2(b) of the basic Regulation does not speak to the separate question which action the government may authorize on its territory and acknowledge as its own. Just like with the notion of “public body”, the notion of “government” is open to interpretation, taking into account its context, object and purpose. Thus, the actions attributable to the government of the country of origin or export may not only be actions directly emanating from such a government but also actions imputable to such a government. This is further confirmed by the terms in Article 3(1)(a) of the basic Regulation when referring to a financial contribution “by” a government. For the same reasons, the arguments by the GOE invoking several provisions of the SCM Agreement (e.g. Articles 1.1(a)(1), 13, 18.1(a) and footnote 63) are of no avail. While it is true that the basic Regulation “must be interpreted, as far as possible, in the light of the corresponding provisions of the SCM Agreement” ¹⁷², these provisions do not argue against the proposition that a financial contribution may be provided by another state which the territorial government acknowledges and adopts as its own.

• (717) Consequently, the second claim of the GOE and the GOC derived from the alleged strict notion of territoriality under Article 2(b) of the basic Regulation and Article 1.1(a)(1) of the SCM Agreement was rejected.