Commission Implementing Regulation (EU) 2022/116 of 27 January 2022 imposing a definitive anti-dumping duty on imports of acesulfame potassium originating in the People’s Republic of China, following an expiry review pursuant to Article 11(2) of Regulation (EU) 2016/1036 of the European Parliament and of the Council

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 11(2) thereof,

Whereas:

1. PROCEDURE

1.1.   Previous investigations and measures in force

• (1) By Regulation (EU) 2015/1963 ² the European Commission imposed definitive anti-dumping duties on imports of acesulfame potassium (‘Ace-K’), originating in the People’s Republic of China (‘the PRC’, ‘China’ or ‘the country concerned’) (‘the original measures’). The investigation that led to the imposition of the original measures will be referred to as ‘the original investigation’.

• (2) The rates of anti-dumping duty currently in force range from 2,64 euro to 4,58 euro per kg net on imports from the cooperating exporting producers, and a duty rate of 4,58 euro per kg net applies to imports from all other companies.

1.2.   Request for an expiry review

• (3) Following the publication of a notice of impending expiry ³ the European Commission (‘the Commission’) received a request for a review pursuant to Article 11(2) of the basic Regulation.

• (4) The request for review was lodged on 31 July 2020 by Celanese Sales Germany GmbH (‘the applicant’), the sole manufacturer in the Union and thus representing 100 % of the total Union production of Ace-K. The request for review was based on the grounds that the expiry of the measures would be likely to result in continuation of dumping and recurrence of injury to the Union industry ⁴.

1.3.   Initiation of an expiry review

• (5) Having determined, after consulting the Committee established by Article 15(1) of the basic Regulation, that sufficient evidence existed for the initiation of an expiry review, on 30 October 2020 the Commission initiated an expiry review with regard to imports of Ace-K originating in the PRC on the basis of Article 11(2) of the basic Regulation. It published a Notice of initiation in the Official Journal of the European Union ⁵ (‘the Notice of initiation’).

1.4.   Review investigation period and period considered

• (6) The investigation of continuation of dumping covered the period from 1 July 2019 to 30 June 2020 (‘review investigation period’ or ‘RIP’). The examination of trends relevant for the assessment of the likelihood of recurrence of injury covered the period from 1 January 2017 to the end of the review investigation period (‘the period considered’) ⁶.

1.5.   Interested parties

• (7) In the Notice of initiation, interested parties were invited to contact the Commission in order to participate in the investigation. In addition, the Commission specifically informed the applicant, the known producers of Ace-K in the country concerned and the authorities of the People’s Republic of China, the known importers and users about the initiation of the investigation and invited them to participate.

• (8) Interested parties also had an opportunity to comment on the initiation of the expiry review and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings.

• (9) Hearings took place with one exporting producer Anhui Jinhe Industrial Co. Ltd. (‘Anhui Jinhe’) and the applicant.

1.6.   Comments on initiation

• (10) The Commission received comments on initiation from Anhui Jinhe. The applicant also provided comments in this regard.

• (11) Anhui Jinhe requested a disclosure and a meaningful summary of certain data in the request. In particular, it argued that the applicant should have disclosed in the non-confidential version of the request data on the total volume and average prices of imports from China in the period considered referred to in the request. Anhui Jinhe claimed that this data was not confidential as it had been disclosed by the Commission in the original investigation. Furthermore, Anhui Jinhe claimed that the respective data was not based on any actual commercially sensitive data but on the applicant’s estimates and that any reference to copyright could not be relied upon to withhold this data. In addition, Anhui Jinhe also requested that the applicant provide a meaningful summary of the relevant injury indicators in order to provide sufficient detail to permit a reasonable understanding of the data submitted in confidence. It further claimed that in the request this data was either confidential or presented based on meaningless ranges that failed to show any trend, while the Commission provided this data in an indexed form in the original investigation. Therefore, Anhui Jinhe requested the applicant to disclose in indexed form data on Union consumption, production capacity, capacity utilization, market shares, undercutting, cost of production, profitability, export sales and cost of raw materials. Anhui Jinhe also requested the applicant to provide a meaningful summary of its current level of profitability indicating whether it was above 5 % in the review reference period as well as indexed data starting from 2011 as the applicant referred to this year as the relevant year for comparison.

• (12) In its reply, the applicant claimed that most of the information was confidential by nature as it was based on data from one company only and argued that ranges of indexes were necessary to prevent reconstruction of the underlying confidential data. In particular, the applicant claimed that providing the exact figures of total volume of imports from China combined with the indexation of market shares would enable the reconstruction of the sole Union producer’s sales. In its submission, the applicant revised its non-confidential data and provided additional information. In this respect, the applicant provided ranges of volume of total imports, additional information concerning the trend of consumption, ranges of indexation for production, market shares, an indexation of profitability, other injury indicators (such as stocks, employment, cash flow, investments, return on net investments) and of evolution of the Union producer’s sales outside the Union. Concerning the rest of the data requested by Anhui Jinhe, the applicant claimed that the non-confidential version of the request contained a sufficiently meaningful summary and that giving additional information would not be possible without revealing confidential information.

• (13) In reaction to the revised data of the applicant, Anhui Jinhe maintained that the request still did not contain sufficient information such as the volume of imports from China or the Union and global demand for Ace-K. Anhui Jinhe argued that the rights of defence should be considered when analysing the meaningfulness of the non-confidential version of the request and that it was not in the position to understand whether there was any factual basis for the allegations of the applicant.

• (14) The applicant disagreed with the above claims and argued that the open version of the request provided factual basis for its allegations and data was redacted where it was not possible to provide ranges of indexed trends without revealing confidential information. In particular, the applicant claimed that the non-confidential version of the request showed the evolution of total imports of Ace-K from China and enabled Anhui Jinhe to comment on it. Concerning data on demand, the applicant claimed that the regulation imposing provisional measures on imports of Ace-K from China ⁷ did not indicate the total Union consumption in absolute terms, and therefore the applicant did not have to show this either.

• (15) It is noted that as the applicant is the sole producer of Ace-K in the Union, confidential information had to be presented in ranges and indexes in order not to reveal company specific business information. The Commission considered that the data in the non-confidential version of the request as complemented by the applicant in its submission was in sufficient detail to permit a reasonable understanding of the substance of the information submitted in confidence. The applicant provided a meaningful summary with ranges that were sufficiently narrow when compared to the actual figures that allowed interested parties to assess the volume of imports and its trends. Thus, the Chinese exporting producers were able to exercise their rights of defence.

• (16) Anhui Jinhe argued that the request failed to demonstrate the attractiveness of the Union market as it showed that average export prices of Chinese exporters to the Union and other markets were the same. Arguably, this showed that Chinese producers were indifferent between selling to the Union and to third countries. In this respect, Anhui Jinhe cited the Bioethanol ⁸ and Urea ⁹ investigations where the Commission concluded that the Union market was attractive to exporting producers when average export prices to the Union were higher than to third markets.

• (17) In this respect, the applicant claimed that the request clearly showed that the Union market was attractive for Chinese exporting producers as, in the absence of the anti-dumping measures, they would be able to obtain higher volumes of sales on the Union market than on other markets. The applicant also argued that the Union market was attractive to Chinese producers before the anti-dumping duties were imposed.

• (18) The Commission considered that the request indicated that if the anti-dumping measures were allowed to expire, the Chinese exporting producers would be likely to substantially increase sales volumes to the Union market.

• (19) Anhui Jinhe also argued that the applicant’s price underselling allegations were manifestly erroneous as the applicant’s cost of production used in the underselling calculation of the request was too high as compared to the original investigation and could not be relied upon. Moreover, Anhui Jinhe argued that the applicant had considerably increased its price levels since the original investigation and that the anti-dumping measures brought it excessive profits, which were far beyond what was recorded in the original investigation. In this respect, Anhui Jinhe cited the Dicyandiamide ¹⁰ and the Urea ¹¹ investigations where the Commission allowed the measures to lapse in view of the Union industry’s high profitability. Anhui Jinhe also argued that the Union industry’s production capacities were fully utilized and were insufficient to satisfy growing Union demand and referred to the Ferro-Silicon case where the Commission discontinued the measures ¹². In addition, Anhui Jinhe claimed Chinese producers still had a [28-34 %] market share on the Union market despite the prohibitive measures because users always maintained two or more suppliers of Ace-K to ensure the safety of the supply chain especially after recent disruptions due to COVID-19. Finally, Anhui Jinhe stressed that the Union industry successfully competed with Chinese imports in third markets where there were no measures in place and sold significant volumes in these markets. Anhui Jinhe claimed that this demonstrated that the applicant was capable of successfully competing with Chinese imports without anti-dumping measures, which pointed to the lack of likelihood of recurrence of injury.

• (20) The applicant contested the above claims. In fact, the applicant claimed that it used the profit margin established by the Commission in the original investigation in the underselling calculations of its request. Also, the applicant argued that the anti-dumping duties ensured that prices of imports from China were at a non-injurious level. The applicant claimed that if anti-dumping measures were to expire, Chinese exporting producers would increase their market share in the Union to the same percentage level as in the rest of the world. The applicant also submitted detailed scenarios to demonstrate how its business would be affected if anti-dumping duties were to expire.

• (21) The Commission’s analysis confirmed that none of the elements mentioned by Anhui Jinhe, whether factually correct or not, were sufficient to call into question the conclusion that the request contained sufficient evidence tending to show that the expiry of the measures would likely result in a continuation of dumping and recurrence of injury. These aspects had been established on the basis of the best evidence available to the applicant at the time, and were sufficiently representative and reliable. Furthermore, the claims put forward by Anhui Jinhe and the rebuttals by the applicant were examined in detail in the course of the investigation and are further addressed below.

• (22) On the basis of the above, the Commission confirmed that the request provided sufficient evidence that the expiry of the measures would likely result in a continuation of dumping and recurrence of injury, thereby satisfying the requirements set out in Article 11(2) of the basic Regulation.

• (23) In their comments following final disclosure, Anhui Jinhe argued that the information contained in the request was either not relevant (e.g. evidence of distortions concerning sulfamic acid referred to alleged distortions of urea and the evidence of distortion for potassium hydroxide referred to potassium salt) or not based on publically available sources (e.g. the acetic acid distortion relies on a report purchased by the applicant, which at the same time is not consistent with the China Country Report).

• (24) In this regard, since sulfamic acid is produced from urea and potassium hydroxide is produced from potassium salt, any market distortions that affected the raw materials affect also the final product. Moreover, contrary to what Anhui claims, in the request the applicant refers to the China Report in addition to another confidential source. As pointed out by the applicant there was an inconsistency in the Country Report between the text and the figures regarding the capacity utilisation of acetic acid in China. However, there is no inconsistency between the China Report and the confidential source, because the updated capacity information provided by the applicant, which was checked by the Commission, was consistent with the capacity utilisation figures in the China Report. Therefore, the claims were rejected.

1.6.1.   Sampling

• (25) In view of the apparent large number of producers in the country concerned and unrelated importers in the Union, the Commission stated in the Notice of initiation that it might sample the producers and unrelated importers in accordance with Article 17 of the basic Regulation.

1.6.2.   Sampling of producers in the PRC

• (26) To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all producers in the PRC to provide the information specified in the Notice of initiation. In addition, the Commission asked the Mission of the People’s Republic of China to the European Union to identify and/or contact other producers, if any, that could be interested in participating in the investigation.

• (27) Two exporting producers in the country concerned provided the requested information and agreed to be included in the sample. In view of the low number of replies, the Commission decided that sampling was not necessary and informed all the interested parties by a note to the file. The Commission invited these companies to participate in the investigation and sent them a link to the questionnaire.

1.6.3.   Sampling of importers

• (28) To decide whether sampling was necessary and, if so, to select a sample, the Commission invited unrelated importers to provide the information specified in the Notice of initiation.

• (29) No unrelated importer provided the requested information and agreed to be included in the sample.

1.7.   Replies to the questionnaire

• (30) 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’).

• (31) The Commission sent links to the questionnaire to the two exporting producers that returned the sampling form. The same questionnaires had also been made available online ¹³ on the day of initiation.

• (32) Complete questionnaire replies were received from one exporting producer and the sole Union producer.

1.8.   Verification

• (33) The Commission sought and cross-checked all the information it deemed necessary for the determination of likelihood of continuation or recurrence of dumping and injury and of the Union interest. Due to the outbreak of the COVID-19 pandemic and the consequent measures taken to deal with the outbreak (‘the COVID-19 Notice’) ¹⁴ the Commission was however unable to carry out verification visits at the premises of the cooperating companies. Instead, the Commission performed remote cross-checks (‘RCCs’) of the information provided by the following companies via videoconference:

(a) Union producer

• — Celanese Sales Germany GmbH, Celanese Production Germany GmbH & Co. KG Sulzbach, Germany and the Principal Operating Company Celanese Europe BV, Amsterdam, the Netherlands;

(b) Exporting producer in the PRC

• — Anhui Jinhe Industrial Co., Ltd, Chuzhou, Anhui.

1.9.   Subsequent procedure

• (34) On 27 October 2021, the Commission disclosed the essential facts and considerations on the basis of which it intended to maintain the anti-dumping duties (‘final disclosure’). All parties were granted a period within which they could make comments on the disclosure and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings.

• (35) Comments were received from Anhui Jinhe and the applicant.

• (36) Hearings took place with Anhui Jinhe and the applicant.

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1.   Product under review

• (37) The product under review is the same as in in the original investigation namely acesulfame potassium (potassium salt of 6-methyl-1,2,3-oxathiazin-4(3H)-one 2,2-dioxide; CAS RN 55589-62-3) originating in the People’s Republic of China currently classified under CN code ex 2934 99 90 (TARIC code 2934999021) (‘the product under review’). Acesulfame potassium is also commonly referred to as Acesulfame K or Ace-K.

• (38) Ace-K is used as a synthetic sweetener in a wide range of applications, for example in food, beverage, and pharmaceutical products.

2.2.   Like product

• (39) As established in the original investigation, this expiry review investigation confirmed that the following products have the same basic physical and chemical characteristics as well as the same basic uses:

• — the product under review;

• — the product produced and sold on the domestic market of the PRC; and

• — the product produced and sold in the Union by the Union industry.

• (40) These products are therefore considered to be like products within the meaning of Article 1(4) of the basic Regulation.

3. LIKELIHOOD OF CONTINUATION OR RECURRENCE OF DUMPING

3.1.   Preliminary remarks

• (41) In accordance with Article 11(2) of the basic Regulation, the Commission examined whether the expiry of the measures in force would be likely to lead to a continuation or recurrence of dumping from the PRC.

• (42) During the review investigation period, imports of Ace-K from the PRC continued albeit at lower levels than in the investigation period of the original investigation (i.e. from 1 July 2013 to 30 June 2014). According to the data reported to the Commission by the Member States in accordance with Article 14(6) of the basic Regulation (‘Article 14(6) database’), imports of Ace-K from the PRC accounted for [31-37 %] of the Union market in the review investigation period compared to [65-80 %] market share during the original investigation. In absolute terms, imports from the PRC have fallen by [47-56 %] since the investigation period of the original investigation.

• (43) As mentioned in recital (32) only one of the exporters/producers from the PRC submitted a questionnaire response and was therefore, considered to be cooperating in the investigation.

3.2.   Procedure for the determination of the normal value under Article 2(6a) of the basic Regulation

• (44) 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.

• (45) 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 Chinese exporting producers to provide information regarding the inputs used for producing Ace-K. One Chinese exporting producer submitted the relevant information.

• (46) In order to obtain information it deemed necessary for its investigation with regard to the alleged significant distortions, the Commission sent a questionnaire to the GOC. In addition, in point 5.3.2 of the Notice of initiation, the Commission invited all interested parties to make their views known, submit information and provide supporting evidence regarding the application of Article 2(6a) of the basic Regulation within 37 days of the date of publication of the Notice of initiation in the Official Journal of the European Union. No reply to the requested information was provided by 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.

• (47) Submissions on the application of Article 2(6a) of the basic Regulation were received from the exporting producer Anhui Jinhe.

• (48) 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’.

• (49) However, according to Article 2(6a)(a) of the basic Regulation, ‘in 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’.

• (50) 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.

3.2.1.   Existence of significant distortions

3.2.1.1.   Introduction

• (51) Article 2(6a)(b) of the basic Regulation stipulates that ‘significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces as they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements:

• — the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country;

• — state presence in firms allowing the state to interfere with respect to prices or costs;

• — public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces;

• — the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws;

• — wage costs being distorted;

• — access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state’.

• (52) As the list in Article 2(6a)(b) of the basic Regulation 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.

• (53) 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’. Pursuant to this provision, the Commission has issued a country report concerning the PRC (hereinafter ‘the Report’) ¹⁵, 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). Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation. The Report was placed in the investigation file at the initiation stage.

• (54) The applicant provided information additional to the findings of the Report affecting the raw materials used to produce Ace-K. The applicant has commissioned a report to identify the characteristics and the distortions relating to one of the main raw materials of Ace-K, sulphur trioxide, in the two Chinese provinces where it is produced, Jiangsu and Anhui. The relevant evidence includes the Chemical Industry Development Plan dated 24 October 2016 that indicates objectives and production targets which affect the supply level in the chemical sector, including the ones of sulphur trioxide sulfonation and Ace-K and the Anhui Province by referring to Opinions of CPC Anhui Provincial Committee and Anhui Provincial People's Government on Promoting High-quality Economic Development, issued on 14 March 2018. This policy document sets out several industrial policy initiatives to promote high-quality economic development, in particular in the province of Anhui, such as the use of financial incentives and tax reductions if the industrial and logistics companies operate in line with the ‘encouraged’ industries in the Central Structural Adjustment Catalogue. The applicant furthermore explained how State Council Decision on Promulgating the Implementation of the Interim Provisions on the Promotion of Industrial Restructuring of 2 December 2005 defines the economic and industrial policy objectives and directs all provincial governments to identify specific measures to guide investments. This includes supporting policies concerning land, credit, taxation, import and export. It also pointed to other state intervention policy tools, such as the Guidance Catalogue for the Structural Adjustment of Industry issued in January 2013 which divides industry segments into ‘encouraged,’‘restricted,’ and ‘eliminated’. Sulphur trioxide sulfonation falls into the ‘encouraged’ category in this catalogue.

• (55) The request also mentioned a document titled Sulphur Trioxide’s Export Tax and VAT Refund Withdrawal which identifies a VAT cost related to export equal to 13 % which results in an export restriction.

• (56) Concerning electricity, gas, stream and water, the request explained the role of pricing controls in the Jiangsu and Anhui provinces and it drew attention to the state and provincial interventions in the coal sector. The document titled Opinions of the State Council on the Reduction of Overcapacity in the Coal Industry and its Development, issued on 1 February 2016, confirmed the existence of overcapacity problems as well as the significant state intervention in the market in this sector.

• (57) Finally, the request lists specific subsidies for Nantong Acetic Acid, a company related to the Ace-K producer, Nantong Hongxin. According to a public announcement by Nantong Acetic Acid and Nantong Acetic Acid’s Annual Report of 2018, Nantong Acetic Acid enjoys a preferential income tax rate of 15 % (rather than 25 %) under the Preferential Income Tax Program for High- or New-Technology Enterprises.

• (58) In addition, the request referred to a number of distortions identified in the Report concerning other raw materials used to produce Ace-K such as diketene, sulfamic acid, tri-ethylamine, potassium hydroxide, acetic acid, dichloromethane and ammonia. Indeed, the request provided evidence on overcapacity in the chemical sector showing that the Chinese acetic acid capacity utilisation rate was about 69 % in the fourth quarter of 2019 and was forecasted by the request to be about 63 % in the first quarter of 2020, rising to about 67 % by the end of 2020. In addition to excess production capacity, investment in acetic acid production in China is subject to controls of the Catalogue for Guiding Industrial Restructuring (as revised in 2013). These two elements combined make the Chinese market for acetic acid distorted, and by consequence, also the downstream production of diketene.

• (59) Furthermore, the request mentioned state interference in the policy objectives and targets in the Hebei province Petrochemical 13th FYP. The plan highlights how the Chinese state controls sulphur mining and sets limits on entry into the market for sulphuric acid production. By imposing controls on the mining of sulphur, and by limiting investment in sulphuric acid production, the GOC distorts not only the market for these two products, but also the market for the production of sulphur trioxide.

• (60) The request further referred to other types of state interference in the urea market such as the existence of strict import quotas for urea and export taxes. Urea is an upstream raw material used for the production of sulfamic acid together with sulphur trioxide and sulphur acid. Moreover, the GOC has exempted the domestic sales of urea from VAT since 1 July 2005. Finally, the GOC intervened in the market through the State Fertiliser System, operating since 2004. According to the Report, urea producers benefit from preferential electricity rates and preferential railway freight rates.

• (61) Referring to the Report, the request indicated that potassium salt is in the list of raw materials in the 13th FYP for Mineral Resources which includes a number of detailed provisions with regard to different mineral groups. Under the heading ‘Phosphorus’ the Commission’s Report finds that one of the objectives is to stabilise the supply in important mineral resources used in agriculture such as phosphorus, sulphur and potassium, in accordance with the food security strategy. Moreover, ‘potash and other natural crude potassium salts’ are also mentioned in the Report among the items subject to export duties. Further state interventions mentioned by the request also concern ammonia, an additional raw material purchased for the recycling of waste sulphuric acid.

• (62) The applicant further pointed out that according to the Report, the GOC itself recognised that an effective competition mechanism for the sale of electricity has not yet been established. This implies that significant distortions exist in the Chinese market for electricity supplies for industrial use. The request finally mentioned other areas where state intervention affects the costs of an industrial operator in China such as access to land-use rights (Report, Chapter 9), access to capital and financing (Report, Chapter 11) and the labour market (Report, Chapter 13).

• (63) As indicated in recital (46), 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 applicant, 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.

• (64) Comments in this regard were received from the cooperating exporting producer, Anhui Jinhe, which claimed that the argument provided to justify the application of Article 2(6a) of the basic Regulation is unfounded and not applicable to the company. Anhui Jinhe argued that the findings on distortions concerning diketene, sulphur trioxide and sulphuric acid identified by the report commissioned by the applicant are not relevant for Anhui Jinhe because Anhui Jinhe produces these inputs in-house. The relevant upstream raw materials are glacial acetic acid, sulfamic acid and potassium hydroxide.

• (65) In this regard, Anhui Jinhe referred to the Commission’s recent practice under Article 2(6a)(a) and (c) of the basic Regulation, such as in Aluminium Extrusions ¹⁶ , according to which exporting producers are required to submit evidence on undistorted prices and costs in order to ‘positively establish’ that their own domestic costs are not affected by significant distortions. The company submitted that domestic prices of the relevant raw materials are market-oriented and negotiated on the basis of prevailing market conditions. In particular, the company submitted evidence by comparing their own prices with the Turkish ones on the basis of COMTRADE to demonstrate that lower input prices of glacial acetic acid, sulfamic acid, and potassium hydroxide compared to international prices are mainly due to much lower transport costs in China since the company relies exclusively on domestic supply.

• (66) Furthermore, the company argued that it does not operate under the control of the authorities of the exporting country. In addition, the company claimed that there is no state interference with respect of prices and costs of inputs for the production of Ace-K. Rebuttals to these claims are discussed in the sections 3.2.1.3 and 3.2.1.4.

• (67) In its comments, the exporting producer further pointed out that Article 2(6a) is inconsistent with the WTO Anti-Dumping Agreement (‘ADA’). This is because, first, Article 2.2 ADA recognises three scenarios which allow for the normal value construction: (i) sales are not made in the ordinary course of trade, (ii) there is a particular market situation or (iii) because of the low volume of sales on the domestic market, such sales are not representative. Anhui Jinhe submitted that significant distortions meet none of the three criteria. It further submitted that even if the concept of significant distortions could possibly be considered to fall under the second of the above criteria, the WTO Panel in DS529 Australia — Anti-Dumping Measures on A4 Copy Paper confirmed that the fact that the domestic price of the product concerned and its inputs are affected by governmental distortions was not enough to consider that the proper comparison between domestic market sales and export sales is affected ‘because of the particular market situation’. In addition, Anhui Jinhe commented that the Commission constructs the normal value systematically, while it should be checking on a case by case basis if the conditions of Article 2.2 ADA are met.

• (68) Anhui Jinhe further submitted that Article 2.2 ADA requires that the construction of the normal value must reflect ‘a cost in the country of origin’, as confirmed in the cases WTO DS529 Australia — Anti-Dumping Measures on A4 Copy Paper and WTO DS473 European Union — Anti-Dumping Measures on Biodiesel from Argentina. Furthermore, Anhui Jinhe argued that the normal value should be constructed in accordance with the requirements of Article 2.2.1.1 ADA, and it added that the findings in case WTO DS427 China — Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States required the investigating authorities to take into account the recorded costs of the exporting producers unless they are not in accordance with the generally accepted accounting principles or do not reasonably reflect the costs associated with the production and sale of the product under consideration. Article 2(6a) of the basic Regulation is, according to Anhui Jinhe, inconsistent with Article 2.2.1.1 ADA because the costs of the exporting producer are disregarded systematically, irrespective of whether the recorded costs satisfy the two above conditions.

• (69) The Commission considered that the provisions of Article 2(6a) of the basic Regulation are fully consistent with the European Union's WTO obligations. As explicitly clarified by the WTO Appellate Body in DS473, WTO law permits the use of data from a third country, duly adjusted when such adjustment is necessary and substantiated. The Commission recalled that the cases DS529 Australia — Anti-Dumping Measures on A4 Copy Paper and DS427 China — Broiler Products (Article 21.5 – US) did not concern the interpretation of Article 2(6a) of the basic Regulation and the conditions for its application. Furthermore, the underlying factual situations in those cases was different from the underlying situation and criteria giving rise to the application of the methodology under this provision of the basic Regulation, which concerns the existence of significant distortions in the exporting country. Under Article 2(6a) of the basic Regulation, it is only when significant distortions are found to be present and to affect costs and prices that normal value is constructed by reference to undistorted costs and prices sourced in a representative country or by reference to an international benchmark. In any event, Article 2(6a) second subparagraph, 3^rd dash of the basic Regulation provides for the possibility to use domestic costs to the extent they are established not to be distorted. The Commission therefore rejected these claims.

• (70) Furthermore, Anhui Jinhe submitted that Article 2(6a) of the basic Regulation is inconsistent with Article 2.2.2 ADA. It pointed out that the Appellate Body in DS219 EC – Tube or Pipe Fittings confirmed that the investigating authority is obliged to use the actual SG&A and profit of the exporting producers, as long as such data exists. Anhui Jinhe therefore submitted that the Article 2(6a) of the basic Regulation was incompatible with Article 2.2.2 ADA.

• (71) The Commission noted that once it is determined that due to the existence of significant distortions in the exporting country in accordance with Article 2(6a)(b) of the basic Regulation it is not appropriate to use domestic prices and costs in the exporting country, the normal value is constructed by reference to undistorted prices or benchmarks in an appropriate representative country for each exporting producer according to Article 2(6a)(a) of the basic Regulation. As explained above, the same provision of the basic Regulation also allows the use of domestic costs if they are positively established not to be distorted. In that context, the exporting producers had the possibility to provide evidence that their individual SG&A costs and/or other input costs were actually undistorted. However, as evidenced in sections 3.2.1.2 to 3.2.1.9, the Commission has established the existence of distortions in the Ace-K industry and there was no positive evidence as to the factors of production of individual exporting producers being undistorted. Therefore, these claims were rejected.

• (72) Finally, Anhui Jinhe submitted that the Commission was obliged, according to the provisions of Article 2(6a) of the basic Regulation, to conduct a company-specific and cost-specific analysis. Therefore, there should have been a specific analysis of Anhui Jinhe on the basis of the questionnaire it submitted.

• (73) The Commission noted that the existence of significant distortions giving rise to the application of Article 2(6a) of the basic Regulation is established on a country-wide level. If the existence of significant distortions is established, then the provisions of Article 2(6a) of the basic Regulation apply, a priori, to all exporting producers in the PRC and concern all costs relating to their factors of production. In any event, the same provision of the basic Regulation provides for the use of domestic costs which are positively established not to be affected by significant distortions. However, no domestic costs have been established to be undistorted based on accurate and appropriate evidence. In particular, the exporting producers did not submit accurate and appropriate evidence on undistorted prices and costs. In any event, the calculations concerning Anhui Jinhe reflect the data submitted by the company itself, including the factors of production and amounts as reported by the company in the questionnaire reply, but duly taking into account the existence and impact of significant distortions in the PRC, in accordance with the provisions of the basic Regulation, in particular Article 2(6a) of the basic Regulation. These claims were therefore, rejected.

• (74) In their comments following final disclosure, Anhui Jinhe reiterated its arguments laid out in recitals (67) and (68) above concerning the WTO compatibility of Article 2(6a) of the basic Regulation with WTO law. They argued that the European Commission should refrain from applying the Article 2(6a) methodology or precisely explain how this methodology can be applied consistently with the obligations set forth in Articles 2.2, 2.2.1.1 and 2.2.2 of the ADA. Indeed, Anhui Jinhe stated that the Commission could only reconstruct the normal value if one of the three conditions of Article 2.2 was present. If the Commission relies on the second (or third) condition, then it must examine whether ‘a proper comparison’ of the domestic and the export price is permitted or not.

• (75) Furthermore, concerning the argument according to which WTO law (as clarified in DS473) permits the use of data from a third country, ‘duly adjusted when such adjustment is necessary and substantiated’, Anhui Jinhe stated that this legal test was not mentioned in the Panel or Appellate Body's report. According to the Anhui Jinhe’s interpretation, the Commission adopted a biased and limited reading of the Report which explicitly mentions that ‘[w]hen relying on any out-of-country information to determine the “cost of production in the country of origin” under Article 2.2, an investigating authority has to ensure that such information is used to arrive at the “cost of production in the country of origin”, and this may require the investigating authority to adapt that information’.

• (76) Moreover, Anhui Jinhe argued that a ‘significant distortion’ was not in itself one of the conditions to resort to normal value construction. Finally, on the possibility to use domestic costs to the extent they were established not to be distorted, according to the Anhui Jinhe, the Commission could have used the possibility opened by Article 2(6a) to use the actual data of the company.

• (77) As to the Anhui Jinhe’s arguments on compatibility of Article 2(6a) of the basic Regulation with ADA and the DSB findings, these were already addressed in recital (69), including the explanation that DS473 did not concern the application of Article 2(6a) of the basic Regulation. Concerning the claim that the concept of ‘significant distortions’ included in Article 2(6a) of the basic Regulation does not appear in any rule of the WTO ADA or the GATT 1994, the Commission recalled that domestic law does not need to use the exact same terms as the covered Agreements in order to be compliant with those Agreements, and that it considers Article 2(6a) to be fully compliant with the relevant rules of the ADA (and, in particular, the possibilities to construct normal value provided in Article 2.2 ADA). Therefore, the claims were rejected.

• (78) In addition, Anhui Jinhe stated that the Commission had not provided any explanation as to why it did not consider the elements mentioned in recitals (65) and (66) as constituting ‘positive evidence’ within the meaning of Article 2(6a) that its costs were not distorted. Anhui Jinhe reiterated this claim and further added that its prices were not distorted due to its acquisition practices (online platform) and the absence of government intervention from any governmental authorities or agencies that are controlled by the government of China.

• (79) As stated in recital (65), the evidence submitted by Anhui Jinhe was just a comparison of their own domestic purchase prices for one raw material with Turkish import prices extracted from the COMTRADE database and with Thai prices extracted from GTA database. The comparison showed that the domestic price were lower that the Turkish and Thai import prices for the two raw materials. Anhui Jinhe claimed that this was due to its lower domestic transport cost. Anhui Jinhe also claimed that it purchased glacial acetic acid from the applicant.

• (80) The Commission notes that Anhui Jinhe did not provide any evidence to substantiate its claim regarding transport cost. Furthermore, such price comparison is not sufficient to demonstrate that domestic prices in China are not distorted. Furthermore, the fact that the purchases on the domestic market were made online, does not mean that these prices were not distorted. In addition, the investigation revealed that contrary to what Anhui Jinhe stated, Anhui Jinhe did not purchase glacial acetic acid from the applicant for the production of Ace-K. Therefore, the claims were rejected.

• (81) 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 relies 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. The Commission further supplemented these evidentiary elements with its own research on the various criteria relevant to confirm the existence of significant distortions in the PRC.

3.2.1.2.   Significant distortions affecting the domestic prices and costs in the PRC

• (82) The Chinese economic system is based on the concept of a ‘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’ ¹⁷. 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 emphasised 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 ¹⁸.

• (83) 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.’ ¹⁹ 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.

• (84) 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 ²⁰. 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.

• (85) 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 3.2.1.7 below) ²¹.

• (86) 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 3.2.1.8 below) ²². 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 ²³.

• (87) 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 ²⁴. Similarly, in the area of investment, the GOC maintains significant control and influence over 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 ²⁵.

• (88) 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 ²⁶.

3.2.1.3.   Significant distortions according to Article 2(6a)(b), first indent of the basic Regulation: the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country

• (89) 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.

• (90) 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 3.2.1.4), as well as through shaping the corporate structure of the SOE sector ²⁷. 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 ²⁸. The elements that point to the existence of government control over enterprises in the Ace-K sector is further developed in section 3.2.1.4.

• (91) Specifically in the Ace-K sector, even if the level of state ownership is relatively low, a substantial degree of policy supervision by the GOC persists. There are indeed only a few companies other than the applicant with large-scale production capacity in the world. Among them, the exporting company, Anhui Jinhe currently has the largest production capacity in the world.

• (92) With the high level of government intervention in the Ace-K industry, even privately owned producers are prevented from operating under market conditions. Indeed, even privately owned enterprises in the Ace-K sector are indirectly subject to policy supervision and guidance as set out in section 3.2.1.5.

3.2.1.4.   Significant distortions according to Article 2(6a)(b), second indent of the basic Regulation: State presence in firms allowing the state to interfere with respect to prices or costs

• (93) Apart from exercising control over the economy by means of ownership of SOEs and other tools, the GOC is in a 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 ²⁹, 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 ³⁰) 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 ³¹. 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 ³². These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of Ace-K and the suppliers of their inputs.

• (94) In addition, on 15 September 2020 a document titled ‘General Office of CCP Central Committee’s Guidelines on stepping up the United Front work in the private sector for the new era’ (‘the Guidelines’) ³³ was released, which further expanded the role of the party committees in private enterprises. Section II.4 of the Guidelines state: ‘[w]e must raise the Party’s overall capacity to lead private-sector United Front work and effectively step up the work in this area’; and section III.6 states: ‘[w]e must further step up Party building in private enterprises and enable the Party cells to play their role effectively as a fortress and enable Party members to play their parts as vanguards and pioneers.’ The Guidelines thus emphasise and seek to increase the role of the CCP in companies and other private sector entities ³⁴.

• (95) The following examples illustrate the above trend of an increasing level of intervention by the GOC in the Ace-K sector.

• (96) According to the information collected on Anhui Jinhe ³⁵, the Chairman of the Supervisory Board is also the Anhui Jinhe’s Party Committee Secretary whose objectives are to focus on enterprise’s production and business targets and ‘to set up and improve the Party Committee’s discussion mechanism and decision process, as regards development and planning, main reform plans, main changes to the management system…’. The State’s presence and intervention in the financial markets (see also section 3.2.1.8 below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the market ³⁶. Thus, the State presence in firms, including SOEs, in the Ace-K and other sectors (such as the financial and input sectors) allow the GOC to interfere with respect to prices and costs.

3.2.1.5.   Significant distortions according to Article 2(6a)(b), third indent of the basic Regulation: public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces

• (97) 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 ³⁷.

• (98) The Ace-K industry is regarded as a key industry by the GOC. In particular, in the last ten years, while the global demand for Ace-K balanced supply, the production capacity of Anhui Jinhe was gradually expanded. Moreover, due to the gradual squeeze of production of other sweeteners like saccharin and cyclamate, an expansion of the market of Ace-K has taken place thanks to government support and it is expected to expand further ³⁸. This is confirmed in a number of plans, directives and other documents focused on Ace-K and its main raw materials, which are issued at national, regional and municipal level such as:

• — 13th FYP on Petrochemical and Chemical Industry ³⁹. The plan considers fine chemicals a key industry to support through a national and industry innovation platform. More specifically, in Section III-2, the plan promotes the transformation and upgrading of traditional industries by controlling the newly added capacity of urea, among others, and implements advanced technological transformation and upgrade projects complying with policy requirements that shall be subject to an equal or reduced capacity renewal requirement.

• — Hebei’s 13th Five Year Plan on the development of the petrochemical industry. The plan, in accordance with the national industry policy and in accordance with the requirements of Hebei’s list of industry restrictions and eliminations, strictly implements the sector entry conditions, controls any new production capacity project regarding sulphuric acid, among others.

• — Agreement signed by Anhui Jinhe with the Dingyuan District ⁴⁰ (Anhui Province) in view to develop the Jinhe Industrial Circular Economy Industrial Park Project Framework Agreement of 24 November 2017. The agreement, aimed at developing upstream raw materials for existing chemical products, expanding the industrial chain and supporting its vertical integration, stipulates that the company would invest RMB 2,25 billion in the Dingyuan Salt Chemical Industrial Park to build a circular economy industrial park and it implied an annual output of 310 000 tons of diketene (which is internally produced by the company for the production of Ace-K); an annual production of 30 000 tons of high-efficiency food preservative potassium sorbate; and the use of sulphur as raw material to develop a series of chemical products.

• (99) The GOC further guides the development of the sector in accordance with a broad range of policy tools and directives. As explained in the recital above, the government’s support of the vertical integration of the industrial chain in the Ace-K sector helped Anhui Jinhe become an undisputed world leader in the sector. The company further received large amounts of governmental subsidies which amounted to RMB 41 685 378 in 2020 and RMB 40 900 000 in 2019 as stated in the company’s financial account (amounting to 1,2 % of the total turnover) ⁴¹. It cannot be ruled out that the other producers, which did not cooperate with this investigation and still represent a substantial part of the market, may have also benefitted from similar financial supports. Through these and other means, the GOC directs and controls virtually every aspect in the development and functioning of the sector.

• (100) 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 urea, diketene and sulphur trioxide among others as the main raw materials used in the manufacturing of the product under review. Such measures impede market forces from operating freely.

3.2.1.6.   Significant distortions according to Article 2(6a)(b), fourth indent of the basic Regulation: the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws

• (101) 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 ⁴².

• (102) 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 ⁴³. 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 ⁴⁴. Moreover, authorities often pursue specific political goals including the implementation of the economic plans when allocating land ⁴⁵.

• (103) Much like other sectors in the Chinese economy, the producers of Ace-K 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 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, based on the evidence available, appear to be fully applicable also in the Ace-K sector.

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

3.2.1.7.   Significant distortions according to Article 2(6a)(b), fifth indent of the basic Regulation: wage costs being distorted