Commission Implementing Regulation (EU) 2023/1103 of 6 June 2023 imposing a definitive countervailing duty on imports of certain graphite electrode systems originating in India following an expiry review pursuant to Article 18 of Regulation (EU) 2016/1037 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) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union (1) (‘the basic Regulation’), and in particular Article 18 thereof,

Whereas:

(1) Following an anti-subsidy investigation, by Regulation (EC) No 1628/2004 (2), the Council imposed definitive countervailing duties on imports of certain graphite electrodes systems originating in India. The Council, following an anti-dumping investigation with Regulation (EC) No 1629/2004 (3), also imposed a definitive anti-dumping duty on imports of certain graphite electrodes systems originating in India (‘the original investigation’)

(2) Following an ex officio partial interim review of the countervailing measures, the Council by Regulation (EC) No 1354/2008 (4) amended Regulations (EC) No 1628/2004 and (EC) No 1629/2004.

(3) Further to an expiry review of the countervailing measures, the Council by Implementing Regulation (EU) No 1185/2010 (5) extended the countervailing measures.

(4) Further to an expiry review of the countervailing measures, the European Commission (‘the Commission’) with Implementing Regulation (EU) 2017/421 (6) extended the countervailing measures.

(5) The countervailing measures took the form of an ad valorem duty rate of 6,3 % and 7,0 % for imports from individually named exporters, and a duty rate of 7,2 % on imports from all other companies in India.

(6) Following the publication of a Notice of impending expiry (7), the Commission received a request for a review pursuant to Article 18 of the basic Regulation.

(7) The request for review was submitted on 9 December 2021 by Union producers, representing around 90 % of the total Union production of certain graphite electrodes systems (‘the applicants’). The request for review was based on the grounds that the expiry of the measures would be likely to result in continuation of subsidisation and or recurrence of injury to the Union industry. Some of the alleged subsidy practices were already countervailed in the original investigation while some others are additional or new subsidies, which were not examined in the original investigation. In view of Article 18(2) of the basic Regulation, the Commission prepared a memorandum on sufficiency of evidence containing the Commission’s assessment on all the evidence at its disposal concerning the country concerned and on the basis of which the Commission initiates this investigation. That memorandum can be found in the file for inspection by interested parties.

(8) In accordance with Article 10(7) the basic Regulation, the Commission notified the Government of India (‘GOI’) prior to the initiation of the proceeding that it had received a properly documented review request. The Commission invited India for consultations with the aim of clarifying the situation as regards the contents of the review request and arriving at a mutually agreed solution. The GOI accepted the offer of consultations that were subsequently held on 3 March 2022. During the consultations, no mutually agreed solution could be arrived at.

(9) Having determined, after consulting the Committee established by Article 25(1) of the basic Regulation, that sufficient evidence existed for the initiation of an expiry review, the Commission, on 9 March 2022, by Notice, published in the Official Journal of the European Union (8) (‘the Notice of Initiation’), initiated an expiry review with regard to imports of certain graphite electrode systems originating in India (‘India’ or ‘the country concerned’) on the basis of Article 18 of the basic Regulation.

(10) By a notice published in the Official Journal of the European Union on 9 March 2022 (9), the Commission also announced the initiation of an expiry review pursuant to Article 11(2) of Regulation (EU) 2016/1036 of the European Parliament and of the Council (10), of the definitive anti-dumping measures in force with regard to imports into the Union of certain graphite electrode systems originating in India

(11) The investigation of a likelihood of continuation or recurrence of subsidisation covered the period from 1 January 2021 to 31 December 2021 (‘the review investigation period’ or ‘RIP’). The examination of trends relevant for the assessment of a likelihood of continuation or recurrence of injury covered the period from 1 January 2018 to the end of the review investigation period (‘the period considered’).

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

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

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

(15) In its Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of production and sales volumes of the like product in the Union. This sample consisted of three Union producers. The sampled Union producers accounted for around 61 % of the estimated total Union production and 64 % of the estimated sales volume of the like product in the Union. The Commission invited interested parties to comment on the provisional sample. The Commission received no comments. The sample was therefore considered representative of the Union industry.

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

(17) No importers came forward and provided the requested information.

(18) At the initiation the questionnaires were made available in the file for inspection by interested parties and on DG Trade’s website (11).

(19) Questionnaire replies were received from the three sampled Union producers, the Government of the Republic of India (‘GOI’) and one Indian exporting producer. None of the users provided a questionnaire or came forward during the investigation.

(21) The product under review is graphite electrodes of a kind used for electric furnaces, with an apparent density of 1,65 g/cm3 or more and an electrical resistance of 6,0 μΩ.m or less, and nipples used for such electrodes, whether imported together or separately (‘the product under review’), currently falling under CN codes ex 8545 11 00 and ex 8545 90 90 (TARIC codes 8545110010 and 8545909010). ‘the product under review’ or ‘GES’).

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

(24) In accordance with Article 18 of the basic Regulation, and as stated in the Notice of Initiation, the Commission examined whether the expiry of the existing measures would be likely to lead to a continuation or recurrence of subsidisation.

(26) The AAS, EPCGS and MEIS schemes are based on the Foreign Trade (Development and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 (‘Foreign Trade Act’). The Foreign Trade Act authorises the GOI to issue notifications regarding the export and import policy. These are summarised in ‘Foreign Trade Policy’ documents, which are normally issued by the Ministry of Commerce every five years and updated regularly.

(27) The Foreign Trade Policy document relevant for the RIP is Foreign Trade Policy 2015-20 (‘FTP 2015-20’). The FTP 2015-20 entered into force in April 2015 and was originally set to expire on 31 March 2020. However, due to the Covid-19 pandemic FTP 2015-20 was extended several times, the latest extension was until 31 March 2023. The GOI also sets out the procedures governing FTP 2015-20 in a ‘Handbook of Procedures, 2015-20’ (‘HOP 2015-20’).

(28) The Commission established that HEG used AAS during the RIP.

(29) The detailed description of the scheme is contained in paragraphs 4.03 to 4.24 of the FTP 2015-20 and chapters 4.04 to 4.52 of the HOP 2015-20 and the updated HOP 2015-20.

(30) AAS consists of six sub-schemes, i.e. physical exports, annual requirement, intermediate supplies, deemed exports, advance release order, or back to back inland letter of credit. Those sub-schemes differ, inter alia, in the scope of eligibility. Manufacturer-exporters and merchant-exporters ‘tied to’ supporting manufacturers are eligible for the AAS physical exports and for the AAS annual requirement sub-schemes. Manufacturer-exporters supplying the ultimate exporter are eligible for AAS for intermediate supplies. Main contractors which supply to the ‘deemed export’ categories mentioned in paragraph 7.02 of the FTP 2015-20, such as suppliers of an Export Oriented Unit (‘EOU’), are eligible for the AAS deemed export sub-scheme. Eventually, intermediate suppliers to manufacturer exporters are eligible for ‘deemed export’ benefits under the sub-schemes Advance Release Order and Back to back inland letter of credit.

(32) It was found that HEG obtained concessions under the first sub-scheme i.e. AAS physical exports during the RIP. It is therefore not necessary to establish the countervailability of the remaining unused sub-schemes. This is the main sub-scheme. It allows for duty-free import of input materials for the production of a specific resulting export product. ‘Physical’ in this context means that the export product has to leave Indian territory. An import allowance and export obligation including the type of export product are specified in the licence.

(33) For verification purposes by the Indian authorities, an Advance Authorisation holder is legally obliged to maintain ‘a true and proper account of consumption and utilisation of duty-free imported/domestically procured goods’ in a specified format (chapters 4.51 and Appendix 4H or 4I HOP I 15-2020 (12)), i.e. an actual consumption register. This register has to be verified by an external chartered accountant/cost and works accountant who issues a certificate stating that the prescribed registers and relevant records have been examined and the information furnished under Appendix 4H is true and correct in all respects.

(34) With regard to the sub-scheme used during the RIP by the company concerned, i.e. physical exports, the import allowance and the export obligation are fixed in volume and value by the GOI and are documented on the Authorisation. In addition, at the time of import and of export, the corresponding transactions are to be documented by Government officials on the Authorisation. The volume of imports allowed under the AAS is determined by the GOI on the basis of Standard Input Output Norms (‘SIONs’) which exist for most products including the product under review.

(35) Imported input materials are not transferable and have to be used to produce the resultant export product. The export obligation must be fulfilled within a prescribed time frame after issuance of the licence (18 months with two possible extensions of 6 months each).

(36) The SION applicable to the product under review was established by the GOI in 1998 and was not revised or adjusted until the RIP. Therefore, the SION is insufficient to effectively monitor the actual consumption. The GOI did also not carry out further examination based on actual input. For the main raw material Needle coke (also named ‘calcined petroleum coke’ or ‘CPC’) the Commission found an important discrepancy between the SION and the actual raw material consumption of the company. The SION allows a ratio of 1.3 of Needle coke per exported ton, whereas the actual ratio needed for production is substantially lower.

(37) The investigation therefore established that the verification requirements stipulated by the Indian authorities were not sufficient to prevent a benefit.

(38) The cooperating exporting producer maintained a certain production and consumption register. It was however not possible to verify which inputs (including their origin) were consumed in the production of the exported product and in what amounts. In particular with the system put in place it was not possible to identify and measure with precision whether there was an excess remission because, the raw material is stored in silos, which contain needle coke imported duty free together with needle coke imported with duties, without any local separation. As soon as imported needle coke is stored, a specific charge of imports could thereby no longer be traced.

(39) HEG confirmed that its consumption register does not allow to establish the actual consumption of duty free imported raw materials and linking it with produced and exported final products. As a result, the sub-scheme used in the present case cannot be considered a permissible duty drawback system.

(40) The exemption from import duties is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation, namely it constitutes a financial contribution of the GOI since it foregoes duty revenue which would otherwise be due and it confers a benefit upon the investigated exporter since it improves its liquidity.

(41) In addition, AAS physical exports are contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4), first subparagraph, point (a) of the basic Regulation. Without an export commitment, a company cannot obtain benefits under this scheme.

(42) The sub-scheme used in the present case cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation. It does not conform to the rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) of the basic Regulation. The GOI did not effectively apply a verification system or a procedure to confirm whether and in what amounts inputs were consumed in the production of the exported product (Annex II(4) of the basic Regulation and, in the case of substitution drawback schemes, Annex III(II)(2) of the basic Regulation). It is also considered that the SIONs for the product under review were not sufficiently precise and that, in themselves, those SIONs cannot constitute a verification system of actual consumption because the design of those standard norms does not enable the GOI to verify with sufficient precision what amounts of inputs were consumed in the export production. In addition, the GOI did not carry out a further examination based on actual inputs involved, although this would need to be carried out in the absence of an effectively applied verification system (Annex II(5) and Annex III(II)(3) to the basic Regulation). This also manifested in the fact that since its establishment in 1998 the SION has never been revised.

(43) The sub-scheme is therefore countervailable.

(44) Following the final disclosure, the GOI commented that there is a verification mechanism in place and the same had been duly demonstrated in the verification process.

(45) The Commission rejected this argument. As explained in recital (36), the SION that determines the amount of tax free imported raw materials has never been revised since its imposition and the Commission found an important discrepancy between the SION and the actual consumption. The Commission concluded that the monitoring of the application of the SION cannot ensure that the benefits are not granted in excess, if the underlying SION, that determines the amount of tax free imported raw materials, is not sufficiently precise and this fact is not monitored. In addition, the Commission found that at HEG it was not possible to trace the imported raw materials to the finished goods.

(46) Following the final disclosure, the GOI commented that it follows from Paragraph 2 of Section I under Annex II of the WTO’s SCM Agreement (‘ASCM’) that indirect taxes rebate schemes are countervailable only if it provides remissions over and above the import duty on inputs consumed in production of the exported product.

(47) The GOI further argued that the AAS is not a countervailable program since it does not provide excess remission of import duties over the number of duties accrued on the imported inputs. This followed from Section II of Annex II of the ASCM, which provides guidelines for determining whether inputs are consumed in the production of the exported product. Further the panel report in European Union – countervailing Measures on Certain Polyethylene Terephthalated from Pakistan (WT/DS/486) stated that ‘the excess remission principle’ provides a legal standard which determine whether the remissions of import duties obtained under the duty drawback scheme constitute a financial contribution.

(48) The Commission explained in recital (36) the Commission found a substantial discrepancy between the SION and the actual consumption. As explained in Recital (38) the cooperating exporting producer maintained a certain production and consumption register. It was however not possible to verify which inputs (including their origin) were consumed in the production of the exported product and in what amounts. In particular, with the system put in place it was not possible to identify and measure with precision whether there was an excess remission. It was also found that no records kept by the companies would enable the calculation of excess remission, thereby making any future certification by an external chartered accountant/cost and works accountant impossible. The GOI has not elaborated in which aspect this lack of possibility to verify does not meet the standard of the quoted Sections of the ASCM.

(49) The Commission therefore rejected this claim.

(50) In the absence of permitted duty drawback systems and lack of the possibility of verification of the actual consumption rate of the relevant inputs, and since there was no reliable evidence showing otherwise, the total amount of custom duties foregone (basic custom duty and custom cess) is considered an excess remission that would constitute a countervailable subsidy in accordance with Article 3(1)(a)(ii) of the basic Regulation. The application fees paid by the company have been deducted.

(51) In accordance with Article 7(2) of the basic Regulation, the Commission allocated these subsidy amounts over the total export turnover of the company during RIP as appropriate denominator, because the subsidy is contingent upon export performance and it was not granted by reference to the quantities manufactured, produced, exported or transported.

(52) The subsidy rate established with regard to this scheme totalled 1,66 % for HEG during the RIP.