On 16 March 2016, the General Court of EU (Fourth Chamber) made a ruling on the case of Xinyi PV Products (Anhui) Holdings Ltd. (‘Xinyi Glass’) v. European Commission, annulling the Commission Implementing Regulation (EU) No 470/2014 (the ‘contested regulation’), which had imposed an anti-dumping duty on imports of solar glass originating in China. The European Commission originally rejected Xinyi Glass’ application for Market Economy Treatment (‘MET’), but Xinyi Glass has successfully appealed the decision and have been awarded costs of litigation. In the judgment, the Court pointed out that the Commission had acted inconsistently with Regulation (EC) No 1225/2009 (the ‘Basic Regulation’) in rejecting the MET application by Chinese companies merely because they enjoy the benefits of preferential tax schemes. Xinyi Glass’ victory in the EU Court lends confidence to numerous Chinese companies facing or about to face anti-dumping investigations. From now on, the Commission will no longer be free to refuse granting MET solely on basis that Chinese producers enjoy certain tax incentives from the government.
In May 2014, the Commission issued the contested regulation to impose a definitive anti-dumping duty of 36.1% on imports from Xinyi Glass. During the investigation, the Commission rejected the MET request of four companies (or groups) including Xinyi Glass, claiming that Xinyi Glass failed to meet the third MET criterion that there are no significant distortions carried over from the former non-market economy system for reason that Xinyi Glass is taxed at a preferential rate of 15% as a High-Tech Enterprise and benefits from the “2 Free 3 Halve” programme given for a foreign-invested company.
In August 2014, Beijing Deheng Law Offices, together with McGuireWoods LLP, represented Xinyi Glass in bringing the action against the Commission. The Court fully supported Xinyi Glass’ complaints by stating that from the wording of the third MET criteria, the expression “carried over” means that the former non-market economy system must have caused or led to the distortions at issue. The Commission failed to demonstrate the necessary elements of continuity and causality in its decision against Xinyi Glass. Furthermore, the tax incentives enjoyed by Xinyi Glass were awarded by the competent authority, not on a discretionary basis, but on objective conditions as set out in the applicable regulations. The Court also pointed out that the preferential tax scheme Xinyi Glass received as a High-Tech Enterprise was awarded in pursuit of legitimate objectives such as environmental protection, public health or regional development, and that such objectives are pursued by a large number of countries with a market economy. Moreover, the Court considered the tax incentive Xinyi Glass obtained as a foreign-invested company to be consistent with characteristics of a market economy system because these incentives were awarded by the government in order to attract foreign investment.
Mr. Ren Yongzhong, partner of Beijing Deheng Law Offices, believes that now is a key time for the European Union to consider its attitude towards Chinese producers in the issue of MET, since 2016 is the last year of Chinese 15-year transitional period after entering WTO according to the Protocol on the accession of the People’s Republic of China. The judgment may well lay the ground for the EU to discontinue the practice of imposing anti-dumping measures against Chinese producers for failure to meet the MET test, and further encourage the EU to accept China as a market economy country. On the other hand, Chinese companies, based on the well acknowledge of self-condition, together with the assistance from lawyers, shall act positively when dealing with the Commission’s anti-dumping investigation. When facing the adverse administrative verdict from the Commission, Chinese companies shall try to turn to the judicial procedure, and learn to use multiple approaches to protect its own interest.