On 17 June 2009, the European Court of First Instance (CFI) annulled EU dumping duties against Zhejiang Xinan Chemical Industrial Group (the Company), a Chinese herbicide exporter, stating that the EU had committed a manifest error of assessment in denying the Company market economy status (MES) and in the setting of its export prices. The decision brings an end to a 29.9% dumping duty on its imports of glyphosate, one of the main products sold by the Company on the Chinese and world markets.
In economics the term ‘dumping’ usually refers to predatory pricing. In International Trade Law, however, dumping occurs when a company exports a product at a lower price than that charged on the home market or below its cost of production.
In World Trade Organisation (WTO) law dumping is not prohibited. However, when it is found to cause (or threatens to cause) material injury to the domestic industry, the importing country is allowed to impose a measure, in the form of a duty, to offset the impact of this unfair practice. This measure is called anti-dumping duty.
In the EU, an anti-dumping investigation is carried out by the European Commission, which then submits a proposal to the Council of the European Union (the Council) recommending the imposition of anti-dumping measures - only the Council has the power to impose final measures.
It is a complex area of law which is increasingly affecting companies, whether they are asking for protection or they are the targets of an anti-dumping action brought by a country to which they export.
Facts of case and findings of the Council
In February 1998, the Council adopted anti-dumping measures applicable to imports of glyphosate originating in the People’s Republic of China (PRC). Upon the impending expiry of these measures in November 2002, the Commission received a request from the European Glyphosate Association and initiated review proceedings of those measures.
Following the initiation of the investigation, the Company requested to be granted MES by virtue of Article 2(7)(b) of the basic regulation and submitted the necessary questionnaire, as well as responding to several requests for additional information from the Commission.
On 6 April 2004 the Commission refused to grant the Company MES on the grounds that “although the majority of the shares of the company were owned by private persons, due to the wide dispersion of the non- State-owned shares, together with [the] fact that the State owned by far the biggest bock of shares, the company was found to be under State control. Moreover, the board of directors was in fact appointed by the State shareholders and the majority of the directors of the board were either State officials or officials of State-owned enterprises. Therefore, it was determined that the company was under a significant State control and influence.” This, in the view of the Commission, amounted to a breach of the first indent of Article 2(7)(c) of the basic regulation.
Since the request for MES was refused, the normal value of dumping duty was determined on the basis of data obtained from producers in a market economy third country, namely the Federal Republic of Brazil, and set at 29.9%.
Finding of the Court
The Company applied to the CFI to have its dumping duty annulled on the grounds that, among other things, the refusal to grant it MES amounted to a manifest error in the assessment of the facts of the case when applying Article 2(7)(c) of the basic regulation.
Under Article 2(7)(c) of the basic regulation, as interpreted by the case law, each company has to demonstrate that it is operating under market economy conditions, in the sense of this provision.
As explained above, the Council had considered that MES was not to be granted to the Company on the ground that it had not demonstrated that its decisions were taken without significant State interference. This finding was made solely on the basis of the fact that the controlling minority shareholder was state-owned, but without identifying any actual, or even potential interference; and importantly, without addressing the seemingly valid arguments and evidence submitted by the Company in this regard.
The CFI held that whilst it is acceptable to take into account whether a company is state owned, this is not a criterion in itself and must be considered in relation only to whether the State significantly interferes with business decisions. This interference must be ‘such as to render the undertaking’s decisions incompatible with market economy conditions’.
Another interesting finding concerns the burden of proof. Under Article 2(7)(c) of the basic Regulation, as interpreted by the EU Courts, each claim must be examined by the Commission on its own merits, and the burden of proof in demonstrating MES lies with the exporting producer wishing to avail itself of the relief. It is, therefore, for the Community institutions to assess whether the evidence supplied by the exporting producer is sufficient to show that all the criteria laid down in the basic regulation are fulfilled. If any doubt should remain as to whether the criteria are satisfied MES cannot be granted. Until Shanghai Excell and Shanghai Adeptech, of 18 March 2009, this was understood as an extremely stringent test.
In its 17 June 2009 judgement, the Court recognises that, in this case, the Company provided the Commission with all evidence requested in order to show that it satisfied the MES criteria. The Court found that the Commission could not merely reject the evidence put in front of it by an exporting producer without properly considering it. In its reasoning, the CFI may even be implying that the Commission cannot reject MES to a company on the ground that it did not provide certain pieces of information or evidence if the Commission did not first request such information or evidence, or indicate what the company had to demonstrate in addition to the information already provided.
Although the Court may seem to state the obvious here, this is not currently the Commission’s practice, as this case exemplifies. This judgement therefore comes as a welcome clarification of the scope of what is the burden of proof in MES claims.
Finally, the Court carried out in this judgment an unusually detailed review of the facts of the case, exceeding the typical hands off approach of the EU Courts. It is normal practice for the EU Courts to emphasise the wide discretionary powers of the institutions and that the burden of proof is on the exporting producer. Although the Court of First Instance does this in this case as well, it stresses that by laying down precise criteria for granting MES, the Council limited its own discretion in this regard. It is the judicator’s duty, therefore, to conduct a full review as to whether the Institutions properly applied the relevant rule of law.