The European Court of First Instance (CFI), on judgment of 17 June 2009, annulled EU dumping duties against Zhejiang Xinan Chemical Industrial Group (Zhejiang XCIG), a Chinese herbicide exporter, concluding the Council had committed a manifest error of assessment in denying Zhejiang market economy status (MES). The decision brings an end to the 29.9% dumping duty on imports to the EU on one of the company’s main products.
This decision comes about shortly after the CFI confirmed that failure to comply with the threemonth time limit within which the Commission has to determine whether a producer meets the MES criteria may lead to the annulment of the regulation imposing anti-dumping duties.
In this Trade Law Update, we summarise both cases and comment the important developments they introduced to EU case law concerning MES in anti-dumping investigations.
- ZHEJIANG XINAN CHEMICAL INDUSTRIAL GROUP V COUNCIL
FACTS OF CASE
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, Zhejiang XCIG 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 Zhejiang XCIG MES on the grounds that its decisions were found to be taken under significant State control and influence, due to the wide dispersion of the non-State-owned shares, together with the fact that the State owned the biggest bock of shares.
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, in this case Brazil, and set at 29.9%.
FINDING OF THE COURT
Zhejiang XCIG applied to the CFI to have its dumping duty annulled on the grounds that, among other things, the Institutions’ 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 Zhejiang XCIG 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 Zhejiang XCIG 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, however, the Court recognises that, in this case, Zhejiang XCIG 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 have merely rejected 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.
Finally, the Court carried out in this judgement 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.
- SHANGHAI EXCELL AND SHANGHAI ADEPTECH V COUNCIL
FACTS OF CASE
On 27 November 2000, the Council adopted Regulation (EC) No 2605/2000 imposing definitive anti-dumping duties on imports of certain electronic weighing scales (REWS) from China, Korea and Taiwan. According to this regulation, anti-dumping duties against Chinese companies were set at a maximum rate of 12.8% (cooperating companies) and at 30.7% (all other Chinese companies).
In June 2003, the related companies Shanghai Excell and Shanghai Adeptech began exporting to the European Union. Their exports were applied the residual anti-dumping rate of 30.7% In order to receive an individual duty, Shanghai Excell and Shanghai Adeptech requested a ‘new exporter’ review.
Following the initiation of the proceedings, in August 2004, Shanghai Excell and Shanghai Adeptech requested to be granted MES by virtue of Article 2(7)(b) of the EU basic antidumping regulation and submitted the necessary claim. However, the request was rejected on the grounds that the companies did not meet the first two criteria of Article 2(7)(c) of the basic regulation.
Since the request for MES was refused, the normal value used for the purpose of calculating the companies’ was based on the profitable domestic sales of producers in Indonesia, as in the original investigation. The duty calculated by the Commission on the basis of this methodology was 54.8%.
FINDING OF THE COURT
Shanghai Excell and Shanghai Adeptech applied to the CFI to have their dumping duty annulled on the grounds that, among other things, the Institutions’ refusal to grant them MES was not made within three months of the initiation of the investigation as provided for in the second paragraph of Article 2(7)(c) of the basic Regulation.
At the outset, the CFI rejected Shanghai Excell and Shanghai Adeptech’s contention that any failure to comply with the three-month period must automatically entail in the annulment of the regulation under review.
The CFI, following the conclusion reached in Nanjing v Council, stated that the three-month period imposed under the basic Regulation ‘intended, in particular, to ensure that the question whether the producer meets the criteria set out in that article is not decided on the basis of its effect on the calculation of the dumping margins.’
Building on this interpretation, the Court noted that ‘[c]onsequently, the practical effect of that time-limit is not called in question if, in the period between the expiry of the three-month period and the MES decision and having regard to the circumstances of the case, it had to be concluded that the undertakings claiming MES had made it impossible for the Commission to know what effect its MES decision might have on the calculation of the dumping margin.’
The Court found, however, that in this case at the time the final decision on the MES claim was made, the Commission did not hold information that enable it to know the dumping margin for Shanghai Excell and Shanghai Adeptech and, consequently, that decision could not have been made on the basis of its effect on the calculation of dumping margins.
In addition, the CFI noted that even if that was the case, the failure to comply with a procedural time limit could entail the annulment of the Regulation being contested ‘only if it is shown that, in the absence of such alleged irregularity, that act might have been substantively different’. The Court concluded in this regards that Shanghai Excell and Shanghai Adeptech failed to demonstrate that, had the Commission not exceeded the time limit, the Council might have adopted a different regulation more favourable to the Applicant’s interest. The Applicants’ claim was, therefore, dismissed by the Court.
Although in the present case the Applicants were not successful in having the regulation annulled on the basis that the Commission did not comply with the time limit established in the basic Regulation, this ruling clarifies the interpretation of the time limit in MES claims and the burden that must be overcome by companies when challenging the non-compliance with such limit by the Commission.
Those two cases represent important developments in the construction of European case law on MES and contribute to curb the wide discretion that the EU Institutions have enjoyed so far when assessing MES claims.
The CFI’s judgment in Shanghai Excell and Shanghai Adeptech v Council can still be appealed by the Council. Given the significant implications that this case can have on the practice of the EU Institutions, chances that the Council will appeal it before the European Court of Justice are high.