15.3.2013

EN

Official Journal of the European Union

L 73/16

COUNCIL IMPLEMENTING REGULATION (EU) No 215/2013

of 11 March 2013

imposing a countervailing duty on imports of certain organic coated steel products originating in the People's Republic of China

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 597/2009 on protection against subsidised imports from countries not members of the European Community (1), and in particular Article 17 thereof,

Having regard to the proposal from the European Commission,

Whereas:

1. PROCEDURE

1.1. INITIATION

(1)

On 22 February 2012, the European Commission ("Commission") announced by a notice published in the Official Journal of the European Union (2) (‧Notice of initiation‧), the initiation of an anti-subsidy proceeding with regard to imports into the Union of certain organic coated steel products originating in the People's Republic of China (‧PRC‧ or the ‧country concerned‧).

(2)

The anti-subsidy proceeding was initiated following a complaint lodged on 9 January 2012 by EUROFER (‧the complainant‧) on behalf of producers representing in this case more than 70 % of the total Union production of certain organic coated steel products. The complaint contained prima facie evidence of subsidisation of the said product and of material injury resulting therefrom, which was considered sufficient to justify the initiation of a proceeding.

(3)

Prior to the initiation of the proceeding and in accordance with Article 10(7) of the basic Regulation, the Commission notified the Government of the PRC (‧the GOC‧) that it had received a properly documented complaint alleging that subsidised imports of certain organic coated steel products originating in the PRC were causing material injury to the Union industry. The GOC was invited for consultations with the aim of clarifying the situation as regards the contents of the complaint and arriving at a mutually agreed solution. The GOC accepted the offer of consultations and consultations were subsequently held. During the consultations, no mutually agreed solution could be arrived at. However, due note was taken of comments made by the authorities of the GOC in regard to the allegations contained in the complaint regarding the lack of countervailability of the schemes. Following the consultations, submissions were received from the GOC.

1.2. ANTI-DUMPING PROCEEDING

(4)

On 21 December 2011, the European Commission announced by a notice published in the Official Journal of the European Union (3), the initiation of an anti-dumping proceeding concerning imports into the Union of certain organic coated steel products originating in the PRC.

(5)

On 20 September 2012, the Commission, by Regulation (EU) No 845/2012 (4), imposed a provisional anti-dumping duty on imports of certain organic coated steel products originating in the PRC.

(6)

The injury analyses performed in this anti-subsidy and the parallel anti-dumping investigation are identical, since the definition of the Union industry, the representative Union producers and the investigation period are the same in both investigations. For this reason, comments on injury aspects put forward in any of these proceedings were taken into account in both proceedings.

1.3. PARTIES CONCERNED BY THE PROCEEDING

(7)

The Commission officially advised the complainants, other known Union producers, the known exporting producers in the PRC, importers, traders, users, suppliers and associations known to be concerned, and the representatives of the PRC of the initiation of the proceeding. Interested parties were given the opportunity to make their views known in writing and to request a hearing within the time limit set in the notice of initiation.

(8)

In view of the apparent high number of exporting producers, Union producers and unrelated importers, all known exporting producers and unrelated importers were asked to make themselves known to the Commission and to provide, as specified in the notice of initiation, basic information on their activities related to the product concerned during the period from 1 October 2010 to 30 September 2011. This information was requested under Article 27 of the basic Regulation in order to enable the Commission to decide whether sampling would be necessary and if so, to select samples. The authorities of the PRC were also consulted.

(9)

Initially 19 Chinese exporting producers/groups of producers provided the requested information and agreed to be included in a sample. On the basis of the information received from the exporting producers and in accordance with Article 27 of the basic Regulation the Commission initially proposed a sample of 3 exporting producers/groups of exporting producers. However one of the exporting producers included in this sample withdrew its cooperation. Consequently it was replaced with the next exporting producer with the highest volume of exports sales to the Union. Following the notification also this exporting producer withdrew its cooperation.

(10)

In order not to cause any further delay to the proceeding it was decided to limit the sample to two groups of exporting producers, which had the highest export volume to the Union, i.e. Zhangjiagang Panhua Steel Strip Co., Ltd and its related companies and Zhejiang Huadong Light Steel Building Material Co., Ltd and its related companies. The sample of these two groups of exporting producers serves as the basis to determine the level of subsidisation for those groups as well as the level of subsidisation for all cooperating exporting producers not included in the sample, as required by Articles 15.2 and 15.3 of the basic Regulation.

(11)

As regards the Union producers, the Commission announced in the notice of initiation that it had provisionally selected a sample of Union producers. This sample consisted of six Union producers that were known to the Commission to produce the like product selected on the basis of sales, production volume, size and geographical location in the Union. The sampled Union producers accounted for 46 % of the Union production and 38 % of the Union sales. Interested parties were also invited in the notice of initiation to make their views known on the provisional sample. One of the Union producers stated that it did not wish to be included in the sample and was replaced in the sample by the next largest producer.

(12)

Five unrelated importers provided the requested information and agreed to be included in the sample. In view of the limited number of cooperating importers, sampling was deemed to be no longer necessary.

(13)

The Commission sent questionnaires to the representatives of the PRC, the two sampled exporting producers in the PRC, 14 other exporting producers in the PRC that requested so, the six sampled Union producers, the five cooperating importers in the Union and to the known users.

(14)

Replies were received from the representatives of the PRC, nine exporting producers and related companies in the PRC, the six sampled Union producers, two unrelated importers and ten users.

(15)

The Commission sought and verified all information deemed necessary for the determination of subsidisation, resulting injury and Union interest. Verification visits were carried out at the premises of the following State authority and companies:

(a)

Government of the People Republic of China

—

Chinese Ministry of Commerce, Beijing, China

(b)

Union producers

—

ArcelorMittal Belgium, Belgium and related sales company ArcelorMittal Flat Carbon Europe SA, Luxembourg

—

ArcelorMittal Poland, Poland

—

ThyssenKrupp Steel Europe AG, Germany

—

voestalpine Stahl GmbH and voestalpine Stahl Service Center GmbH, Austria

—

Tata Steel Maubeuge SA (formerly known as Myriad SA), France

—

Tata Steel UK Ltd, United Kingdom

(c)

Groups of Exporting producers (and related companies) in the PRC

—

Zhangjiagang Panhua Steel Strip Co., Ltd and its related companies: Chongqing Wanda Steel Strip Co., Ltd, Zhangjiagang Wanda Steel Strip Co., Ltd, Jiangsu Huasheng New Construction Materials Co. Ltd and Zhangjiagang Free Trade Zone Jiaxinda International Trade Co., Ltd;

—

Zhejiang Huadong Light Steel Building Material Co. Ltd and its related company Hangzhou P.R.P.T. Metal Material Company Ltd;

(d)

Importers in the Union

—

ThyssenKrupp Mannex, Germany

—

Macrometal, Hamburg, Germany

(16)

Subsequently all parties were informed of the essential facts and considerations on the basis of which it was intended to recommend the imposition of definitive countervailing duties on imports of certain organic coated steel products originating in the PRC (‧the final disclosure‧). All parties were granted a period within which they could make comments on the final disclosure.

(17)

The comments submitted by the interested parties were considered and taken into account where appropriate.

1.4. INVESTIGATION PERIOD AND PERIOD CONSIDERED

(18)

The investigation of subsidisation and injury covered the period from 1 October 2010 to 30 September 2011 (the ‧investigation period‧ or ‧IP‧). The examination of trends relevant for the assessment of injury covered the period from 1 January 2008 to the end of the IP (‧the period considered‧).

2. PRODUCT CONCERNED AND LIKE PRODUCT

2.1. PRODUCT CONCERNED

(19)

In the notice of initiation the product subject to the investigation was certain organic coated steel products (‧OCS‧), i.e. flat-rolled products of non-alloy and alloy steel (not including stainless steel) which are painted, varnished or coated with plastics on at least one side, excluding so-called ‧sandwich panels‧ of a kind used for building applications and consisting of two outer metal sheets with a stabilising core of insulation material sandwiched between them, and excluding those products with a final coating of zinc-dust (a zinc-rich paint, containing by weight 70 % or more of zinc).

2.2. PRODUCT EXCLUSION REQUESTS

(20)

The China Iron and Steel Association, two importers and two users, proposed the exclusion of five product types. These requests were received and have been analysed as follows:

2.2.1. OCS WITH METALLIC COATING OF CHROMIUM OR TIN

(21)

A user of OCS submitted a request to exclude OCS with a substrate with a metallic coating of chromium or tin from the product scope. The investigation has established that the metallic coating of chromium or tin renders this product type physically and technically different to the OCS under investigation. Moreover, OCS with a substrate with a metallic coating of chromium or tin is almost exclusively used in the food packaging and cable industries. Finally, the Union industry explained that it did not intend for the above-mentioned product type to be included in this investigation. Given the above-mentioned reasons, OCS with a substrate with a metallic coating of chromium or tin is not included in the product scope.

2.2.2. HOT-ROLLED PLATES WITH PROTECTIVE PRIMER, WHETHER ORGANIC OR INORGANIC

(22)

This request was rejected because these products do not fall under the CN codes under investigation. The painting or coating is only for rust protection and therefore fall under CN heading 7208 and not CN heading 7210. Hot-rolled plates with a protective primer, whether organic or inorganic, are not included in the product scope and as a result cannot be removed from it.

2.2.3. OCS WITH SUBSTRATE THICKNESS BETWEEN 0,6 AND 2,0 MM

(23)

CISA and two importers requested the exclusion of OCS with substrate thickness between 0,6 and 2,0 mm, representing 5 – 10 % of imports from China, stating that there was only direct competition between Chinese exports and Union industry production for OCS with substrate thickness of between 0,25 and 0,6 mm.

(24)

This request was rejected, given that both Chinese exporters and the Union industry manufacture and sell OCS with a substrate thickness of between 0,6 and 2,0 mm and that therefore these products are clearly in competition with each other. No evidence was provided to show that OCS with a substrate thickness of over 0,6 mm does not compete with OCS with a substrate thickness of less than 0,6 mm and that therefore this would constitute a different product type. OCS with substrate thickness of less than and above 0,6 mm have the same basic physical and technical characteristics and same end uses and therefore are the same product.

2.2.4. OCS WITH ALUMINIUM-ZINC ALLOY COATED SUBSTRATE

(25)

The two importers alleged that only four Union producers have the licence to produce this product type and that only one company was in fact producing it. They also alleged that this product differs from zinc coated OCS in terms of product characteristics.

(26)

This request was rejected as the two product types are interchangeable with overlapping uses and at least two cooperating Union producers manufactured this product type during the investigation period. It should be noted that only one cooperating Chinese exporting producer exported this product type to the Union during the investigation period.

2.2.5. OCS WITH ZINC ALLOY COATED SUBSTRATE

(27)

This request was rejected because, contrary to the assertion by one user, this product is produced and sold in significant quantities by several Union producers and has the same essential physical and technical characteristics and end uses as other types of OCS.

2.3. PRODUCT INCLUSION REQUEST

(28)

One association requested that OCS with a metallic coating of chromium or tin, classified under TARIC codes 7210122010 and 7210500010 be included in the product scope. This request was rejected as these codes were not included in the original complaint and the products covered by such codes have different physical and technical characteristics from the products covered by the complaint.

2.4. PRODUCT CONCERNED

(29)

Given the acceptance of the exclusion of OCS with metallic coating of chromium or tin, as outlined in recital (21), the product concerned is amended by this exclusion.

(30)

The product concerned is therefore certain organic coated steel products (‧OCS‧), i.e. flatrolled products of non-alloy and alloy steel (not including stainless steel) which are painted, varnished or coated with plastics on at least one side, excluding so-called ‧sandwich panels‧ of a kind used for building applications and consisting of two outer metal sheets with a stabilising core of insulation material sandwiched between them, excluding those products with a final coating of zinc-dust (a zinc-rich paint, containing by weight 70 % or more of zinc), and excluding those products with a substrate with a metallic coating of chromium or tin, currently falling within CN codes ex 7210 70 80, ex 7212 40 80, ex 7225 99 00, ex 7226 99 70, and originating in the People's Republic of China (‧the product concerned‧).

2.5. LIKE PRODUCT

(31)

The investigation has shown that OCS produced and sold by the Union industry in the Union, OCS produced and sold on the domestic market of the PRC and OCS imported into the Union from the PRC have the same basic physical and chemical characteristics and the same basic end uses. Therefore these products are considered to be alike within the meaning of Article 2(c) of the basic Regulation.

3. SUBSIDISATION

3.1. PRELIMINARY REMARKS

(32)

Both the GOC and the sampled Chinese exporting producers submitted questionnaire replies and accepted on-spot visits in order to verify the replies.

(33)

With respect to the GOC, following the analysis of the questionnaire reply, the Commission sent a deficiency letter and two pre-verification letters. The Commission provided to the GOC ample time for the preparation and submission of its representations whenever this was requested and justified. Indeed substantial deadline extensions were granted to the GOC, i.e. 20 days extension for the reply to the questionnaire which resulted in an eventual deadline of 57 days for the submission of the questionnaire reply and 25 days for the reply to the deficiency letter.

(34)

In its replies to the questionnaire, deficiency letters and various other submissions the GOC provided a reply only concerning schemes used by the sampled exporting producers and argued that it should not be requested to provide replies to questions relating to alleged subsidy schemes available also to non-sampled producers or producers which had not made themselves known.

(35)

The Commission respectfully disagreed with this approach and explained to the GOC that the purpose of the questionnaire sent to the GOC is for the Commission to obtain information of subsidisation of the industry producing organic coated steel in China and to determine to what extent Union imports of the product concerned are subsidised. The Commission informed the GOC that broader information on the extent of subsidisation is required in order to address any significant non-cooperation by exporters which are alleged to have received benefits under particular subsidy schemes not used by the sampled or cooperating companies and possible requests for individual examination by cooperating exporting producers. However the GOC did not alter its approach and did not provide information on most of the other subsidy schemes alleged in the complaint but not used by the sampled companies.

(36)

Prior to the on-spot verification visit, the GOC requested the Commission to provide further information in writing, in particular a list of all the questions that it intended to ask during the verification plus a list of the Government departments which were expected to participate in the on-spot visit. In the absence of these, it was argued that the GOC "was left unaware of what should have been prepared or could be expected during the verification" and that the pre-verification letter "certainly does not provide any indication of what the Commission actually intends to verify…".

(37)

The Commission could not grant the GOC's request. In this respect it is noted that the Commission has fulfilled all the relevant conditions of Article 26 of the basic Regulation. A detailed pre-verification letter had been sent to the GOC confirming the agenda (days and group of schemes to be discussed per verification day) and requesting the presence of the authorities responsible for the relevant schemes and of the officials involved in the preparation of the GOC submissions. The Commission also explained before the on-spot verification visit that only the GOC could identify the authorities responsible for the schemes under investigation as well as those officials which are best placed to take part in the verification and answer questions. As regards the list of specific questions, the Commission explained that such a list is not required by EU legislation (nor by WTO requirements) and that the purpose of this investigation is to verify the GOC reply to the questionnaire and the relevant supplementary submissions; therefore the verification would follow the structure of these documents. The Commission would also seek to obtain and clarify further information necessary for the on-going proceeding but precise questions in this context would depend on the GOC's replies to the initial verification of its replies. It was also made clear to the GOC before the on-spot verification visit that refusals to provide necessary information or to assist the investigating authority in verifying information and data deemed necessary for the purposes of the proceeding might seriously undermine the investigation process. The GOC was also reminded of the consequences of the provision of Article 28 of the basic Regulation.

(38)

During the on-spot verification visit to the Chinese Ministry of Commerce in Beijing, the Commission endeavoured to verify information provided on the basis of the supporting documents that were used to prepare the GOC's response, in line with the provisions of Articles 11 and 26 of the basic Regulation. In doing so, the Commission came preliminarily to the conclusion that the lack of information and supporting documents available did not allow a proper verification of the reply to the questionnaire. Moreover, certain information was not submitted at all although it was specifically requested and certain questions were simply not replied to. Consequently, the GOC was made aware of the consequences of non-cooperation in accordance with Article 28(1) and (6) of the basic Regulation.

(39)

The GOC also submitted that the Commission was imposing an unreasonable burden on the GOC and had requested irrelevant and unnecessary information in the questionnaire and subsequent deficiency letter.

(40)

With respect to the requested information it is noted that the Commission requested only information concerning allegations in the complaint that is deemed necessary for the purposes of arriving at a representative finding and remained consistent in its requests by asking for the same data and information during the investigating process and requesting the GOC to explain the submitted information and its implication for the investigated schemes. In other words, the Commission only requested information that was necessary to assess the existence and level of subsidisation available to the product concerned pursuant to other subsidy schemes alleged in the complaint. Such information would have allowed for an adequate determination of the amount of subsidisation granted pursuant to the other subsidy schemes under investigation available to the non-cooperating exporting producers. Since neither the representatives of the PRC nor the non-cooperating exporting producers provided the necessary information to determine whether the other subsidy schemes were available to the non-cooperating exporting producers, on the basis of best facts available, the Commission concluded that the other alleged subsidy schemes were indeed available to the other non-cooperating exporting producers, and proceeded to calculate the amounts of benefit conferred through those schemes on the basis of best facts available.

3.2. INDIVIDUAL EXAMINATION (‧IE‧)

(41)

Claims for IE were submitted by two cooperating exporting producers pursuant to Article 27(3) of the basic Regulation, i.e. Union Steel China (Union Steel) and Shenzhen Sino Master Steel Co. Ltd. It was not possible to grant these IEs to both companies as, due to the high number of alleged subsidy schemes and time consuming nature of anti-subsidy investigation, it would be unduly burdensome and could prevent completion of the investigation in good time.

(42)

However, Union Steel had already been individually examined in the parallel anti-dumping investigation and consequently individual injury margin was calculated for this company.

(43)

Given that the GOC provided only a reply concerning schemes used by the sampled exporting producers as explained in recital (34) above, it was practically impossible to analyse some of the subsidy schemes possibly used by Union Steel. Consequently, on the basis of facts available under Article 28 of the Basic Regulation, the average subsidy rate applicable to other co-operating companies was attributed to this company.

3.3. SPECIFIC SCHEMES

(44)

On the basis of the information contained in the complaint the Commission sought information related to the following schemes, which allegedly involved the granting of subsidies by the Governmental authority:

(I)

Government Provision of Goods and Services for Less than Adequate Remuneration ("LTAR")

—

Provision of inputs at less than adequate remuneration: Hot-rolled and cold-rolled steel

—

Provision of land use rights for less than adequate remuneration

—

Programmes consisting of provision of water for less than adequate remuneration

—

Programme consisting of provision of electricity for less than adequate remuneration

—

Programme consisting of provision of electricity and water at less than adequate remuneration in the Jiangsu Province

—

Provision of various inputs for less than adequate remuneration

(II)

Preferential loans and interest rates to the OCS industry

(III)

Equity programmes

—

Debt for equity swaps

—

Equity infusions

—

Unpaid dividends

(IV)

Income and other direct taxes

—

Tax policies for the deduction of research and development expenses

—

Tax concessions for Central and Western regions

—

Income tax credit for the purchase of domestically manufactured production equipment

—

Preferential tax policies for companies that are encouraged as high and new technology enterprises

—

Income tax concessions for the enterprises engaged in the comprehensive resource utilisation (‧special raw materials‧)

—

Tax credit concerning the purchase of special equipment

—

Preferential income tax policy for the enterprises in the Northeast region

—

Income Tax exemption for investment in domestic technological renovation

—

Various local tax discounts (Shandong Province, Chongqing City, Guangxi Region Zhuang, Tax privileges to develop central and western regions)

—

Dividend exemption between qualified resident enterprises

—

Two free, three half tax exemptions for the productive FIEs

—

Local income tax exemption and reduction programmes for the productive FIEs

—

Income tax credit for FIEs purchasing domestically produced equipment

—

Income tax subsidies for FIEs based on geographical location

(V)

Indirect Tax and Import Tariff Programmes

—

Import tariff and VAT exemptions for FIEs and certain domestic enterprises using imported equipment in encouraged industries

—

VAT refunds to FIEs purchasing domestically produced equipment

—

VAT deduction on fixed assets in the Central region

—

Other tax privileges of Ma'anshan

(VI)

Grant Programmes

—

China World Top Brand programme

—

Famous Brands programme

—

The State key technology project fund

—

Programmes to rebate anti-dumping legal fees

(VII)

Purchase of goods by the Government for higher than adequate remuneration

(VIII)

Other regional programmes

—

Subsidies provided in the Tianjin Binhai New Area and the Tianjin Economic and Technological Development Area

—

Programmes related to the Northeast Region

—

Grants under the Science and technology programme of Jiangsu Province

—

Grants under the Science and Technology programme of Hebei Province

(IX)

Ad hoc subsidies referred to in the complaint

3.3.1. GOVERNMENT PROVISION OF GOODS AND SERVICES FOR LESS THAN ADEQUATE REMUNERATION ("LTAR")

3.3.1.1. Provision of hot-rolled and cold-rolled steel (HRS and CRS) for less than adequate remuneration

(45)

The allegation in the complaint was that the GOC controls certain upstream industries and products so as to provide favourably priced inputs to producers of OCS. On this basis OCS producers receive countervailable subsidies through the purchase from State-owned enterprises (SOEs) of government-produced HRS and CRS at a below the market price and thus at less than adequate remuneration for the SOEs.

(46)

The Commission requested from the GOC detailed information concerning SOEs providing HRS and CRS to the Chinese exporting producers of OCS in order to verify the allegations in the complaint and to establish whether these SOEs are public bodies. In particular, the Commission created Appendix B to the questionnaire for the GOC intended for the SOEs and invited the GOC to provide information requested therein. In the deficiency letter the Commission again asked the GOC to provide the information requested in Appendix B and encouraged GOC to coordinate the responses with the SOEs concerned.

(47)

However, GOC did not provide a reply to any of the questions in Appendix B and also failed to provide relevant information requested in the main questionnaire (e.g. on the ownership and control of Chinese government of the SOEs in the steel sector and its involvement in the reorganisation of Chinese steel industry). Instead of providing the requested information the GOC stated in its response to the questionnaire that the complainants have failed to demonstrate that the HRS and CRS producers are public bodies.

(48)

Because of the lack of cooperation from the GOC the Commission had to look into other best information available. The Commission notified GOC about this course of action. In assessing whether the SOEs providing HRS and CRS to the Chinese exporting producers of OCS are public bodies the Commission considered the limited information provided by the GOC, information in the complaint, publicly available factual information from similar proceedings conducted by other investigating authorities, as well as other publicly available information, and based its findings on the totality of the information on the file.

(a) SOEs providing OCS producers with hot-rolled and cold-rolled steel are public bodies

(49)

The complainant claims that SOEs in China are public bodies within the meaning of Article 2(b) of the basic Regulation which provide goods (HRS and CRS) to OCS producers at below-market prices and thus confer a benefit to them.

(50)

The WTO Appellate Body (AB), in its report in United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (5) (the AB report) defined a public body as an entity that "possesses, exercises or is vested with governmental authority" (6). The AB also considered that public bodies are also characterised by the "performance of governmental functions" (7) which would "ordinarily be considered part of governmental practice in the legal order of the relevant Member" (8).

(51)

In light of the WTO AB conclusions, there are two questions for the analysis, i.e. (a) whether the SOEs in question perform functions which are ordinarily considered part of governmental practice in China and (b) if so, whether they exercise government authority when doing so?

(52)

In the context of the GOC, there is ample evidence to show that the government is deeply involved in the management of the economy. The primary role of the Chinese government in the economy is guaranteed by the Constitution of the People's Republic of China. According to Article 7 of the Constitution reads: "The state economy is the sector of socialist economy under ownership by the whole people; it is leading force in the national economy. The state ensures the consolidation and growth of the state economy". Similarly Article 15 of the Constitution reads: "The state practices economic planning on the basis of socialist public ownership". Also the Constitution of the Communist Party of China prescribes the primary role of the public ownership, e.g. preamble of the Constitution of CCP reads: "the Party must uphold and improve the basic economic system, with public ownership playing a dominant role…" Also the various 5-year plans promulgated by the National Development and Reform Commission (NDRC) and adopted by the China's highest legal authority State Council point to the very strong grip of the Chinese government in the economy.

(53)

As regards the steel sector, the information on the file suggests that the SOEs producing HRS and CRS in China often perform governmental functions described, inter alia, in the sectoral plans for iron and steel industry. These plans confirm that the GOC has chosen to be closely involved in the management and development of the steel industry in China and their implementation by SOEs can therefore be considered to fall under the heading of governmental practices. The plans provide targets and goals for all operators in the iron and steel industry and direct the whole sector to produce specific outcomes. In fact, the GOC is using the iron and steel SOEs as a prolonged arm of the state in order to achieve goals and targets set in the plans.

(54)

Order No. 35 of the NDRC – Policies for Development of Iron and Steel Industry, inter alia, outlines a policy to decrease the number of iron and steel smelting enterprises and sets goals on the output for those steel enterprise groups that rank top 10 in the domestic market (Article 3), for the production capacity prohibits the establishment of new iron and steel associated enterprises (Article 10), prescribes the conditions to access into the iron and steel industry on the equipment level and also prescribes the technical and economic indexes steel and iron enterprises should follow (Article 12), sets rules for the changes in the organisational structure of steel enterprises (Article 20), manages investments (Articles 22, 23), conditions access to financial funds (Articles 25,26), gives state the right to intervene in the purchase of raw materials (Article 30).

(55)

Twelfth 5 Year Development Plan for the Steel Industry summarises the achievement of goals set in the previous plan, covers the development strategy and sets goals for the entire steel industry. Similarly to the Order No.35 it sets very specific targets on the industrial clustering level (Section III.(III).6), encourages certain projects and discourages other (Section IV(IV))and discriminates in support for iron and steel industry in different provinces (Section IV(V), provides for support of large-scale steel enterprises and gives a leading role to the biggest state-owned Chinese steel producers such as Bao Steel, Anshan Iron and Steel, Wuhan Iron and Steel etc (9). The plan also provides for the strengthening of the regulation and management of the existing steel enterprises' production operation (Section V(IV).

(56)

Law of the People's Republic of China on the State-owned Assets of Enterprises also obliges the SOEs (or State-invested enterprises (SIEs) are referred to in this law) to comply with the national industrial policies (10). Similarly the Tentative Measures for the supervision and Administration of the Investments by Central Enterprises oblige SOEs (SIEs) to follow development plans and industrial policies of the state (11). According to Measures for the Administration of Development Strategies and Plans of Central Enterprises all SIEs shall formulate a development and strategy plan which State-owned Asset Supervision and Administration Commission of the State Council (SASAC) must examine and approve. When performing such examination and prior the approval SASAC must consider, inter alia, whether or not this plan complies with the national development planning and industrial policies and whether or not it complies with the strategic adjustment of the layout and structure of the State-owned economy (12).

(57)

The concrete examples of the implementation of the measures described in the plans such as the relocation of the Capital Steel Corporation (13) or numerous mergers of steel enterprises (14) show that the plans are not only indicative documents which serve as guidelines but they result in concrete actions by the state-owned steel enterprises orchestrated by the government (represented by the NDRC and State Council).

(58)

All of the specific actions described in the above recitals must be followed and executed by the enterprises covered by the plans. It is concluded that through this direct government involvement in steel enterprises' commercial behaviour, the state-owned steel enterprises act like an arm of the government in performing governmental functions which subsequently lead to the fulfilment of goals and targets set in the plans.

(59)

Having established that SOEs are performing government functions, the question remains as to whether they exercise government authority in doing so. In this regard, a key question is whether they are meaningfully controlled by the government (15). If this is the case, it is reasonable to determine, in the light of all the relevant evidence, that SOEs act as an arm of government and effectively implement policy set out in the plans above.

(60)

The governmental control described below indicates that SOEs possess, exercise or are vested with governmental authority. Control can be exercised, inter alia, through government ownership, administrative regulation and involvement of SASAC, boards of directors, government plans.

(61)

As already mentioned in the section above concerning non-cooperation (recitals (46) to (48)), GOC did not provide the requested information on the ownership structure of the producers of HRS and CRS in China. With the reply to the questionnaire the GOC submitted a list of 54 companies in which the GOC is the largest shareholder, but during the verification visit it claimed that the list is not correct and also includes privately owned companies. The GOC did not correct the list and also did not specify which of the companies are privately owned and which are owned by the GOC. Because of the non-cooperation the Commission had to look at other evidence on the file and publicly available information.

(62)

The complainant provided evidence that the major HRS and CRS producers are state owned and submitted detailed information in this respect in Annex 10 to the complaint (16). Also other publicly available information (17) confirms that the GOC has ownership stake in many of the producers of HRS and CRS.

(63)

Taking into account all the information on the file it is reasonable to conclude that the GOC has a significant ownership stake in many of the Chinese HRS and CRS producers.

(64)

SASAC performs the responsibilities of the State as an investor and manages the state-owned assets under its supervision. It is noted that although the GOC in its response to the questionnaire and subsequent submissions claimed that SASAC is not involved in the commercial operations of SOEs and supported this claim with reference to Article 7 of the Interim Measures for the Supervision and Administration of State-owned Assets of Enterprises (18), other articles of the same law and also other evidence on file (19) suggest otherwise.

(65)

In fact, the GOC reply to the anti-subsidy questionnaire shows that SASAC, authorised by the State Council, appoints and removes the top executives of the supervised enterprises, and evaluates their performances through legal procedures. It is also responsible for urging the supervised enterprises to carry out the guiding principles and policies, has responsibility for the fundamental management of the state-owned assets of enterprises and directs and supervises the management work of local state-owned assets according to the law.

(66)

SASAC is also responsible for remuneration and assessment of the SOEs' managers; furthermore, it appoints and decides on the rewards and punishments to the SOE managers (20). In fact, all the evidence suggests that the careers of SOE managers depend on SASAC. These circumstances show that he SASAC clearly is vested with Governmental authority.

(67)

The composition of the Boards of SOEs also demonstrates the high level of control by the GOC of the SOEs. The evidence on file (21) shows that many of the members of boards of directors and boards of supervisors hold or held in the past government and/or party functions and that their selection is strongly influenced by governmental authorities such as SASAC or Communist Party of China (CCP).

(68)

The GOC's policies, interests and goals concerning steel industry are set in various governmental plans on central and also sub-central level, The SOEs are encouraged to follow these policies (the non-compliant companies are even subject to sanctions) and from the recent actions of some major steel SOEs in China it is obvious that these policies are adhered to and the steel SOEs are working towards reaching the targets and goals set in the plans.

(69)

According to the Twelfth 5 Year Development Plan for the Steel Industry only the "enterprises that comply with the nation's policies for the iron and steel industry and the Standards and Conditions for Production and Operation of the iron and steel industry play a primary role in merging and reorganization." (22)

(70)

A number of provincial and local level plans also mention specific SOEs and set goals and targets for them. The complainant provided extracts from these plans (23). All these plans were requested from the GOC in the questionnaire and in the deficiency letter for the purpose of verification and clarification but the GOC decided not to provide them. It is however noted that the GOC did not dispute the accuracy of these citations during the proceeding. Moreover, companies mentioned in the provincial and local plans admit their cooperation with authorities and describe how they act or acted in the past in line with the plans (24).

(71)

Although the GOC claims that some of the above plans are only indicative, not binding and are supposed to serve merely as a guidance, this allegation is not supported by other evidence on file. On the contrary, many laws and regulations which certainly are legally binding (25) make the state development plans and industrial policies obligatory for the SOEs.

(72)

The GOC formulates the goals and targets for the iron and steel industry through the 5-year plans and other relevant official documents and achieves these goals via the functions and activities described therein. Since these plans and documents are formulated by departments of the Chinese Government such as National Council or NDRC the functions and activities to which they refer should be considered governmental. Since as described above the steel SOEs are obliged to follow the plans and policies they act as an arm of the government and, since the government exercises meaningful control over them, they are in fact exercising government authority.

(73)

In view of the lack of cooperation from the GOC, the scope of those entities which are considered "public bodies" was not defined to the full extent. In any event, any SOE in which the government is the majority or the largest shareholder is a public body. Entities in which the government has no shareholding are private bodies. Having that said, there is no need to draw a bright line between public and private bodies here, since in recitals (85) to (98) below, it is demonstrated that all private bodies in the steel sector are entrusted and directed by the State and so, for all relevant purposes, behave in the same way as public bodies.

(b) Benefit (public bodies)

(74)

In order to assess whether there is a benefit in accordance with Article 3(2) of the basic Regulation, it is necessary to compare the prices of HRS and CRS paid by the exporting producers concerned to the relevant benchmark. The AB report confirmed that in a case where the market of the country of provision is distorted by the role of the government, the use of external benchmarks was permitted. It also noted that "where the government is the predominant supplier, it is likely that private prices will be distorted, but a case-by-case analysis is still required" (26). The AB also stated that: "… we are not suggesting that there is a threshold above which the fact that the government is the predominant supplier in the market alone becomes sufficient to establish price distortion, but clearly, the more predominant a government's role in the market is, the more likely this role will result in the distortion of private prices" (27). The AB further stated that: "when the government is a "significant" supplier, evidence pertaining to factors other than government market share will be needed, as the government's role as a significant supplier cannot, on its own, prove distortion of private prices". Therefore, the first question to be answered is whether the government share of the production of HRS and CRS in China is predominant or merely significant.

(75)

The Commission requested from the GOC information on the market of HRS and CRS in respect to the proportion of output of HRS and CRS produced by the SOEs and private companies but the GOC did not submit any relevant information in this respect (28).

(76)

The Commission used other information available (29) concerning this issue on the basis of which it was established that at least 63 % of HRS in China is produced by steel SOEs. It is important to note that this 63 % share of SOEs was arrived at after very conservative analysis and represents the absolute minimum figure. The fact that many of the allegedly private suppliers reported by the exporters seem to be trading companies (which may well have purchased from the product from SOEs), the non-cooperation of the GOC (see recitals (46) to (48) above) and findings of other investigating authorities (see footnote 32) leads to the conclusion that the real share of SOEs on the HRS market is much higher. Also the strong involvement of the GOC in this sector HRS market (see recitals (85) to (94) below) limits the manoeuvring of the private operators.

(77)

Taking the above into consideration it was established that the SOEs are predominant in the HRS market in China. This predominance of SOEs in the HRS market is so considerable that the private producers have no choice but to align their prices with the SOEs, as is demonstrated below.

(78)

With regard to CRS, the reported share of SOEs from the Chinese exporting producers (18 %) was much lower than in the case of HRS, however it was contradicted with other information (see recital (79) below). In view of non-cooperation from the GOC, the fact that many of the allegedly private suppliers reported by the exporters seem to be trading companies (which may well have purchased from the product from SOEs) and the limitations on commercial activities of private operators caused by the strong involvement of the GOC in this sector (see recitals (85) to (94) below) it is concluded (partly on the basis of facts available (see recital (79) below) within the meaning of Article 28 of the basic Regulation) that SOEs also predominate in the CRS market in China.

(79)

This conclusion is corroborated by the World Steel Capacity Book, which contradicts the 18 % share reported by the Chinese exporters and shows that more than 70 % of the whole production capacity of CRS in China is state-owned (30).

(80)

The Commission requested information from the GOC on prices of HRS and CRS by state-owned and privately owned companies sold on Chinese market. In the reply to the questionnaire the GOC did not provide any such information. The investigation at the exporters of OCS established that the prices paid by the four exporting producers/groups during the IP for the HRS and CRS sourced from private producers of HRS and CRS or from traders were consistently very close to the prices of SOEs (31). Thus the observed data, together with the predominance of SOEs in this sector, demonstrates that the price of private suppliers effectively tracks the prices paid to SOEs. Furthermore, in the contract submitted by one of the sampled exporting producers for the provision of HRS by a privately owned supplier there is even a condition to link the price to the SOE supplier price.

(81)

On the basis of the totality of the information on the file it is established that the prices of HRS and CRS sold by SOEs in China are distorted, as a result of the strong predominance of the SOEs in the HRS and CRS market in China. The prices of HRS and CRS of private suppliers are aligned with the prices of SOEs. Taking this into account it is concluded that there are no reliable market prices in China for the HRS and CRS. Since there are no "prevailing market terms and conditions" on the HRS and CRS market in China, the Commission, in accordance with Article 6(d) of the basic Regulation, had to look for an alternative benchmark. Since the whole of the Chinese market is distorted, it is considered impractical to adjust costs and prices in China in any meaningful way and import prices would appear to be similarly distorted by the predominance of SOEs. Therefore, in accordance with Article 6(d)(ii) of the basic Regulation, an external benchmark was sought.

(82)

The most appropriate benchmark appears to be a constructed benchmark on the basis of the world market prices of HRS and CRS regularly published in various specialised steel journals like Steel Business Briefing, MEPS and CRU.

(83)

Comparing the SOE prices to the out of country benchmark (constructed as explained in recital p. below) showed that these prices were well below the benchmark prices and consequently resulted in benefit for the Chinese exporting producers of OCS within the meaning of Article 3(2) of the basic Regulation.

(c) Specificity

(84)

This subsidy programme is specific within the meaning of Article 4(2)(c) of the basic Regulation given that the HRS and CRS is only used by limited number of industries and enterprises in China in their production.

(d) Entrustment and direction of private suppliers

(85)

The next question to be addressed is whether the private producers of HRS and CRS, which are not public bodies, are nevertheless entrusted or directed by the GOC to provide HRS and CRS to the OCS producers, within the meaning of Article 3.1(a)(iv) of the basic Regulation.

(86)

At the outset, it has already been established that the GOC has a policy to provide HRS and CRS to the OCS sector, because public bodies, which are part of the government, are engaged in such provision and hold a predominant place in the market, which enables them to offer below-market prices. And in any event, regardless of the characterisation of those bodies as "public" or not, the same evidence shows the existence of government policy strongly interfering in this sector. It now has to be determined whether that policy extends to private suppliers.

(87)

In a number of government plans and policy documents there are indications that steel producers in China (both SOEs and privately owned) are encouraged and supported by the GOC. Certain sections of these documents suggest that there is a direct link between the government and the conduct of the private steel companies and on a number of occasions it can be observed that this "guidance" resulted in action by steel companies as is recommended in the plans.

(88)

For example, Order of the NDRC No.35- Policies for the development of Iron and Steel Industry encourages the steel companies to act in certain way (32), sets conditions on investments and makes investment subject to approval by the authorities (33), influence competition for resources (34) and even provide for sanctions for non-complying companies (35). Also the Twelfth 5 Year Development Plan for the Steel Industry influences the business decisions of the steel companies which consequently can have impact on cost structure and prices (36).

(89)

In addition to this the complainant provided in the Annex 24 to the complaint a collection of extracts from various policy documents of different government organisations highlighting the GOC support to the steel industry in general or organic coated business specifically (37).

(90)

Furthermore, there is publicly available information showing that the privately owned companies act in accordance with different government plans and policy documents (38).

(91)

The GOC has taken steps to discourage the export of HRS and CRS by means of export restrictions imposed through the complex VAT refund system. More specifically HRS and CRS is subject to the payment of VAT at 17 %. VAT for domestically sold OCS produced from CRS (which is produced from HRS) is refundable at 13 % whereas if the company chooses to export HRS or CRS the VAT is not at all refunded. This system means that the privately owned producers of HRS and CRS are not able to act with normal commercial freedom and has the effect of increasing the domestic supply of HRS and CRS and inevitably depressing its price on the Chinese market. Thus private-owned HRS and CRS producers (in the same way as SOEs) are unable to act independently from the GOC policy.

(92)

In the section above concerning benefit for public bodies, it was established that due to the predominance of the steel SOEs in the HRS and CRS market the private producers of HRS and CRS have no choice but to align their prices with the SOEs prices. In other words they do not set the prices but they rather take them. This is another sign that the private producers of HRS and CRS cannot act independently from the actions of GOC and other public bodies.

(93)

This fact is also supported by the information provided by the Chinese exporting producers which submitted replies to the anti-subsidy questionnaires which shows that the prices of private suppliers of HRS and CRS are almost aligned with those of SOEs. Furthermore, in the contract submitted by one of the sampled exporting producers for the provision of HRS by a privately owned supplier there is even a condition to link the price to the SOE supplier price.

(94)

In view of the above finding that SOE prices are at below-market levels, it is clear that the prices of privately owned suppliers, being aligned to those of SOEs, are also at below-market levels.

(e) Financial contribution

(95)

According to Article 3.1(a)(iv) – second indent - of the basic Regulation, a financial contribution exists where a government: "entrusts or directs a private body to carry out one or more of the type of functions illustrated in points (i), (ii) and (iii) which would normally be vested in the government, and the practice, in no real sense, differs from practices normally followed by governments;". The WTO Appellate Body has interpreted "direction" as referring to situations where a government exercises its authority, including some degree of compulsion, over a private body, and "entrustment" as referring to situations in which a government gives responsibility to a private body (39). In addition, the WTO panel on US-Export Restraints (40), established a three-pronged test for the existence of entrustment and direction, which requires the existence of (a) a government action, which is (b) addressed to particular party and (c) the objective of which is a particular task or duty (41).

(96)

On this basis, the inclusion of private suppliers in the GOC policy to supply HRS and CRS constitutes government "entrustment" and "direction" of private suppliers for the following reasons:

A government "action":

—

The GOC "policy" (see recital (86) above), constitutes an "action" or "actions". The policy is carried out by public bodies (SOEs), which are predominant in the market and sell at below-market prices and by the GOC, through plans and the manipulation of export restrictions. The overall effect is that private suppliers are effectively compelled to follow the below-market prices of public bodies.

"Addressed to a particular party":

—

The government policy (notably the plans and export restrictions) applies to all HRS and CRS producers, both state-owned and private. In this sense the policy is "addressed" to all producers. This is evidenced by the fact that SOE and private prices are aligned and that private suppliers sell at prices which are commercially unreasonable.

"the objective of which is a particular task or duty":

—

The objective of the government policy, as evidenced by the price levels in China, is the provision of HRS and CRS at below-market prices. The actions of the GOC and SOEs leave private suppliers with no other choice but to follow the practices of public bodies and this effectively imposes a particular task or duty on them. The GOC policy, especially through the plans and VAT manipulation, severely restricts the freedom of private suppliers from this task or duty.

(97)

Taking all of the above factors into consideration it can be concluded that the GOC export restriction, government planning and the predominance of SOEs limits the freedom of private suppliers of HRS and CRS, obliging them to act in a non-commercial manner and to accept economically irrational (below-market) prices which they would not do in a free and open market. This confirms that the government policy to supply HRS and CRS (including to the organic coated steel sector) extends to private suppliers.

(98)

Furthermore, in view of the above analysis, the evidence on the file and other publicly available information led the Commission to the conclusion that private producers of HRS and CRS in China are entrusted and directed by the GOC to provide goods in line with Articles 3.1(a)(iii) and 3.1(a)(iv) of the Basic regulation and act in the same way as steel SOEs.

(f) Benefit (private suppliers)

(99)

The Commission established that the private suppliers of HRS and CRS act under entrustment and direction of the GOC and the investigation showed that the prices of privately owned suppliers of HRS and CRS are aligned with SOEs prices (see the section above).

(100)

Taking this into account it is concluded that the findings concerning benefit and specificity from the provision of HRS and CRS for below market prices by the SOEs also apply to the provision of HRS and CRS by privately owned suppliers.

(g) Findings of the investigation

(101)

Two sampled exporting producers have benefited from this programme. One exporting producer (Panhua Steel Group) has benefited from the provision of HRS for less than adequate remuneration and the other exporting producer (Huadong Steel Group) has benefited from the provision of CRS for less than adequate remuneration.

(h) Calculation of the subsidy amount

(102)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipient, which is found to exist during the IP. That benefit is calculated by taking the sum of the differences between the actual purchase values and appropriate benchmark values of the HRS and CRS purchases. The resulting amount was then allocated over the total sales turnover of the cooperating exporting producer during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(103)

Since the Chinese market for HRS and CRS is distorted, world market prices of HRS and CRS were considered appropriate bases for constructing benchmark prices for HRS and CRS. On the basis of various steel journals (SBB and MEPS) domestic prices, net of taxes, of five countries/regions were selected (i.e. Europe, USA, Turkey, Japan and Brazil). In order to arrive at the representative benchmark the Commission selected the biggest market for each relevant geographical region, i.e. Europe (EU), North America (USA), Latin America (Brazil), Asia (Japan) and Middle East/North Africa (Turkey). The monthly average prices for the IP period of each of the five countries/regions were arithmetically averaged so as to arrive at the monthly benchmark prices. The five countries/regions selected did not have the highest prices during the IP, they are all members of WTO, are among the ten biggest steel producers worldwide and are located in different continents. The benchmark prices thus established are therefore considered reasonable and appropriate.

(104)

The subsidy rate established with regard to this scheme during the IP for the sampled exporting producers amounts to 23,02 % for the Huadong Group and 27,63 % for the Panhua Group.

(105)

The weighted average subsidy rate for the cooperating companies not included in the sample is 25,37 %.

(106)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 32,44 %.

3.3.1.2. Provision of land use rights for less than the adequate remuneration

(a) Introduction

(107)

The complainant alleged that there is no functioning market for land in China and the amount paid by the companies for the use of land is below the normal market rate. In its reply to the anti-subsidy questionnaire the GOC stated that "In accordance with the Land Administration Law of the PRC, land in urban districts shall be owned by the State; land in rural areas and suburban areas, except otherwise provided for by the State, shall be collectively owned by peasants". GOC claimed that there is a standardised and orderly competitive land market, land use rights must be publicly traded in accordance with the law in the land market. GOC also stated that industrial and commercial land should be obtained by compensation for the use in open market by bidding, auction and competition. The GOC did not provide any data with respect to the actual land-use rights prices, minimum land prices formulated by the government which were mentioned in the reply to the anti-subsidy questionnaire and during the verification visit.

(108)

During the verification the Commission requested from the GOC evidence to support its claim that all the industrial land in China is assigned through bidding, quotation or auction. GOC was not able to provide such evidence during the verification visit, but submitted some information in this respect after the verification visit. However, all this evidence shows is that from thirteen land-use rights transactions concerning sampled exporting producers, only six were to be subject to bidding or auction process. No information on the auction/bidding process participant was provided as requested by the Commission and in fact on all occasions the final price paid by the company was same as the price arbitrarily set by the local authorities.

(109)

The Commission also requested from the GOC, under the assumption that there is no market price for land in the PRC, its views on possible benchmarks. Although this was only an assumption and by no means a finding or conclusion at the time when the questionnaire was sent to the GOC, the GOC expressed its view that this assumption is false and did not provide any possible benchmarks. GOC also pointed out to the alleged deficiency in the complaint that on one hand the complainant alleges that there is no market for land in China and "out of country benchmark" should be used, but on the other hand alleges that the SOEs receive land from the government at favourable terms vis-à-vis private industry and suggested that should any benchmark be used it should be the prices that "not favoured" Chinese industries are paying, but did not provide any information on these prices. In this context it should be noted that the complainant alleged that the land use rights market in China was distorted as a whole and both state-owned and private OCS producers have received land-use rights for less than adequate remuneration.

(b) Legal basis

(110)

The land-use right provision in China falls under Land Administration Law of the People's Republic of China and Real Right Law of the People's Republic of China.

(c) Practical implementation

(111)

According to Article 2 of the Land Administration Law, all land is government-owned since, according to the Chinese constitution and relevant legal provisions, land belongs collectively to the People of China. No land can be sold but land-use rights may be assigned according to the law. The State authorities can assign it through public bidding, quotation or auction.

(d) Findings of the investigation

(112)

The cooperating exporting producers have reported information regarding the land they hold as well as most of the relevant land-use rights contracts/certificates, but only very limited information was provided by the GOC about pricing of land-use rights.

(113)

As mentioned above the GOC claimed that the land-use rights in China are assigned through bidding, auction and competition. This is also provided for in the Article 137 of the Real Right Law of the People's Republic of China (42).

(114)

However, during the verification of cooperating exporting producers it was found that this system as described by the GOC does not always work like that in practice. For example out of six land-use rights purchased by Chongqing Wanda Steel Strip Co. Ltd. (part of Panhua Group Co. Ltd) for four of them, as confirmed by company officials, there was no bidding process. Chongqing Wanda was the only participant and the final transaction price paid by the company was in fact exactly the same as the initial price arbitrarily set by the local Land Resources Bureau. As for the remaining two land-use rights there was a bidding process, but no evidence for this was provided neither by the company nor by the GOC. In fact, from the documents submitted by the GOC after the verification visit it appears that also these two land-use rights were purchased for the price identical to the price set by the local Land Resources Bureau. Zhangjiagang Panhua Steel Strip Co., Ltd (also part of Panhua Group Co. Ltd) obtained three land-use rights by transfer from private companies in exchange for share in Panhua Group Co. Ltd.

(115)

Zhejiang Huadong Light Steel Building Material Co., Ltd obtained two of its land-use rights from local Land and Resources Bureau, Xiaoshan District and one from the private company. No evidence on bidding or auction could be provided as according to the GOC for the land-use rights purchased before 1 September 2006 there were no sales confirmation for land use rights transactions and in fact the GOC did not confirm or deny that these transactions were subject to bidding or auction.

(116)

The findings of the proceeding confirm that the situation concerning land provision and acquisition in China is unclear and non-transparent and the prices are often arbitrarily set by the authorities. The authorities set the prices according to the Urban Land Evaluation System which instruct them among other criteria to consider also industrial policy when setting the price of industrial land. Also, at least in the steel sector, the access to industrial land is by law limited only to companies respecting the industrial policies set by the State (43).

(117)

Also, the independent information submitted by the complainant suggest that the land in China is provided for below the normal market rates (44).

(e) Conclusion

(118)

Accordingly, the provision of land-use rights by the GOC should be considered a subsidy within the meaning of Article 3(1)(a)(iii) and Article 3(2) of the basic Regulation in the form of provision of goods which confers a benefit upon the recipient companies. As explained in recitals (114) - (115) above, there is no functioning market for land in China and the use of an external benchmark demonstrates that the amount paid for land-use rights by the cooperating exporters is well below the normal market rate. The subsidy is specific under Article 4 2(a) and 4 2(c) of the basic Regulation because the access to industrial land is by law limited only to companies respecting the industrial policies set by the State, only certain transactions were subject to a bidding process, prices often being set by the authorities and government practices in this area are unclear and non-transparent.

(119)

Consequently, this subsidy is considered countervailable.

(f) Calculation of the subsidy amount

(120)

As it was concluded that the situation in China with respect to land-use rights is not market-driven, there appear to be no available private benchmarks at all in China. Therefore, an adjustment of costs or prices in China is not practicable. In these circumstances it is considered that there is no market in China and, in accordance with Article 6(d)(ii) of the basic Regulation, the use of an external benchmark for measuring the amount of benefit is warranted. Given that the GOC did not cooperate or failed to submit any proposal for an external benchmark the Commission had to resort to facts available in order to establish an appropriate external benchmark. In this respect it is considered appropriate to use information from the Separate Customs Territory of Taiwan as an appropriate benchmark.

(121)

The Commission considers that the land prices in Taiwan offer the best proxy to the areas in China where the cooperating exporting producers are based. The majority of the exporting producers are located in the eastern part of China, in developed high-GDP areas in provinces with a high population density.

(122)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is calculated by taking into consideration the difference between the amount paid by each company for land use rights and the amount that should have been normally paid on the basis of the Taiwanese benchmark.

(123)

In doing this calculation, the Commission used the average land price per square meter established in Taiwan corrected for currency depreciation and GDP evolution as from the dates of the respective land use right contracts. The information concerning industrial land prices was retrieved from the website of the Industrial Bureau of the Ministry of Economic affairs of Taiwan. The currency depreciation and GDP evolution for Taiwan were calculated on the basis of inflation rates and evolution of GDP per capita at current prices in USD for Taiwan as published by the IMF in its 2011 World Economic Outlook. In accordance with Article 7(3) of the basic Regulation this subsidy amount (numerator) has been allocated to the IP using the normal life time of the land use right for industrial use land in China, i.e. 50 years. This amount has then been allocated over the total sales turnover of the co-operating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(124)

The subsidy rate established with regard to this scheme during the IP for the cooperating exporting producers amounts to 0,34 % for the Huadong Group and 1,12 % for the Panhua Group.

(125)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,73 %.

(126)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 1,36 %.

3.3.1.3. Programme consisting of provision of water for less than adequate remuneration

(a) Introduction

(127)

The complaint alleged that water prices in China are exclusively determined by public authorities and that the pricing structure is set according to industrial macro-policies. It also reported that water prices were different in the various local areas and that there was also a differentiation of rates on a company-by-company basis. The complaint alleged that it was likely that OCS producers had benefitted from water prices for less than adequate remuneration in accordance with the policy to encourage high-added value steel products.

(128)

The water supply and market in China is administered by the NDRC, the Ministry of Water Resources and the Ministry of Environment. The water supply market is still largely dominated by local state-owned companies, although the entrance of foreign investment companies in some water supply projects of certain cities has broken the monopoly of state suppliers. However, the GOC was unable to provide a detailed list of water suppliers with their service area and volumes supplied (see recital (129) below), but limited its reply to a list of water suppliers in the areas of the sampled exporting producers.

(129)

As for pricing, the NDRC formulates the main pricing policy and the local authorities set the local water price after a hearing procedure with the aim to pursue a sustainable utilisation of water resources. The prices reflect the costs together with a reasonable profit for the local water suppliers. The GOC submitted the relevant price lists applicable in the municipalities where the sampled OCS producing exporters were located. It was clarified that the various municipal prices apply to all industrial users uniformly and do not vary by company or users.

(b) Findings of the investigation

(130)

The investigation confirmed that the NDRC sets the basic price of water, and the municipal price administrative authorities set the price for each municipality on the basis of several parameters (e.g. costs of distribution, profit, and reasonable surplus). The water price is supplemented by a ‧sewage treatment‧ fee also set at municipal level.

(131)

While the basic water price, the sewage treatment fee and other possible local surcharges are equally applicable to all users falling in the same categories, it was found that one of the two sampled exporters, Zhejiang Huadong Group, did not pay the sewage treatment fee.

(132)

The exporter claimed that it paid this fee as a lump-sum amount to the Environment Protection Bureau. However, it is not considered that this payment was made on the place of the sewage treatment fee for the following three reasons: (1) the official document reads "waste water emission" fee and not "sewage treatment" fee; (2) the payment is not proportional to the actual water consumption; (3) the total amount paid is quite small as compared to the actual amount that would have been payable if the sewage treatment fee on the actual water consumption had been due.

(c) Financial contribution

(133)

Zhejiang Huadong Group received a financial contribution within the meaning of Article 3(1)(a)(iii) of the basic Regulation in that the government provided water through the local public water supply company (i.e. Hangzhou Xiaoshan Water Supply Co. Ltd.). This constitutes a government financial contribution in the form of provision of goods other than general infrastructure within the meaning of the basic Regulation. Alternatively, this could be viewed as revenue foregone by the government because a public body did not collect revenue otherwise due in the sense of Article 3(1)(a)(ii).

(d) Benefit

(134)

Huadong Steel Group received a benefit within the meaning of Article 3(2) of the basic Regulation to the extent that the government has provided water for less than adequate remuneration. It has been established that this exporter has not paid the full price for water supply normally applicable to the category of users to which it belongs, as the "sewage treatment fee" component of the water price has not been paid.

(e) Specificity

(135)

The subsidy in form of provision of water to one of the cooperating exporters is specific within the meaning of Article 4(2)(c) of the basic Regulation, since the sewage treatment fee is not waived for all enterprises. Notwithstanding the absence of legislation limiting this subsidy to certain enterprises, the possibility for a certain enterprise producing the product concerned to obtain water supply for less than adequate remuneration, coupled with the apparent discretion conferred with the local authorities to waive part of the rate normally paid for water, makes the subsidy in fact specific. The Commission could not collect any further evidence concerning the basis on which this fee was waived as the exporting producer was unable to provide it.

(f) Calculation of subsidy amount

(136)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. That benefit is considered to be the amount of sewage treatment fee not paid for water consumption during the IP. In accordance with Article 7(2) of the basic Regulation, this subsidy amount (numerator) has been allocated over the total sales turnover of the cooperating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(137)

Zhejiang Huadong Group has benefited from the non-payment of the sewage treatment fee. The subsidy rate established for it is 0,01 %.

(138)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,01 %.

(139)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for the sampled cooperating companies, i.e. 0,01 %.

3.3.1.4. Programme consisting of provision of electricity for less than adequate remuneration

(a) Introduction

(140)

The complaint alleged that the GOC has provided electricity for less than adequate remuneration through preferential rates. In particular, the complaint asserted that electricity rates were set differently in different provinces and also that preferential rates were used as an industrial policy tool to encourage high added-value steel products and discourage outdated production capacities.

(141)

The NDRC is responsible for regulating the electricity market and setting the pricing in China. The trans-provincial and provincial grids are operated by two state-owned suppliers: State Grid Corporation of China and China Southern Power Grid Corporation. The electricity suppliers at municipal level are subsidiaries of these companies. A competition mechanism is in the process of being introduced in China through a few pilot projects, but its impact is still negligible at this stage.

(142)

The electricity prices are set by the NDRC on the basis of a procedure that includes cost investigation, expert appraisal, public hearings, and final price determination and publication. The NDRC publishes the prices applicable to each province into Notices, and then the local price bureaux publish a corresponding notice at local level implementing the prices decided by the central NDRC. The final price reflects purchasing costs, transmission costs and losses, and government surcharges. The prices are differentiated by province depending on the local situation and policy objectives pursued in the various provinces. They are set for different end user categories (e.g. residential, industrial users). An additional price differential exists for different industrial users to pursue the industrial policies set by the GOC and reflected in the catalogue contained in Decision No. 40 (2005) of the NDRC (see further explanation in recital (182)). Users falling in the ‧encouraged‧ enterprises according to the NDRC catalogue pay the basic electricity rate, whereas users falling in the ‧outdated‧ or ‧prohibited‧ enterprises pay a surcharge on top of the basic rate. Users not falling into any category listed in the catalogue fall in the default category of ‧allowed‧ enterprises and also pay the basic rate without surcharges. OCS producers would normally fall in the category of ‧encouraged‧ enterprises according to Decision No. 40 of the NDRC.

(b) Non–cooperation

(143)

The Commission requested from the GOC the regulatory framework of the electricity market and pricing and the role that all relevant bodies or entities play. The GOC failed to submit the full set of the relevant pricing decisions issued by the NDRC and the local price bureaux not only with regard to the non-sampled producing exporters, but also with regard to the sampled producing exporters. The GOC also failed to describe accurately the role of the NDRC and the local price bureaux in the setting of the prices. The Commission informed the GOC of these shortcomings with regard to the sampled producing exporters in its letter of 12 August 2012. It was also discovered after the verification visits that the GOC indicated an incorrect electricity rate applicable to one of the sampled cooperating exporters.

(c) Findings of the investigation

(144)

The investigation confirmed that it is the NDRC that sets the prices of electricity applicable in the various provinces. It was verified that the local price bureau merely acts as an executive arm of the decision taken at central level by the NDRC. This is also confirmed by the fact that the NDRC issues Notices in which it sets the actual prices set for each province and then these notices are formally transposed into local notices adopted by the local price bureaux and implemented at local level. The investigation also established that differential electricity rates applicable for certain sectors and/or at provincial and local level are set in accordance with certain factors, including notably the pursuit of the industrial policy goals set by the central and local governments in their 5-year plans and in the sectoral plans.

(145)

The investigation of the cooperating sampled exporters showed that one of them, i.e. Chongqing Wanda Steel Strip ("CWSS") benefited from an electricity rate lower than the rate generally applicable for large industrial users. It was found that in the specific area where this exporter was located a sub-category of certain industrial users, including those producing the product concerned, were entitled to this lower rate.

(d) Financial contribution

(146)

One of the cooperating sampled exporters (CWSS) received a financial contribution in the sense of Article 3(1)(a)(iii) of the basic Regulation in that the government provided electricity through the local public electricity supply company. This constitutes a government contribution in the form of provision of goods other than general infrastructure within the meaning of the basic Regulation.

(e) Benefit

(147)

CWSS received a benefit within the meaning of Article 3(2) of the basic Regulation to the extent that the government has provided electricity for less than adequate remuneration. It has been established that this exporter was entitled to a rate lower than the rate generally applicable to other large industrial users.

(f) Specificity

(148)

The subsidy in form of provision of electricity to one of the cooperating exporters is specific within the meaning of Article 4(2)(a) and 4(3) of the basic Regulation. The lower electricity rate is set out in the relevant NDRC Notice and incorporated in the Notice issued by the local Price Bureau, i.e. it is mandated by a central authority and administered at local level. This lower rate is limited to certain enterprises in certain specified sectors (mainly producers of ferroalloy in electronic furnace and fertilizer companies) included in a sub-category of large-scale industrial users. Therefore, this lower rate is limited de jure only to companies falling into these categories in the meaning of Article 4(2)(a) of the basic Regulation.

(149)

The subsidy is also limited to a certain region in that it only applies in a limited designated geographical area where the exporting producer is located. This area is encouraged according to legislation issued by the Central Government, i.e. the Circular of the State Council Concerning Several Policies on Carrying out the Development of China's Vast Western Regions (see for more details recital (233) below). This Circular explicitly mentions price mechanism in electricity transmission and provision as one of the tools to achieve development of certain sectors. As the electricity rates applicable in this area are set by a central authority, this subsidy is also regionally specific within the meaning of Article 4(3) of the basic regulation.

(g) Calculation of subsidy amount

(150)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit to the exporting producers has been calculated by considering the difference between the actual electricity rate per Kwh paid and the rate that should have been paid per Kwh for large industrial users, multiplied by the electricity volume consumed during the IP. In accordance with Article 7(2) of the basic Regulation this amount (numerator) has then been allocated over the total sales turnover of the cooperating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(151)

One of the cooperating sampled exporting producers belonging to the Panhua Group of companies (i.e. CWSS) has benefited from this lower electricity rate. The subsidy rate established for the Panhua Group is 0,14 %.

(152)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,07 %.

(153)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 0,17 %.

3.3.1.5. Provision of various goods for less than adequate remuneration

(154)

The complaint referred to a number of other goods provided by the GOC to OCS producers through its SOEs. In particular, the complaint listed a number of specific transactions concerning the provision of several steel outputs manufactured by SOEs, including iron ore concentrate, pellets, sintered ore, scrap, billet, sintered ore, alloys and many others. The complaint showed that the price for the provision of these goods was set by reference to different elements and/or benchmarks, and that there were price caps or adjustments depending on the different goods and on whether the transaction concerned related parties.

(155)

The GOC replied that it did not have this programme for steel makers during the IP. Given the lack of further information provided by the GOC on this programme, the Commission based its findings on the information available on file according to Article 28 of the basic Regulation.

(156)

To the extent that prices for the various goods mentioned above do not reflect adequate remuneration, this programme is countervailable according to Article 3(1)(a)(iii) and Article 6(d) of the basic Regulation. However, the complexity of the various transactions for the provision of these goods and of the underlying contracts which were not available in the record of the proceeding did not enable the Commission to come to a firm conclusion on this programme. Therefore the Commission has decided not to assess this programme further.

3.3.2. PREFERENTIAL LOANS AND INTEREST RATES TO THE OCS INDUSTRY

(a) Introduction

(157)

The complainant alleged that the OCS producers benefit from low (subsidised) interest rates from state-owned commercial banks and government banks in accordance with the GOC policy to support and develop the expansion of the Chinese steel industry under the five year plans.

(b) Non-cooperation and the use of facts available

(158)

The Commission requested from the GOC information concerning the proportion of loans provided by the banks where the GOC is the largest or sole shareholder, banks where the GOC has a shareholding stake but is not the largest shareholder, banks where the GOC is not a shareholder and banks which are foreign owned, to both industry as a whole and to the industry concerned by this proceeding. The GOC replied that it does not retain records of the amounts and percentages of the loans provided by the state-owned banks and that the GOC also does not retain the records of loans for steel industry. GOC did not suggest any alternative source for this information.

(159)

The Commission also sought information about the state ownership of the banks and financial institutions but the GOC did not provide the information claiming that it does not retain such records. Although it is unlikely that the GOC is not aware of the assets it owns, it is noted that according to the publicly available information (45) (46) the GOC is a major shareholder in many of the major banks established in China and therefore, as in the case of the SOEs producing HRS and CRS, it has access to banks' Articles of Association where the information on shareholdership should be described in detail. In this respect it is also noted that according to Article 61 of the Law on Commercial Banks [2003] the banks "shall report the balance sheets, statements of profits, and other financial statement and statistical reports and documents to the banking regulatory organ of the State Council and People's Bank of China".

(160)

The Commission also requested information (by means of a specific questionnaire – Appendix A) concerning the structure of government control in the Chinese banks concerned and the pursuit of government policies or interests with respect to the steel industry (i.e. board of directors and board of shareholders, minutes of shareholders/directors meetings, nationality of shareholders/directors, lending policies and assessment of risk with respect to loans provided to the cooperating exporting producers). Nevertheless, in the reply to the questionnaire the GOC submitted only one Appendix A which contained some general information (mostly compiled from websites of the banks). Most of the specific information requested in Appendix A was not provided. To some of the questions the GOC replied that it does not have such information at this time and to some it only provided information on selected banks (e.g. Articles of Association were only provided for eight banks). In the deficiency letter, the Commission repeated its request and invited the GOC to provide all the information as originally requested in the questionnaire. In its reply to the deficiency letter the GOC submitted some additional information. However, the answer was still very incomplete and much of the requested information (e.g. the percentage of government ownership in state-owned banks, the Articles of Association of some banks listed in the questionnaire, complete replies questions in Appendix A) was not provided.

(161)

In the questionnaire, deficiency letter and again during the on-spot verification visit the Commission requested circulars of the People's Bank of China (PBOC) concerning expansion of financial institutions' loan interest rate policy (YinFa [2003] No.250 and YinFa [2004] No 251). The Commission learned about the existence of these circulars in the course of previous investigation. However, instead of providing these circulars the GOC referred the Commission to the PBOC website to find out about the financial institutions' loan interest rate policy. During the verification two exhibits were submitted in this respect, but these were only printouts from the website. It is noted that no complete content of these Circulars could be found on the PBOC website.

(162)

The Commission requested also the Circular of PBOC concerning the changes of 8 June 2012 to be submitted during the on-spot verification. The GOC did not provide the Circular and instead it only provided general information printed from the PBOC website concerning adjustment of benchmark interest rates.

(163)

The Commission also asked the GOC to arrange meetings with specific banks in order to verify information concerning preferential lending to the OCS industry. However the GOC failed to organise such meetings and claimed that it was unable to intervene with state-owned banks to arrange such meetings. It is also noted that in the pre-verification letter of 7 June 2012 the Commission explained that it would be prepared to start the verification one day earlier and in fact allow more time for the verification should the GOC consider that banks are best placed to provide clarifications and explanations concerning preferential lending. The Commission therefore requested the GOC to confirm the presence of the banks before the verification so that necessary arrangements could be made by the verification team. In its letter of 15 June 2012 the GOC stated that it would continue to request the banks to cooperate but that it could not coerce them to do so. Eventually, it was only during the first day of the verification that the Commission team was informed that the representative of the China Construction Bank was available for the questions and explanations. Since the Commission had not been informed about this (although specifically requested in the pre-verification letter) it was not possible to address specific questions about contracts and loan terms but only questions of a general character. In any event, no supporting documentation was provided for the statements made by the representative of the China Construction Bank with the explanation that all the documents that the Commission requested would be confidential and of an internal character.

(164)

The GOC was made aware of the consequences of non-cooperation in accordance with Article 28(1) and (6) of the basic Regulation. In view of this lack of cooperation, it has been necessary, in addition to taking account of relevant GOC documents submitted by other parties, to use information from secondary sources, including the complaint and publicly available information retrieved from internet.

(c) Findings of the investigation

(165)

The investigation has established that the Chinese financial market is characterised by government intervention because most of the major banks are state-owned. The Chinese authorities have provided only very limited information concerning shareholding/ownership of banks in China. However, as further outlined below, the Commission compiled available information in order to arrive at a representative finding. In performing its analysis whether banks are entities vested with or exercising government authority (public bodies) the Commission also sought information concerning not only the government ownership of the banks but also other characteristics such as the government presence on the board of directors, the government control over their activities, the pursuit of government policies or interests and whether entities were created by statute.

(166)

From the available information it is concluded that the state-owned banks in China hold the highest market share and are the predominant players in the Chinese financial market. According to the 2006 Deutsche Bank Research on China's banking sector (47), the state-owned banks' share may amount to more than 2/3 of the Chinese market. For the same matter the WTO Trade Policy Review of China noted that "The high degree of state ownership is another notable feature of the financial sector in China" (48) and "there has been little change in the market structure of China's banking sector, which is dominated by state-owned banks" (49). It is pertinent to note that the five largest state-owned commercial banks (Agricultural Bank, Bank of China, Construction Bank of China, Bank of Communications and Industrial and Commercial Bank) appear to represent more than half of the Chinese banking sector (50).

(167)

The Commission also requested information concerning the structure of government control in those Chinese banks and the pursuit of government policies or interests with respect to the steel industry (i.e. board of directors and board of shareholders, minutes of shareholders/directors meetings, nationality of shareholders/directors, lending policies and assessment of risk with respect to loans provided to the cooperating exporting producers). Nevertheless, as noted in recital (160) above, the GOC provided only very limited information in this respect. Consequently, the Commission had to use the information available. It concluded on the basis of the available data that those banks are controlled by the government and exercise government authority in a manner that their actions can be attributed to the State. The relevant data used in order to arrive at the aforesaid findings is derived from information submitted by the GOC, the annual reports of Chinese banks that were either submitted from GOC or publicly available, information retrieved from the 2006 Deutsche Bank Research on China's banking sector, WTO Policy review on China (2010 and 2012), China 2030 World Bank Report, information submitted from the co-operating exporting producers and information existing in the complaint. As for foreign banks, independent sources estimate that they represent a minor part of the Chinese banking sector and consequently play an insignificant role in policy lending; with relevant information suggesting that this may represent as little as 1 % of the Chinese market (51). Relevant publicly available information also confirms that Chinese banks, particularly the large commercial banks, still rely on state-owned shareholders and the government for replenishment of capital when there is a lack of capital adequacy as result of credit expansion (52).

(168)

With respect to the banks that provided loans to the cooperating exporting producers, the great majority of them are state-owned banks. Indeed on the basis of the available information it was found that at least 14 out of the 17 reported banks are state-owned banks, including the major Commercial banks in China like Bank of China, China Construction Bank and Industrial and Commercial Bank of China. With respect to the remaining state-owned banks concerned, again the Commission requested the same information mentioned above concerning the government control and the pursuit of government policies or interests with respect to the steel industry. No such detailed information was provided. It is therefore concluded that the banks are controlled by the government and exercise government authority in a manner that their actions can be attributed to the State. For this reason the state-owned commercial banks in China should be considered public bodies.

(169)

Another sign of GOC involvement in Chinese financial market is the role played by the PBOC in setting the specific limits on the way interest rates are set and fluctuate. Indeed, the investigation established that the PBOC has specific rules regulating the way interest rates float in China. According to the information available, these rules are set out in the PBOC's Circular on the Issues about the Adjusting Interest Rates on Deposits and Loans-Yinfa (2004) No 251 ("Circular 251"). Financial institutions are requested to provide loan rates within a certain range of the benchmark loan interest rate of the PBOC. For commercial bank loans and policy bank loans managed commercially there is no upper limit range but only a lower limit range. For urban credit cooperatives and rural credit cooperatives there are both upper and lower limit ranges. For preferential loans and loans for which the State Council has specific regulations the interest rates do not float upwards. The Commission sought clarifications from the GOC on the definition and wording stated in the Circular 251 as well as to its preceding legislation (Circular of PBOC concerning expansion of Financial Institution's Loan Interest Rate Float Range – YinFa [2003] No. 250). However as described in the recitals (161) and (162) above, the GOC refused to provide these Circulars which prevented the Commission to verify their content and seek explanations. Since the GOC did not provide any relevant information in this respect which would suggest the situation changed since May 2011 when the Commission concluded its anti-subsidy investigation concerning Coated Fine Paper (53) it is established that the PBOC is involved and influences setting of interest rates by state-owned commercial bank.

The GOC did not provide any evidence that the situation as established in the Coated Fine Paper investigation has changed, therefore on the basis of facts available and the other evidence cited above, it was concluded that the situation concerning the methodology for determining interest rates should remain the same during the entire IP.

(170)

The Commission also endeavoured to analyse whether the privately owned commercial banks in China are entrusted or directed by the GOC to provide preferential (subsidised) loans to the organic coated steel producers, within the meaning of Article 3.1(a)(iv) of the basic Regulation.

(171)

From the section above concerning state involvement in the banking sector (recitals (165) to (169)) it is clear that the GOC has a policy to provide preferential lending to the organic coated steel sector, because public bodies (state-owned commercial banks) (54) are engaged in such provision and hold a predominant place in the market, which enables them to offer below-market interest rates. It now has to be determined whether that policy extends to private suppliers.

(172)

The Commercial banking law [2003] applies in the same way to state-owned commercial banks and privately owned commercial banks. For example Article 38 of this law instructs all Commercial banks (i.e. also those which are privately owned) to "determine the loan rate in accordance with the upper and lower limit of the loan rate set by the PBOC", Article 34 of the Commercial Banking Law instructs the commercial banks to "carry out their loan business upon the needs of national economy and the social development and with the spirit of state industrial policies".

(173)

Also the Order No.35 - Policies for the development of Iron and Steel Industry, in particular Articles 24 and 25 which limit the provision of loans only to those companies which comply with the national development policies for the Iron and steel industry do not distinguish between state-owned and privately-owned commercial banks.

(174)

Further the above mentioned (recitals (161) and (162)) Circulars of the PBOC are also binding for privately–owned commercial banks.

(175)

The above citations from laws and regulations relevant for the banking sector show that the GOC policy to provide preferential lending to the organic coated steel producers extends also to privately-owned commercial banks and in fact the GOC instructs them to "carry out their loan business upon the needs of national economy and the social development and with the spirit of state industrial policies" (55).

(176)

The Commission requested relevant information from the GOC in order to assess how the banks in China are performing credit risk assessment of the OCS companies before deciding whether to grant them or not loans and deciding on the conditions of the loans which are granted. In the Appendix A to the questionnaire the Commission requested information on how do the banks take account of risk when granting loans, how is the creditworthiness of the borrower assessed, what are the risk premiums charged for different companies/industries in China by the bank, which are the factors the bank takes into account when assessing the loan application, the description of loan application and approval process etc. However, neither the GOC nor the individual banks identified in the questionnaire provided any evidence in this respect. The GOC provided only replies of general nature not supported by any evidence whatsoever that any kind of credit risk assessment actually takes place.

(177)

The Commission also requested the similar information from the cooperating exporting producers and attempted to verify it during the on-spot verification visits of sampled exporting producers. Both groups of sampled exporting producers replied that banks request certain documents and perform some kind of credit risk analyses before the loans are granted. However, they could not support their claims with any evidence. During the on-spot verification the Commission asked for the evidence that the banks requested such documents or that these documents were provided to the banks by the companies or any kind of report issued by the banks proving that such credit risk analyses was performed. However the sampled groups of exporting producers were not able to provide such evidence, neither were they able to provide any other evidence supporting their claims. It is also noted that none of the sampled groups of exporting producers or individual companies within these groups has a credit rating assigned.

(178)

The information concerning credit risk assessment was repeatedly requested from interested parties as it is considered crucial inter alia account taken of (i) the finding of the IMF 2006 report which suggested that the bank liberalisation in China is incomplete and credit risk is not properly reflected (56), (ii) the IMF 2009 report which highlighted the lack of interest rate liberalisation in China (57), (iii) the IMF 2010 Country Report which stated that cost of capital in China is relatively low, credit allocation is sometimes determined by non-price means and high corporate saving is partly linked to low cost of various factor inputs (including capital and land) (58) and (iv) the OECD 2010 Economic Survey of China (59) and OECD Economic Department Working Paper No. 747 on China's Financial Sector Reforms (60) which stated that ownership of financial institutions remains dominated by the State raising issues as the extent to which banks' lending decisions are based purely on commercial considerations while banks' traditional role appears to be that of government agencies with ties to the government.

(d) Financial Contribution

(179)

Having regard to the totality of the evidence, it is concluded that the vast majority of loans to the 2 sampled groups of exporting producers are provided by state-owned banks which are considered to be public bodies because they are vested with government authority and exercise government functions. There is further evidence that these banks effectively exercise government authority since as it is explained in recital (169) there is a clear intervention by the State (i.e. PBOC) in the way commercial banks take decisions on interest rates for loans granted to Chinese companies. In these circumstances, the lending practices of these entities are directly attributable to the government. The fact that banks exercise government authority is also confirmed by the way NDRC Order No.35- Policies for the development of Iron and Steel Industry (61), Decision 40 and Article 34 of the Law on Commercial Banks act with respect to the fulfilment of the government industrial policies. There is also a great deal of circumstantial evidence, supported by objective studies and reports, that a large amount of government intervention is still present in the Chinese financial system as already explained in recital (178) above. Finally, the GOC failed to provide information which would have enabled a greater understanding of the state-owned banks' relationship with government as explained in recitals (159) to (164).

Thus, in the case of loans provided by state-owned commercial banks in China, the Commission concludes that there is a financial contribution to the organic coated steel producers in the form of a direct transfer of funds from the government within the meaning of Article 3(1)(a)(i) of the basic Regulation. In addition, the same evidence shows that SOCBs (as well as privately owned banks) are entrusted or directed by the government and this consequently means that a financial contribution exists within the meaning of Article 3(1)(a)(iv) of the basic Regulation.

(180)

In view of the analysis in Recitals (170) to (175) above, it is also determined that privately-owned banks are entrusted and directed by the GOC to provide loans to the OCS producers and that a financial contribution exists under Articles 3(1)(a)(i) and 3(1)(a)(iv) of the basic Regulation.

(e) Benefit

(181)

A benefit within the meaning of Articles 3(2) and 6(b) of the basic Regulation exists to the extent that the government loans are granted on terms more favourable than the recipient could actually obtain on the market. Since it has been established that non-government loans in China do not provide an appropriate market benchmark (privately owned banks being entrusted and directed by the GOC), such a benchmark has been constructed using the method described in recitals (191) and (192) below.

(f) Specificity

(182)

The steel industry belongs to the encouraged category according to the Decision No. 40. Decision No 40, is an Order from the State Council, which is the highest administrative body in the PRC and in that regard the decision is legally binding for other public bodies and the economic operators. It classifies the industrial sectors into ‧Encouraged, Restrictive and Eliminated Projects‧. This Act represents an industrial policy guideline that along with the Directory Catalogue shows how the GOC maintains a policy of encouraging and supporting groups of enterprises or industries, such as the steel/ OCS industry, classified by the Directory Catalogue as an ‧Encouraged industry‧. With respect to the number of industries listed as ‧Encouraged‧ it is noted that these represent only a portion of the Chinese economy. Furthermore, only certain activities within these encouraged sectors are given "encouraged" status. Decision No 40 also stipulates under Article 17 that the ‧Encouraged investment projects‧ shall benefit from specific privileges and incentives, inter alia, from financial support. On the other hand, with reference to the ‧Restrictive and Eliminated Projects‧, Decision No 40 empowers the state authorities to intervene directly to regulate the market. In fact, Articles 18 and 19 provide that the relevant authority prevents financial institutions from supplying loans to such ‧Restrictive and Eliminated Projects‧. It is clear from the above that Decision No 40 provides binding rules to all the economic institutions in the form of directives on the promotion and support of encouraged industries, one of which is the part of OCS industry:

(183)

Furthermore, Order No. 35 of the NDRC - Policies for the development of Iron and Steel Industry, in particular Articles 24 and 25, limit the provision of loans only to steel enterprises which fully comply with the development policies for the iron and steel industry.

(184)

The complainant also provided evidence that some other government plans and documents are encouraging and instructing for the financial support of steel industry in general and also in specific geographical regions of China (62) (63).

(185)

Taking all the above into consideration it becomes clear that the authorities only allow the financial institutions to provide preferential loans to limited number of industries/companies which comply with the development policies of the GOC. On the basis of the evidence on the file and in the absence of the cooperation from the GOC on this matter it is concluded that the subsidies in form of preferential lending are not generally available and are therefore specific in the meaning of Article 4(2)(a) of the basic Regulation. Moreover there was no evidence submitted by any of the interested parties suggesting that the subsidy is based on objective criteria or conditions under Article 4(2)(b) of the basic Regulation.

(186)

The investigation showed that the two groups of sampled exporting producers benefited from the preferential lending in the investigation period.

(g) Conclusion

(187)

Accordingly, the financing of the organic coated steel industry should be considered a subsidy.

(188)

In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, this subsidy should be considered countervailable.

(h) Calculation of the subsidy amount

(189)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. According to Article 6(b) of the basic Regulation the benefit conferred on the recipients is considered to be the difference between the amount that the company pays on the government loan and the amount that the company would pay for a comparable commercial loan obtainable on the market.

(190)

As explained above (recitals (165) to (178)), since the loans provided by Chinese banks reflect substantial government intervention in the banking sector and do not reflect rates that would be found in a functioning market, an appropriate market benchmark has been constructed using the method described below. Furthermore, due to the lack of cooperation by the GOC, the Commission has also resorted to facts available in order to establish an appropriate benchmark interest rate.

(191)

When constructing an appropriate benchmark, it is considered reasonable to apply Chinese interest rates, adjusted to reflect normal market risk. Indeed, in a context where the exporters' current financial state has been established in a distorted market and there is no reliable information from the Chinese banks on the measurement of risk and the establishment of credit ratings, it is considered necessary not to take the creditworthiness of the Chinese exporters at face value, but to apply a mark-up to reflect the potential impact of the Chinese distorted market on their financial situation.

(192)

With respect to the above as explained in recitals (160), (163) and (164) both the GOC and the cooperating exporting producers were requested to provide information on the lending policies of the Chinese banks and the way loans were attributed to the exporting producers. Parties failed to provide such information, although repeatedly requested to do so, and refused access to the state-owned banks. Accordingly in view of this lack of cooperation and the totality of facts available, and in line with the provisions of Article 28(6) of the basic Regulation, it is deemed appropriate to consider that all firms in China would be accorded the highest grade of "Non-investment grade" bonds only (BB at Bloomberg) and apply the appropriate premium expected on bonds issued by firms with this rating to the standard lending rate of the People's Bank of China. The benefit to the exporting producers has been calculated by taking the interest rate differential, expressed as a percentage, multiplied by the outstanding amount of the loan, i.e. the interest not paid during the IP. This amount was then allocated over the total turnover of the co-operating exporting producers.

(193)

The subsidy rate established with regard to this scheme during the IP for the sampled exporting producers amounts to 0,25 % for the Huadong group of companies and 0,89 % for the Panhua group of companies.

(194)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,58 %.

(195)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 0,97 %.

3.3.3. EQUITY PROGRAMMES

(196)

A number of alleged subsidy programmes concerning equity were detailed in the complaint in relation to exporting producers not selected in the sample and/or not cooperating with the investigation. The Commission asked the GOC to submit information about these programmes in the original and supplementary questionnaires, and subsequently gave ample opportunity to the GOC to provide replies on these programmes. The GOC took the view that it would only provide replies on alleged subsidy programmes concerning the two sampled exporting producers and confirmed this stance throughout the proceeding.

(197)

The significant level of non-cooperation in this proceeding hindered the possibility for the Commission to acquire information and evidence on these programmes mentioned in the complaint. The Commission verified that the sampled exporting producers did not make use of these programmes. Therefore the Commission had to determine the existence of the subsidy programmes and establish the residual duty with regard to all the other programmes for which the GOC did not submit information and that were not available for or used by the sampled exporting producers on the basis of the evidence available on file in accordance with the provisions of Article 28(1) of the basic Regulation.

3.3.3.1. Debt for equity swaps

(a) Description

(198)

The complaint contained evidence that several steel producers were involved in debt for equity swaps in the year 2000 for a combined total of 62.5 billion RMB of debts. It is alleged that outstanding debt due by State-owned steelmakers to State-owned commercial banks ("SOCBs") was cancelled in exchange for equity through the involvement of four Chinese Asset Management Companies ("AMCs") which was not on the basis of market considerations. The complaint further asserted that AMCs were specifically created to dispose of massive non-performing loans in key industries including the steel sector and to restructure the debts of SOEs through inter alia debt to equity swaps. Given that the GOC has failed to provide any information on this programme, the Commission draws its findings on the basis of the information available in the file according to Article 28 of the basic Regulation (see recitals (33) - (35) above). For the same reason, Article 28 of the basic Regulation was applied with regard to the Equity Infusion and Unpaid Dividend programmes described in recitals (204) - (215) below.

(b) Findings of the investigation

(199)

The findings on this programme are based on the information contained in the complaint. Debt for equity swaps constitute a financial contribution in the form of equity infusion and/or loan within the meaning of Article 3(1)(a)(i) of the basic Regulation or in the form of revenue forgone resulting from debt cancelled or not repaid within the meaning of Article 3(1)(a)(ii) of the basic Regulation. This financial contribution was provided by the government through public bodies involved in these transactions, i.e. the four AMCs and various SOCBs (refer to recital (168) above). In the absence of any cooperation from the GOC, the evidence on the record demonstrates that AMCs are public bodies because they were specifically created by the GOC to dispose of massive non-performing loans in key industries including the steel sector and to restructure the debts of SOEs. Consequently, they are considered to exercise government authority.

(200)

Furthermore, the complainant has provided prima facie evidence that the huge amount of debt cancellation was not subject to normal commercial considerations as the GOC did not carry out an assessment that a normal private investor would carry out with respect to the expected reasonable rate of return these equity swaps would generate over time. Instead, complaint alleged that the GOC exchanged massive amounts of debt in exchange for equity with the objective to reduce the liabilities-to-assets ratio of steel producers to increase their competitiveness aside from commercial considerations that a private investor would make. The Commission, after careful analyses of the information provided in the complaint and in the absence of any other information on the file concluded that, the measures are therefore considered to confer a benefit within the meaning of Article 6(a) of the basic Regulation.

(201)

This subsidy is specific in the sense of Article 4(2) of the basic Regulation as it is restricted only to selected entities participated by the State and the award of this financing is discretionary and no objective criteria exist. Therefore it is concluded that this programme constitutes a countervailable subsidy for exporting producers of the product concerned.

(c) Calculation of the subsidy amount

(202)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is a non-recurring benefit and is considered to be the full amount of the debt for equity swaps, i.e. the amount of debt forgiven. In the absence of other information for the assessment of this benefit submitted by the GOC, the Commission based its findings on information contained in the complaint. In accordance with Article 7(3) of the basic Regulation the subsidy amount so calculated has been allocated to the IP on the basis of the normal depreciation period of assets of the recipient companies. The amount has been adjusted by adding interest during this period in order to reflect the value of the benefit over time and thereby establish the full benefit of this scheme to the recipients. In accordance with Article 7(2) of the basic Regulation, this subsidy amount has been allocated over the level of production of the product concerned during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(203)

The subsidy rate thus obtained for all non-cooperating companies amounts to 0,05 %. It was not necessary to calculate the subsidy rate for the sampled and other cooperating producers for the reasons described in recitals (196) and (197).

3.3.3.2. Equity infusions

(a) Description

(204)

The complaint alleges that the GOC has provided over the years substantial amounts of cash to steel producers through equity infusions. According to the complaint, the GOC (through various state-owned entities) acquired shares in companies in which it was already the main shareholder without acquiring additional shareholder rights. The complaint also details specific transactions involving State-controlled entities, including China International Capital Corporation (CICC) and SASAC.

(b) Findings of the investigation

(205)

Since the GOC failed to provide any information on this programme (see recitals (196) and (197) above), the findings on this programme are based on the information contained in the complaint, as supported by adequate sources. Equity infusions constitute a direct transfer of funds within the meaning of Article 3(1)(a)(i) of the basic Regulation. These financial contributions were provided by the government through public bodies involved in these transactions, including CICC and SASAC. The complaint contains specific evidence on equity infusions concerning an SOE steel producer where CICC acted as the lead underwriter and manager of the share issuance. According to information in the complaint, CICC is 51 % state-owned and it is ultimately controlled by SASAC, which in the specific transactions documented in the complaint also acted as the GOC entity controlling the steel producer SOE (for the analysis of SASAC's functions see recitals (64) to (66)) above). Therefore, these transactions were carried out by the GOC through public bodies within the meaning of Article 2(b) of the basic Regulation and the relevant WTO jurisprudence.

(206)

These equity infusions are considered to confer a benefit to the recipient companies within the meaning of Article 6(a) of the basic Regulation as they are inconsistent with the usual investment practice of private investors. The inconsistency of these equity infusions with private investors' practice is proven in detail in the complaint. With regard to these specific transactions, the complaint shows firstly that the SOE steel producer paid an overvalued price of its portion of the new share issue not in line with fair market conditions, and secondly that it used the funds raised to purchase state-owned assets and equity investments at below-market prices. The complaint also shows that the GOC paid the same price as other investors despite its shares were worth less as they had different rights and prospects than the shares sold to other shareholders.

(207)

These subsidies are specific in the sense of Article 4(2)(c) of the basic Regulation because they were provided to a limited number of selected entities in which the government participated. Therefore it is concluded that this programme constitutes a countervailable subsidy for exporting producers of the product concerned.

(c) Calculation of the subsidy amount

(208)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of the equity infusions. In the absence of other information for the assessment of this benefit submitted by the GOC, the Commission based its findings on information contained in the complaint. In accordance with Article 7(3) of the basic Regulation the subsidy amount so calculated has been allocated to the IP on the basis of the normal depreciation period of assets of the recipient companies. The amount has been adjusted by adding interest during this period in order to reflect the value of the benefit over time and thereby establish the full benefit of this scheme to the recipients. In accordance with Article 7(2) of the basic Regulation, this subsidy amount has been allocated over the total level of production of the recipients during the IP as appropriate denominator, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(209)

The subsidy rate thus obtained for all non-cooperating companies amounts to 0,08 %. It was not necessary to calculate the subsidy rate for the sampled and other cooperating producers for the reasons described in recitals (196) and (197).

3.3.3.3. Unpaid dividends

(a) Description

(210)

The complaint alleged that according to GOC policy, state-owned enterprises including the steel companies producing OCS do not have to pay dividends to the government as their owner even when they earn profits. As a result, SOE steel producers are able to finance massive investment through retained profits not distributed as dividends according to this programme.

(b) Findings of the investigation

(211)

Since the GOC failed to provide any information on dividend distributions by the SOE steel producers (see recitals (196) and (197) above), the findings on this programme are based on the information contained in the complaint, as supported by adequate sources. Unpaid dividends must be considered as a disguised grant in the meaning of Article 3(1)(a)(i) of the basic Regulation or as revenue forgone under Article 3(1)(a)(ii) of the basic Regulation in that the GOC does not collect dividends that are normally paid to private investors on their shares. These disguised grants were provided by the government through the entity directly holding the shares in the SOE steel producers, in principle SASAC. The analysis concerning SASAC shows that it performs Government functions (see for details recitals (64) to (66) above).

(212)

The full amount of unpaid dividends is considered to confer a benefit to the recipient SOE steel producers within the meaning of Article 6(a) of the basic Regulation as this is inconsistent with the usual investment practice of private investors that require dividend distributions normally attached to their shares. For SOEs partially owned by private investors, the amount of the benefits equals the amount of unpaid dividends distributed to them on a pro rata basis.

(213)

These subsidies are specific under Article 4(2) of the basic Regulation because they were provided to a limited number of selected entities in which the government participated. Therefore it is concluded that this programme constitutes a countervailable subsidy for exporting producers of the product concerned.

(c) Calculation of the subsidy amount

(214)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of the unpaid dividends. In the absence of other information for the assessment of this benefit submitted by the GOC, the Commission based its findings on publicly available financial information on the recipients. In accordance with Article 7(2) of the basic Regulation, the subsidy amount so calculated has been allocated over the total turnover of the recipients during the IP as appropriate denominator, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(215)

The subsidy rate thus obtained for all non-cooperating companies amounts to 1,36 %. It was not necessary to calculate the subsidy rate for the sampled and other cooperating producers for the reasons described in recitals (196) and (197).

3.3.4. INCOME AND OTHER DIRECT TAX PROGRAMMES

3.3.4.1. Tax Policies for the deduction of research and development (R&D) expenses

(216)

This scheme provides a benefit to companies which introduce new technologies, new products or new techniques in their production. The eligible companies can decrease their corporate income tax by 50 % of the actual expenses for approved projects.

(217)

It is noted that although the GOC limited its reply to the questionnaire and deficiency letter to the schemes used by the sampled companies it did not provide any information on this scheme, despite the fact that one of the sampled companies reported benefits under this scheme in its questionnaire reply. When requested again during the on spot verification to provide the necessary information, GOC provided a partial supplementary response concerning this programme. Despite the late provision of this information the verification team asked for clarifications on several issues (see recital (219) below) however these were not provided. As a result the Commission had to base its findings on the best fact available.

(a) Legal Basis

(218)

This scheme is provided as preferential tax treatment by Article 30(1) of the Corporate Income Tax Law of the PRC (Order No 63 of the President of the People's Republic of China, effective from 1 January 2008), Article 95 of the Regulations on the Implementation of Enterprise Income Tax Law of the PRC (Decree No 512 of the State Council of the PRC) and the Guide to Key Fields (Notification n.6, 2007). The GOC did not provide Decree No 512 and Notification No 6 in this proceeding.

(b) Eligibility

(219)

As noted above the GOC did not provide any relevant information for this scheme in the replies to the questionnaire and deficiency letter. In the document submitted during the on spot verification GOC stated that only the "research and development fees incurred by Enterprises in the development of new technology, new products and new skills" may be computed in the taxable income for the purpose of deduction. However, the GOC did not elaborate on the meaning of terms "new technology", "new product" and "new skills". The Commission also endeavoured to find the exact meaning of these terms during the verification of Zhejiang Huadong but the company was not able to provide any concrete explanation and replied that these are general terms only.

(220)

However, in the Coated Fine Paper investigation, it was established that only R&D projects of the companies of New and High Tech Sectors Receiving Primary Support from the State and projects listed in the Guide to Key Fields of High Tech Industrialization under the current Development Priority promulgated by the NDRC are eligible for this scheme (64). Given the fact that no new relevant information was provided in this proceeding which would rebut this conclusion it is established that the scheme is not generally available, as only selected industries/companies/projects are eligible.

(c) Practical implementation

(221)

According to the GOC reply, companies which intend to apply for this tax concession shall file their Income Tax Return and "other relevant documents" with the taxation authority without specifying which these other relevant documents are. In the Coated Fine Paper investigation it was established that any company that intends to apply for the benefit from this scheme must file detailed information about the R&D projects with the local Science and Technology Bureau and that only after examination will the Tax Bureau issue the notice of approval. Following the approval the amount subject to corporate income tax is decreased by 50 % of actual expenses for approved projects (65).

(d) Findings of the investigation

(222)

This scheme was used by one of the cooperating exporting producers, Zhejiang Huadong Light Steel Building Material Co. Ltd during the IP. Because of the lack of cooperation from the GOC and because of its late and incomplete reply concerning this scheme, it was not possible to determine the application and approval procedure which must be undertaken by the companies benefiting from this scheme. As noted above, the Commission had to partially rely on the facts established in the Coated Fine Paper investigation.

(e) Conclusion

(223)

This scheme should be considered a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation in the form of foregone government revenue which confers a benefit upon the recipient companies.

(224)

The GOC was requested to provide information on the eligibility criteria for obtaining benefits from this scheme and on the use of the subsidy, in order to determine to what extent access to the subsidy is limited to certain enterprises and whether it is specific according to Article 4 of the basic Regulation. The GOC provided no such information in its reply to the questionnaire and to the deficiency letter. In addition, the information submitted in this respect during the on-spot verification visit appears to be incomplete in view of the findings concerning same scheme found to be used by the companies in Coated Fine Paper investigation. The Commission, mindful of the requirement of Article 4(5) of the basic Regulation that any determination of specificity shall be ‧clearly substantiated‧ on the basis of positive evidence, therefore had to base its findings on the facts available in accordance with Article 28 of the basis Regulation. The best facts available included the findings of the Coated Fine Paper investigation.

(225)

This subsidy scheme is specific within the meaning of Article 4(2)(a) of the basic Regulation given that the legislation itself, pursuant to which the granting authority operates, limited the access to this scheme only to certain enterprises and industries classified as encouraged, such as those belonging to OCS industry. In addition, there do not seem to be objective criteria to limit eligibility and no conclusive evidence to conclude that the eligibility is automatic in accordance with Article 4(2)(b) of the basic Regulation. It is noted that the lack of cooperation from the GOC authorities does not permit the Commission to assess the existence of such objective criteria.

(226)

Accordingly, this subsidy should be considered countervailable.

(f) Calculation of the subsidy amount

(227)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of total tax payable according to the normal tax rate, after the subtraction of what was paid with the additional 50 % deduction of the actual expenses on R&D for the approved projects. In accordance with Article 7(2) of the basic Regulation, this subsidy amount (numerator) has been allocated over the total sales turnover of the cooperating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(228)

One of the cooperating sampled exporting producers, namely the Huadong Group of companies, has benefited from this scheme. The subsidy rate established for the Huadong Group is 0,19 %.

(229)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,09 %.

(230)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for the sampled cooperating companies, i.e. 0,19 %.

3.3.4.2. Tax concessions for Central and Western Regions

(231)

This scheme provides a benefit to companies located in the Central and Western Regions. The eligible companies are subject to preferential income tax rate of 15 % instead of normal income tax rate of 25 % applicable in China.

(232)

The GOC was requested to provide information on this scheme in the questionnaire, in the deficiency letter and again during the on-spot verification visit. In its responses to the questionnaire and deficiency letter the GOC did not reply to any of the questions and stated that this programme is no longer valid as it expired on 31 December 2010 and also claimed that no sampled companies benefited from this scheme in the IP. However, this was in contradiction with the responses of one of the exporting producers (Chongqing Wanda Steel Strip Co., Ltd) and with the evidence collected during the on-spot verification visit of this company.

(a) Legal Basis

(233)

This scheme is provided for as preferential tax treatment by the Notice on Favourable Tax Policies for Western Region Development (issued by the Ministry of Finance, General Tax Bureau and General Customs Office, effective from 1 January 2001) which was updated by the Notice on Further Implementation on Tax Policies of the Western Development Strategy (issued the Ministry of Finance, General Tax Bureau and General Customs Office, effective from 1 January 2011 onwards) which extends the period of validity of this programme until 31 December 2020.

(b) Eligibility

(234)

It is noted that the GOC did not provide answers to any of the questions concerning this scheme in its response to the questionnaire, deficiency letter or during the on-spot verification visit. However, according to the Notice on Favourable Tax Policies for Western Region Development this preferential tax treatment is available for the encouraged type of enterprises in the Western Region (encouraged refers to those enterprises with major business accounting for 70 % or more of total income as described in the Catalogue of industry, product & technologies encouraged by the State). During the on-spot verification of Chongqing Wanda, the company confirmed that the reason for the preferential tax rate is that they belong to the encouraged category of industries in the Western and Central region.

(c) Practical implementation

(235)

Neither the GOC, nor the Chongqing Wanda Steel Strip Co., Ltd provided information on the operation and administration of this programme. According to the Circular of the State Council Concerning Several Policies on Carrying out the Development of China's Vast Western Regions, an approval of people's governments of the provincial level is necessary for the reduction of the normal tax rate of 25 % to the preferential rate of 15 %. On the company's annual income tax declaration form the deducted (exempted) income tax amount is listed under item 28 – deducted tax.

(d) Findings of the investigation

(236)

This scheme was used by one of the cooperating exporting producers, Chongqing Wanda Steel Strip Co., Ltd during the IP. Because of the non-cooperation from the GOC it is difficult to discern the application and approval procedure which must be undertaken by the companies benefiting from this scheme. The Commission had to draw its own conclusions from submitted documents which form the legal basis for this scheme without being able to seek the explanations from the GOC.

(e) Conclusion

(237)

This scheme should be considered a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation in the form of foregone government revenue which confers a benefit upon the recipient companies.

(238)

The GOC was requested to provide information on the eligibility criteria for obtaining benefits from this scheme and on the use of the subsidy in order to determine to what extent access to the subsidy is limited to certain enterprises and whether it is specific according to Article 4 of the basic Regulation. The GOC provided no such information. The Commission, mindful of the requirement of Article 4(5) of the basic Regulation that any determination of specificity shall be ‧clearly substantiated‧ on the basis of positive evidence, therefore had to base its findings on the facts available in accordance with Article 28 of the basis Regulation.

(239)

This subsidy scheme is specific within the meaning of Article 4(2)(a) and 4(3) of the basic Regulation given that the legislation itself, pursuant to which the granting authority operates, limited the access to this scheme only to certain enterprises and industries classified as encouraged, such as those belonging to the OCS industry, and in addition located in certain regions of China. In addition, there do not seem to be objective criteria to limit eligibility and no conclusive evidence to found to determine that the eligibility is automatic in accordance with Article 4(2)(b) of the basic Regulation. It is noted that the lack of cooperation from the GOC authorities does not permit the Commission to assess the existence of such objective criteria.

(240)

Accordingly, this subsidy should be considered countervailable.

(f) Calculation of the subsidy amount

(241)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of tax payable according to the normal income tax rate, after the deduction of the amount of tax paid according to the preferential income tax rate. In accordance with Article 7(2) of the basic Regulation this subsidy amount (numerator) has been allocated over the total sales turnover of the co-operating exporting producers during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(242)

The subsidy rate established for the Panhua Group is 0,03 %.

(243)

The weighted average subsidy rate for the cooperating companies not included in the sample is 0,02 %.

(244)

Given the low level of cooperation, the subsidy rate for all non-cooperating companies is set at the level of the highest subsidy rate established for this scheme for an entity related to one of the sampled cooperating companies, i.e. 0,04 %.

3.3.5. OTHER INCOME TAX PROGRAMMES FOR WHICH THE GOC PROVIDED INSUFFICIENT OR NO REPLIES

(245)

A number of alleged subsidy programmes were detailed in the complaint in relation to exporting producers not selected in the sample and/or not cooperating with the investigation. The Commission asked the GOC to submit information about these programmes in the original and supplementary questionnaires, and subsequently gave ample opportunity to the GOC to provide replies on these programmes. The GOC took the view that it would only provide replies on alleged subsidy programmes concerning the two sampled exporting producers and confirmed this stance throughout the proceeding. However, the GOC did submit for some of these programmes information and evidence indicating that they had been terminated and were not in force during the IP. The Commission took into account this evidence submitted by the GOC in its findings.

(246)

For all the other programmes, the GOC failed to submit any information or evidence. The significant level of non-cooperation in this proceeding hindered the possibility for the Commission to acquire information and evidence on these programmes included in the complaint by the exporting producers. The Commission verified that the sampled exporting producers were not eligible or did not make use of these programmes (mainly due to the fact that they were privately owned, or their being outside the area of application of the programme, or their relatively limited size). Therefore the Commission had to determine the existence of this programme and establish the residual duty with regard to all the other programmes for which the GOC did not submit information and that were not available for or used by the sampled exporting producers on the basis of the evidence available on file in accordance with the provisions of Article 28(1) of the basic Regulation.

3.3.5.1. Income tax credit for the purchase of domestically manufactured production equipment

(a) Description

(247)

This programme allows a company to claim tax credits on the purchase of domestic equipment if a project is consistent with the industrial policies of the GOC. A tax credit up to 40 % of the purchase price of domestic equipment may apply to the incremental increase in tax liability from the previous year.

(b) Legal basis

(248)

The legal bases of this programme are the Provisional measures on enterprise income tax credit for investment in domestically produced equipment for technology renovation projects of 1 July 1999 and the Notice of the State Administration of Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction and Exemption Policy of the Investments of an Enterprise in Purchasing Home-made Equipment, No. 52 [2008] of the State Administration of Taxation, effective 1 January 2008.

(c) Non cooperation

(249)

The GOC replied that this programme has been terminated as from January 2008 according to the mentioned Notice No. 52 and that to the best of its knowledge no programme has replaced this programme. The Commission asked the GOC to provide relevant additional information, namely details of the timetable for the phase-out of benefits. The GOC did not provide this information and limited its reply on the actual benefits accrued to all OCS producers by simply referring to the questionnaire replies of the sampled producers. The Commission has already explained the reasons why the GOC was required to provide information with regard to all the OCS producers and not just the sampled producers (see recitals (34) and (35) above). Furthermore, the GOC also failed to provide information with regard to the sampled producers as it merely referred to their replies. The Commission considers that it is not sufficient to provide evidence of termination of a programme without providing additional evidence on the phasing out of the actual benefits under the programme and potential replacement programmes. With regard to this programme, a tax benefit (i.e. a tax credit) accrued in a certain year may actually be used in a different tax year and thus the benefits can extend beyond its period of validity even if the programme has in the meantime been terminated. Other "terminated" tax programmes have turned out to continue to confer benefits for some years after their official expiry date. It may also be the case that unusually large amounts of benefit can be allocated over time. In the absence of information provided by the GOC in this respect, the Commission bases its findings on the information on the record (in this case complaint) in accordance with Article 28 of the basic Regulation.

(d) Findings of the investigation

(250)

This programme constitutes a subsidy as it provides a financial contribution in the form of revenue forgone by the GOC according to Article 3(1)(a)(ii) of the basic Regulation. This programme provides a benefit to the recipients for an amount equal to the tax saving in the meaning of Article 3(2) of the basic Regulation. This subsidy is specific under Article 4(4)(b) of the basic Regulation since the tax saving is contingent on the use of domestic over imported goods.

(e) Calculation of the subsidy amount

(251)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. Since this programme has not been examined in an anti-subsidy proceeding by the Union institutions yet, and in the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision by the US authorities. When basing subsidy amounts on findings in other investigations, account is taken throughout this regulation of, inter alia, whether there have been any significant changes in the scheme in question and whether the subsidy amount may have diminished over time. It is noted that the amount of recurring subsidies will normally not diminish in this way. In the absence of any such changes or diminution of the subsidy amount, the original rate from the investigation in question is used as the amount of subsidy in the present case.

(252)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,38 % which is the rate for this scheme as established in the US Decision Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Page No. 26) (Federal Register / Vol. 73, No. 227, page 70961 / 24 November 2008). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from tax programmes is substantially the same as that employed by the Union (66).

3.3.5.2. Preferential tax policies for companies that are recognised as high and new technology companies

(a) Description

(253)

This programme allows an enterprise applying for a Certificate of High and new technology Enterprise to benefit from a reduced income tax rate of 15 % as compared to the ordinary rate of 25 %. This programme has been found countervailable by the Union in the Coated Fine Paper investigation and also by the US authorities (67).

(b) Legal basis

(254)

The legal basis of this programme are Article 28 of the PRC Law on Enterprise Income Tax (No. 63 promulgated on 16 March 2007) along with the Administrative Measures for the Determination of High and New Technology Enterprises, and the Notice of the State Administration of Taxation on the issues concerning Enterprises Income Tax Payment of High and New Technology Enterprises (Guo Shui Han [2008] No. 985).

(c) Non cooperation

(255)

The GOC replied that none of the sampled companies made use of this programme during the IP and referred to the responses of the sampled producers for information concerning any benefits that may have been received pursuant to this programme. The Commission refers to the arguments developed above with regard to the request to the GOC to provide full replies not limited to the sampled exporters (recitals (34) - (35) above). Therefore the Commission bases its findings on this programme on the information available on record (Coated Fine Paper findings and the complaint in this case) in accordance with Article 28 of the basic Regulation.

(d) Findings of the investigation

(256)

This programme constitutes a subsidy as it provides a financial contribution in the form of revenue forgone by the GOC according to Article 3(1)(a)(ii) of the basic Regulation. The benefit for the recipient is equal to the tax saving enjoyed through this programme according to Article 3(2) of the basic Regulation. This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation since it is limited to certain enterprises and industries classified as encouraged, such as those operating in the steel sector. Furthermore, there are no objective criteria established by the legislation or the granting authority on the eligibility of the scheme and this is not automatic pursuant to Article 4(2)(b) of the basic Regulation.

(e) Calculation of the subsidy amount

(257)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of total tax payable according to the normal tax rate, after the deduction of what was paid with the reduced preferential tax rate. In the absence of information for the assessment of this benefit and since this programme has already been examined in a previous anti-subsidy proceeding by the Union institutions, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made for this programme in the Council Implementing Regulation (EU) No 452/2011 of 6 May 2011 imposing a definitive anti-subsidy duty on imports of coated fine paper origination in the People's Republic of China (68), duly adjusted if needed as mentioned in recital (252) above.

(258)

The subsidy rate thus established for all non-cooperating companies is set at 0,9 % which is the arithmetical average of the rates established for this programme in the Regulation mentioned in the preceding recital.

3.3.5.3. Income tax concessions for the enterprises engaged in comprehensive resource utilisation (special raw materials')

(a) Description

(259)

This tax programme allows companies that use any of the materials listed in the Catalogue of Income tax Concessions for Enterprises engaged in Comprehensive Resource utilisation as its major raw material and which manufacture products listed in the same Catalogue in a way that meets relevant national and industrial standards, to include the income they thereby obtain in the total income at the reduced rate of 90 %. Therefore, 10 % of income can be deducted when the companies calculate the income tax. This exemption is granted for 5 years.

(b) Legal basis

(260)

The legal bases of this programme are: Article 33 of the PRC Law on Enterprise Income Tax, Article 99 of Regulations on Implementation of the PRC Law on Enterprise Income Tax by the State Council and the Catalogue of Income Tax Concessions for Enterprises engaged in Comprehensive Resource Utilisation.

(c) Non-cooperation

(261)

The GOC stated that none of the sampled companies made use of this programme during the IP and referred to the responses of the sampled producers for information concerning any benefits that may have been received pursuant to this programme. The Commission refers to the arguments developed above with regard to the request to the GOC to provide full replies not limited to the sampled exporters (recitals (34) - (35) above). The Commission thus bases its findings on this programme on the information available on record (in this case complaint), in accordance with Article 28 of the basic Regulation.

(d) Findings of the investigation

(262)

This programme constitutes a subsidy since it provides a financial contribution in the form of revenue forgone by the GOC within the terms of Article 3(1)(a)(ii) of the basic Regulation. The scheme provides a benefit for the recipient equal to the amount of tax savings according to Article 3(2) of the basic Regulation. This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as it is limited only to certain enterprises using as primary raw materials the resources listed in the above-mentioned Catalogue of Tax Concessions for the purpose of manufacturing products enlisted in that Catalogue.

(e) Calculation of the subsidy amount

(263)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of total tax payable according to the normal tax rate, after the deduction of what was paid with the reduced preferential tax rate. In the absence of other information for the assessment of this benefit, the Commission based its findings on information contained in the complaint. In accordance with Article 7(2) of the basic Regulation, the subsidy amount so calculated has been allocated over the total turnover of the recipients during the IP as appropriate denominator because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(264)

The subsidy rate thus established for all non-cooperating companies amounts to 0,01 %.

3.3.5.4. Tax credit concerning the purchase of special equipment

(a) Description

(265)

This programme allows firms to offset 10 % of the purchase cost of special equipment used for environmental protection, energy and water saving and production safety against the corporate income tax payable in the year of purchase. The remaining part of the 10 % of the amount invested can be carried forward to the following 5 years.

(b) Legal basis

(266)

The legal bases of this programme are: Article 34 of the PRC Law on Enterprise Income Tax, Article 100 of Regulations on Implementation of the PRC Law on Enterprise Income Tax by the State Council.

(c) Non-cooperation

(267)

The GOC replied that none of the sampled companies made use of this programme during the IP and referred to the responses of the sampled producers for information concerning any benefits that may have been received pursuant to this programme. The Commission refers to the arguments developed above with regard to the request to the GOC to provide full replies not limited to the sampled exporters (recitals (34) - (35) above). The Commission thus bases its findings on this programme on the information available in accordance with Article 28 of the basic Regulation.

(d) Findings of the investigation

(268)

This programme confers a subsidy as it provides a financial contribution in the form of revenue forgone by the GOC within the terms of Article 3(1)(a)(ii) of the basic Regulation. The scheme gives a benefit for the recipient equal to the amount of tax savings according to Article 3(2) of the basic Regulation.

(269)

With respect to the specificity of this programme, it is considered that there is insufficient information on the record for the Commission to make further findings and subsequently to reach a definitive finding of specificity of the programme. Therefore the Commission could not assess this programme any further.

3.3.5.5. Preferential income tax policy for the enterprises in the Northeast region

(a) Description

(270)

This programme allows companies located in the Northeast Region (including Liaoning, Jilin, and Heilongjiang Provinces, and Dalian Municipality), first, to reduce the depreciation life of fixed assets by up to 40 % for tax purposes, thereby increasing the annual amount of depreciation deductible from the income tax and, second, to shorten the period of amortisation of intangible assets by up to 40 % for tax purposes, resulting in a larger annual deduction. Under a document released by the Ministry of Finance and State Administration of Taxation, corporate taxpayers in certain specified sectors including the metallurgical sector may also benefit from other VAT, resource tax, and corporate income tax advantages, namely in connection with purchase of fixed assets.

(b) Legal basis

(271)

The legal bases of this programme are the Preferential policies regarding enterprise income tax for revitalization of companies of the old industrial base in the Northeast (Caishui, No 153, 20 September 2004), Notice of the Ministry of Finance and the State Administration of taxation on the Assets Depreciation and the Implementation Calibre of Amortization Policy in the Northeast Old Industrial Base (Caishui, No 17, 2 February 2005). The GOC submitted the legal basis showing termination of this programme on 1 January 2008, namely the Notice of the Ministry of Finance and State Administration of Taxation on Several Preferential Policies in Respect of Enterprise Income Tax (No 1 [2008]).

(c) Non cooperation

(272)

Apart from providing the aforementioned legal basis showing termination of the programme, the GOC simply referred to the responses of the sampled producers for information concerning any benefits that may have been received pursuant to this programme. The Commission refers to the arguments developed above with regard to the request to the GOC to provide full replies not limited to the sampled exporters (recitals (34) to (35) above). Furthermore, the Commission notes that as this programme provides for subsidies linked to purchase of fixed assets that may be amortised over several years and the GOC has failed to provide any details on the phasing-out of benefits under the programme or on the outstanding benefits still not fully amortised, the Commission has decided to base its findings on this programme on the information available on record (in this case the complaint and relevant US findings) in accordance with Article 28 of the basic Regulation.

(d) Findings of the investigation

(273)

This programme provides a subsidy in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) of the basic Regulation. The benefit under Article 3(2) of the basic Regulation amounts to the tax savings generated for eligible companies by the deduction of accelerated depreciation and amortisation expenses linked to the purchase of fixed assets. This subsidy is specific within the meaning of Article 4(3) of the basic Regulation since it is limited to enterprises located in a designated geographical area, i.e. the Northeast Region.

(e) Calculation of the subsidy amount

(274)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the difference between the amount of tax that would have been paid during the IP under the normal depreciation schedule for the assets concerned and the amount actually paid under accelerated depreciation. Since this programme has not been examined in an anti-subsidy proceeding by the Union institutions yet, and in the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision (based on similarity in the nature of the programme (69)) by the US authorities. As noted in recital (252) above, when basing subsidy amounts on findings in other investigations, account is taken throughout this regulation of, inter alia, whether there have been any significant changes in the scheme in question and whether the subsidy amount may have diminished over time. It is noted that the amount of recurring subsidies will normally not diminish in this way. In the absence of any such changes or diminution of the subsidy amount, the original rate from the investigation in question is used as the amount of subsidy in the present case.

(275)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,08 % which is the rate for the ‧Income Tax Exemption for Investors in Designated Geographical Regions Within Liaoning‧ Scheme as established in the US Decision Memorandum of 3 June 2010 on Wire Decking (Page No. 25) (Federal Register / Vol. 75, No. 111, page 32902 / 10 June 2010). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from tax programmes is substantially the same as that employed by the Union (70).

3.3.5.6. Income tax exemption for investment in domestic technological innovation

(a) Legal basis

(276)

The legal bases for this programme are the Technological Transformation of Domestic Equipment Investment Credit management of Enterprise Income Tax Audit, adopted by the State tax Administration, No 13 of 17 January 2000, and the Notice concerning the Promulgation and Circulation of Measures for the Administration of national Key Technological Renovation Projects.

(b) Findings of the investigation

(277)

The GOC replied that this programme was terminated since 1 January 2008 by the Notice of the State Administration of Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction and Exemption Policy for the Investments of an Enterprise in Purchasing home-made Equipment No. 52 [2008] of the State Administration of Taxation. As this programme provides recurring tax benefits that have terminated since 2008 and there is no evidence on outstanding benefits still being amortised during the IP, the Commission concludes that this programme is not countervailable.

3.3.5.7. Various local tax discounts

(a) Description

(278)

The complaint lists a number of tax discounts available in several provinces (i.e. Shandong, Chongqing Municipality, Guangxi Region Zhuang, Central and Western Regions) in the form of a reduced corporate tax rate of 15 % as opposed to the generally applicable tax rate of 25 %.

(b) Legal basis

(279)

The complaint reports the legal basis of Shandong tax discount, namely Reduced Income Taxes based on Geographical Location (Zheijang and Shandong Provinces): Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises, Article 7, adopted on 9 April 1991, No. 45.

(c) Non-cooperation

(280)

The GOC simply stated that none of the sampled companies made use of this programme during the IP and referred to the replies of the sampled companies for information relating to benefits which may have been received by them. In addition to the arguments on the obligation for the GOC to provide full replies (see recitals (34) - (35) above), the Commission notes that at least one of the lower tax rates listed under this section benefited one of the cooperating exporters (see recitals (231) and following above). Therefore the Commission is resorting to the information available on record (in this case the complaint and relevant US findings) in accordance with Article 28 of the basic Regulation for the assessment of this programme.

(d) Findings of the investigation

(281)

This programme confers a subsidy in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) of the basic Regulation. This recurring benefit is equal to the amount of tax savings generated by the lower corporate tax rate according to Article 3(2) of the basic Regulation. The programme is specific since it is limited to companies located in designated geographical areas within the meaning of Article 4(3) of the basic Regulation.

(e) Calculation of the subsidy amount

(282)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of total tax payable according to the normal tax rate reduced by the amount paid under the preferential tax rate. Since this programme has not been examined in an anti-subsidy proceeding by the Union institutions yet, and in the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision (based on similarity in the nature of the programme) by the US authorities. As noted before, when basing subsidy amounts on findings in other investigations, account is taken throughout this regulation of, inter alia, whether there have been any significant changes in the scheme in question and whether the subsidy amount may have diminished over time. It is noted that the amount of recurring subsidies will normally not diminish in this way. In the absence of any such changes or diminution of the subsidy amount, the original rate from the investigation in question is used as the amount of subsidy in the present case.

(283)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,66 % which is the rate for the ‧Reduced Income Taxes Based On Geographic Location‧ Scheme as established in the US Decision Memorandum of 12 June 2009 on Certain Tow Behind Lawn Groomers and Certain Parts Thereof (Page No. 11) (Federal Register / Vol. 74, No. 117, page 29180 / 19 June 2009). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from tax programmes is substantially the same as that employed by the Union (71).

3.3.5.8. Dividend exemption between qualified resident enterprises

(a) Description

(284)

This programme consists of a preferential tax treatment for Chinese resident enterprises that are shareholders in other Chinese resident enterprises in the form of tax exemption on income from certain dividends, bonuses and other equity investments for the resident parent enterprises. This programme was countervailed by the Union in the anti-subsidy proceeding concerning Coated Fine Paper (72)

(b) Legal basis

(285)

The legal basis are Article 26 of the Enterprise Income Tax Law of the PRC, Article 83 of the Regulations on the Implementation of Enterprise Income Tax Law of the PRC, Decree no. 512 of the State Council, promulgated on 6 December 2007.

(c) Non-cooperation

(286)

The GOC replied that none of the sampled companies made use of this programme during the IP and referred to the responses of the sampled producers for information relating to any benefits that may have been received pursuant to this programme. The Commission refers to it arguments on the request to the GOC to provide full replies (recitals (34) - (35) above). Therefore it has decided to base its findings on this programme on the information available on file according to Article 28 of the basic Regulation, namely the findings as included in the decision on Coated Fine Paper.

(d) Findings of the investigation

(287)

This programme confers a subsidy in the form of revenue forgone within the meaning of Article 3(1)(a)(ii) of the basic Regulation. This benefit is equal to the amount of tax savings given by the tax exemption on dividends, bonuses and other equity investments for Chinese resident enterprises according to Article 3(2) of the basic Regulation. The programme is de jure specific within the meaning of Article 4(2)(a) of the basic Regulation given that the legislation pursuant to which the granting authority operates limits its access only to enterprises resident in China receiving dividend income from other resident enterprises, as opposed to enterprises investing in non-resident enterprises. The programme is also specific under Article 4(2)(b) of the basic Regulation given that this programme is reserved exclusively to important industries and projects encouraged by the State, such as the steel industry (see e.g. recital (182) above) and also that there are no objective criteria to limit eligibility for this programme and no conclusive evidence to conclude that eligibility is automatic.

(e) Calculation of the subsidy amount

(288)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of total tax payable with the inclusion of the dividend income coming from other resident enterprises in China, after the subtraction of what was actually paid with the dividend tax exemption. In the absence of information for the assessment of this benefit and since this programme has already been examined in a previous anti-subsidy proceeding by the Union institutions, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made for this programme in Coated Fine Paper proceeding, duly adjusted if needed as mentioned in recital (252) above.

(289)

The subsidy rate thus established for all non-cooperating companies is set at 0,77 % which is the arithmetical average of the rates established for this programme in the Coated Fine Paper proceeding.

3.3.5.9. Preferential Tax Programme for Foreign Invested Entities (FIEs)

(290)

The complaint lists the following preferential income tax schemes in favour of FIEs:

—

Two free, three half-tax exemptions for the productive FIEs

—

Local income tax exemption and reduction programmes for the productive FIEs

—

Income tax credit for FIEs purchasing domestically produced equipment

—

Income tax subsidies for FIEs based on geographical location

(291)

The GOC submitted the relevant legal bases to show that programmes concerning FIEs had been terminated with the adoption on 16 March 2007 of the Corporate Income Tax Law of 2008 at the 5th Session of the 10th National People's Congress of the People's Republic of China, namely:

—

Notice of the State Council on the Implementation of the Transitional Preferential Policies in respect of Enterprise Income Tax No. 39 [2007] of the State Council;

—

Notice of the State Administration of Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction and Exemption Policy for the Investments of an Enterprise in Purchasing Home-made Equipment, No. 52 [2008] of the State Administration of Taxation

(292)

These provisions show that income tax benefits for FIEs have been progressively phased out until the end of 2011. The GOC has also stated that there is no replacement programme for FIEs and the tax treatment of FIEs is now the same as for other corporate taxpayers. The Commission notes that these preferential income tax programmes concerning FIEs are still countervailable as OCS producers may still enjoy outstanding benefits at least for a part of the IP until the end of 2011 and it cannot be ruled out that there exists a replacement programme for FIEs as from 2012. Nevertheless, the Commission has decided not to assess them further considering the need to reduce the administrative burden for all the parties concerned, also in consideration of the approaching end of the progressive phase-out period and the absence of indications on a possible replacement programme.

3.3.6. INDIRECT TAX AND IMPORT TARIFF PROGRAMMES

3.3.6.1. Import tariff and VAT exemptions for FIEs and certain domestic enterprises using imported equipment in encouraged industries

(a) Description

(293)

This programme provides an exemption from VAT and import tariffs in favour of FIEs or domestic enterprises for imports of capital equipment used in their production. To benefit from the exemption, the equipment must not fall in a list of non-eligible equipment and the claiming enterprise has to obtain a Certificate of State-Encouraged projects issued by the Chinese authorities or by the NDRC in accordance with the relevant investment, tax and customs legislation. This programme was countervailed by the Union in the anti-subsidy proceeding concerning Coated Fine Paper (73).

(b) Legal basis

(294)

The legal bases of this programme are Circular of the State Council on Adjusting Tax Policies on Imported Equipment, Guo Fa No. 37/1997, Announcement of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation [2008] No. 43, Notice of the NDRC on the relevant issues concerning the Handling of Confirmation letter on Domestic or Foreign-funded Projects encouraged to develop by the State, No. 316 2006 of 22 February 2006 and Catalogue on Non-duty-exemptible Articles of importation for either FIEs or domestic enterprises, 2008.

(c) Non cooperation

(295)

The GOC claimed that none of the sampled companies benefited from this programme during the IP and referred to the responses of the sampled producers for information relating to any benefits that may have been received pursuant to this programme. The Commission refers to its arguments on the request to the GOC to provide full replies (recitals (34) and following above), and thereby will base its findings on this programme on the information available on file according to Article 28 of the basic Regulation, namely its findings in the Coated Fine Paper proceeding.

(d) Findings of the investigation

(296)

This programme is considered a subsidy in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) as FIEs and other eligible domestic enterprises are relieved from payment of VAT and/or tariffs otherwise due if they did not obtain the relevant NDRC certificate of State-encouraged project. It therefore confers a benefit on the recipient companies in the sense of Article 3(2) of the basic Regulation. The programme is specific within the meaning of Article 4(2)(a) of the basic Regulation since the legislation pursuant to which the granting authority operates limits its access to enterprises that invest under specific business categories defined exhaustively by law and obtaining the Certificate of State-encouraged Projects. In addition, there are no objective criteria to limit eligibility for this programme and no conclusive evidence to conclude that eligibility is automatic under Article 4(2)(b) of the basic Regulation.

(e) Calculation of the subsidy amount

(297)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of VAT and duties exempted on imported equipment. In the absence of information for the assessment of this benefit and since this programme has already been examined in a previous CVD proceeding by the Union, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made for this programme in the Coated Fine Paper investigation, duly adjusted if needed as mentioned in recital (252) above.

(298)

The subsidy rate thus established for all non-cooperating companies is set at 0,89 % which is the arithmetical average of the rates established for this programme in the Coated Fine Paper investigation.

3.3.6.2. VAT refunds to FIEs purchasing domestically produced equipment

(a) Description

(299)

This programme provides benefits in the form of VAT refunds for the purchase of domestically produced equipment by FIEs. The equipment must not fall into the –Non-Exemptible Catalogue and the value of the equipment must not exceed the total investment limit on an FIE according to the ‧trial Administrative Measures on Purchase of Domestically Produced Equipment‧. This programme was countervailed by the Union in the anti-subsidy proceeding concerning Coated Fine Paper (74) and by the US authorities in a countervailing duty proceedings concerning Coated Free Sheet from the PRC (75).

(b) Legal basis

(300)

The legal bases of this programme are Circular of State Administration of taxation on the release of the provisional measures for the Administration of tax refunds for purchase domestically-manufactured equipment by FIEs No 171, 199, 20.09.1999; Notice of the Ministry of Finance and the State Administration of Taxation on Stopping the Implementation of the Policy of Refunding Tax to Foreign-funded Enterprises for Their Purchase of Home-made Equipment, No 176 [2008] of the Ministry of Finance.

(c) Non-cooperation

(301)

The GOC claimed that this programme was terminated by the Notice No 176 [2008] referred to above as from of 1 January 2009. The Commission requested the GOC to provide information on the actual termination of benefits that would have to be allocated over a longer period of time since this programme is linked to the purchase of domestically-manufactured assets. The GOC simply referred to the replies of the sampled producers for information relating to any benefits that may have been received pursuant to this programme. The Commission refers to its arguments on the request to the GOC to provide full replies (recitals (34) and following above). The Commission also notes that that the Notice No 176 provides for a transitional period for the acquisition of eligible fixed assets and filing of the application to obtain benefits until 30 June 2009. As the GOC failed to provide any information on the phasing-out of benefits and given that such benefits, being linked to fixed assets, may be allocated over time and continue into the IP, the Commission issues its findings on this programme on the basis of the information available according to Article 28 of the basic Regulation, namely the findings in the Coated Fine Paper proceeding.

(d) Findings of the investigation

(302)

This programme is considered a subsidy in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) and thus conferring a benefit to the recipient companies in the sense of Article 3(2) of the basic Regulation. The programme is specific within the meaning of Article 4(2)(a) of the basic Regulation given that the legislation itself pursuant to which the granting authority operates limits its access to certain enterprises (FIEs) for purchase of equipment not falling into the Catalogue of non-exemptible equipment. There is no indication of non-specificity according to Article 4(2)(b) of the basic Regulation because there are no objective criteria to limit eligibility for this programme and no conclusive evidence to conclude that eligibility is automatic. In addition, the programme is also specific within the terms of Article 4(4)(b) of the basic Regulation as the subsidy is contingent upon the use of domestic over imported goods.

(e) Calculation of the subsidy amount

(303)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of VAT reimbursed on the purchase of domestically produced equipment. In the absence of information for the assessment of this benefit and since this programme has already been examined in a previous CVD proceeding by the Union, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made for this programme in the Coated Fine Paper proceeding, duly adjusted if needed as mentioned in recital (252) above.

(304)

The subsidy rate thus established for all non-cooperating companies is set at 0,04 % which is the arithmetical average of the rates established for this programme in the Coated Fine Paper proceeding.

3.3.6.3. VAT deduction on fixed assets in the Central region

(a) Description

(305)

This programme covers VAT taxpayers mainly active in certain listed industries, including the metallurgical industry. The programme provides that eligible VAT taxpayers located in 26 cities of the old industrial bases of the central region that make investments in certain fixed assets can deduct the amount of VAT paid on the fixed assets from its total VAT payable.

(b) Legal basis

(306)

The legal bases of this programme are Notice on Ministry of Finance and State administration of Taxation issuing the Interim Measures for Expanding the Scope of Offset for Value Added Tax in the Central Region, No. 75, 2007, Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues concerning the National Implementation of Value-added Tax reform, No 170 [2008] of the Ministry of Finance.

(c) Non-cooperation

(307)

The GOC claimed that this programme was terminated by the Notice No 170 [2008] since 1 January 2009 and referred to the replies of the sampled producers for information relating to any benefits that may have been received pursuant to this programme. The Commission refers to its arguments on the request to the GOC to provide full replies (recitals (34) and following above). The Commission notes that the Notice No. 170 does state that VAT benefits for companies located in the Central Region terminate at the end of 2008 and can only be carried forward until January 2009. However, such benefits, being linked to fixed assets, may be allocated over time and continue into the IP; in addition, the Notice also seems to contain another preferential VAT system for these enterprises located in the Central Region as from January 2009 consisting of half of the applicable VAT rates. In the absence of clarification by the GOC on the phasing-out of outstanding benefits under this programme or on the details of any replacement programme, the Commission bases its findings on this programme on the evidence available on the file under Article 28 of the basic Regulation.

(d) Findings of the investigation

(308)

This programme is considered a subsidy in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) and thus conferring a benefit to the recipient companies in the sense of Article 3(2) of the basic Regulation equal to the amount of VAT savings generated by the deduction on the purchase of fixed assets. The programme is specific according to Article 4(2)(a) of the basic Regulation given that the legislation limits access to certain enterprises, i.e. industries that operate in the listed sectors. This programme is also specific under Article 4(3) of the basic Regulation given that it is limited to certain designated areas, i.e. the cities of the old industrial bases of the Central region.

(e) Calculation of the subsidy amount

(309)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. The benefit conferred on the recipients is considered to be the amount of VAT savings generated by the deduction on the purchase of fixed assets. In the absence of information for the assessment of this benefit and since a comparable VAT programme has already been examined in this proceeding, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made in recitals (297) and (298).

(310)

The subsidy rate thus established for all non-cooperating companies is set at 0,89 %.

3.3.6.4. Other tax privileges of Ma'anshan

(a) Findings of the investigation

(311)

The complaint listed miscellaneous tax privileges from 2008 to 2010 enjoyed by OCS producers located in Ma'anshan and Wuhan, including exemptions from city maintenance and construction tax, and extra charges on education funds. The Commission asked the GOC to provide information on these tax benefits. The GOC replied that the requested information were irrelevant for the investigation because none of the sampled exporting producers was located in Ma'anshan. The Commission refers to its explanation that the GOC was requested to submit information also with regard to the subsidy allegations concerning the non-sampled companies (recitals (34) - (35) above).

(312)

In the absence of information provided by the GOC, the Commission concludes that the tax privileges available in Ma'anshan and Wuhan are to be considered a subsidy in the form of revenue forgone by the GOC in accordance with Article 3(1)(a)(ii). They confer a benefit to the recipient companies in the meaning of Article 3(2) of the basic Regulation in that they provide a tax saving equal to the difference between the tax paid and the amount of tax normally payable in the absence of this programme. The programme is specific within the meaning of Article 4(3) of the basic Regulation given that it is limited to the enterprises established in certain designated regions or municipalities in Ma'anshan.

(b) Calculation of the subsidy amount

(313)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of other information for the assessment of this benefit the Commission based its findings on information contained in the complaint. In accordance with Article 7(2) of the basic Regulation, the subsidy amount so calculated has been allocated over the total turnover of the recipients during the IP as appropriate denominator, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(314)

The subsidy rate thus established for all non-cooperating companies amounts to 0,08 %.

3.3.7. GRANT PROGRAMMES

(315)

The complaint alleged that as from the year 2005 until recently (including the year 2009) the companies producing the product concerned received benefits under several grant programmes and sub-programmes. It cannot be ruled out that payments under this programme either are still on-going or have been effected on a non-recurring basis in connection with capital investment and thus there are still on-going benefits not fully amortised during the chosen 15-year amortisation period. The GOC was requested to submit information on these programmes but has failed to provide a meaningful reply on any of these programmes. Therefore, in the absence of replies by the GOC on all these aspects, the Commission is basing its findings on the best evidence available in compliance with Article 28 of the basic Regulation

3.3.7.1. China World Top Brand programme

(a) Legal basis

(316)

The legal bases of this programme as reported in the complaint are the following:

—

Circular on Carrying out Evaluation of Products to be Recognised as China World Top Brand, GZJH [2005] No 95

—

Announcement No 5, 2005 of China Promotion Committee for Top Brand Strategy, Promulgating the List of China Top Brand Products

—

Circular on application of China World Top Brands in 2006, ZJZH [2006] No 11;

—

Announcement No 6, 2006 of China Promotion Committee for Top Brand Strategy, Promulgating the List of China Top Brand Products;

—

Announcement No 6, 2007 of China Promotion Committee for Top Brand Strategy, Promulgating the List of China Top Brand Products;

—

Circular on application of China World Top Brands in 2008, ZJZH [2008] No 23;

—

Measures for the Administration of Chinese Top-Brand Products issued by the GOC

(b) Eligibility

(317)

Only producers granted the designation of "China World Top Brand" are entitled to the benefits of this programme. The complaint reports a number of steel products produced by the steel companies subject to this investigation as being granted this designation.

(c) Findings of the investigation

(318)

Given the lack of cooperation of the GOC, the findings are based on the information present on the file in accordance with Article 28 of the basic Regulation.

(319)

This programme provides financial contributions in the form of grants, below-market loans and other incentives, which constitute a direct transfer of funds conferring a benefit upon the recipients within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic regulation.

(320)

This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation because the legislation limits access to certain enterprises only, that is the enterprises that have received the designation "China World Top Brand" for their products. Furthermore, there are no objective criteria established by the granting authority with regard to the eligibility of the scheme, which is not automatic under Article 4(2)(b) of the basic Regulation.

(d) Calculation of the subsidy amount

(321)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been comparable decisions by the US authorities. As mentioned before, when basing subsidy amounts on findings in other investigations, account is taken throughout this regulation of, inter alia, whether there have been any significant changes in the scheme in question and whether the subsidy amount may have diminished over time. It is noted that the amount of recurring subsidies will normally not diminish in this way. In the absence of any such changes or diminution of the subsidy amount, the original rate from the investigation in question is used as the amount of subsidy in the present case.

(322)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,13 % which is the arithmetical average rate for similar programmes as established in the US Decision Memorandum of 6 April 2009 on Citric Acid and Certain Citrate Salts (Page No. 6) (Federal Register Vol. 74, No. 69, page 16836 / 13 April 2009), the US Decision Memorandum of 14 May 2010 on Pre-Stressed Concrete Steel Wire Strand (Page No. 29) (Federal Register Vol. 75, No. 98, page 28557 / 21 May 2010), the US Decision Memorandum of 28 May 2010 on Certain Steel Grating (Page No. 18) (Federal Register Vol. 75, No. 109, page 32362 / 8 June 2010), the US Decision Memorandum of 28 March 2011 on Aluminium Extrusions (Page No. 19) (Federal Register Vol. 76, No. 64, page 18521 / 4 April 2011) and the US Decision Memorandum of 11 October 2011 on Multi-layered Wood Flooring (Page No. 17) (Federal Register Vol. 76, No. 201, page 64313 / 18 October 2011). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from grant programmes is substantially the same as that employed by the Union (76).

3.3.7.2. Famous Brands programme and sub-programmes (Chongqing Famous Brands, Hubei Province Famous Brands, Ma'anshan Famous Brands, Shandong Province Top Brands, Wuhan Famous Brands)

(a) Legal basis

(323)

The legal bases of this programme as reported in the complaint with regard to the Shandong sub-programme are the following:

—

Notice on Printing and Distribution of 2003 Policies for Encouraging and expanding Foreign Trade Export to Shandong, LWJMJCZ, [2003] No 180;

—

2004 Policies for Encouraging the Development of Foreign Trade & Economic Cooperation in Shandong, LWJMJCZ, [2003] No 1037;

—

2005 Policies for Encouraging the Development of Foreign Trade & Economic Cooperation in Shandong;

—

Notice on Printing and Distribution of 2006 Policies for Encouraging the Development of Foreign Trade & Economic Cooperation in Shandong, LCQ [2006] No 5.

—

Special Award Fund Budget for the Development of Self-Exporting Brands, Lucaiqizhi, 2008, No 75.

(b) Eligibility

(324)

This programme confers benefits to producers of products designated as "Famous Brands" and meant for export markets. The complaint refers to a number of producers of the product concerned having benefited from this programme until at least 2009.

(c) Findings of the investigation

(325)

The complaint asserts that this programme was designed to promote domestic advanced industries and encourage exports of their products to the world markets. The main framework of this programme is set in the central programme, and provincial and local governments develop their own famous brands programmes consistently with the central programme to promote the export of local products. The USA have challenged this grant programme at the WTO (DS 387). In addition, the US authorities have countervailed this programme in several proceedings referred to in the complaint. The Commission has also countervailed the benefits under this programme in the Coated fine paper case (77).

(326)

The ‧famous brands‧ programme provides financial contributions in the form of subsidised interest loans, R&D funding, and cash grant rewards for exporting. These incentives constitute a direct transfer of funds conferring a benefit upon the recipients within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic Regulation.

(327)

This subsidy is specific under Article 4(2)(a) of the basic Regulation because the legislation limits access only to those enterprises recognised to export products designated as ‧famous brands‧. Furthermore, given the apparent absence of objective criteria and conditions for the application of this programme by the granting authority, specificity is also found under Article 4(2)(b) of the basic Regulation. The preferential treatment under this programme is also specific according to Article 4(4)(a) of the basic Regulation because its benefits are contingent upon export performance of the relevant ‧famous brand‧ products.

(d) Calculation of the subsidy amount

(328)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been comparable decisions (based on similarity in the nature of the programme) by the US authorities. As mentioned before, when basing subsidy amounts on findings in other investigations, account is taken throughout this regulation of, inter alia, whether there have been any significant changes in the scheme in question and whether the subsidy amount may have diminished over time. It is noted that the amount of recurring subsidies will normally not diminish in this way. In the absence of any such changes or diminution of the subsidy amount, the original rate from the investigation in question is used as the amount of subsidy in the present case.

(329)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,13 % which is the arithmetical average rate for similar programmes as established in the US Decision Memorandum of 6 April 2009 on Citric Acid and Certain Citrate Salts (Page No. 6) (Federal Register Vol. 74, No. 69, page 16836 / 13 April 2009), the US Decision Memorandum of 14 May 2010 on Pre-Stressed Concrete Steel Wire Strand (Page No. 29) (Federal Register Vol. 75, No. 98, page 28557 / 21 May 2010), the US Decision Memorandum of 28 May 2010 on Certain Steel Grating (Page No. 18) (Federal Register Vol. 75, No. 109, page 32362 / 8 June 2010), the US Decision Memorandum of 28 March 2011 on Aluminium Extrusions (Page No. 19) (Federal Register Vol. 76, No. 64, page 18521 / 4 April 2011) and the US Decision Memorandum of 11 October 2011 on Multi-layered Wood Flooring (Page No. 17) (Federal Register Vol. 76, No. 201, page 64313 / 18 October 2011). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from grant programmes is substantially the same as that employed by the Union (78).

3.3.7.3. The State key technology project fund

(a) Non-cooperation by the Government of China

(330)

In its questionnaire reply GOC only stated that this programme has been terminated in 2003 and that none of the sampled exporters has benefited from it. As the GOC has not supplemented this reply with any underlying evidence or further clarification, the Commission analyses this programme on the basis of facts available pursuant to Article 28 of the basic Regulation.

(b) Legal basis

(331)

The legal bases of this programme referred to in the complaint are the following:

—

State Circulars: Guojingmao Touzi No 886 of 1999, Guojingmao Touzi No 122 of 1999, Guojingmao Touzi No 1038 of 1999, Guojingmao Touzi No 822 of 2000 and

—

Measures for the Administration of National Debt Special Fund for National Key Technology Renovation Projects

(c) Eligibility

(332)

According to quotations of the main legal basis contained in the complaint, enterprises supported under this programme "shall be mainly selected from large-sized state holding enterprises among the 512 key enterprises, 120 pilot enterprise groups and the leading enterprises of the industry." There is also a geographical preference for enterprises located in the old industrial bases in north-east, central and west areas.

(d) Findings of the investigation

(333)

Given the lack of cooperation of the GOC, the Commission relies on the elements included in the complaint and/or on the other sources mentioned in the complaint (79).

(334)

The complaint reports that this programme sought to provide financial support to eligible enterprises to promote: technological renovation in key industries, enterprises and products; facilitation of technology upgrades; improvement of product structure; improvement of quality; increase of supply; expansion of domestic demand; continuous and healthy development of the State economy. According to the complaint, the fund has supported 47 iron and steel enterprises with respect to investments totalling RMB 75 billion. The US authorities have countervailed this programme in at least two proceedings.

(335)

The programme constitutes a subsidy as it provides financial contributions in the form of grants for the acquisition of fixed assets in accordance with Article 3(1)(a)(i) of the basic Regulation, which confers a benefit to the recipient. Since the subsidy is linked to fixed assets and is allocated over time, it is concluded, on the basis of facts available, that this benefit continues into the IP.

(336)

This subsidy is specific in the meaning of Article 4(2)(a) of the basic Regulation as the support is limited to certain large-sized state-owned enterprises and state-holding enterprises among 512 key enterprises and 120 pilot enterprise groups. In so far as the project focuses on companies located in specifically designated geographical regions of the old industrial base in north-east, central and west areas, it is also specific within the meaning of Article 4(3) of the basic Regulation.

(e) Calculation of the subsidy amount

(337)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a similar decision by the US authorities, namely the US Decision Memorandum of 10 September 2010 on Certain Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe (Page No 19) (Federal Register Vol. 75, No. 182, page 57444 / 21 September 2010).

(338)

The subsidy rate thus established with regard to this scheme during the IP for all non-cooperating companies is set at 0,01 % which is the rate for a similar scheme as established in the US decision referred to in the preceding recital.

3.3.7.4. Programmes to rebate anti-dumping legal fees

(a) No cooperation by the GOC

(339)

The complaint referred to various investigations carried out by the US authorities (80) and the Commission (Coated Fine Paper proceeding) which found countervailable several provincial programmes under which 40 % of the legal fees for a company's participation in anti-dumping proceeding was refunded by the local financial bureau. As the GOC decided not to reply to questions on this programme, merely stating that the sampled exporters had not benefited from it, the Commission bases its findings on the evidence available on the file according to Article 28 of the basic Regulation.

(b) Legal basis

(340)

According to the complaint and the Commission decision in Coated Fine Paper (recital 193), the legal basis of this programme is the following:

—

Rules for the Implementation of the Support Policy for the Anti-dumping, Anti-subsidy, Safeguard investigation respondent

(c) Eligibility

(341)

This programme is available for companies involved in the anti-dumping investigations and working in compliance with the instructions of the Ministry of Commerce and provincial authorities.

(d) Findings of the investigation

(342)

This programme constitutes a subsidy as it provides financial contribution in the form of a direct transfer of funds in the meaning of Article 3(1)(a)(i) of the basic Regulation in order to cover legal fees in anti-dumping proceedings and confers a benefit within the meaning of Article 3(2) of the basic Regulation. This subsidy is specific under Article 4(2)(a) and (c) of the basic Regulation because it is restricted to certain enterprises that are subject to foreign anti-dumping proceedings. Furthermore, this programme is also specific within the terms of Article 4(3) of the basic Regulation given that it is limited to certain enterprises registered in the designated geographical regions governed by the relevant provincial authorities implementing this programme.

(e) Calculation of the subsidy amount

(343)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of information for the assessment of this benefit and since this programme has already been examined in a previous anti-subsidy proceeding by the Union institutions, the most appropriate source of information for the assessment of the benefit to the exporting producers has been the assessment made for this programme in the Coated Fine Paper proceeding, duly adjusted if needed as mentioned in recital (252) above.

(344)

The subsidy rate thus established for all non-cooperating companies is set at 0,01 % on the basis of Coated Fine Paper findings (81).

3.3.8. PURCHASE OF GOODS BY THE GOVERNMENT FOR HIGHER THAN ADEQUATE REMUNERATION

(345)

The complaint contained evidence that the GOC purchased through SOEs steel products manufactured by OCS producers. The complaint referred to the GOC purchases of a number of steel outputs, including colour-coated sheet, hot-rolled sheet coils, cold-rolled sheet, medium plates, galvanised sheet, and many others. The complaint showed that the price for the purchase of these goods by SOEs was set by reference to different elements and/or benchmarks, and that there were price caps or adjustments depending on the different goods and on whether the transaction concerned related parties.

(346)

The GOC replied by reference to its general arguments concerning SOEs that it has not been demonstrated that purchasers SOEs of these steel products were public bodies within the meaning of the WTO SCM Agreement and that it was impossible for the GOC to collect transaction-specific data with regard to unknown entities. The GOC also stated that the complaint did not refer to any purchase of goods involving the sampled exporters. The Commission refers to its conclusions on purchasers of OCS and other steel products being SOEs (recitals (49) - (73) above) and to the request to the GOC to provide information also concerning non-sampled exporters (see recitals (34) and (35) above). Given the lack of further information provided by the GOC on this programme, the Commission bases its findings on the information available on file according to Article 28 of the basic Regulation.

(347)

To the extent that prices are above market prices and a benefit is conferred by the State on OCS producers through its purchasers SOEs, this programme is countervailable according to Article 3(1)(a)(iii) and Article 6(d) of the basic Regulation. It also needs to be considered that the complaint allegation that there is no reliable private price in the market because of the predominance of the public sector in the steel market has been confirmed by the investigation as SOEs have a predominant share in the steel market in China at least with regard to hot-rolled steel and cold-rolled steel (see recitals (76) to (79)). This subsidy is also specific under Article 4(2) of the basic Regulation as it is restricted only to selected entities participated by the State in the steel sector. However, the complexity of these transactions and of the underlying contracts coupled with the lack of the necessary details on the record did not enable the Commission to come to a firm conclusion on this programme. Therefore the Commission has decided not to assess this programme further.

3.3.9. OTHER REGIONAL PROGRAMMES

(a) Non-cooperation by the GOC

(348)

The Government of China replied that as none of the sampled producers was located in the areas of application of the regional programmes included in this section, the information requested by the Commission was irrelevant for the investigation. Given the relevance of this information for the investigation (see recitals (34) - (35) above), in the absence of a reply by the GOC the Commission is basing its decision on all the regional programmes in this section on the facts available on file in accordance with Article 28 of the basic Regulation.

3.3.9.1. Subsidies provided in the Tianjin Binhai New Area and the Tianjin Economic and Technological Development Area

(a) Legal basis

(349)

The legal basis of the Accelerated Depreciation scheme is the Circular of the Ministry of Finance and the State Administration of Taxation concerning the Related Preferential Policies of Enterprise Income Tax for Supporting the Development and Openness of Binhai New Area of Tianjin.

(b) Findings of the investigation

(350)

The complaint alleged that the programme aims to promote the construction of science-technology infrastructure in the Tianjin Binhai New Area (TBNA) and the Tianjin Economic and Technological Development Area (TETDA) and build a science-technology renovation system and service abilities. According to the complaint, financial benefits under this programme were granted under the Science and Technology Fund and under the Accelerated Depreciation Programme. These benefits would be limited to enterprises established in the TBNA Administrative Committee's jurisdiction, including companies producing/exporting the product concerned. The complaint referred to the decision by the US authorities in the countervailing proceeding concerning certain seamless carbon and alloy steel standard, line, and pressure pipe from the People's Republic of China, which found this programme countervailable (82).

(351)

In the absence of cooperation by the GOC, the Commission bases its decision on this programme on the best information available in accordance with Article 28 of the basic Regulation contained in the complaint and in the mentioned decision by the US authorities.

(352)

This programme confers a non-recurring benefit to the recipient companies in the form of grants under the Science and Technology Fund in the meaning of Article 3(1)(a)(i) of the basic Regulation (direct transfer of funds) and in the form of revenue forgone under Article 3(1)(a)(ii) of the basic Regulation as concerns the Accelerated Depreciation Programme.

(353)

The subsidies under the Science and Technology Fund and under the Accelerated Depreciation Programme are specific within the meaning of Article 4(3) of the basic Regulation as they are limited to certain enterprises located within designated geographical regions (i.e. the TBNA and/or the TETDA).

(c) Calculation of the subsidy amount

(354)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision by the US authorities, namely the US Decision Memorandum of 10 September 2010 on Certain Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe (Pages Nos 20 and 21) (Federal Register Vol. 75, No. 182, page 57444 / 21 September 2010). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from tax and grant programmes is substantially the same as that employed by the Union (83).

(355)

The total subsidy rate thus established during the IP for all non-cooperating companies is set at 0,61 % which corresponds to the accumulated rate for the schemes concerned as established in the decision referred to in the preceding recital.

3.3.9.2. Programmes related to the Northeast Region

(a) Legal basis

(356)

The legal basis is the Circular of the Ministry of Finance and State Tax Administration on Printing and Distributing the Regulations on Relevant Issues with respect to Expansion of VAT Deduction Scope in the Northeast Areas of 14 September 2004.

(b) Findings of the investigation

(357)

The complainant affirmed that the GOC established the Northeast Revitalisation Programme in 2003 to revive the old industrial base of Dalian City and the three Northeast Provinces of Liaoning, Jilin and Heilongjiang, which is the traditional centre of China's steel industry. According to the complaint, the GOC has created a special bank, the Northeast Revitalisation Bank (NRB) under the control of the State Council with a mandate to finance the support for the revitalisation of Northeast old heavy industrial hub.

(358)

The complaint also referred to subsidies provided under this programme by the Export-Import Bank of China ("ExIm Bank") through its Dalian branch for a total amount of RMB 5 billion in export credits and other "low-cost credit" worth RMB 150 million in savings for local enterprises since November 2003. The complaint also reported that loans were also extended to non-creditworthy enterprises to enhance the competitiveness of ailing SOEs, which enjoyed a disproportionate access to financial resources despite having the highest share of non-performing loans in the country.

(359)

In the absence of cooperation by the GOC, the Commission bases its decision on this programme on the information contained in the complaint and in the US Decision Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Pages 21 and 22) (Federal Register Vol. 73, No. 227, page 70961 / 24 November 2008), duly adjusted if needed as mentioned in recital (252) above.

(360)

This programme confers an advantage to the recipient companies in the form of: (i) grants as export interest subsidies; (ii) VAT refunds for purchase of fixed assets.

(361)

With regard to (i) export interest subsidies, the provision of interest subsidies constitutes a subsidy in the form of grant within the meaning of Article 3(1)(a)(i) of the basic Regulation. The US decision refers to this programme as the "Foreign Trade Development Fund" rather than the "Northeast Revitalisation Programme", as also mentioned in the complaint. This programme is managed by the Liaoning provincial authorities (namely the Liaoning Provincial Bureau of Foreign Trade and Economic Cooperation and the Liaoning Department of Finance). Eligible projects include those undertaken by exporting enterprises inter alia to improve the competitiveness of their export base and to explore international markets. Because these grants are contingent upon export performance, this programme is specific according to Article 4(4)(a) of the basic Regulation.

(362)

With regard to (ii) VAT refunds, for the purchase of fixed assets, they constitute a subsidy in the form of revenue forgone by the State according to Article 3(1)(a)(ii) of the basic Regulation. This programme provides that VAT taxpayers of certain industries may deduct VAT for purchases of fixed assets from the VAT for sales of finished goods. This VAT deduction is limited to firms located in the northeast region and is therefore regionally specific within the meaning of Article 4(3) of the basic Regulation.

(c) Calculation of the subsidy amount

(363)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision (based on similarity in the nature of the programme) by the US authorities.

(364)

The total subsidy rate thus established for the Northeast Revitalization Programme during the IP for all non-cooperating companies is set at 0,18 % which corresponds to the accumulated rate for the grants and VAT refunds received under the Foreign Trade Development Fund Program as established in the US Decision Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Pages 21 and 22) (Federal Register Vol. 73, No. 227, page 70961 / 24 November 2008). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from similar programmes is substantially the same as that employed by the Union (84).

(a) Legal basis

(365)

The legal basis is the Provisional Administration Measures on High Tech Products and Equipment Manufacturing Products Export Financial interest Assistance of Liaoning Province, established on 16 December 2004.

(b) Findings of the investigation

(366)

The complaint alleged that this programme provides assistance to companies to expand the export of high-tech products and supports the development of enterprises located in the Liaoning Province. The programme is managed by the Liaoning Provincial Bureau of Foreign Trade and Economic Cooperation, the Liaoning Department of Finance, and the Economic Commission of Liaoning province. The US authorities have found this programme countervailable in the above-mentioned decision concerning Line Pipe (see recital (359).

(367)

This programme confers a benefit in the form of direct transfer of funds from the GOC used to pay interest on bank loans within the meaning of Article 3(1)(a)(i) of the basic Regulation. Export loans means short-term loans obtained by enterprises that produce high-tech products and equipment manufacturing products in the province from banks and non-bank financial institutions due to the shortage of necessary funds for production and operation between products export declaration and receipt of payment. Eligible enterprises must have an annual export value above $ 1 million and have exported products falling in the scope of the "China High-Tech Product Export Catalogue" or the scope of equipment manufacturing products. This programme is therefore specific under Article 4(2) of the basic Regulation because it is limited to enterprises fulfilling these criteria. This programme is also contingent upon export performance according to Article 4(4)(a) of the basic Regulation. The programme is also regionally specific within the terms of Article 4(3) as it is limited to enterprises located within the designated geographical region in the Northeast of China.

(c) Calculation of the subsidy amount

(368)

The amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipients, which is found to exist during the IP. In the absence of precise quantification elsewhere, the most appropriate source of information for the assessment of the benefit to the exporting producers has been a comparable decision (based on similarity in the nature of the programme) by the US authorities.

(369)

The subsidy rate thus established during the IP for all non-cooperating companies is set at 0,43 % which corresponds to the rate for the export interest subsidies scheme as established in the US Decision Memorandum of 17 November 2008 on Circular Welded Carbon Quality Steel Line Pipe (Line Pipe) (Page No 23) (Federal Register Vol. 73, No. 227, page 70961 / 24 November 2008). With regard to investigations conducted by the US authorities, it is noted that the methodology used for calculating the amount of benefit from similar programmes is substantially the same as that employed by the Union (85).

(a) Findings of the investigation

(370)

The complaint refers to the previous programme of export interest subsidies, which is eligible only in connection with outstanding "export loans". The US authorities have found also this programme countervailable in the decision concerning Line Pipe.

(371)

The legal basis is the "Provisional Administration Measures on High Tech Products and Equipment Manufacturing Products Export Financial interest Assistance of Liaoning Province", established on 16 December 2004.