Hengshi Egypt Fiberglass Fabrics SAE and Jushi Egypt for Fiberglass Industry SAE v European Commission (T-480/20)

Contents

Judgment of the General Court (First Chamber, Extended Composition)1 March 2023^note(Subsidies — Imports of certain woven or stitched glass fibre fabrics originating in China and Egypt — Implementing Regulation (EU) 2020/776 — Definitive countervailing duty — Calculation of the subsidy amount — Attributability of the subsidy — Rights of the defence — Manifest error of assessment — Import duty drawback scheme — Tax treatment of foreign exchange losses — Calculation of the undercutting margin)In Case T‑480/20,Hengshi Egypt Fiberglass Fabrics SAE, established in Ain Sokhna (Egypt),Jushi Egypt for Fiberglass Industry SAE, established in Ain Sokhna,represented by B. Servais and V. Crochet, lawyers,vEuropean Commission, represented by P. Kienapfel, G. Luengo and P. Němečková, acting as Agents,supported byTech-Fab Europe eV, established in Frankfurt am Main (Germany), represented by L. Ruessmann and J. Beck, lawyers,THE GENERAL COURT (First Chamber, Extended Composition),composed, at the time of the deliberations, of H. Kanninen, President, M. Jaeger, N. Półtorak, O. Porchia and M. Stancu (Rapporteur), Judges,Registrar: M. Zwozdziak-Carbonne, Administrator,having regard to the written part of the procedure,further to the hearing on 22 March 2022,gives the following

JudgmentOnly the paragraphs of the present judgment which the Court considers it appropriate to publish are reproduced here.

1By their action based on Article 263 TFEU, the applicants, Hengshi Egypt Fiberglass Fabrics SAE (‘Hengshi’) and Jushi Egypt for Fiberglass Industry SAE (‘Jushi’), seek the annulment of Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/492 imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt (OJ 2020 L 189, p. 1) (‘the contested implementing regulation’), in so far as it concerns them.

I. Background to the dispute

2The applicants are two companies formed in accordance with the laws of the Arab Republic of Egypt whose shareholders are Chinese entities. They both belong to the China National Building Material Group (CNBM) (‘the CNBM group’). The applicants’ business consists in the production and export of certain woven or stitched glass fibre fabrics (‘GFF’) and glass fibre rovings (‘GFR’). GFR constitutes the main raw material used to produce GFF. Those products are sold in particular within the European Union.

A. The China-Egypt Suez Economic and Trade Cooperation Zone

3The applicants are both established in the China-Egypt Suez Economic and Trade Cooperation Zone (‘the SETC-Zone’). The SETC-Zone was set up together by the Arab Republic of Egypt and the People’s Republic of China. Its history goes back to the 1990s. In 1997, the Prime Ministers of China and Egypt signed a memorandum of understanding, in which the two countries agreed to ‘cooperate in developing the free economic zone in the north of the Gulf of Suez’.

4In 2002, a wider geographical area of 20 km², which included the SETC-Zone, was classified as a special economic zone by the Government of Egypt, thereby making Egyptian Law No 83/2002 on Economic Zones of a Special Nature (‘Law No 83/2002’) applicable to the SETC-Zone.

5Next, Chinese and Egyptian public entities set up Egypt TEDA Investment Co. (‘Egypt TEDA’), 80% of whose shares are held by the Government of China and the remaining 20% by the Government of Egypt.

6In 2012, during a visit by the Egyptian President to China, that president described the SETC-Zone as a key project for bilateral cooperation between the two countries. He also hoped that more and more Chinese undertakings would invest in the SETC-Zone and thus participate in Egypt’s Recovery program.

7In 2013, the SETC-Zone was extended by 6 km² under a contract between Egypt TEDA and the Egyptian authorities. Also as of 2013, the SETC-Zone was developed under the umbrella of the Chinese ‘Belt and Road’ initiative. That initiative, according to the Guiding Opinions of the Chinese State Council on the Promotion of International Production Capacity and Equipment Manufacturing Cooperation of 13 May 2015, includes the possibility for undertakings ‘going abroad’ to benefit from fiscal and tax support policies, concessional loans, financial support through syndicated loans, export credits, and project financing, equity investment and export credit insurance.

8In 2015, the special economic zone referred to in paragraph 4 above, of which the SETC-Zone formed part, was officially incorporated into the wider Suez Canal Economic Zone (‘the SCZone’), comprising the area around the Suez Canal. The SCZone was governed by Law No 83/2002, in the context of the ‘Suez Canal Corridor Development Plan’ launched by Egypt.

9In 2016, the Chinese and Egyptian Presidents officially inaugurated the SETC-Zone 6 km² expansion project and, on 21 January 2016, signed an agreement between the Government of China and the Government of Egypt (‘the 2016 Cooperation Agreement’), which clarified the significance and legal status of the SETC-Zone.

10According to the 2016 Cooperation Agreement, the governments of the two countries are to develop jointly the SETC-Zone. They are to do so in line with their respective national strategies, namely the ‘Belt and Road’ Initiative for China on the one hand, and the Suez Canal Corridor Development Plan for Egypt on the other hand. For that purpose, the Government of Egypt provides the land, the labour and certain tax breaks, whereas the Chinese companies operating in the zone run the production facility with their assets and managers. Compensating for a lack of Egyptian funds, the Government of China also supports this project by making the necessary financial means available to Egypt TEDA and to the Chinese firms operating in the SETC-Zone.

B. The procedure leading to the adoption of the contested implementing regulation

11Following a complaint lodged on 1 April 2019 pursuant to Article 10 of Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union (OJ 2016 L 176, p. 55; ‘the basic anti-subsidy regulation’) by the intervener, Tech-Fab Europe eV, on behalf of producers representing more than 25% of the total EU production of GFF, the Commission initiated an anti-subsidy investigation based on that article with regard to imports into the European Union of GFF originating in China and Egypt. On 16 May 2019, the Commission published a Notice of Initiation in the Official Journal of the European Union (OJ 2019 C 167, p. 11).

12More specifically, as is apparent from recital 127 of the contested implementing regulation, the products under investigation are fabrics of woven or stitched continuous filament glass fibre rovings or yarns with or without other elements, excluding products which are impregnated or pre-impregnated (pre-preg), and excluding open mesh fabrics with cells with a size of more than 1.8 mm in both length and width and weighing more than 35 g/m² currently falling under CN codes ex70193900, ex70194000, ex70195900 and ex70199000 (TARIC codes 7019390080, 7019400080, 7019590080 and 7019900080).

13The investigation of subsidisation and injury covered the period from 1 January to 31 December 2018. The examination of trends relevant for the assessment of injury and the causal link covered the period from 1 January 2015 to the end of the investigation period.

14During the investigation period, Jushi produced both GFF and GFR. Jushi used its self-produced GFR to manufacture GFF, but it also sold GFR to unrelated customers both in Egypt and abroad, as well as to Hengshi. Hengshi manufactured GFF from GFR purchased from Jushi as well as from a different related company and an unrelated company, both of which are established in China.

15Jushi sold GFF directly to unrelated customers in Egypt and the European Union. It also exported GFF to three related customers in the European Union, namely Jushi Spain SA, Jushi France SAS and Jushi Italia Srl. Furthermore, Jushi sold GFF in the European Union through a related company established outside the European Union, Jushi Group (HK) Sinosia Composite Materials Co. Ltd. Jushi’s sales of GFF within the European Union represented approximately [confidential]%^note of the applicants’ total sales of that product during the investigation period.

16Hengshi, which produces only GFF, did not sell them on the Egyptian market but sold them in the European Union, directly to unrelated customers and through a related company established outside the European Union, Huajin Capital Ltd. Hengshi’s sales of GFF in the European Union represented approximately [confidential]% of the applicants’ total sales of that product during the investigation period.

17On 21 February 2019, the Commission initiated a separate anti-dumping investigation concerning imports into the European Union of GFF originating in China and Egypt (‘the parallel anti-dumping investigation’). On 7 June 2019, it also initiated an anti-subsidy investigation concerning imports of GFR originating in Egypt (‘the parallel anti-subsidy investigation on GFR’).

18The applicants submitted comments on the subsidies, injury and EU interest on 14 June 2019. They filed their responses to the anti-subsidy questionnaire on 1 July 2019. On 27 September 2019, the applicants sent their reply to the Commission’s request for additional information. The Commission carried out verification visits at the applicants’ premises and the premises of the companies related to the applicants.

19On 26 July 2019, the Government of Egypt filed its responses to the anti-subsidy questionnaire. On 15 October 2019, it sent its reply to the Commission’s request for additional information. On 23 December 2019, the Commission informed the Government of Egypt of its intention to apply Article 28 of the basic anti-subsidy regulation, in view of certain information regarding the legal and institutional framework and the existence of intergovernmental agreements between the People’s Republic of China and Arab Republic of Egypt concerning the SETC‑Zone. On 3 January 2020, the Government of Egypt replied to the Commission and provided it with the information requested.

20On 27 February 2020, the Commission sent the final disclosure document to the applicants, on which they submitted their comments on 20 March 2020. A hearing concerning that disclosure was held with the Commission.

21On 17 April 2020, the Commission issued an additional final disclosure document, on which the applicants submitted their comments on 22 April 2020. A hearing concerning that disclosure was held with the Commission

22On 12 June 2020, the Commission adopted the contested implementing regulation. That implementing regulation was published in the Official Journal of the European Union on 15 June 2020 and entered into force on the day following its publication.

23That implementing regulation imposes a definitive countervailing duty of 10.9% on the applicants’ imports of GFF into the European Union.

II. Forms of order sought

24The applicants claim that the Court should:– annul the contested implementing regulation in so far as it concerns them;– order the Commission to pay the costs;– order the intervener to bear its own costs.

25The Commission and the intervener contend that the Court should:– dismiss the action as unfounded;– order the applicants to pay the costs.

III. Law...

B. The second plea in law, alleging infringement of Article 2(a) and (b), Article 3(1)(a) and Article 4(2) and (3) of the basic anti-subsidy regulation...

1. The first part of the second plea, alleging infringement of Article 2(a) and (b) and Article 3(1)(a) of the basic anti-subsidy regulation

71The applicants put forward three main complaints in support of this part. First, in their submission, the Commission’s interpretation of Article 3(1)(a) of the basic anti-subsidy regulation is not justified under EU law. Second, the Commission’s reliance on WTO law to interpret Article 3(1)(a) of that regulation is unfounded. Third, the Commission’s interpretation of Article 1.1(a)(1) of the Agreement on Subsidies and Countervailing Measures (‘the SCM Agreement’) does not comply with WTO case-law and public international law.

72In support of the first complaint, the applicants submit that it follows from a literal interpretation of Article 3(1)(a) of the basic anti-subsidy regulation, the wording of which is clear and precise, and there being no need to also interpret it in the light of the Vienna Convention on the Law of Treaties of 23 May 1969 (‘the Vienna Convention’) and of the Draft articles on the Responsibility of States for Internationally Wrongful Acts, as adopted in 2001 by the International Law Commission of the United Nations (‘the ILC Articles’), that, not only the government granting the financial contribution, but also the financial contribution itself must be within the territory of the country of origin or export. That interpretation is supported by the overall context of the basic anti-subsidy regulation, in particular Article 10(7) and Article 13(1) thereof.

73In support of the second complaint, the applicants submit that the Commission was wrong to interpret Article 3(1)(a) of the basic anti-subsidy regulation in the light of WTO law. They state that, while, according to the case-law, the EU Courts may review the legality of an EU measure in the light of WTO rules where the European Union intends to implement a particular obligation assumed in the context of the WTO, in the present case, an interpretation in the light of WTO law cannot be relied upon in relation to provisions of the basic anti-subsidy regulation which differ from those of the SCM Agreement. According to the applicants, the wording of the SCM Agreement is clearly different from that used in that regulation with regard to the definition of ‘subsidy’.

74In support of the third complaint, the applicants submit that, even if WTO law should be taken into account in order to interpret the term ‘government’ in the basic anti-subsidy regulation, the Commission’s interpretation of Article 1.1(a)(1) of the SCM Agreement is still incorrect as it disregards Article 31(1) and (3) of the Vienna Convention. It is clear from that article of the SCM Agreement that the actions of governments of third countries cannot be attributed to the government of the country of origin or export. That interpretation is confirmed by other provisions of that agreement, such as Article 13(1), (2) and (4) and Article 18(1) (a).

75Moreover, Article 11 of the ILC Articles is not a ‘relevant’ rule of international law within the meaning of Article 31(3)(c) of the Vienna Convention for the purposes of interpreting the term ‘government’ in Article 1.1(a)(1) of the SCM Agreement. The WTO Appellate Body did not rule otherwise in the case ‘United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China’ (WT/DS 379/AB/R). In the reply, the applicants add that, if the applicable law in that investigation had been the SCM Agreement rather than the basic anti-subsidy regulation, the Commission could have classified as subsidies, within the meaning of Article 1.1 of the SCM Agreement, the financial contributions granted by Chinese entities to the applicants, without having to ‘attribute’ those financial contributions to the Government of Egypt on the basis of Article 11 of the ILC Articles. Article 11 of the ILC Articles in any event is not applicable in the present case since it is intended to govern the conduct of a State which becomes part of another State following the acquisition of a territory, which is attributable to the succeeding State, or the subsequent adoption by a State of a private wrongful act which has been committed or is still ongoing. The applicants state that it is Articles 16 to 18 of the ILC Articles which govern the responsibility of the State in connection with the act of another State, and not Article 11 of those articles.

76The Commission, supported by the intervener, disputes those arguments.

77As is apparent from paragraph 72 above, according to the applicants, the Commission’s interpretation of Article 3(1)(a) of the basic anti-subsidy regulation, in particular the concept of ‘government’ of the country of origin or export, is not justified under EU law.

78In order to address that issue, it should be recalled that, according to the case-law, each provision of EU law must be placed in its context and interpreted in the light of the provisions of EU law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied (see, to that effect, judgment of 28 July 2016, Association France Nature Environnement, C‑379/15, EU:C:2016:603, paragraph 49 and the case-law cited).

79In that regard, first, it should be recalled that Article 3 of the basic anti-subsidy regulation provides that a subsidy is deemed to exist if the conditions in paragraphs 1 and 2 are fulfilled, that is to say if there is a ‘financial contribution’ by a government in the country of origin or export and if a ‘benefit’ is thereby conferred.

80Article 2(b) of that regulation defines the term ‘government’ as a government or any public body within the territory of the country of origin or export.

81The definition of ‘government’ in that article merely interprets the term ‘government’ as including the government or public bodies of the country of origin or export. However, that provision does not rule out the possibility that the financial contribution may be attributed to the government of the country of origin or export of the product concerned, on the basis of the specific evidence available.

82Second, it should be noted that recital 5 of that regulation states that ‘in determining the existence of a subsidy, it is necessary to demonstrate that there has been a financial contribution by a government or a public body within the territory of a country, or that there has been some form of income or price support within the meaning of Article XVI of the GATT 1994, and that a benefit has thereby been conferred on the recipient enterprise’.

83The words ‘within the territory of a country’ used in that recital do not imply that the financial contribution must come directly from the government of the country of origin or export. On the contrary, the use of those words, as the Commission points out, does not preclude the possibility of concluding that the financial contributions may be attributed to the country of origin or export of the product concerned.

84Thus, the basic anti-subsidy regulation does not rule out the possibility that, even if the financial contribution does not come directly from the government of the country of origin or export, that contribution may be attributed to it.

85The foregoing conclusion is all the more relevant in the specific context of the SETC-Zone, in which the applicants are located.

86In the first place, the Commission took into consideration, in recital 690 of the contested implementing regulation, two statements made by two Egyptian Presidents relating to the SETC-Zone. The first statement, from 2012, referred to that zone as a key project of the bilateral cooperation between Egypt and China. The second statement, from 2014, related to the ‘Belt and Road’ initiative and specified, inter alia, that that initiative provided a significant opportunity for Egyptian recovery and that the Egyptian authorities were ready for active involvement and to provide their support. The Egyptian authorities wished to cooperate with China in developing inter alia the projects of the Suez Canal Corridor, the SETC-Zone, and in attracting Chinese undertakings to invest in Egypt.

87In that regard, recital 691 of the contested implementing regulation states that the characteristics of the Chinese ‘Belt and Road’ initiative are public knowledge and that, according to the Guiding Opinions of the Chinese State Council on the Promotion of International Production Capacity and Equipment Manufacturing Cooperation of 13 May 2015, the policy support which undertakings ‘going abroad’ can receive include fiscal and tax support policies, concessional loans, financial support through syndicated loans, export credits, and project financing, equity investment, and finally export credit insurance.

88In the second place, the Commission took into consideration, in recital 693 of the contested implementing regulation, the fact that the SETC-Zone was the subject of the 2016 Cooperation Agreement between the Government of China and the Government of Egypt. That agreement provides inter alia, according to Article 1 thereof, that the People’s Republic of China may apply certain of its laws within the SETC-Zone. Article 4(1) of that agreement provides that ‘the Chinese Government identifies the [SETC-Zone] as China’s overseas economic and trade cooperation zone’ and that ‘the Cooperation Zone, during the construction, business attraction and operation, is entitled to relevant policy support and facilitation provided by the Chinese Government for overseas economic and trade cooperation zones’. Article 5(1) of that agreement also provides that the Government of China is to support the Cooperation Zone by ‘encouraging relevant financial institutions to provide financing facility for … investment projects located within the Cooperation Zone, provided that the lending conditions and the loan use requirements are met’.

89In the third place, recital 660 of the contested implementing regulation states that, in order to ensure the implementation of the 2016 Cooperation Agreement, the Government of China and the Government of Egypt established a three-level consultation mechanism, including a cooperation agreement for the creation of an Administration Commission for the SETC-Zone, a Management Committee for the zone, and subsequently reporting on problems and difficulties by Egypt TEDA and the Egyptian counterparts. It is moreover apparent from recital 652 of that regulation that Egypt TEDA is 80% owned by the Government of China and 20% owned by the Government of Egypt and is intended to drive the development of the SETC-Zone in Egypt.

90Lastly, it is apparent from recitals 726 and 745 of the contested implementing regulation that the financial support granted to the Chinese companies established in Egypt was particularly significant.

91The Government of China and the Government of Egypt therefore worked closely together to establish the SETC-Zone as a zone with special legal and economic features which enabled the government authorities of China to confer directly all the facilities inherent in China’s ‘Belt and Road’ initiative on the Chinese undertakings established in that zone.

92In those circumstances, it cannot be accepted that an economic and legal construct such as that of the SETC-Zone, conceived in close collaboration between the Government of China and the Government of Egypt at the highest level, is not covered by the basic anti-subsidy regulation, without this undermining that regulation’s effectiveness or its purpose and objectives.

93Third, contrary to what is claimed by the applicants, the Commission’s interpretation of Article 3(1)(a) of the basic anti-subsidy regulation is not contrary to either Article 10(7) or Article 13(1) of that regulation. As regards Article 10(7), the basic anti-subsidy regulation in no way precludes the possibility of the government of the country of origin or export from being consulted on the financial contributions attributable to it. In the present case, it is also apparent from the file that the Commission did indeed invite the Government of Egypt for consultations on issues such as the preferential loans granted by Chinese entities.

94As regards Article 13(1) of that regulation, which allows, inter alia, the country of origin or export to eliminate or limit the subsidy or take other measures concerning its effects, such a possibility remains valid where the financial contribution may be attributed to the government of the country of origin or export. In the present case, it was open to the Government of Egypt to stop the close cooperation with the Government of China in relation to the financial contributions or to propose measures to limit the effects of the subsidies at issue.

95In the light of the foregoing, it must be concluded that neither Article 3(1)(a) of the basic anti-subsidy regulation nor the general scheme of that regulation precludes a financial contribution granted by the government of a third country from being attributed to the government of the country of origin or export in a case such as that at issue in the present case, in the light of the specific evidence available as set out in paragraphs 86 to 91 above.

96Furthermore, contrary to what the applicants claim, that conclusion is supported by the provisions of Article 1 of the SCM Agreement, in the light of which the basic anti-subsidy regulation must be interpreted. In that regard, it should be recalled that, where the European Union intended to implement a particular obligation assumed in the context of the WTO, or where the EU measure refers expressly to precise provisions of the WTO agreements, it is for the Courts of the European Union to review the legality of the EU measure in question in the light of the WTO rules (see, by analogy, judgment of 14 July 2021, Interpipe Niko Tube and Interpipe Nizhnedneprovsky Tube Rolling Plant v Commission, T‑716/19, EU:T:2021:457, paragraph 95).

97It is apparent from recital 3 of the basic anti-subsidy regulation that the purpose of that regulation is, inter alia, to ‘reflect’ in EU legislation the rules of the SCM Agreement ‘to the best extent possible’.

98Moreover, it has already been established by the case-law that Article 3 of the basic anti-subsidy regulation, entitled ‘Definition of a subsidy’, and Article 1 of the SCM Agreement are largely identical in their wording and fully identical in terms of their substance (see, to that effect, judgment of 10 April 2019, Jindal Saw and Jindal Saw Italia v Commission, T‑300/16, EU:T:2019:235, paragraph 99).

99Furthermore, no intention on the part of the legislature to depart from the substance of Article 1.1(a)(1) of the SCM Agreement is apparent from the recitals of the basic anti-subsidy regulation. On the contrary, as is apparent from recital 3 of that regulation cited in paragraph 97 above, the legislature did indeed intend to implement a particular obligation assumed in the context of the SCM Agreement within the meaning of the case-law cited in paragraph 96 above.

100Thus, contrary to what the applicants maintain, the provisions of the basic anti-subsidy regulation must be interpreted, as far as possible, in the light of the corresponding provisions of the SCM Agreement (judgment of 10 April 2019, Jindal Saw and Jindal Saw Italia v Commission, T‑300/16, EU:T:2019:235, paragraph 101). The same is true of Article 3 of that regulation, which seeks to implement the content of Article 1 of the SCM Agreement (judgment of 10 April 2019, Jindal Saw and Jindal Saw Italia v Commission, T‑300/16, EU:T:2019:235, paragraph 102).

101As regards Article 1.1(a)(1) of the SCM Agreement, it should be noted, first, that the latter defines a subsidy as a financial contribution by a government or any public body within the territory of ‘a’ Member of the WTO. That wording does not therefore preclude the possibility that a financial contribution granted by a third country may be attributed to the government of the country of origin or export, since it is sufficient that the financial contribution of the government or any public body is within the territory of ‘a’ Member of the WTO.

102In the second place, Articles 13 and 18 of the SCM Agreement, which relate to consultations and undertakings respectively, do not call into question the foregoing considerations. The wording and purpose of those provisions do not exclude situations in which the financial contribution is attributed to a WTO member, since, first, members whose products may be investigated may be consulted on financial contributions attributable to them and, second, members whose products may be investigated may impose limitations on the subsidies attributable to them.

103In the light of the foregoing, it must be held that, since the Commission correctly interpreted the basic anti-subsidy regulation in the light of the SCM Agreement, the question whether or not it took Article 11 of the ILC Articles into account is irrelevant. Consequently, it is also necessary to reject the third complaint of the present part of the plea and, therefore, that part in its entirety....

Operative part

On those grounds,THE GENERAL COURT (First Chamber, Extended Composition)hereby:

1.Dismisses the action;

2.Orders Hengshi Egypt Fiberglass Fabrics SAE and Jushi Egypt for Fiberglass Industry SAE to bear their own costs and to pay those incurred by the European Commission;

3.Orders Tech-Fab Europe eV to bear its own costs.

Delivered in open court in Luxembourg on 1 March 2023.