The European Commission has adopted definitive anti-dumping measures on imports of aluminum converter foil from China. The level of the anti-dumping duties ranges from 15.4% to 28.5%. One interesting aspect of the Commission's reasoning relates to the involvement of the Chinese Communist Party (CCP) in the management of several of the companies under investigation. We set out that reasoning below, drawing on both the provisional and definitive measures.
The basic EU anti-dumping regulation explains that there are situations where domestic prices and costs in the exporting country cannot be used in the normal value calculation due to the existence in that country of "significant distortions," and describes one element that should be taken into account in this context as "state presence in firms allowing the state to interfere with respect to prices or costs":
(a) In case it is determined, when applying this or any other relevant provision of this Regulation, that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, subject to the following rules.
(b) Significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces because they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements:
— state presence in firms allowing the state to interfere with respect to prices or costs;
This element came up as part of the Commission's reasoning in the case as follows. In the decision adopting provisional measures, the Commission considered "Significant distortions affecting the domestic prices and costs in China," one aspect of which focused on "State presence in firms allowing the state to interfere with respect to prices or costs." The Commission noted that the Chinese government "is in a position to interfere with prices and costs through State presence in firms," and set out a number of examples that illustrate the "trend of an increasing level of intervention by the GOC in the aluminium sector." Its full reasoning on this issue was as follows:
(93) Apart from exercising control over the economy by means of ownership of SOEs and other tools, the GOC is in position to interfere with prices and costs through State presence in firms. While the right to appoint and to remove key management personnel in SOEs by the relevant State authorities, as provided for in the Chinese legislation, can be considered to reflect the corresponding ownership rights ( 29), CCP cells in enterprises, State-owned and private alike, represent another important channel through which the State can interfere with business decisions. According to the Chinese company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution ( 30)) and the company shall provide the necessary conditions for the activities of the party organisation. In the past, this requirement appears not to have always been followed or strictly enforced. However, since at least 2016 the CCP has reinforced its claims to control business decisions in SOEs as a matter of political principle. The CCP is also reported to exercise pressure on private companies to put ‘patriotism’ first and to follow party discipline ( 31). In 2017, it was reported that party cells existed in 70 % of some 1,86 million privately owned companies, with growing pressure for the CCP organisations to have a final say over the business decisions within their respective companies ( 32). These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of aluminium products and the suppliers of their inputs.
(94) In addition, on 15 September 2020 a document titled “General Office of CCP Central Committee’s Guidelines on stepping up the United Front work in the private sector for the new era” ( 33) was released, which further expanded the role of the party committees in private enterprises. According to the guidelines, Section II.4: “We must raise the Party’s overall capacity to lead private-sector United Front work and effectively step up the work in this area”; and Section III.6: “We must further step up Party building in private enterprises and enable the Party cells to play their role effectively as a fortress and enable Party members to play their parts as vanguards and pioneers.” By this document, the party emphasised the role of the private enterprises in the “United Front work” in an effort to increase the role of the CCP in non-party organisations and entities ( 34).
(95) The following examples illustrate the above trend of an increasing level of intervention by the GOC in the aluminium sector.
(96) As found by the Commission in another investigation on certain aluminium foil in rolls originating in China ( 35), in 2017, a Chinese state-owned aluminium producer, China Aluminium International Engineering Corporation Limited (‘Chalieco’), amended its Articles of Association giving more prominence to the role of party cells within the company. It included a whole chapter on the Party Committee, and Article 113 thereof states: ‘In deciding major corporate issues, the Board shall consult the Party Committee of the Company in advance.’ ( 36). Furthermore, in their 2017 Annual Report ( 37), the Aluminum Corporation of China (‘Chalco’) stated that a number of directors, supervisors, and senior management – including the Chairman and Executive Director, and the Chairman of the Supervisory Committee – are members of the CCP.
(97) With regard to the enterprises active in manufacturing of ACF products, Xiamen explains the party building exercises in the following way: “Xiashun actively promotes party building and labour union work, and remains committed to the system of joint meetings between Party, government and workers over the years, providing an important platform for employees to participate in decision-making, protect their rights and interests, and build a harmonious atmosphere.” ( 38).
(98) The State’s presence and intervention in the financial markets (see also section 18.104.22.168 below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the market ( 39). Thus, the State presence in firms, including SOEs, in the aluminium and other sectors (such as the financial and input sectors) allow the GOC to interfere with respect to prices and costs.
Based on this and other factors, the Commission concluded that "prices or costs of the product concerned, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation as shown by the actual or potential impact of one or more of the relevant elements listed therein." On that basis, and "in the absence of any cooperation from the [Chinese government]," the Commission concluded that "it is not appropriate to use domestic prices and costs to establish normal value in this case."
In the decision adopting definitive measures in this case, the Commission discussed the objections raised by a Chinese respondent to the reasoning that led to this conclusion, including in relation to the role of CCP members. In this regard, the company noted that while "it is legally obliged to allow the party members to organise party building activities, [that] does not mean the party members have any influence over the company":
(60) First, Xiamen Xiashun noted that in recital 97 of the provisional Regulation reference is made to an internet article according to which Xiamen Xiashun actively promotes party building and labour union work. Xiamen Xiashun commented that this article should be interpreted in the way as meaning solely that Xiamen Xiashun is facilitating the possibility for its workers in labour unions whether party members or not to conduct their activities within the company. However, Xiamen Xiashun underlined that the wording 'decision-making' does not mean that the party members or labour union have any say on the management and governance of the company, or the pricing setting of raw material purchases or product sales. As a result, no conclusion of government control or market distortion should be made based on that wording.
(61) Additionally, Xiamen Xiashun opposed the findings made by the Commission in recital 97 of the provisional Regulation, explaining that the fact that there are party members in the company, does not mean that they are controlling the company. Xiamen Xiashun observed that it is legally obliged to allow the party members to organise party building activities, but it does not mean the party members have any influence over the company. It added that every person is allowed to belong to a religion or political party of its choice and it has no bearing on the decision making in the company. Furthermore, it underlined that the fact that there are party building activities organised in the company, does not mean that there are Chinese Communist Party ('CCP') members among the management of the company. Finally, Xiamen Xiashun explained that Commission’s translation of the 'party building' is wrong and that the CCP’s members’ activities within the company are mainly those related to the studying of government policies, providing their opinion and advice to their party organization, or sometimes even some entertainment activities. It added that there was nothing in the record indicating that the CCP is controlling the respondent companies. Xiamen Xiashun repeated those comments following definitive disclosure.
In response, the Commission concluded as follows:
(62) The Commission observed that, first, the activities of the party committee active within Xiamen Xiashun are clearly described as 'decision making' in the article quoted in recital 97 of the provisional Regulation. The article does not analyse nor interpret in detail what this 'decision making' entails. However, the Commission recalls that according to Article 2(6a) first and second indent, two elements relevant for assessing the existence of significant distortions in a country are: 'the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country' and 'state presence in firms allowing the State to interfere with respect to prices or costs'. The involvement of the party committee into 'decision making' in Xiamen Xiashun falls under both criteria. The requirement that the State presence in the company interfere with the prices and costs does not mean that the State sets directly the prices of the goods sold, but rather that due to the presence and involvement of the party members in the company, the company can expect more favourable treatment and support from the authorities, which indirectly may impact its costs and prices. Furthermore, the presence of CCP members in the company and the fact that the company facilitates party building activities and involvement thereof into 'decision making' is a clear indicator that the company is not independent from the State, and is liable to be acting in accordance with CCP policy rather than market forces. This argument is therefore rejected.
(63) Whereas, as a matter of principle, indeed every employee has the right to belong to the religion or political party of its choice, factually in China the situation is different, as China is a one party State and the CCP is equal with the State and its government ( 6 ). Therefore, the presence of CCP members in a company, who organise regular 'party building' activities and have 'decision making' rights, as discussed in recitals 50 and 52 above, indicates a State presence in the company. With regard to the activities of the party committee, the Commission first notes that the 'party building' activities are used by the Commission in the sense of 'activities to strengthen the party spirit in the company', or 'development of party-related activities to ensure party overall leadership' in accordance with the official guidelines ( 7 ). The Commission recalls that as already explained in recital 52 above, the party committees present in the company do have at least an indirect, albeit at least potentially distortive effect, due to the close interconnection between the State and the CCP in China.