Continuing its trend of looking at the role of the Chinese Communist Party (CCP) in company management when carrying out the normal value calculation in anti-dumping cases, the European Commission last week issued two decisions adopting provisional measures in which it examined this issue. One case involved imports of certain graphite electrode systems from China; the other involved imports of calcium silicon from China.
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;
In each of the two cases discussed here, this element came up when the Commission considered "Significant distortions," one aspect of which focused on "State presence in firms allowing the state to interfere with respect to prices or costs."
In the graphite electrode systems case, the Commission found as follows:
(83) 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 ( 30), 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 PRC’s company law, a CCP organisation is to be established in every company (with at least three CCP members as specified in the CCP Constitution ( 31)) 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 ( 32). 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 ( 33). These rules are of general application throughout the Chinese economy, across all sectors, including to the producers of graphite electrodes and the suppliers of their inputs.
(84) 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 (‘the Guidelines’) ( 34) was released, which further expanded the role of the party committees in private enterprises. Section II.4 of the Guidelines state: ‘[w]e 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 states: ‘[w]e 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.’ The Guidelines thus emphasise and seeks to increase the role of the CCP in companies and other private sector entities ( 35).
(85) Specifically in the graphite electrodes sector, as already pointed out, many of the producers are owned by the State and declare their commitment to adhere to the government industrial policies, as well as to the leading role of the CCP. For example, the state-owned trading company Henan General Machinery and the producer Kaifeng Carbon have emphasized the importance of CCP guidance since a number of years, with Henan General Machinery declaring that it has been ‘guided by the scientific concept of development, [we shall] deeply implement the spirit of the 18th National Congress of the Communist Party of China’ ( 36) and Kaifeng Carbon reporting on the company’s first successful Party congress already back in 2016 ( 37). However, the influence of the State and Party is not limited to state-owned companies but occurs also in privately owned companies, confirming the growing influence of the CCP in the private sector described in recital above. The Commission notes in this connection that the chairman of the board of Fangda Carbon New Materials Co., LTD., is also a member of the CCP ( 38). Moreover, the company states the following with respect to Party building activities: ‘Fangda Carbon, as one of the world's leading carbon enterprise, actively implements the corporate culture considering “Party Building as the Soul”. Over the years, the company has closely focused on the corporate development strategy of “building a strong Party to grow strong”, unswervingly integrated Party building into the production and business operation of the company, and gathered strong positive energy for the healthy and rapid development of the company. […] Over the years, Fangda Carbon has continuously strengthened the building of the Party organization […]. The company’s Party committee has received the award of “National Pioneer for Advanced Grassroots Party Organization” […]’ ( 39). Similarly, the company Jilin Carbon Co. LTD., part of the Zhongze Group, states: ‘Party organizations at all levels of Zhongze Group actively carry out a series of party building activities to celebrate the 99th anniversary of the founding of the Communist Party of China, […] demonstrating the determination, belief and responsibility of private enterprises to always adhere to the Party's leadership to help build a socialist economy. […] All companies in the Zhongze Group have always kept doing a good job in Party building, with activities such as developing Party lessons and, organizing party history lessons, and establishing advanced models, inheriting the red gene and maintaining the original aspiration’ ( 40).
(86) Moreover, the Commission notes that articles of association of the China Carbon Industry Association, i.e. the graphite electrode sector’s industry association of which Fangda Carbon New Materials Co., LTD. is a member and deputy chairman and Liaoning Dantan Technology Group is a member and standing director ( 41), state unequivocally that the very purpose of the association is ‘to implement the party's line, guidelines, and policies’ and that the association ‘adheres to the overall leadership of the Communist Party of China and, in accordance with the provisions of the Constitution of the Communist Party of China, establishes the organization of the Communist Party of China, develops party activities, and provides necessary conditions for the activities of the Party organization’ ( 42).
(87) The State’s presence and intervention in the financial markets (see also Section 220.127.116.11 below) as well as in the provision of raw materials and inputs further have an additional distorting effect on the market ( 43). Thus, the State presence in firms, including SOEs, in the graphite electrodes and other sectors (such as the financial and input sectors) allow the GOC to interfere with respect to prices and costs.
And in the calcium silicon case, the Commission found:
(47) As to the GOC being in a position to interfere with prices and costs through State presence in firms in the sense of Article 2(6a)(b), second indent of the basic Regulation, during the investigation the Commission established the existence of personal connections between the Chinese Communist Party (‘CCP’) and at least one company manufacturing the product under investigation. Shenghua’s CEO and owner of 35 % of the company’s stake holds at the same time the position of Party Secretary ( 17).
(48) Both public and privately owned enterprises in the calcium silicon sector are also subject to policy supervision and guidance. As in any other sector in the PRC, these producers are constrained to host party-building activities and maintain a close affiliation to the CCP and its ideology. The following example illustrates the above trend of an increasing level of intervention by the GOC also in the calcium silicon sector. The investigation revealed extensive party-building activities in the company Shenghua. The producer’s website is particularly explicit about the enterprise’s CCP party-building and its role within the company: ‘On July 17, the CCP Shaanxi Shenghua Metallurgical Chemical Co., Ltd committee held the fourth Party committee centre group study session. Party Secretary and Executive Director Wei Xinhua presided over the meeting. Party committee members, others members of the non-party committees as well as branch secretaries attended the meeting. At the meeting, Yang Hui, deputy secretary of the Party committee, introduced the study material on “The Fundamental Law of the Communist Party of China-The Party Constitution of the 19th National Congress of the Communist Party of China”, and ensured collective study of the speech of the Chairman of the Metallurgical Group at the July 1st Praise Conference “Let’s align with the advanced and unite and forge ahead the smelting force.” Participants exchanged and discussed how to fulfil party members’ obligations and fulfil their missions. […] [Wei Xinhua] put forward several requirements for the leadership team and Party members comrades: 1. To continuously improve oneself by seriously reading the Party Constitution, […] 2. Strengthen ideology and belief, unswervingly adhere to the leadership of the company’s Party committee, carry forward the “Yan’an Spirit” and “Nail Spirit”, and focus one’s energy on tasks to fulfil one’s duties and ensure a good job for the company. […] 4. Investigate and correct one’s own work style-related problem in accordance with the Party’s constitution and discipline. All branches must do a good job in ideological education of Party members and cadres and enhance their Party spirit; […] The company’s discipline inspection committee and the discipline inspection and supervision office must strictly perform their supervisory duties’ ( 18).