Following a request by the domestic industry for an expiry review of an existing anti-dumping measure, the European Commission has decided to extend definitive anti-dumping measures on imports of wire rod steel products from China. 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, which was one factor in its conclusion that "it is not appropriate to use domestic prices and costs to establish normal value in this case," and thus it had to "construct" normal value here. We set out that reasoning below.

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":

6a.

(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.

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(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:

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— 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 to extend the duties, the Commission considered "[s]ignificant distortions," one aspect of which focused on "[s]tate presence in firms."  The Commission noted that "[a]s to the [Chinese government] being in a position to interfere with prices and costs through State presence in firms ..., the investigation established the existence of personal connections between producers of the product under review and the CCP, such as CCP members among the senior management or members of the board of directors in a number of companies manufacturing wire rod, ... ." Its full reasoning on this issue was as follows:

(46) 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, the investigation established the existence of personal connections between producers of the product under review and the CCP, such as CCP members among the senior management or members of the board of directors in a number of companies manufacturing wire rod, including HBIS Group, Jiangsu Shagang, Anshan Iron and Steel Group, Baoshan (Baosteel) and Shougang.

(47) Both public and privately owned enterprises in the wire rod sector are subject to policy supervision and guidance. The following examples illustrate the above trend of an increasing level of intervention by the GOC in the sector. Many wire rod producers explicitly emphasise party building activities on their websites, have party members in the company management and underline their affiliation to the CCP. The investigation revealed party building activities in a number of wire rod producers, including HBIS Group (Hesteel), which underlined on its website the importance of the party committee in the functioning of the company. Jiangsu Shagang is another wire rod producing company who explains: ‘Since its establishment 45 years ago, Shagang has kept deepening its knowledge, seeking to deploy efforts to integrate party building work into the overall enterprise’s development organisation, and transforming the party’s organization’s advantage into the enterprise’s competitive advantage and development advantage’ and further: ‘Now, Shagang’s Party Committee has 16 general party branches and 66 party branches, and the number of party members accounts for more than 14 % of the total number of employees ( 30)’. Anshan Iron and Steel Group refers to the importance of the party building activities in the following way: ‘Concretely, it is necessary to adhere to and strengthen the comprehensive leadership of the Party and have it reflected in the extended scope of the Party members and cadres’ ideological awareness, in the whole field of the enterprise’s business and management, in the whole process of corporate governance, as well as in all the stages of the enterprise’s reform and development ( 31)’. Another article summarises Anshan’s party building activities in the following way: ‘the party branch’s work priority is to serve the centre and involve party members. As of this year, the party branch has deepened the “Communist Party Member Project” programme, tapped the inner potential of employees, and worked hard to help employees make contributions in their posts. They have developed a total of 12 “Communist Party Member Projects”, which effectively solved key technical problems restricting production; 160 rationalization suggestions were provided, and 2 advanced operation methods were rated as advanced operation methods at the Group’s level’ ( 32). Baoshan (Baosteel) describes the party building activities as follows: ‘Undertake the main responsibility of administering the party strictly and comprehensively; Lead the company’s ideological and political work, united front work, building of a spiritual civilisation,, building of a corporate culture and mass work such as trade unions and the Communist Youth League; Lead the construction of party-style and honest government, support discipline committees to effectively fulfils their supervisory responsibilities ( 33)’. The party committee also plays an important role at Shougang: ‘The Shougang Party Committee deeply understands Xi Jinping’s thoughts on socialism with Chinese characteristics in the new era, thoroughly implements the spirit of the 19th National Congress of the Party, insists on setting the direction, managing the overall situation, and ensuring implementation, giving full play to the leadership role of the party committee, leading more than 40 000 party members across the Group, and focusing on party building in all aspects of work ( 34)’.

For this and various other reasons, the Commission concluded that "it is not appropriate to use domestic prices and costs to establish normal value in this case," and thus it would "construct the normal value exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, that is, in this case, on the basis of corresponding costs of production and sale in an appropriate representative country, in accordance with Article 2(6a)(a) of the basic Regulation, ... ."