Council v Zhejiang Xinan Chemical Industrial Group (Appeal) [2012] EUECJ C-337/09_P

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(Appeal - Common commercial policy - Dumping - Article 2(7)(b) and (c) of Regulation (EC) No 384/96 - Non-market economy countries - Status of undertakings operating under market economy conditions ('market economy status') - Imports of glyphosate originating in the People's Republic of China)

1. The present anti-dumping case is of fundamental importance for future trade relations between the European Union and a number of dynamic emerging countries, such as the People's Republic of China, which are currently in transition from a planned economy to a market economy, but are still classified as 'non-market economy countries'.

2. It must be clarified whether, in anti-dumping proceedings, undertakings from such countries which are controlled by State bodies may claim that they operate under market economy conditions. Recognition of such market economy status means that the undertakings concerned are given preferential treatment over other producers: in derogation from the rules which otherwise apply to non-market economy countries, individual anti-dumping duties are fixed for them on the basis of their own business figures.

3. In the present case, in an anti-dumping proceeding concerning imports of glyphosate from the People's Republic of China, the European Commission and the Council of the European Union refused to grant market economy status to a producer established there, specifically Zhejiang Xinan Chemical Industrial Group Co. Ltd ('Xinanchem'). The two institutions justified that decision on the ground that Xinanchem is under State control. The documents submitted by Xinanchem by which the undertaking sought to prove that it was organised along market economy lines, despite the dominant position held by the State among its shareholders, were considered to be irrelevant by the Commission and by the Council in view of the undertaking's ownership structure. Consequently, the Council did not apply an individual anti-dumping duty to imports of glyphosate by Xinanchem by Council Regulation (EC) No 1683/2004 (2) (also 'the contested regulation'), but merely the country-wide anti-dumping duty calculated for the People's Republic of China.

4. In the court proceedings, the parties are now essentially in dispute as to whether, for the purposes of anti-dumping measures, the mere existence of State control of an undertaking is equivalent to significant State interference in its prices, costs and inputs, with the result that the undertaking concerned cannot a priori be granted market economy status. The dispute also concerns the role of the competent Chinese chamber of commerce (3) in stamping contracts and verifying export prices.

5. In the proceedings at first instance, the Council and the Commission were unsuccessful with their relatively restrictive position on market economy status. By judgment of 17 June 2009 (4) (also 'the contested judgment'), the Court of First Instance (now 'the General Court') granted the action brought by Xinanchem for the annulment of Regulation No 1683/2004. The Council, supported by the Commission, has now lodged the present appeal against that judgment. The decision by the Court of Justice in this appeal will lay the ground for the future administrative practice of the Commission and the Council in anti-dumping proceedings.

6. The legislative framework for this case is formed by Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community (5) (also 'the basic regulation'). The basic regulation as amended by Council Regulation (EC) No 1972/2002 (6) is applicable to the present case.

7. With regard to the 'principles' of European anti-dumping law, Article 1 of the basic regulation includes the following provisions:

8. An anti-dumping duty is fixed on the basis of a comparison between the 'export price' of the product concerned and the 'normal value' of a like product. Determination of the normal value, a central problem of anti-dumping law, is based on Article 2(1) to (7) of the basic regulation.

9. Article 2(1) of the basic regulation defines the primary method for determining the normal value as follows:

10. For imports from non-market economy countries, (7) however, since 1998 Article 2(7) of the basic regulation has contained a special rule which, in the version relevant to this case, was intended in particular to take account of the changed economic conditions in Russia and in the People's Republic of China: (8)

'7. (a) In the case of imports from non-market economy countries ... normal value shall be determined on the basis of the price or constructed value in a market economy third country, or the price from such a third country to other countries, including the Community, or where those are not possible, on any other reasonable basis, including the price actually paid or payable in the Community for the like product, duly adjusted if necessary to include a reasonable profit margin.

(b) In anti-dumping investigations concerning imports from ... the People's Republic of China, Ukraine, Vietnam and Kazakhstan and any non-market economy country which is a member of the WTO at the date of the initiation of the investigation, normal value will be determined in accordance with paragraphs 1 to 6, if it is shown, on the basis of properly substantiated claims by one or more producers subject to the investigation and in accordance with the criteria and procedures set out in subparagraph (c), that market economy conditions prevail for this producer or producers in respect of the manufacture and sale of the like product concerned. When this is not the case, the rules set out under subparagraph (a) shall apply.

(c) A claim under subparagraph (b) must be made in writing and contain sufficient evidence that the producer operates under market economy conditions, that is if:

- decisions of firms regarding prices, costs and inputs, including for instance raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand, and without significant State interference in this regard, and costs of major inputs substantially reflect market values,

11. Reference should also be made to Article 9(5) of the basic regulation, the second subparagraph of which lays down the conditions for 'individual treatment' of undertakings from non-market economy countries:

(c) the majority of the shares belong to private persons. State officials appearing on the board of Directors or holding key management positions shall either be in minority or it must be demonstrated that the company is nonetheless sufficiently independent from State interference;

(e) State interference is not such as to permit circumvention of measures if individual exporters are given different rates of duty.'

12. A new basic regulation has now entered into force, in the form of Council Regulation (EC) No 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community, (9) but it cannot be applicable to the present case. (10)

13. According to the findings of the General Court, (11) the background to the present case can be summarised as follows.

14. Xinanchem is a company incorporated under Chinese law and listed on the Shanghai Stock Exchange. Glyphosate is one of the main products produced and sold by Xinanchem on the Chinese and world markets. It is a basic herbicide chemical widely used by farmers throughout the world and authorised in the European Union. (12)

15. Pursuant to the basic regulation, the European Union imposed anti-dumping duties on imports of glyphosate from the People's Republic of China into the European Union in the period between February 1998 and December 2010. To that end the Council adopted, on proposals from the Commission, several successive regulations laying down anti-dumping measures within the framework of the common commercial policy, including Regulation No 1683/2004, which is at issue in the present case. (13)

16. In the procedure for the adoption of that regulation, Xinanchem requested pursuant to Article 2(7)(b) of the basic regulation that the Commission grant it market economy status. To that end, Xinanchem submitted to the Commission the completed specific questionnaire and also responded to several requests for additional information from the Commission. However, the Commission decided not to grant Xinanchem market economy status.

17. With regard to Xinanchem's claim for recognition of market economy status, recitals 13 to 15 in the preamble to Regulation No 1683/2004 state:

18. In connection with the claim made by Xinanchem in the alternative relating to the grant of individual treatment, i.e. the determination of an individual dumping margin on the basis of its individual export prices, recital 17 in the preamble to Regulation No 1683/2004 states:

19. Since Xinanchem's request for market economy status was refused, the normal value was determined, in accordance with Article 2(7)(a) of the basic regulation, on the basis of data obtained from producers in a market economy third country, namely the Federative Republic of Brazil. (14)

20. Under Article 1 of Regulation No 1683/2004, a definitive anti-dumping duty of 29.9% was imposed on imports of glyphosate originating in the People's Republic of China.

21. Xinanchem brought an action before the General Court for the annulment of Regulation No 1683/2004 and was successful at first instance. By the contested judgment of 17 June 2009 (15), the Court annulled Article 1 of Regulation No 1683/2004 in so far as it concerns Xinanchem.

IV - Forms of order sought by the parties and procedure before the Court of Justice

22. The Council lodged an appeal against the abovementioned judgment of the General Court by written pleading of 17 August 2009, which was received by the Court of Justice on 18 August 2009. (16)

- in any event, order that the costs of the appeal proceedings and of the proceedings before the General Court be borne by the applicant at first instance.

24. The Commission, which intervened in support of the Council at first instance, supports the forms of order sought by the Council.

- in the alternative, uphold the contested judgment, finding a breach of the rights of the defence enjoyed by Xinanchem and, on that basis, annul Article 1 of the contested regulation in so far as it concerns Xinanchem, and

- order the Council to bear the costs incurred by Xinanchem in the appeal proceedings and to bear the costs incurred at first instance.

26. The Association des utilisateurs et distributeurs de l'agrochimie européenne (AUDACE), which intervened in support of Xinanchem at first instance, claims that the Court should dismiss the appeal in so far as it is based on the first ground of appeal raised by the Council; (17) furthermore, it requests that the Court order the Council to bear its costs resulting from the appeal proceedings.

27. The parties made written submissions on the appeal to the Court and, on 29 November 2011, presented oral argument.

28. An application lodged by Xinanchem on 30 December 2009 on the basis of Article 278 TFEU and Article 279 TFEU for an order of the immediate enforcement of the contested judgment was rejected by the President of the Court by order of 18 May 2011. (18)

29. Xinanchem has general doubts as to the admissibility of the appeal. The undertaking complains that the Council is asking the Court for a fresh assessment of the facts and evidence of this case, without indicating an error in law which vitiates the contested judgment.

31. It is true that under the second subparagraph of Article 256(1) TFEU in conjunction with Article 58(1) of the Statute of the Court of Justice the appeal is limited solely to points of law. (19) In the present case, however, the Council has adhered precisely to this framework.

32. With its first ground of appeal, the Council has raised a clearly defined point of law, namely the interpretation of Article 2(7)(b) and (c) of the basic regulation, and it has specified the error in law which the General Court has allegedly made in interpreting and applying that provision. Contrary to the view which Xinanchem appears to take, where, as in the present case, the appellant challenges the interpretation or application of EU law by the General Court, the points of law examined at first instance may be discussed again in the course of an appeal. (20) Indeed, if an appellant could not thus base his appeal on pleas in law and arguments already relied on before the General Court, an appeal would be deprived of part of its purpose. (21)

33. The finding of a manifest error of assessment by the General Court in connection with the second and third grounds of appeal is also open to review in appeal proceedings. The extent of the margin of appreciation enjoyed by the competent European Union ('EU') institutions in assessing complex economic circumstances (22) and the limits of judicial review in this connection are points of law on which the Court of Justice must rule as the appeal body. If the General Court has failed to respect the limits of the margin of appreciation enjoyed by the Council and the Commission in the present case and substituted its own assessment of economic circumstances for that of those institutions, there would be an error in law which would justify the setting aside of the contested judgment. (23)

35. Before examining the substance of the appeal, it must be briefly considered whether the subject-matter of the dispute has now become devoid of purpose. Even though the Council is a privileged appellant and does not need to show a particular interest in bringing proceedings (second and third paragraphs of Article 56 of the Statute of the Court of Justice), (24) a pending case can be decided only if the points of law raised are not purely hypothetical as a result of the disappearance of the subject-matter of the proceedings. (25)

36. Such a disappearance might be suggested, at first glance, by the fact that during the current appeal proceedings the Council has, with Implementing Regulation (EU) No 1187/2010, repealed the anti-dumping measures concerning imports of glyphosate originating in the People's Republic of China and terminated the anti-dumping proceeding. Even before that, the contested anti-dumping duty had been suspended, first by Commission Decision 2009/383/EC (26) and then by Implementing Regulation of the Council (EU) No 126/2010. (27)

37. However, the abovementioned suspension or repeal of the anti-dumping measures has effect only for the future. (28) It does not in any way affect anti-dumping duties which have been already collected. The relevant implementing regulation - in this case the contested Regulation No 1683/2004 - continues to be a valid legal basis for them, unless it were annulled by the EU courts in a judgment which has become final.

38. It is true that the General Court has, by the contested judgment, annulled Article 1 of Regulation No 1683/2004 in so far as it concerns Xinanchem. However, the Council lodged the present appeal against that judgment in good time. Under the second paragraph of Article 60 of the Statute of the Court of Justice, this means that the annulment pronounced by the General Court can take effect only when the Court of Justice has dismissed the appeal lodged by the Council. (29) Regulation No 1683/2004 could thus be applied, throughout its entire period of validity, as a legal basis for levying anti-dumping duties on imports of glyphosate produced by Xinanchem, notwithstanding the annulment of Article 1 thereof by the General Court.

39. Because the fate of the anti-dumping duties on glyphosate produced by Xinanchem collected in the past on the basis of Regulation No 1683/2004 and the retention of those duties in the EU budget is dependent on the judgment by the Court of Justice in the present appeal, there is no reason to regard the pending proceedings as being devoid of purpose.

40. The appeal lodged by the Council seeks legal clarification of the circumstances under which, in an anti-dumping proceeding, the EU institutions may consider the activity of an undertaking from a non-market economy country to be influenced by the State, with the result that that undertaking is to be refused the privilege of market economy status. In this regard, the Council and the Commission, on one side, and Xinanchem and AUDACE, on the other, take diametrically opposed positions.

41. The resolution of this dispute hinges on the first indent of Article 2(7)(c) of the basic regulation. Under that provision, producers from the People's Republic of China may be considered to operate under market economy conditions only if decisions regarding prices, costs and inputs are made 'in response to market signals' and 'without significant State interference in this regard', in respect of which they must themselves provide sufficient evidence.

42. The meaning of these criteria, in particular the criterion of the absence of 'significant State interference' is purely a point of law, which is fully subject to review by the EU courts and for which the EU institutions cannot claim a margin of appreciation. (30)

43. The Council, supported by the Commission, takes the view that the General Court misinterpreted and misapplied Article 2(7)(c) of the basic regulation. It bases this claim on a total of three grounds of appeal, the first of which concerns the effects of the State shareholding in Xinanchem, as its largest shareholder by far, and the second relates to the verification of Xinanchem's export prices by the Chinese chamber of commerce CCCMC; the third ground of appeal concerns failure by the Commission and the Council to take account of evidence regarding the absence of significant State interference.

45. The first ground of appeal raised by the Council is directed at paragraphs 82 to 107 of the contested judgment. In those paragraphs, the General Court essentially finds that the Council and the Commission should not have refused Xinanchem market economy status with mere reference to the State's dominant position among that undertaking's shareholders. (31) The General Court takes the view that the existence of State control of an undertaking does not necessarily mean that that undertaking does not operate market economy conditions. (32) In particular, the General Court considers that the existence of State control within the meaning of company law - as a shareholder - cannot be assimilated with the existence of significant State interference within the meaning of Article 2(7)(c) of the basic regulation. (33) Instead, the Council and the Commission should have conducted a detailed examination of the evidence submitted by Xinanchem for the absence of significant State interference in the undertaking's business decisions. (34) The General Court takes the view that, through their action, the Council and the Commission have imposed an additional condition - namely the absence of State control within the meaning of company law - for recognition of market economy status, going beyond the conditions laid down in Article 2(7)(c) of the basic regulation. (35)

46. The Council, supported by the Commission, considers the legal opinion expressed by the General Court in the contested judgment regarding the first indent of Article 2(7)(c) of the basic regulation to be incorrect. It puts forward a total of five arguments. First of all, the General Court abandoned the requirement of the absence of significant State interference as a separate criterion. Second, the approach adopted by the General Court is inconsistent with the meaning of the adjective 'significant'. Third, the General Court's interpretation is not compatible with the exceptional character of market economy status. Fourth, the context of the rules governing market economy status, in particular a comparison with Article 9(5) of the basic regulation, militates against the General Court's legal opinion. Fifth, the interpretation adopted by the General Court leads to impractical results and to a reversal of the burden of proof on undertakings as to whether the conditions for market economy status are satisfied.

48. It is common ground that the Chinese State controlled Xinanchem within the meaning of company law in the period under review. Furthermore, at the hearing the Commission pointed out that the Chinese State also actually exercised its control by appointing the directors of the board of Xinanchem. (36)

49. The General Court did not misconstrue this. It did, however, rightly state that control of an undertaking by the State in its capacity as shareholder, including the appointment of the board of directors, is not necessarily synonymous with the existence of 'significant State interference' in that undertaking's business decisions, mentioned in the first indent of Article 2(7)(c) of the basic regulation. (37) Accordingly, the General Court therefore objected to the fact that in the present case the Commission and the Council declared the evidence submitted by Xinanchem relating to the absence of significant State interference in its business decisions to be irrelevant and that they did not subject it to closer examination.

a) The separate character of the criterion 'without significant State interference in this regard' (first argument of the Council)

50. The Council's first argument is that, by its interpretation of the first indent of Article 2(7)(c) of the basic regulation, the General Court eliminated the requirement of the absence of significant State interference - as expressed in the words 'without significant State interference in this regard' - as a separate criterion.

51. This complaint is surprising at first sight, given that the General Court itself expressly recognised that the first indent of Article 2(7)(c) of the basic regulation lays down two conditions: the provision 'requires the exporting producer concerned to show that its decisions are made both "in response to market signals" and "without significant State interference"'. (38) The existence of two separate criteria is also made clear by the use of the conjunction 'and' in the wording of the contested provision.

52. Consequently, none of the parties have questioned whether the requirement for decisions 'in response to market signals' and the requirement of the absence of significant State interference are two distinct conditions for recognition of market economy status which must be fulfilled cumulatively.

53. In the view of the Council and the Commission, however, the effective consequence of the General Court's interpretation is that the second criterion ('without significant State interference in this regard') becomes superfluous. Their argument is that if, as the EU institutions concerned prefer, we do not allow mere State control of an undertaking to constitute 'significant State interference', but, like the General Court, also require action by the State 'which is such as to render the undertaking's decisions incompatible with market economy conditions', (39) the first and the second criterion overlap.

55. Admittedly, the General Court's interpretation of the first indent of Article 2(7)(c) of the basic regulation means that the control, within the meaning of company law, of an undertaking by the State in its capacity as a shareholder is not sufficient, in itself, to refuse that undertaking market economy status. Rather, the State must also exercise specific influence on the undertaking's business decisions in such a way that is incompatible with market economy conditions. (40)

56. Ultimately, considerations are set out in connection with the second criterion (i.e. with regard to the absence of significant State interference) which are also relevant in connection with the first criterion (decision on prices, costs and inputs in response to market signals). There is thus a certain approximation of the regulatory content of both criteria.

57. However, this approximation is intended by the EU legislature, as is emphasised by the use of the words 'in this regard' in the first indent of Article 2(7)(c) of the basic regulation ('without significant State interference in this regard'). (41) This makes it clear that both the first and the second criteria within the first indent of Article 2(7)(c) of the basic regulation ultimately concern an undertaking's business decisions regarding its prices, costs and inputs.

58. Consequently, in applying the second criterion, refusal of market economy status cannot be based solely on the fact that an undertaking is exposed to 'significant State interference', but there must be significant State interference in the undertaking's decisions regarding its prices, costs and inputs.

59. Despite this connection between the two criteria in the first indent of Article 2(7)(c) of the basic regulation, they are nevertheless not completely merged together, but each of the two criteria retains its separate regulatory content, with the result that market economy status must be refused wherever one of the two criteria is not satisfied.

60. Thus, it is conceivable in particular that an undertaking - because of long-term, established business relations with customers and suppliers in a planned economy system, for example - is not exposed, to a significant degree, to the interaction between supply and demand in its decisions regarding prices, costs and inputs and does not therefore act primarily on the basis of market signals. In that case the first criterion for refusal of market economy status is satisfied even though, in connection with the second criterion, there should be no State control or even significant State interference in specific business decisions.

61. The converse case is also conceivable: in a country which is in transition from a planned economy to a market economy, there may be undertakings which generally take their decisions regarding prices, costs and inputs on the basis of market signals, but which are subject to varying degrees of State control and intervention. Such undertakings might possibly not be refused market economy status under the first criterion in the first indent of Article 2(7)(c) of the basic regulation (decisions 'in response to market signals'), but pursuant to the second criterion ('significant State interference in this regard').

62. Ultimately, it is not so much the legal opinion adopted by the General Court as the legal opinion adopted by the Council and the Commission that results in one of the two criteria in the first indent of Article 2(7)(c) of the basic regulation becoming superfluous. Indeed, if the view taken by the Council and the Commission regarding the second criterion were adopted, this would mean that State-owned or State-controlled firms could never enjoy market economy status solely because of the State shareholding, irrespective of whether or not, having regard to the first criterion, they base their business decisions on market signals.

63. Such an approach would not be consistent with economic reality. As the Council itself has stated, the situation in the People's Republic of China has moved away from the earlier economic circumstances. (42) In emerging economies like the People's Republic of China, which are in transition to a market economy, there may well be State-owned firms which decide on their prices, costs and inputs in response to market signals, because the State, as a shareholder, limits itself to a role largely equivalent to that of a private investor in market economy systems. Even though this kind of State shareholding is not yet generally the case in countries without long-established market economy traditions, its existence cannot be ruled out categorically, contrary to the view taken by the Council and the Commission.

64. The interpretation of Article 2(7)(c) of the basic regulation favoured by the Council and the Commission - refusal of market economy status solely because of State control within the meaning of company law - goes beyond what is necessary to ensure that market economy status is granted only to undertakings from emerging countries which actually operate essentially under market economy conditions. (43) This can also be the case with State-owned firms or firms controlled by the State as a shareholder.

66. The Council's second argument is based on the meaning of the adjective 'significant' in the first indent of Article 2(7)(c) of the basic regulation. The Council takes the view that 'significant' refers only to the degree of any State interference in the business decisions of the undertaking concerned, and not to the type of State interference, its effects or its motives.

68. The Council is correct in its view that the use of the term 'significant' refers primarily to the degree of any State interference. This wording expresses the fact that negligible State interference which is not capable of having an appreciable effect on the decisions of the undertaking concerned regarding prices, costs and inputs does not preclude the grant of market economy status. As the General Court rightly held, the EU legislature intended to allow a certain degree of State influence over an undertaking's activities or of State involvement in its decision-making process if it has no effect on the manner in which its decisions concerning prices, costs and inputs are made. (44) Account is thus taken of the fact that Article 2(7)(b) and (c) of the basic regulation is applicable to emerging countries which are in transition from a planned economy to a market economy.

69. The Council is mistaken, however, if it seeks to conclude from the use of the term 'significant' that in the first indent of Article 2(7)(c) of the basic regulation regard is had solely to the degree of any State interference and not also to the type and possible effects of State involvement.

70. The aim of the provision is for market economy status to be enjoyed by producers from emerging economies where market conditions prevail in relation to the manufacture and sale of their products. (45) Consequently, State interference in the company's management precludes recognition of market economy status only where it means that the business decisions of the undertaking concerned are not taken in response to market signals. The crucial factor, as the General Court rightly stated, is whether the relevant decisions of the exporting producers concerned are based on purely commercial considerations or whether they are distorted by other considerations, appropriate to State-run economies. (46)

71. State interference must therefore exist not only from a quantitative point of view, but also from a qualitative point of view, capable of preventing the undertaking concerned from operating under market economy conditions, with the result that it would not be justified to grant it market economy status pursuant to Article 2(7)(b) and (c) of the basic regulation.

72. Because the Council's arguments focus solely on the quantitative element in Article 2(7)(c) of the basic regulation ('significant State interference'), without at the same time taking due account of the qualitative element ('that the producer operates under market economy conditions'), they must be rejected.

c) The exceptional character of market economy status (third argument of the Council)

73. With its third argument, the Council complains that, through its interpretation, the General Court failed to understand the exceptional character of Article 2(7)(b) and (c) in relation to Article 2(7)(a) of the basic regulation.

75. The General Court states several times in the contested judgment that market economy status is an exceptional arrangement. For example, the General Court expressly recognises that the method set out in Article 2(7)(b) is an 'exception' to the rule for determining normal value for non-market economy countries laid down in Article 2(7)(a) of the basic regulation, which is to be interpreted strictly. (47) It also refers to the 'specific treatment' reserved for imports from certain emerging countries as regards the determination of the normal value and states that it must be assumed that the conditions in which undertakings operate in those countries are not, unless there is evidence to the contrary, comparable to those in market economy countries. (48)

76. These statements by the General Court are certainly not merely paying lip service to the exceptional character of market economy status. The interpretation and application of Article 2(7)(c) of the basic regulation by the General Court is also perfectly compatible in substance with the rule-exception relationship intended by the legislature. Market economy status does not turn from the exception to the rule merely because State-controlled undertakings are not generally excluded from its scope. Rather, State-controlled undertakings must, like all others, also satisfy the general criteria under Article 2(7)(b) and (c) of the basic regulation.

77. Ultimately, it is less a question whether Article 2(7)(b) and (c) of the basic regulation is to be interpreted strictly than a question of how strictly it is to be interpreted. This must be assessed having regard to the objectives of the rules on market economy status.

78. As has already been mentioned, this objective of Article 2(7)(b) and (c) of the basic regulation is for market economy status to be enjoyed by producers from emerging economies where market conditions prevail in relation to the manufacture and sale of their products. (49) This objective is not adequately met by the interpretation favoured by the Council and the Commission, according to which market economy status is to be refused a priori for all undertakings controlled by the State in its capacity as a shareholder. Such an interpretation appears excessively restrictive and may result in market economy status being withheld from producers from emerging economies solely because of their shareholder structure, even though in reality they operate under market economy conditions. This runs counter to the EU legislature's particular concern to take account of the fundamentally altered conditions in the emerging economies, (50) and the general aim of the basic regulation, which is to ensure a fair comparison between export price and normal value in the interest of all participants. (51)

d) The comparison with Article 9(5) of the basic regulation (fourth argument of the Council)

80. Fourth, the Council claims that the General Court's interpretation of Article 2(7)(b) and (c) of the basic regulation is erroneous from a systematic point of view. It runs counter to the conditions under which the EU institutions grant producers from non-member countries 'individual treatment' pursuant to Article 9(5) of the basic regulation. Since, in the view of the Council, the more restrictive provision of Article 9(5) excludes State-controlled undertakings from its scope completely, this must also apply a fortiori to market economy status under Article 2(7)(b) and (c).

81. There is admittedly a connection between the rule governing market economy status in Article 2(7)(b) and (c) and the rule relating to individual treatment under the second subparagraph of Article 9(5) of the basic regulation. Both allow an individual anti-dumping duty to be established for producers from emerging economies; in the case of market economy status both the normal value and the export price are determined individually for each producer, but in the case of individual treatment only the export price.

82. The connection between both provisions is also underlined by the wording of the second subparagraph of Article 9(5) of the basic regulation, which begins 'Where Article 2(7)(a) applies ...'. Under that provision, the grant of individual treatment requires that a producer comes from a non-market economy country and also does not benefit from the privilege of market economy status, with the result that the general rule under Article 2(7)(a) of the basic regulation applies to it. Against this background, many exporters from emerging economies make their applications for individual treatment in the alternative, in case they should not be granted market economy status, which is more favourable to them. This was rightly pointed out by the Council and the Commission.

83. The abovementioned relationship between market economy status and individual treatment certainly suggests that, in interpreting Article 2(7)(b) and (c) of the basic regulation, it should be ensured, where possible, that there is no inconsistency with the second subparagraph of Article 9(5) of the basic regulation.

84. Contrary to the view taken by the Council and the Commission, however, this does not necessarily mean that market economy status within the meaning of Article 2(7)(b) and (c) of the basic regulation should automatically be withheld from all undertakings controlled by the State as a shareholder. The second subparagraph of Article 9(5) of the basic regulation also does allow certain State-controlled undertakings to benefit from individual treatment. Admittedly individual treatment is granted only to undertakings the majority of whose shares belong to private persons (first sentence of letter (c) of the second subparagraph of Article 9(5) of the basic regulation). This does not mean, however, that the State cannot still play an important, or even dominant, role as a shareholder in such an undertaking. As is shown not least by the present case, a strong minority shareholding can also give the State effective control of an undertaking if the remainder of the company's shares are held in free float among private owners. (52)

85. Even if the majority of an undertaking's board of directors and key management positions are occupied by State officials, the grant of individual treatment under the second sentence of letter (c) of the second subparagraph of Article 9(5) of the basic regulation cannot be ruled out categorically. Rather, it is sufficient that the undertaking concerned 'nonetheless', i.e. despite a majority of State officials appearing on the board of directors or holding key management positions, demonstrates 'that the company is sufficiently independent from State interference'. (53)

86. Letter (c) of the second subparagraph of Article 9(5) of the basic regulation therefore even gives an undertaking effectively controlled by the State as a strong minority shareholder the option to demonstrate that it 'is nonetheless sufficiently independent from State interference'. (54)

87. All in all, an undertaking like Xinanchem, the majority of whose shares belong to private persons, would not, despite the dominant position of the State among its shareholders, automatically be excluded from the scope of individual treatment under the second subparagraph of Article 9(5) of the basic regulation.

88. Applied to Article 2(7)(c) of the basic regulation, this means that in the present case, contrary to the view taken by the Council and the Commission, there was no compelling systematic reason to refuse an undertaking like Xinanchem market economy status a priori.

90. Because the Council's argument based on Article 9(5) of the basic regulation is in any case unsound, there is no need to examine whether that argument is further weakened as a result of the report recently adopted by the Dispute Settlement Body of the World Trade Organisation (WTO) in dispute settlement proceedings between the People's Republic of China and the European Union. (55) In particular, it is not necessary, for the purposes of the present case, to assess the effects of that report within the European Union and whether undertakings like Xinanchem may actually rely on it before the EU courts. (56)

e) The burden of proof on the undertakings concerned and the margin of discretion enjoyed by the EU institutions (fifth argument of the Council)

91. With its fifth and last argument, the Council claims that the General Court's interpretation of the first indent of Article 2(7)(c) of the basic regulation leads to impractical results and an effective reversal of the burden of proof.

93. In the contested judgment, the General Court expressly stated and recognised that the burden of proof as to whether the conditions for recognition of market economy status under the first indent of Article 2(7)(c) of the basic regulation are satisfied always rests on the undertaking concerned. (57)

94. The mere fact that the General Court does not automatically exclude all undertakings controlled by the State as a shareholder from the scope of market economy status does not mean a reversal of the burden of proof. Under the solution adopted by the General Court too, the undertaking concerned must itself demonstrate that its decisions regarding prices, costs and inputs are made in response to market signals and without significant State interference in this regard. The Commission and the Council are not required, for example, to produce evidence as to whether or not a State-controlled undertaking operates under market economy conditions.

95. It would certainly reduce the administrative burden considerably if the Commission and the Council could refuse an undertaking controlled by the State as a shareholder market economy status automatically and without an individual examination in each case. Such an approach is not permitted, however, by the legislative framework for recognition of market economy status, which the Council itself has established in its capacity as EU legislator, in the form of Article 2(7)(c) of the basic regulation. That provision requires the undertakings concerned to produce 'sufficient evidence' that they operate 'under market economy conditions'. Under those circumstances, it is for the EU institutions competent for the anti-dumping proceeding to conduct an adequate assessment of the evidence produced. It is not possible, on the one hand, to require the undertakings concerned to produce evidence and, on the other, to declare precisely that evidence to be irrelevant a priori.

96. The assessment of the evidence produced - unlike the interpretation of the notion of 'significant State interference in this regard' (58) - is associated with the assessment of complex economic circumstances, in respect of which, according to settled case-law, the Commission and the Council enjoy a wide margin of appreciation. (59) Within the scope of that margin of appreciation, the Commission and the Council may undoubtedly proceed from the rebuttable presumption that in a non-market economy country an undertaking controlled by the State as a shareholder does not operate under market economy conditions in relation to the manufacture and sale of its products, but is generally exposed to significant State interference regarding prices, costs and inputs. (60)

97. An irrebuttable presumption of significant State interference, as the Commission and the Council seem to have in mind, would be inappropriate, however. Precisely because the EU institutions enjoy the abovementioned margin of appreciation, as the authorities competent for the anti-dumping proceeding, they are required to examine carefully and impartially all the relevant aspects of the individual case. (61) This includes, in particular, examining the evidence produced by the undertaking concerned, which is intended to show that, despite being controlled by the State as a shareholder, that undertaking operates under market economy conditions. The Commission and the Council may not declare such evidence to be irrelevant out of hand, without subjecting it to a closer assessment.

98. The interaction between the margin of appreciation, the rebuttable presumption and the duty to assess the evidence produced in the context of Article 2(7)(c) of the basic regulation leads to an equitable balance of interests, where sufficient account can be taken of both the economic interest of the undertakings concerned and the interest of the EU institutions involved in the proper conduct of the anti-dumping proceeding.

99. Against this background, the Council's fifth argument must also be rejected.

100. All in all, the General Court therefore correctly interpreted Article 2(7)(c) of the basic regulation to the effect that an undertaking controlled by the State as a shareholder like Xinanchem may not automatically be refused recognition of market economy status. The General Court also did not err in law when it took the view that the evidence produced by such an undertaking, which is intended to show that it operates under market economy conditions, must be assessed by the EU institutions and may not be declared to be irrelevant a priori. Accordingly, the Council's first ground of appeal is unfounded.

2. Verification of Xinanchem's export prices by the CCCMC (second ground of appeal)

101. The Council's second ground of appeal is directed at paragraphs 137 to 159 of the contested judgment. In that passage of the judgment, the General Court deals with the role of the chamber of commerce CCCMC and its influence on the setting of export prices for glyphosate from Chinese producers and finds a manifest error of assessment in this regard on the part of the Commission and the Council. (62) The Council, supported by the Commission, contends that the General Court exceeded the limits of judicial review, encroached on the margin of appreciation enjoyed by the two EU institutions in the anti-dumping proceeding and reversed the burden of proof.

102. The background to this ground of appeal is the fact that in the anti-dumping proceeding the two EU institutions had taken the view that the CCCMC set a binding 'minimum price' for exports of glyphosate and enforced that price, in cooperation with the customs authorities, by means of a stamping system. The two EU institutions regarded this fact as an important indication that the export prices for the product in question were not established under market economy conditions and that Xinanchem was therefore subject to significant State influence and, for that reason, they refused the undertaking market economy status. (63) In the judicial proceedings too, up to the hearing before the Court of Justice, the Council and the Commission have based their entire line of argument on this version of the facts.

103. However, the facts of the case as assumed by the Council and the Commission are not consistent in certain crucial respects with the factual findings made by the General Court. Unlike the two EU institutions, the General Court takes the view that exports of glyphosate from the People's Republic of China during the investigation period were not subject to a binding minimum price, but only a non-binding reference price, (64) which was set not by the CCCMC, but by the glyphosate producers represented in the CCCMC, (65) not least in order to facilitate compliance with the anti-dumping regulations in the relevant destination countries. (66) The CCCMC, a non-governmental body, (67) issued its stamps even where the price was below the reference price, (68) and there was no mechanism to enable interference by the Chinese State. (69)

104. Because in the appeal proceedings neither the Council nor the Commission has alleged any distortion of evidence by the General Court or, a fortiori, provided any specific arguments in support of such distortion, only the facts as established by the General Court are relevant. (70) The two EU institutions must adhere to the facts as established by the General Court and accept them as the basis for the review of the contested judgment.

105. On the basis of the facts found by the General Court, the contested judgment holds that the price guide for glyphosate drawn up in the CCCMC did not, in itself, entail any actual restriction on Xinanchem's exports (71) and that the two EU institutions were wrong to refuse that undertaking market economy status. (72)

106. The Council and the Commission allege that the General Court thus exceeded the limits of judicial review in respect of anti-dumping measures and substituted its own assessment for that of the competent EU institutions.

108. Undoubtedly, the EU institutions enjoy a wide margin of appreciation in the assessment of complex economic circumstances in anti-dumping proceedings. (73)

109. The existence of such a margin of appreciation in economic matters does not mean, however, that the EU courts must refrain from reviewing the interpretation of information of an economic nature by the competent institutions, the Commission and the Council. The EU courts have the power to review the material legality of anti-dumping measures in respect of the accuracy of the factual findings and manifest errors of assessment. (74) Not only must they establish, among other things, whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it. (75)

110. The General Court was therefore right in the present case to examine in particular whether the two EU institutions had taken account of all the relevant evidence and whether the facts according to the case-file were capable of substantiating the conclusions drawn by the two EU institutions relating to the alleged State influence in setting external trade prices for glyphosate.

111. The General Court certainly did not substitute its own, different assessment of information of an economic nature for that of the Commission and the Council in this regard. It merely found that those two EU institutions had ignored certain relevant circumstances and could not base their conclusions on the facts according to the case-file. (76)

112. The General Court has not therefore exceeded its powers but, on the contrary, performed the duty conferred on it by the Treaties to review the legality of EU legal acts in actions for annulment under the first paragraph of Article 263 TFEU.

113. It is not for the Court of Justice, in the appeal proceedings, going beyond reviewing the legality of the contested judgment, now to substitute its own assessment of the factual findings for that of the General Court. However, that is ultimately the aim of the second ground of appeal and it cannot therefore be allowed.

114. All in all, the Council's second ground of appeal is therefore also unfounded.

3. Failure to take account of evidence relating to the absence of significant State interference (third ground of appeal)

115. The Council's third ground of appeal is directed specifically at paragraph 160 of the contested judgment, in which the General Court held, in summary, that the Council and the Commission did not take account of all the relevant evidence which Xinanchem had put forward in the anti-dumping proceeding to demonstrate that its activity was free from significant State interference. The General Court states that the errors established by it elsewhere also vitiate the Council's overall conclusion.

116. The Council does not raise any specific pleas against the contested judgment in the context of this third ground of appeal. The third ground of appeal does not have any autonomous substance compared with the first two grounds of appeal which have already been examined. It does not go beyond what has already been discussed.

117. Accordingly, there is no reason to make further statements at this juncture. Rather, the third ground of appeal must be rejected for the same reasons as the first and the second.

118. Since none of the grounds of appeal raised can be accepted, the appeal lodged by the Council must be dismissed in its entirety. There is therefore no need to examine the Council's submissions regarding the other pleas raised by Xinanchem at first instance in its action for the annulment of the contested regulation, which were not discussed by the General Court.

119. If, as I propose in this case, the appeal is dismissed, the Court will make a decision as to costs (first paragraph of Article 122 of the Rules of Procedure) the details of which are set out in Article 69 in conjunction with Article 118 of the Rules of Procedure.

120. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Council has been unsuccessful and Xinanchem and AUDACE, as other parties to the proceedings, have each applied for costs, the Council must be ordered to pay their costs.

121. As regards the Commission, it has supported the forms of order sought by the Council as another party to the proceedings and has also been unsuccessful in this regard. The Commission should also therefore be ordered, by analogous application of the first subparagraph of Article 69(4) of the Rules of Procedure, to bear its own costs.

(2) orders the Council of the European Union to bear its own costs and to pay the costs incurred by Zhejiang Xinan Chemical Industrial Group Co. Ltd and the Association des utilisateurs et distributeurs de l'agrochimie européenne.

2 - Regulation of 24 September 2004 imposing a definitive anti-dumping duty on imports of glyphosate originating in the People's Republic of China (OJ 2004 L 303, p. 1).

3 - China Chamber of Commerce Metals, Minerals & Chemicals Importers and Exporters.

4 - Case T-498/04 Zhejiang Xinan Chemical Industrial Group v Council [2009] ECR II-1969.

6 - Regulation of 5 November 2002 amending Regulation (EC) No 384/96 on the protection against dumped imports from countries not members of the European Community (OJ 2002 L 305, p. 1).

7 - According to a footnote to Article 2(7)(a) of the basic regulation these include Albania, Armenia, Azerbaijan, Belarus, Georgia, North Korea, Kyrgyzstan, the Republic of Moldova, Mongolia, Tajikistan, Turkmenistan and Uzbekistan.

8 - Fourth and fifth recitals in the preamble to Council Regulation (EC) No 905/98 of 27 April 1998 amending Regulation (EC) No 384/96 on protection against dumped imports from countries not members of the European Community (OJ 1998 L 128, p. 18), by which Article 2(7)(b) and (c) was inserted in the basic regulation for the first time.

10 - According to Article 24, Regulation No 1225/2009 did not enter into force until 11 January 2010, more than four years after the anti-dumping measures at issue were adopted.

11 - See in particular paragraphs 4 to 10 and 12 to 15 of the contested judgment.

12 - Authorisation within the European Union is based on point 25 of Annex I to Council Directive 91/414/EEC of 15 July 1991 concerning the placing of plant protection products on the market (OJ 1991 L 230, p. 1), as amended by Commission Directive 2010/77/EU of 10 November 2010 (OJ 2010 L 293, p. 48).

13 - With effect from 17 December 2010, the contested anti-dumping measures were repealed again; see Council Implementing Regulation (EU) No 1187/2010 of 13 December 2010 terminating the anti-dumping proceeding on imports of glyphosate originating in the People's Republic of China (OJ 2010 L 332, p. 31).

14 - Recitals 23 and 30 in the preamble to Regulation No 1683/2004 and paragraph 14 of the contested judgment.

16 - The original of the appeal, which was sent by fax, was lodged at the Registry of the Court of Justice on 20 August 2009.

17 - AUDACE did not comment on the Council's second and third grounds of appeal. AUDACE did not take part in the hearing.

18 - Order of the President of the Court of 18 May 2011 in Case C-337/09 P-R Council v Zhejiang Xinan Chemical Industrial Group and Others, not published in the ECR.

19 - See also Case C-136/92 P Commission v Brazzelli Lualdi and Others [1994] ECR I-1981, paragraphs 47 to 49; Case C-440/07 P Commission v Schneider Electric [2009] ECR I-6413, paragraphs 103 and 104; and Case C-352/09 P ThyssenKruppNirosta v Commission [2011] ECR I-0000, paragraphs 179 and 180.

20 - Case C-352/98 P Bergaderm and Goupil v Commission [2000] ECR I-5291, paragraphs 35 and 36; Case C-131/03 P Reynolds Tobacco and Others v Commission [2006] ECR I-7795, paragraph 51; Case C-234/02 P Bürgerbeauftragter v Lamberts [2004] ECR I-2803, paragraph 75; Joined Cases C-514/07 P, C-528/07 P and C-532/07 P Sweden v API and Commission [2010] ECR I-0000, paragraph 116.

21 - Reynolds Tobacco and Others v Commission, paragraph 51; Bürgerbeauftragter v Lamberts, paragraph 75; Sweden v API and Commission, paragraph 116, each cited in footnote 20.

22 - With regard to the margin of appreciation enjoyed by the EU institutions in adopting measures to protect trade, see Case 255/84 Nachi Fujikoshi v Council [1987] ECR 1861, paragraph 21; Case C-16/90 Nölle [1991] ECR I-5163, paragraph 11; Case C-351/04 Ikea Wholesale [2007] ECR I-7723, paragraph 40; Case C-398/05 AGST Draht- und Biegetechnik [2008] ECR I-1057, paragraph 33; and Case C-373/08 Hoesch Metals and Alloys [2010] ECR I-951, paragraph 61.

23 - See, for example, Case C-525/04 P Spain v Lenzing [2007] ECR I-9947, paragraph 57, last sentence; Case C-290/07 P Commission v Scott [2010] ECR I-0000, paragraph 66, first sentence; and Case C-441/07 P Commission v Alrosa [2010] ECR I-5949, in particular paragraphs 67 and 68.

24 - See Case C-49/92 P Commission v Anic Partecipazioni [1999] ECR I-4125, paragraph 171.

25 - See my Opinion in Case C-413/06 P Bertelsmann and Sony Corporation of America v Impala [2008] ECR I-4951, point 74.

26 - Decision of 14 May 2009 suspending the definitive anti-dumping duties imposed by Council Regulation (EC) No 1683/2004 on imports of glyphosate originating in the People's Republic of China (OJ 2009 L 120, p. 20).

27 - Implementing Regulation of 11 February 2010 extending the suspension of the definitive anti-dumping duty imposed by Regulation (EC) No 1683/2004 on imports of glyphosate originating in the People's Republic of China (OJ 2010 L 40, p. 1).

28 - According to its Article 2, Implementing Regulation No 1187/2010 entered into force on the day following its publication in the Official Journal of the European Union, i.e. on 17 December 2010.

29 - It cannot be objected that regulations adopting anti-dumping measures are merely implementing regulations with administrative character. The second paragraph of Article 60 of the Statute of the Court of Justice is applicable to all regulations, according to its clear wording and its spirit and purpose, irrespective of whether they are legislative acts or implementing acts. In any case, such regulations are able and intended to regulate an indefinite number of individual cases - here an indefinite number of import transactions relating to the supposedly dumped product - with the result that the need for legal certainty requires the effects of any annulment by the General Court to occur only once the Court of Justice has reviewed the judgment at first instance or the period for bringing an appeal has expired without being used. No distinction between different types of regulations - such as those with legislative character and those with genuine 'regulatory character' (see the fourth paragraph of Article 263 TFEU, on the one hand, and Article 289(3) TFEU, on the other) can be inferred from the second paragraph of Article 60 of the Statute of the Court of Justice.

30 - The situation is different with regard to the specific evaluation of the information of an economic nature on the basis of which the Commission and the Council must assess whether there is significant State interference. The two EU institutions enjoy a wide margin of appreciation in this regard (see, in particular, points 96, 108 and 109 of this Opinion).

36 - See, more generally, recital 13 in the preamble to the contested regulation and paragraphs 12, 79 and 80 of the contested judgment.

42 - Fourth recital in the preamble to Regulation No 905/98, by which the possibility of recognition of market economy status was introduced specifically for firms from Russia and the People's Republic of China.

43 - According to the fifth recital in the preamble to Regulation No 905/98, it is sufficient that 'market conditions prevail ... in relation to the manufacture and sale of the product concerned'.

53 - The fact that a certain degree of State interference in the undertaking's decision-making processes is tolerated in connection with the grant of individual treatment is also shown by letter (e) of the second subparagraph of Article 9(5) of the basic regulation ('...State interference is notsuch as to ...'); emphasis added.

54 - See also the abovementioned letter (e) of the second subparagraph of Article 9(5) of the basic regulation.

55 - Report of the WTO Appellate Body of 15 July 2011 (WT/DS397/AB/R, 'European Communities - Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China', available on the WTO website at www.wto.org), in which Article 9(5) of the basic regulation is found to be inconsistent 'as such' with various WTO rules. The report was adopted by the WTO Dispute Settlement Body on 28 July 2011.

56 - See Case C-377/02 Van Parys [2005] ECR I-1465, in particular paragraphs 39 and 40, and Ikea Wholesale, cited in footnote 22, in particular paragraphs 29 and 30.

61 - Case C-269/90 Technische Universität München [1991] ECR I-5469, paragraph 14; Case C-405/07 P Netherlands v Commission [2008] ECR I-8301, paragraph 56; and Joined Cases C-379/08 and C-380/08 ERG and Others [2010] ECR I-2007, paragraph 61.

62 - Paragraphs 158 and 159 of the contested judgment (see also the second sentence of paragraph 151 of that judgment).

63 - Recitals 14 and 15 in the preamble to the contested regulation and paragraph 139 of the contested judgment.

70 - In the proceedings at first instance, the Council had not refuted the main facts adduced by Xinanchem; see in particular paragraphs 149, 151 and 155 of the contested judgment.

74 - Settled case-law; see, inter alia, Nachi Fujikoshi v Council, paragraph 21; Ikea Wholesale, paragraph 41, with further references; and Hoesch Metals and Alloys, paragraph 62, cited in footnote 22. It is also clear from these judgments that anti-dumping measures may be reviewed having regard to procedural errors and misuse of powers, neither of which is relevant in the present case.

75 - See Case C-12/03 P Commission v Tetra Laval [2005] ECR I-987, paragraph 39, and Case C-413/06 P Bertelsmann and Sony Corporation of America v Impala [2008] ECR I-4951, paragraph 145. This case-law, which was initially developed in connection with merger control, now has importance going far beyond that field of law and may be applied wherever decisions by the EU institutions are to be reviewed having regard to manifest errors of assessment; see Spain v Lenzing, cited in footnote 23, paragraph 57; Netherlands v Commission, cited in footnote 61, paragraph 55; and Commission v Scott, cited in footnote 23, paragraph 65. In his Opinion in Joined Cases C-191/09 P and C-200/09 P Council and Others v Interpipe and Others [2012] ECR I-0000, points 103 to 108, Advocate General Mengozzi applies this case-law to an anti-dumping proceeding.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Council v Zhejiang Xinan Chemical Industrial Group (Appeal) [2012] EUECJ C-337/09_P_O (19 January 2012) URL: http://www.bailii.org/eu/cases/EUECJ/2012/C33709_P_O.html Cite as: [2012] EUECJ C-337/9_P_O, [2012] EUECJ C-337/09_P_O

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